The lingering global financial crisis has had a significant impact on corporate and M&A markets. It is obvious that clients are more prudent when it comes to acquisitions of local companies, and even more careful when it comes to cross-border acquisitions.
On the other hand, a positive consequence of the financial crisis in corporate and M&A is an increase in the number of internal group reorganisations. This development is driven by management’s intention to finally streamline internal group structures and to cut the internal expenses necessary for their operation.
One of the legal tools widely used in internal company reorganisations is a merger. Under the Slovak Commercial Code No. 513/1991 Coll. “merger by acquisition” (in Slovak: zlúčenie) – means a procedure in which one or several companies cease their legal existence without liquidation and their assets are transferred to another existing company, which becomes the legal successor of the merged companies. The Slovak Commercial Code distinguishes this from another merger procedure, called “merger by formation of a new company” (in Slovak: splynutie) – a procedure whereby two or more companies cease their legal existence without liquidation and the assets of the merged companies are transferred to another newly established company, which upon its establishment becomes the legal successor of the merged companies.
It is important to know that the Slovak Commercial Code will only enable the execution of a “merger by acquisition” or a “merger by formation of a new company” if the “merged” company and the company to which the assets of the merged company are transferred, the “successor company”, have the same legal form. There is only one exception – merger by acquisition when a limited liability company is wound-up and its assets are transferred to a joint stock company. The procedure of merging limited liability companies is less complicated than that of merging joint stock companies.
Fundamental documents and steps which must normally be carried out when merging joint stock companies on behalf of all joint stock companies participating in the transactions include in particular:
• Interim financial statements if more than six months have passed between the date of the last regular financial statement and the date of the merger agreement,
• The merger agreement draft,
• A written report by an independent expert reviewing the merger agreement draft; the expert must be an entity independent of the company and must be appointed by the court following a proposal made by the company’s board of directors,
• A written report by the company’s board of directors,
• A statement of the supervisory board of the company,
• Filing the merger agreement draft with the Collection of Deeds and publishing a notice of this filing no later than 30 days before the date of the general meeting deciding on the draft,
• Convening the general meeting,
• Filing required documents in the registered seat of the company for inspection by the shareholders,
• Holding the general meeting approving the merger and the merger agreement draft, and if the company ceases its legal existence, also on its winding-up without liquidation,
• Signing the merger agreement in the form of a notarial record laying down a legal act by the members of the board of directors authorised to represent the company.
Although the standard procedure may appear lengthy and costly, merger by acquisition is also a popular means to reorganise because it does not create a new entity and the companies may make use of several exceptions which allow them to streamline and speed up the entire merger process.
One such exception enabling the process to be streamlined is that the Slovak Commercial Code contains certain provisions stating that the standard procedure for merger by acquisition need not be applied, provided all shareholders of each of the participating companies agree, or where all shareholders have waived their relevant right. When companies are merged within a group, there is a high chance that agreement between all shareholders is feasible. This then makes it possible, for instance, to skip the process of preparing regular interim financial statements, having the draft agreement reviewed by an independent expert who must be appointed by a court, and drafting a report by the board of directors and a statement from the supervisory board.
The Slovak Commercial Code further provides in Section 218k other special exceptions applicable solely to the following two situations, when we speak of simplified merger by acquisition:
a) if companies are merged and the successor company owns in excess of 90% of the shares, but not all of the shares, of the merged company, and voting rights are attached to the shares, or
b) if companies are merged and the successor company owns all shares of the merged companies, and voting rights are attached to the shares.
The Slovak Commercial Code specifies which provisions shall not or need not be used in the above situations. By way of example, this means in both situations that the merger by acquisition and the merger agreement draft need not be approved by the general meeting of the successor company, provided the relevant requirements and conditions and procedures have been fulfilled.
Currently, cross-border mergers of companies have grown increasingly popular. Their realisation has been possible since the adoption of the third Directive 2005/56/EC on cross-border mergers of limited liability companies and a follow-up amendment to the Slovak Commercial Code.
For the purposes of the Slovak Commercial Code,“cross-border merger by acquisition” or “cross-border merger by formation of a new company” means merger of one or several companies with its seat in the Slovak Republic with one or several companies with their seat abroad, i.e. in one of the EU member states or a state of the European Economic Area.
Cross-border mergers require that all merged participating companies and the successor company have the same legal form, unless legal regulations of the member states where the participating companies have their seats allow mergers of several legal forms of companies.
Likewise in cross-border merger by acquisition, the Slovak Commercial Code allows for certain specified provisions governing the standard process of cross-border mergers to be skipped, provided all shareholders of each of the participating companies have so agreed. Section 218k of the Slovak Commercial Code provides a special exception for “simplified cross-border mergers by acquisition”; the exception applies exclusively to cross-border mergers by acquisition in which the successor company owns all the shares of the companies participating in the cross-border merger and voting rights are attached to the shares.
JUDr. Jana Pagáčová, Head of Corporate and M&A practice, Ružička Csekes s.r.o.
This article is of an informative nature only. For more information please contact our Law Office:
Ruzicka Csekes s.r.o.
Tel: +421 (0)2 3233-3431
21. Nov 2011 at 0:00