Legal Notice 415 of 2007 on cross border mergers of limited liability companies has been repealed.
The new legal framework on EU cross border mergers, divisions and conversions comes into the form of three (3) separate new legal notices:
Legal Notice 26 of 2023 on cross border divisions of limited liability companies
Legal Notice 27 of 2023 on cross border conversions of limited liability companies
Legal Notice 28 of 2023 on cross border mergers of limited liability companies.
CROSS BORDER MERGERS
SCOPE
The new regulations apply to cross border mergers of companies formed in accordance with the laws of an EU or EEA Member State and having their registered office, central administration or principal place of business within the EU or the EEA.
Article 4 of these regulations expands the scope these regulations to include cross border merger of companies formed in accordance with the laws of an approved jurisdiction.
The laws apply when one of the merging entities or the entity resulting from the merger is a company registered under Maltese law.
The new regulations places emphasis on the legal protection of members, employees and creditors and stakeholders of the merging entity.
Four (4) types of mergers are included within the scope of the legal notice:
- One of more companies on being dissolved without going into liquidation transfers all their assets and liabilities to another existing company in exchange for the issue to their members of securities or shares in the acquiring company and if applicable, a cash payment which does not exceed 10% of the nominal value or the accounting par value of those securities and shares.
- Two or more companies on being dissolved without going into liquidation transfer all their assets and liabilities to a company they form in in exchange for the issue to their members of securities or shares in the new company and if applicable, a cash payment which does not exceed 10% of the nominal value or the accounting par value of those securities and shares.
- A company on being dissolved without going into liquidation transfers all its assets and liabilities to the company holding all the securities or shares representing its capital.
- One or more companies on being dissolved without going into liquidation transfer all their assets and liabilities to an acquiring company without the issue of any new shares provided that one person holds directly or indirectly all the shares in the merging companies or the members of the merging companies hold their securities and shares in the same proportion in all merging companies.
THE DRAFT TERMS OF THE MERGER
The legal framework obliges the directors of the Maltese merging company to draw up the draft terms of the merger. The draft terms of the merger is a fundamental document for the cross border merger to take place and should address all the items listed in the regulations:
- Corporate details of the merging companies including details on their legal form.
- The ratio applicable to the exchange of securities or shares representing the company capital and the amount of any cash payment.
- The terms for the allotment of securities.
- The likely repercussions of the cross-border merger on employment.
- The date from which the transactions of the merging companies shall be treated for accounting purposes as being those of the company resulting from the cross-border merger.
- The rights conferred by the company resulting from the cross-border merger on members enjoying special rights.
- Any special advantages granted to members of the administrative, management, supervisory or controlling bodies of the merging companies.
- The instrument of constitution of the company resulting from the cross-border merger.
- Information on the procedures by which arrangements for the involvement of employees in the definition of their rights to participation in the company resulting from the cross-border merger.
- Information on the evaluation of assets and liabilities which will be transferred to the entity resulting from the cross border merger.
- Dates of the merging companies’ accounts used to establish the conditions of the cross-border merger.
- Details of the offer of cash compensation.
- Safeguards offered to creditors.
- The electronic address to be used by members for the purposes of exercising their rights.
DIRECTORS’ REPORT
The directors of the Maltese merging entity shall be obliged to draw up a report for the members and employees (separate report for members and employees is also possible).
The report for the members of the merging entity shall include relevant explanations on:
- The cash compensation and the method used to determine the cash compensation.
- The share exchange ratio and the method or methods used to arrive at the share exchange ratio.
The report to the employees of the merging entity shall include explanations on:
- The implications of the cross-border merger for employment relationships.
- Measures for safeguarding employee relationships.
- Any material changes to the applicable conditions of employment or to the location of the company’s places of business.
The draft terms of the merger and the Directors’ Report shall be made available to all the members and employees (or representative of the employees) by not later than six (6) weeks before the general meeting for the approval of the cross border merger.
DECLARATION OF SOLVENCY
The directors of the Maltese merging company are obliged to prepare a declaration of solvency containing a statement of the company’s assets and liabilities confirming that the company resulting from the merger should be in a position to meet all the liabilities when they fall due. Such declaration of solvency to be filed with the Malta Business Registry by not later than one month before the filing of the merger documents with the Registry.
INDEPENDENT EXPERTS REPORT
The Maltese merging company should appoint an expert approved by the Maltese regulator to examine the draft terms of the merger and draw up a report for the members of the company.
This independent expert report shall be available to the members by not less than one (1) month before the date of the general meeting. There is also the possibility for the merging companies to make a joint request to appoint one or more independent experts to examine the common draft terms of the cross- border merger and prepare one single report to all members.
The independent expert shall report on:
- The adequacy of the methods used to determine the proposed cash compensation.
- The adequacy of the methods used to arrive at the share exchange ratio.
- Valuation difficulties which have been encountered by the independent expert.
- Give an independent opinion on the relative importance attributed to the methods in arriving at the value decided on, and in the event that different methods are used in the merging companies, state also whether the use of different methods was justified.
SUBMISSIONS TO THE MALTA BUSINESS REGISTRY
The merging entity shall file with the Malta Business Registry:
- The common draft terms of the Merger.
- The Declaration of solvency.
- The notice informing members, creditors and representatives of employees of the Maltese merging companies.
Following the filing of these documents, the Malta Business Registry shall publish a statement in the local gazette with the details of the merger.
SHAREHOLDERS’ APPROVAL OF THE MERGER
The Members shall approve the common draft terms of the merger by extraordinary resolution made up of at least 67% of the nominal value of the shares which have the right to vote.
The approval should be made at least one month following the registration of the merger documents by the Malta Business Registry.
The extraordinary resolution approving the merger shall be delivered to the Malta Business Registry by not later than 14 days following the date of the resolution.
PROTECTION OF SHAREHOLDERS
The regulations lay out detailed legal mechanism for shareholder protection in the case of dissenting members.
Dissenting members who have declared wish to have their shares redeemed but have not accepted the cash consideration are granted the option to file an application to the Courts requesting additional cash compensation. The Maltese Courts have to decide on their application within 30 days,.
Similarly, members who did not have or did not exercise the right to dispose of their shares may dispute the share exchange ratio and request cash consideration. Dissenting members have the opportunity to file an application to the Court if the cash compensation is deemed to be inadequate.
FF International provides expert advice on the restructuring of legal entities and tax advisory services on mergers and acquisitions.
For further information, please contact:
Franco Falzon C.P.A. LL.M (Managing Director)
E: info@ffinternational.com.mt
T: +356 2010 7771 (office)
M: +356 9989 5679 (mobile)
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