The Concept of Cross-Border Mergers in Cyprus
A cross-border merger involves consolidating two or more companies governed by the laws of different EU Member States. In line with Chapter II of EU Directive 2017/1132/EC and Articles 201I-201X of the Cyprus Companies Law, Cap 113 (the “Companies Law”), a cross-border merger can take the following forms:
- Absorption: One or more companies transfer all their assets and liabilities to another existing company, dissolving without liquidation.
- Formation of a New Company: Two or more companies transfer their assets and liabilities to a newly incorporated entity.
- Absorption by Parent Company: A subsidiary transfers its assets and liabilities to its parent company.
Key Requirements for Cross-Border Mergers
Under Cyprus law, a cross-border merger must comply with both local requirements and those outlined in the EU Directive. Key requirements include:
- Drafting and Filing of Common Terms: The directors of all merging companies must prepare a common merger plan detailing the terms, impact on stakeholders, and any proposed structural adjustments. This plan must be submitted to the Registrar of Companies in Cyprus and published for stakeholder review.
- Shareholder and Stakeholder Reports: Reports must outline the legal, economic, and social implications of the merger, ensuring transparency for shareholders, employees, and creditors.
- Independent Expert Review: An expert report assessing the merger’s fairness and compliance may be required unless unanimously waived by shareholders.
- General Meeting Approval: The merger must be approved by special resolution at a general meeting of the merging companies.
- Court Sanction: The Cyprus District Court must issue a pre-merger certificate confirming compliance with all legal and procedural requirements.
The 2024 Amendment Law
On February 29, 2024, the Cyprus Parliament passed a significant amendment to the Companies Law, aligning it with Directive (EU) 2019/2121. This amendment enhances the cross-border merger process by introducing new safeguards, digitization measures, and streamlined procedures.
Key Features of the New Law
- Applicability and Restrictions: The law applies to companies with at least one Cypriot entity involved. Restrictions prevent mergers involving companies under liquidation, insolvency, or crisis prevention measures, ensuring responsible corporate governance.
- Joint Merger Plan Requirements: Directors must include specific details in the merger plan, such as the legal form of entities, exchange ratios, and creditor safeguards. The plan must be harmonized across all participating companies.
- Electronic Processes: The amendment introduces digital submission and publication of documents, reducing administrative burdens and promoting efficiency.
- Stakeholder Protection: The law mandates comprehensive reports for shareholders and employees, detailing the merger’s impact and any measures to mitigate adverse effects. Shareholders can seek additional compensation through the courts if dissatisfied with the merger terms.
- Creditor Safeguards: Creditors can request guarantees within three months of the merger plan’s publication, provided they demonstrate that their claims are at risk.
- Pre-Merger Certificate and Final Approval: The District Court’s pre-merger certificate ensures compliance with all procedures. A second court application finalizes the merger, followed by notification to the Registrar of Companies for official registration and publication.
Tax Implications of Cross-Border Mergers
One of the most compelling reasons to conduct mergers in Cyprus is the favorable tax regime. Cross-border mergers that align with the law’s reorganization provisions may qualify for exemptions from corporate income tax, capital gains tax, and transfer fees. An application to the Cyprus Tax Department, accompanied by the merger plan, is necessary to secure these exemptions.
Conclusion
The updated framework for cross-border mergers in Cyprus underscores the country’s commitment to harmonizing with EU directives while ensuring robust stakeholder protection. The 2024 amendments enhance efficiency, transparency, and legal certainty, making Cyprus an even more attractive hub for cross-border corporate activity. With its strategic location, pro-business environment, and now a more streamlined legislative framework, Cyprus is poised to remain a leading jurisdiction for cross-border mergers in the EU.
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Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.
