CROSS-BORDER MERGER: Terminology, Legal framework and Procedure
by Charalambos Papasavvas (Managing Partner at PAPASAVVAS & LISKAVIDOU LLC)
A company registered in Cyprus can engage in a cross-border merger, except for limited liability companies by guarantee and companies under liquidation. The EU Directive 2017/1132/EC (the “Directive”) outlines provisions for cross-border mergers, which involve the merger of two or more limited liability companies governed by the laws of different EU member states. Cyprus has implemented these requirements into Articles 201I-201X of the Cyprus Companies Law Cap113 (the “Companies Law”).
Definition of “Merger”
A “merger” is an operation where:
(a) One or more limited liability companies, upon dissolution without liquidation, transfer all assets and liabilities to another existing company (the acquiring company) in exchange for securities or shares in that acquiring company, and possibly a cash payment not exceeding 10% of the nominal value or accounting par value of those securities or shares.
(b) Two or more limited liability companies, upon dissolution without liquidation, transfer all assets and liabilities to a newly formed limited liability company in exchange for securities or shares in the new company, and possibly a cash payment not exceeding 10% of the nominal value or accounting par value of those securities or shares.
(c) A limited liability company, upon dissolution without liquidation, transfers all assets and liabilities to a company holding all its securities or shares.
[i] Cross-border merger with Cyprus as the resulting company
Step-by-step process:
1.Drafting and submission of common terms: The initial step involves the directors of the participating Cyprus companies, in collaboration with the management of companies registered in other EU member states, drafting the common terms of the cross-border merger. These terms should detail the proposed merger process, the timeline, the impact on shareholders and employees, and any adjustments to the corporate structure. It is crucial to ensure that the common terms are comprehensive and align with both the Cyprus Companies Law and the regulations of the other member states involved. Once drafted, these terms must be submitted to the relevant authorities and shared with the stakeholders of each company.
2.Approval by general meeting and pre-merger certificate: The merging companies are required to submit the common terms at least one month prior to their respective general meetings. This period allows shareholders and other stakeholders adequate time to review the terms. Directors must prepare detailed reports explaining the merger’s rationale and expected benefits. Independent experts’ reports are also necessary to provide an objective assessment of the merger terms. These documents should be made available to all stakeholders to facilitate informed decision-making. After approval at the general meetings, each Cyprus company involved must apply to the District Court for a court order sanctioning the merger. Additionally, pre-merger certificates from the other member states’ competent authorities must be secured, confirming that the legal requirements in those jurisdictions have been met. These certificates must then be delivered to the Cyprus absorbing/acquiring company.
3.Court order and completion: Once the District Court issues the court order approving the merger, this order must be filed with the Registrar of Companies in Cyprus. The filing should include all necessary documentation and an official announcement in Greek, detailing the completion of the merger process. The Registrar will then update the companies register and publish the notification of completion in the Cyprus Government Gazette. This public notification ensures transparency and informs all relevant parties of the merger’s finalization. If the merger results in the formation of a new company, the incorporation procedures must follow the court order. This includes drafting and registering the new company’s memorandum and articles of association, as well as completing any additional administrative requirements to establish the new entity legally.
[II] Cross-border merger with Cyprus as the absorbed company
Step-by-step process:
1.Drafting and submitting the common draft terms for the cross-border merger: The initial step involves the directors of each Cyprus company involved in the cross-border merger, along with the management of companies registered in other member states of the EU or EEA, to draft the common terms of the merger. These terms need to be submitted at least one month before the general meeting for approval, accompanied by:
○Common draft terms of the merger.
○An announcement of the merger in Greek.
○A certified translation of the common terms.
○A certificate from the Tax Department confirming that the company does not owe taxes and duties if the Cyprus company is being absorbed or struck off.
○If the Registrar of Companies is satisfied that all legal requirements have been met, the merger plan will be registered, the companies register updated, and the common draft terms published in the Official Gazette of the Republic of Cyprus.
2.Approval by the general meeting and issuance of the court order: Each merging company prepares a directors’ report and an independent expert’s report, which must be available to the members of the company at least one month before the general meeting convened to approve the merger. If the merger plan is approved at the general meeting, each Cyprus company submits an application to the District Court where its registered office is located. Once the court order is issued, it is sent to the absorbing/acquiring/newly-incorporated company in the member state within the EU or EEA. Concurrently, merging companies in other member states must obtain a pre-merger certificate and send it to the absorbing/acquiring/newly-incorporated company.
3.Informing the Registrar of Companies for the completion of the process: After the cross-border merger is completed in the member state within the EU or EEA, the competent authority of the absorbing/acquiring/newly incorporated company sends a confirmation letter or certificate to the Cyprus Registrar of Companies. The Registrar will then proceed to strike off the Cyprus absorbed company from the companies register and publish its strike-off in the Official Gazette of the Republic of Cyprus.
[III] Completion of the Cross-Border Merger Process
Filing of the court order approving the completion of the cross-border merger:
1.Submission of court order: After the court order approving the merger is issued, each merging Cyprus company must file this court order with the Registrar of Companies. The submission should include an announcement of the completion of the merger in Greek.
2.Publication and issuance of certificates: The Registrar of Companies will then:
○Publish the notification of the completion of the merger in the Cyprus Government Gazette.
○Issue a certificate of merger for mergers by incorporation, or a certified memorandum and articles of association along with the court order for mergers by absorption or acquisition.
○Notify the competent authorities in the involved countries about the completion of the merger.
3.Additional steps for new companies: If the merger results in the formation of a new company in Cyprus, the incorporation process must also be followed, attaching a copy of the court order to the new company’s memorandum of association.
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