Considering a cross-border merger? Get started now before the rules change.

2 February, 2020

The UK’s exit from the EU means that the time period during which UK companies can carry out cross-border mergers under the EU directive is limited; it expires at the end of the transition period (scheduled for 1 January 2021).

As the merger process usually takes around 6 months and will have to be completed by the end of the transition period, this means companies wishing to take advantage of the current legal framework really only have 6 months to get this started.

Why consider a cross-border merger?

The merger of two companies can be an efficient and effective way of combining two businesses.  There may be a number of advantages to a merger over an acquisition, including taxation. 

  • Group structure tidy up

Cross-border mergers have been used extensively to eliminate unwanted dormant group companies and to absorb the non-trading holding company for a country into its parent holding company, so that the trading companies are held directly by one European-based holding company.  A cross-border merger allows the restructuring to take place without needing to identify and deal with the dissolving company’s assets and liabilities or needing to seek consents from third parties.

  • Automatic dissolution without formal winding up

On a cross-border merger, the transferee company is dissolved without liquidation.  This enables a group to eliminate the company without specifically needing to deal with its remaining liabilities as part of a formal winding up.  Provided that the resulting company will be solvent, it is likely that creditors of the dissolving company will not be able to block the transfer of those liabilities to the transferee company.  This avoids needing to provide parent guarantees for contingent liabilities of the dissolving company.

  • Corporate migration

If it is possible to effect a de facto migration of a company from one EU Member State to another.  A new company can be established in the new jurisdiction and the existing company and its business is then absorbed into that new company, with the old company being dissolved.

  • Arm’s length commercial mergers

On the whole, the cross-border merger regime has not been used in the UK to implement mergers of two unconnected fully-functioning businesses because there is some concern that on the transfer of third party contracts with non-assignment clauses in them, the transferee will inherit the contracts but may be in breach of the contracts as a result.

 

 

If you think you may be interested in the possibility of undertaking a cross-border merger, please contact Paul Lester on 01892 506 336 or at paul.lester@crippspg.co.uk.