2 Cross-border mergers
| (25101)
15305/03
COM(03) 703
| Draft Directive on cross-border mergers of companies with share capital.
|
| Legal base | Article 44(1) EC; co-decision; QMV
|
| Document originated | 18 November 2003
|
| Deposited in Parliament | 1 December 2003
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| Department | Trade and Industry
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| Basis of consideration | EM of 15 December 2003
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| Previous Committee Report | None; but see (7531) 4290/85: HC 21-xi (1985-86), paragraph 1 (19 February 1986)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
2.1 A possible cross-border mergers Directive has been under
consideration for about 20 years. The Commission published a
draft Directive on cross-border mergers in 1984.[2]
However, the European Parliament was unable to finalise its opinion
on the proposal because, in particular, of issues related to employee
participation on company boards in some Member States. The Commission
finally withdrew the proposal in 2001. Agreement on a Directive
on cross-border mergers is an objective of the Financial Services
Action Plan, which is aimed at creating an integrated financial
market within the EU by 2005. The plan is part of the Lisbon Agenda
to make the EU "the most competitive and dynamic knowledge-based
economy in the world" by 2010. Such a Directive is also part
of the Action Plan on Company Law and Corporate Governance.[3]
The document
2.2 This draft Directive would establish a new framework for corporate
restructuring through cross-border mergers of companies with share
capital and would take effect from 1 January 2005. It is based
on the approach of the Third Company Law Directive on domestic
mergers of public companies within each Member State. It also
draws on the provisions of the European Company Statute, which
provides for European companies to be created by cross-border
merger and specifies the employee involvement arrangements that
apply to such companies.
2.3 The draft Directive differs from the original
proposal of 1984, and goes further than the Third Company Law
Directive, by extending its scope to include all companies with
share capital, rather than applying only to public limited companies.
2.4 The document's provisions for facilitating cross-border
mergers of companies with share capital in the EU include:
- each company to remain subject
to its national law on domestic mergers, except as otherwise provided
to take account of the cross-border nature of the transaction;
- a general meeting to approve the draft terms
of the merger to be obligatory;
- scrutiny of the legality of the cross-border
elements of the merger to be based on provisions contained in
the European Company Statute Regulation;
- the date from which the merger takes effect to
be decided by the law of the Member State in which the acquiring
or newly-formed company is situated;
- to ensure legal certainty, after the date the
merger takes effect, mergers not to be capable of being declared
null and void; and
- protection of existing employee participation
rights.
2.5 In dealing with employee involvement issues,
the Commission has not sought to include employee information
and consultation provisions, arguing that these are addressed
by existing employment legislation. Where participation arrangements
exist in one or more of the merging companies, but the law of
the Member State applicable to the company created by the merger
does not require such rights, there would be negotiation with
representatives of the employees of all the merging companies,
to agree the employee participation arrangements to be applied
to the newly created company. If no agreement is reached, standard
rules on participation as provided for in relation to the European
Company Statute would apply. Where there are no existing participation
rights in any of the merging companies, the Directive would not
impose any participation requirements. Where participation arrangements
exist in one or more of the merging companies, and the law of
the Member State applicable to the company created by the merger
has rules on employee participation, these rules would apply to
the company.
2.6 Tax issues related to cross-border mergers are
dealt with under the Mergers Directive (90/434/EEC) (for which
an amending draft Directive is currently being considered)[4]
and are, therefore, not addressed in this document.
The Government's view
2.7 The Minister of State for Industry and the Regions
and Deputy Minister for Women and Equality, Department of trade
and Industry (Jacqui Smith) says:
"The proposal states that it is aimed primarily
at small and medium sized enterprises that are not interested
in forming a European company, although larger companies are not
excluded from participating in a cross border merger governed
by this directive. The directive is largely aligned with the approach
already adopted in the UK for domestic mergers and, in this respect,
will have limited policy implications.
"A broader implication concerns the application
of the cross border elements of the proposal. It is understood
that in a number of other Member States, merger procedures are
more widely used to achieve corporate restructuring, whereas UK
companies have historically favoured takeovers.
"A key concern historically with regard to the
cross border mergers directive has been achieving a balance with
the provisions dealing with harmonisation of the different employee
involvement and participation arrangements within the merging
companies. There is a need to ensure that these are not overly
cumbersome, do not impair the practical effectiveness of the procedure
and do not distort the market. The Government agrees with the
Commission that the issue of information and consultation of employees
is satisfactorily addressed by existing employment legislation.
However, concerns have been raised by business consultees as to
the proportionality of the provisions, based on the European Company
Statute model, which deal with existing employee participation
arrangements. In most such cases, these provisions would result
in at least the same level of employee participation rights, as
existed previously in one or more of the merging companies, being
extended to employees of the new company. It has been argued
that these provisions for employee participation are too rigid,
that the complex negotiating process (of up to 12 months) may
cause lengthy delays and consequently deter companies from opting
for a cross border merger.
"Though UK companies have not generally used
merger transactions, the Government can support in Single Market
terms measures designed to facilitate cross border restructuring."
2.8 The Minister has also sent us an initial Regulatory
Impact Assessment. This shows:
- that there might be little
use made of the proposed Directive's provisions by UK businesses,
which generally use takeovers rather than mergers in company restructurings;
but
- that it might be advantageous for British businesses
to have the proposed Directive's provisions available in cases
of cross-border restructurings involving companies in Member States
where the merger route is more commonly used; and
- that the Department's informal consultations
show some concern that the employee participation provisions of
the draft Directive might be burdensome for companies, disproportionate
and too rigid, and could result in lengthy delays in mergers.
Conclusion
2.9 The Minister says that the Government can
support measures to facilitate cross-border restructuring. But,
given the reservations she expresses about the proportionality
of the provisions proposed in relation to employee participation,
we presume the Government will be seeking improvements before
supporting the draft Directive. Before we consider the document
further we should like the Minister to confirm this understanding.
Meanwhile we do not clear the document.
2 See headnote. Back
3
See (24609) 10041/03: HC 63-xxxi (2002-03), paragraph 12 (10 September
2003). Back
4
See (24977) 13841/03: HC 63-xxxvii (2002-03), paragraph 24 (12
November 2003). Back
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