Cross-border mergers of limited liability companies – Part 3

These FAQs form the third part in a series of FAQs addressing the scope and application of the Cross-Border Mergers of Limited Liability Companies Regulations 2023 (Subsidiary Legislation 386.28), which came into effect as from January 31, 2023, following the repeal of the 2007 regulations previously governing cross-border mergers (Subsidiary Legislation 386.12).

Part 2 of the FAQs focused on the applicability of the 2023 CBM Regulations while highlighting the main changes brought about by the 2023 CBM Regulations.

Part 3 outlines the main drafting aspects to be considered during a cross-border merger of companies under the 2023 CBM Regulations.

Q. What documentation is required for a cross-border merger under the 2023 CBM Regulations?

A. A number of documents must be prepared in the course of a cross-border merger, namely:

(i) The common draft terms of merger (the ‘CDTs’): This is undoubtedly the most important document of the merger as it sets out the terms upon which the merger will take place. Regulation 6 of the 2023 CBM Regulations lists the particulars which need to be included in this document and the registrar will vet the CDTs to ensure that all such details are indeed included. A pre-vetting before submission is often recommended. It is the responsibility of the directors to draw up this document and to then have it signed by one director (where there is a sole director) or by two (where there are two or more directors).

(ii) Legal opinion: This document was an introduction of the 2023 CBM Regulations, to cater for the new possibility for one of the merging companies or the company resulting from the merger not being registered in an EU/EEA state. The purpose of this document is to confirm that the proposed cross-border merger is allowed by the laws of the relevant jurisdiction. When required, this must be attached to the CDTs.

(iii) Directors’ report: This report must be drawn up by the board of directors of the Maltese merging company/s and is targeted at members and employees. The report must include the details set out in Regulation 7 of the 2023 CBM Regulations and is aimed at outlining the legal and economic aspects of the cross-border merger, as well as the manner in which the cross-border merger will impact employees and the company’s future business post-merger. The report should either include two sections (one for members and one for employees) or could take the form of two distinct reports. In either case, the details set out in Regulation 7 need to be adhered to. There are instances where the law specifies that this report or part of it is not required, such as when the simplified formalities apply.

(iv) Declaration of solvency: This declaration is also a new addition in the 2023 CBM Regulations. The purpose is for the directors (of a Maltese merging company) to declare that they are not aware of any reason the company resulting from the merger “is not in a position to meet liabilities when those liabilities fall due”. This declaration is not required when the Maltese merging company is subject to preventive restricting frameworks or is the subject of crisis prevention measures as defined in point (101) of Article 2(1) of Directive 2014/59/EU or in point (48) of Article 2 of Regulation (EU) 2021/23. Directors must make this declaration within the periods specified at law and must include a statement of assets and liabilities made up to a date not earlier than one month before the filings with the registrar in terms of Regulation 10.

Shareholders are given the right to dissent to the merger

(v) Independent expert’s report: The Maltese merging company must also appoint an expert, independent of it, to review the CDTs. The expert must then draw up a report targeted at the company’s members. The report must include the details set out in Regulation 9 and must include, among other matters, the expert’s view as to the adequacy of the cash compensation and the share exchange ratio. The report must be available not less than one month before the date of the general meeting approving the merger. This report will not be required if all the members of each of the companies involved in the cross-border merger have so agreed, or if the Maltese merging company is a single member company.

(vi) Notice: Members, creditors and employees (or their representatives) of the Maltese merging company must be made aware (by means of a notice) that they may submit their comments on the CDTs, at the latest five  working days before the date of the general meeting (either of the Maltese merging company or, where the GM is not required, of the other merging company/a).

Q. Should practitioners consider any additional drafting requirements?

A. While the above documents are the main documents required in the context of a cross-border merger, practitioners must also consider the following:

• The general meeting: Although there are instances when this is not required, as a rule, the CDTs must be approved by an extraordinary resolution of the Maltese merging company in general meeting, after the directors’ report and expert’s report, among others, are considered. While this is not a document per se, it does give rise to the need to, either prepare notices and agendas required for calling such a meeting, take minutes, or else, if the resolution in writing is preferred and allowed, draft the written resolution as required. If the statutes of the Maltese merging company need to be amended as a result of the merger, the amendment needs to be drafted and should also be approved by means of this resolution. Within 14 days of the approval, the officers of the company must deliver the extraordinary resolution approving the merger to the Malta Business Registry (MBR).

• The pre-merger certificate application: This application, to be made by the board, can be found online on the MBR’s website at https://mbr.mt/ promo/official-registry-forms/. The application must be signed by at least two directors of the Maltese merging company (unless there is only one director in office) and may be submitted online. The documents in Regulation 17(2), including the CDTs and declaration of solvency, must be attached to this form. Where any shares are pledged, the written consent of the pledgee must also be attached.

In the case of a licensed Maltese merging company, the consent of the relevant competent authority must be appended to the application. Similarly, for public companies, quoted on a recognised investment exchange, proof of the consent (to the cross-border merger) of the listing authority in Malta must be attached to the application. The application must be submitted to the registrar upon the lapse of one month from the last publication following the registration of the extraordinary resolution approving the merger, or, in the cases where this approval is not applicable, from the publication of the CDTs in terms of Regulation 10.

• Other documents: Practitioners, advising the company, the shareholders or any interested party, may get involved with drafting court-related documents in the context of a cross-border merger, depending on whether any applications shall be filed in court in line with the 2023 CBM Regulations. Shareholders are, in fact, given the right to dissent to the merger or to redeem their shares or even contest the share-exchange ratio or the cash compensation in court.

Any interested party may also, in terms of Regulation 15, also contest the publication of the CDTs (in terms of Regulation 10) or that of the general meeting (in terms of Regulation 14), while any creditor whose debt existed before the publication of the CDTs may also apply to contest the adequacy of the safeguards to the creditors’ claims in the CDTs. All these scenarios will give rise to the need for drafting of certain legal documents and notifications by practitioners.

Part 4 of these FAQs will delve into further detail on the main changes and/or new requirements affecting the procedure/ documents for the cross-border merger of companies in terms of the 2023 CBM Regulations.

Krista Pisani Bencini is senior associate, Fenech & Fenech Advocates.