Domestic mergers of public limited liability companies: third Directive

The purpose of this Directive is to regulate mergers between public limited liability companies from the same Member State.

ACT

Third Council Directive 78/855/EEC of 9 October 1978 based on Article 54(3)(g) of the Treaty concerning mergers of public limited liability companies.

SUMMARY

This Directive applies to public limited companies. Member States may, however, choose not to apply it in the following cases:

• to cooperative societies;
• where one or several companies that are being acquired or will cease to exist are the subject of bankruptcy proceedings, proceedings relating to the winding-up of insolvent companies, judicial arrangements, or compositions.

The Directive distinguishes two main types of merger, namely:

• an operation whereby one or more companies transfer all their assets and liabilities to another;
• merger by the formation of a new company: an operation whereby several companies transfer all their assets and liabilities to a company that they set up.

Merger by acquisition or merger by the formation of a new company

A merger by acquisition or by the formation of a new company is established by the administrative or management bodies of the companies based on draft terms of merger which must contain the following information in particular:

• the type, name and registered office of the companies;
• the share exchange ration;
• the terms relating to the allotment of shares;
• the rights conferred by the acquiring company.

The administrative or management bodies of the company must publish the draft terms of merger at least one month before the date fixed for the general meeting, pursuant to the conditions of the Directive relating to the publication, validity and nullity of undertakings of incorporated companies. They shall be exempt from this obligation if the draft terms of merger are made available on the company’s website during this period. In order to be valid, the merger must be approved by the general meeting of each of the merging companies.

The merging companies shall protect workers’ rights pursuant to the provisions of the Directive on the maintaining of workers’ rights in the event of a transfer of undertakings. They must also provide creditors with safeguards as to their financial situation.

Following a merger, the following situations may arise:

• all assets and liabilities have been transferred;
• the shareholders of the company being acquired become the shareholders of the acquiring company;
• the company being acquired ceases to exist.

Rules governing the nullity of mergers are laid down in order to protect members and third parties. The cases of nullity are limited to formal illegalities (e.g. lack of judicial or administrative preventive supervision of legality, irregularity vitiating the decision of the general meeting). A series of restrictions are placed on the ordering and enforcement of nullity.

Acquisition of a company by another which holds 90 % or more of its shares

One or more companies may be wound up without going into liquidation and transfer all their assets and liabilities to another company which is the holder of all their shares. This shall take place pursuant to the provisions described above. Nevertheless, Member States need not apply certain requirements.

Last updated: 17.02.2011