14 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
|
| Department | Trade and Industry
|
| Basis of consideration | Minister's letter of 10 November 2004
|
| Previous Committee Report | HC 42-xviii (2003-04), para 2 (28 April 2004)
|
| To be discussed in Council | 25-26 November 2004
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| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
14.1 A possible cross-border mergers Directive has been under
consideration for about 20 years. The Commission published such
a draft Directive in 1984.[45]
However, the European Parliament was unable to finalise its opinion
on the proposal, largely because of issues related to employee
participation on company boards in some Member States. The Commission
finally withdrew the proposal in 2001. In November 2003, the
Commission proposed a draft Directive which would establish a
new framework for corporate restructuring through cross-border
mergers of companies with share capital. This would take effect
from 1 January 2005. The draft Directive'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.
14.2 In April 2004, we received confirmation that,
given the Government's reservations about the proportionality
of the provisions proposed in relation to employee participation,
it would be seeking improvements before supporting the draft Directive.
But we kept the document under scrutiny pending receipt of a promised
report on the outcome of the Government's consultations on it.[46]
The Minister's letter
14.3 The Minister of State for Industry and the Regions
and Deputy Minister for Women and Equality, Department of Trade
and Industry (Jacqui Smith) writes now with the outcome of the
consultations and to tell us what the Government's attitude is
in negotiations on the draft Directive. She tells us that the
Government received ten responses to its public consultation,
the small number suggesting that UK businesses do not perceive
the proposed Directive as a valuable restructuring mechanism:
UK companies have historically tended to favour restructuring
by means of takeovers rather than mergers. She says that, on the
basis of the responses, the Government intends to continue with
negotiations in a manner which is balanced and proportionate and
which seeks to achieve the best outcomes for UK business.
14.4 The Minister says the Dutch Presidency wishes
to secure early agreement on the proposal and to put it to the
Competitiveness Council on 25-26 November 2004. But this timetable
is subject to considerable uncertainty as two key issues remain
outstanding. The first of these concerns the scope of the provisions:
to which companies would the proposed Directive apply? Respondents
expressed a variety of views on this, but most were clear that
the Directive should apply to small and medium-sized enterprises
as well as larger companies. The Government is seeking a broad
approach to scope, whilst ensuring this provides the necessary
legal certainty.
14.5 The Minister tells us that the views of respondents
were more aligned on the issue of employee participation —
a system that exists within some Member States (such as Germany
and Sweden) for the representation of employees on the board of
companies over a certain size. The consultation revealed concerns
that this process could be too burdensome for businesses if it
were to follow the precedent set in the European Company Statute
model, as this is a complicated, time-consuming and potentially
costly solution. The Minister says that the Government cannot
realistically expect to negotiate removal of employee participation
rights where they exist in a company in another Member State.
So the Government will work towards limiting the circumstances
in which UK companies would have to enter into negotiations on
employee participation to the absolute minimum. The objective
is to make the merger process available and less burdensome for
UK companies.
Conclusion
14.6 We are grateful to the Minister for her account
of the Government's consultations and what she tells us about
the Government's approach to the draft Directive. We have no
further questions and clear the document.
45 (7531) 4290/85; see HC 21-xi (1985-86), para 1 (19
February 1986). Back
46
See headnote. Back
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