The Companies (Cross-Border Mergers) Regulations 2007

Explanatory Note

(This note is not part of the Regulations)

M1 These Regulations implement Directive 2005/56/EC on cross-border mergers of limited liability companies . They come into force on 15th December 2007.

The Regulations provide a framework whereby companies may engage in a cross-border merger. The term “cross-border merger” is defined in regulation 2 by reference to three categories: a merger by absorption, a merger by absorption of a wholly-owned subsidiary, and a merger by formation of a new company. The merger must involve at least one company formed and registered in the United Kingdom (a “UK company”), and at least one company formed and registered in an EEA State other than the United Kingdom (an “EEA company”).

Regulation 16 requires that each UK company involved in a cross-border merger must obtain a court order under regulation 6 certifying that the pre-merger requirements in regulations 7 to 10 and 12 to 15 have been complied with. Regulations 7, 8 and 9 respectively specify requirements as to the content of the proposed terms of the merger, the directors' report explaining the effect and grounds of the merger, and the independent expert's report. Regulation 10 requires that these documents be available for inspection by the company's members for a period of one month, and regulation 12 requires that the draft terms of merger must be registered and published. Regulation 13 requires that the draft terms of merger must be approved by the company's members. Regulation 14 provides that, if a meeting of the company's creditors is summoned, the draft terms of merger must be approved by them.

Regulation 16 provides that a United Kingdom court may make an order approving the completion of a cross-border merger, if the company to which the assets and liabilities of other companies concerned are transferred as a consequence of the merger is a UK company. Regulation 17 defines the consequence of the cross-border merger, which include the dissolution of, and the transfer of assets and liabilities of, all but one of the companies involved. Regulations 19 to 21 lay down requirements relating to the registration of the merger in the United Kingdom and in other EEA States.

Part 4 of the Regulations implements the employee participation provisions of the Directive and is divided into nine chapters. Regulation 22 sets out the respective application of each of the chapters, including the provision at paragraph (2) that the obligation to provide for employee participation in the transferee company only applies where a merging company is a large company and operates employee participation, or where employee representatives participate in an administrative or supervisory organ of a merging company.

Chapter 2 imposes certain pre-merger requirements on a UK merging company, including the provision of relevant information to employees or their representatives (regulation 23), creation of a special negotiating body (regulation 25) and how that body should be composed (regulation 26). Regulations 24 and 27 are enforcement provisions in respect of those obligations.

Chapter 3 prescribes the procedural arrangements whereby an employee participation agreement can be settled. Regulation 28 provides that the relevant parties must negotiate in a sprit of co-operation and that negotiations shall last up to 6 months, with potential to extend that time to 12 months. Regulation 29 lays down the minimum content of an employee participation agreement. Regulation 30 concerns the operation of the special negotiating body. Regulation 31 describes the circumstances in which the special negotiating body may choose not to open or terminate negotiations and the consequences of that choice. Regulation 32 is an enforcement provision in respect of duties imposed on the special negotiating body.

Chapter 4 prescribes the arrangements for election or appointment of UK members of the special negotiating body. Chapter 5 provides for the standard rules of employee participation including regulation 36 which sets out where the standard rules should apply and regulation 37 which sets out the effect of the standard rules applying.

Chapter 6 concerns the handling and disclosure of confidential material, pursuant to provisions of Part 4. Chapter 7 confers a broad range of rights and entitlements on employees and their representatives in the context of a cross-border merger, including the right not to be subject to unfair treatment on grounds of their activities in connection with the merger. Chapter 7 also provides for the enforcement of those rights and entitlements, making amendment to primary legislation as required.

Chapter 8 concerns disputes about the operation of an employee participation agreement or the standard rules of participation, including, at regulation 55, any penalties that may be imposed in this context. Chapter 9 sets out certain procedural requirements and jurisdictional matters for enforcement of rights and entitlements under the Regulations, including amendments to primary legislation as required.

A Transposition Note and a full Regulatory Impact Assessment of the effect that this instrument will have on the costs to business are available from the Company Law and Governance Directorate, Department for Business, Enterprise and Regulatory Reform, Bay 565, 1 Victoria Street, London, SW1H 0ET or on www.berr.gov.uk. Copies have also been placed in the libraries of both Houses of Parliament.