Implementation of the EU Cross-border Mergers Directive in Sweden
- Sweden
- 05/02/2008
- Roschier, Attorneys Ltd. - Sweden
In February 2008, a new set of harmonized rules on cross-border mergers was introduced in Sweden. The new set of rules is intended to facilitate the procedure for, in particular, small to medium sized companies that wish to complete a cross-border merger within the EEA and aims at creating the necessary tools for the involved companies to reduce costs and legal risks that historically have been associated with cross-border mergers.
Directive 2005/56/EC on cross-border mergers of limited liability companies (the “Directive”) was implemented by way of amending and supplementing the rules on national mergers in the Swedish companies act. Furthermore, the Directive specific provisions on employee participation with regard to cross-border mergers have been implemented partly through a new act on employees’ participation in conjunction with cross-border mergers (Sw: lag om arbetstagares medverkan vid gränsöverskridande fusioner), partly through amendments to existing provisions on employee participation. The new set of rules entered into force on 15 February 2008.
Companies have been able to carry out cross-border mergers based on the ECJ SEVIC-judgment (C-411/03) since 2003 and the possibility to utilize a European company (“SE”) since late 2005. However, such mergers were associated with substantial legislative and administrative difficulties as well as almost prohibitive costs, which generally resulted in alternative structures such as business transfers followed by a winding-up procedure. Hence, the purpose of the Directive is to prevent national laws from forming such obstacles, aiming at creating a legal instrument which enables companies from different member states to carry out cross-border mergers under the most favorable conditions.
The basic principle of the Directive is that mergers shall be governed in each member state by the principles and rules applicable to “domestic” mergers, except where there are other requirements due to the cross-border nature of the operation. Accordingly, the amended Swedish acts state that most of the current provisions on domestic mergers between companies in Sweden (e.g. rules relating to the applicable decision-making process and the protection of affected creditors, shareholders and employees) apply also to cross-border mergers with the supplement of a number of provisions specific to cross-border mergers. Moreover, the Directive states that verification of the pre-merger procedures of a cross-border merger will be the responsibility of the competent national authorities, which in Sweden would be the Swedish companies registration office.
The new legal framework on cross-border mergers applies to both public and private limited liability companies as well as to any type of merger, whether done by way of an acquisition of one company into another (absorption), by an acquisition of a wholly owned subsidiary by its parent company (subsidiary merger) or by the creation of a new company (combination), between two or more companies within the EEA. In each case, there must be a genuine cross-border element to the merger, i.e. at least one of the companies involved shall be governed by the laws of another member state.
The cross border merger procedure (irrespective of the type of merger) could be divided into three phases; phase 1 − registration of the merger plan, phase 2 − implementation of the merger plan and phase 3 − completion of the cross-border merger. The procedure and regulatory frame-work in relation to phases 1 and 2 of a cross-border merger are essentially the same as for a domestic merger, with only a few administrate differences with regard to the documentation requirements (e.g. the requirement of certain minimum items of information to be included in the common draft terms of the merger as well as of a board report and an independent expert report on the merger). Moreover, the Swedish company involved in the cross-border merger (whether as acquiring or acquired company) is responsible for translating any documentation to Swedish before submission to the Swedish companies registration office for registration. The cross-border element is apparent in phase 3. During this phase, substantial contacts between the Swedish companies registration office and the relevant foreign equivalent competent authority need to take place, e.g. each competent authority shall issue a pre-merger certificate, attesting to the proper completion of all pre-merger acts and formalities of the company governed by the laws of its member state. In total, completion of a cross-border merger procedure should, in a best case scenario, take approximately four months.
Special rules with regard to employment participation apply to cross-border mergers. Employee participation was one of the main issues at stake during the adoption of the Directive, given the widely diverging systems in force in member states. The act on employees’ participation in conjunction with cross-border mergers requires that a process of employee participation be initiated upon registration of the common draft terms of the merger with the Swedish companies registration office. The merging companies shall form a special negotiating body which is responsible for the safeguard of the employee participation right during the course of the merger procedure. The merging companies can decide to initiate preparatory negotiations with the negotiating body aiming at reaching an agreement on the employee participation. Should an agreement not be reached or should the merging companies decide to omit preparatory negotiations, the merging companies shall apply the standard rules, in accordance to which the highest level of participation in any of the merging companies’ jurisdictions applies. Naturally, this requirement does not apply in relation to merging companies with no employees, e.g. holding companies used as acquisition vehicles.
As of today, only one cross-border merger has been registered with the Swedish companies registration office. It remains to be seen what impact the new legislative framework on cross-border mergers will have on future restructurings. While the European company statute aims at providing companies that need to reorganize their business on a Europe-wide scale with the necessary tools for cross-border restructurings, the new harmonized rules on cross-border mergers will most likely benefit small and medium-sized companies that want to operate in more than one member state, but not throughout Europe, and thus are not likely to seek incorporation under the European company statute.
