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Following the UK’s departure from the European Union on 31 January 2020 and much uncertainty as to the future of the cross-border merger regime in the UK, it has now been confirmed that the cross-border merger procedure will continue to be available between the UK and EU Member States until the end of the transition period, expected to be on 31 December 2020. For global companies looking to reorganise their group structure as a result of Brexit, this provides a welcome additional period in which to take advantage of the regime, which offers a useful way of migrating UK companies to Europe.
Unlike many European jurisdictions, the UK does not have a domestic merger regime. In order to effect a UK ‘merger’, it is therefore necessary to complete either a share or business transfer, and then to dissolve or liquidate the transferor entity if this is no longer needed. The exception to this is the cross-border merger regime, derived from the European Union Directive 2005/56/EC (as subsequently repealed and codified by Directive 2017/1132/EU), which was implemented in the UK by The Companies (Cross-Border Mergers) Regulations 2007 (as amended) (the “CBMR”). Under the CBMR, a merger of one or more UK companies can be completed, providing the merger is with at least one company from a different EEA state.
One of the key advantages of the cross-border merger process is that upon completion of the merger: (i) all of the assets and liabilities of the transferor(s) pass automatically by operation of law to the transferee; and (ii) the transferor entities are dissolved and cease to exist. The regime therefore provides a useful way of amalgamating and migrating entities, either where the scope of their assets and liabilities is to some extent unclear, or where key assets such as licences or liabilities are desired to be transferred without having to complete an additional transfer process. The automatic dissolution of the transferring entities upon completion of the merger can also be a useful way of rationalising group entities which are no longer needed, without having to complete an additional liquidation or strike-off process.
Following the announcement of Brexit, the cross-border merger had a surge in popularity as companies sought to migrate their UK groups to Europe. Shortly before the UK’s departure from the EU on 31 January 2020, it was confirmed that the regime would continue to be available for an additional 11 months during the transition period. This therefore provides a welcome additional period in which companies can take advantage of this process to rationalise their existing group structures, before the availability of the regime is expected to cease on 1 January 2021.
The CBMR provide for three different types of cross-border merger:
The regime is available both for public and private companies as well as for UK LLPs. Cross-border mergers can be subject to the UK Takeover Code (the “Code”) if one or more of the transferor entities is a company to which the Code applies.
The process for completing the merger will be different depending on the type of merger which is chosen, but broadly involves:
While the timing to complete a cross-border merger will depend on the EEA jurisdiction involved, 4-6 months should be allowed to complete the process, although it can take longer where an employee consultation process is required.
For corporates seeking to migrate or rationalise their UK group structure, the cross-border merger procedure is a highly useful tool, and its continued availability for a further 11 months will be welcomed by businesses. Given the time required for the procedure however, any companies seeking to use this method would be advised to start their preparations for this now to ensure the process can be fully completed before the regime finally ceases to apply on 31 December 2020, and that any revised group structures are securely in place before the expected end of the transition period.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2024
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