Cross-border mergers of limited liability companies 2023 – Part 2

The following FAQs are the second 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, following the repeal of the 2007 regulations previously governing cross-border mergers (Subsidiary Legislation 386.12, ‘repealed CBM Regulations’).

Part 1 of the FAQs introduced the 2023 CBM Regulations, whereas this article focuses on the applicability of the 2023 CBM Regulations while highlighting the main changes brought about by the 2023 CBM Regulations.

Q. When and to whom do the 2023 CBM Regulations apply?

A. The applicability remit of the 2023 CBM Regulations is set out in regulation 4 of the 2023 CBM Regulations − a lengthy provision containing various permutations and provisos. In a nutshell, the 2023 CBM Regulations apply to cross-border mergers involving:

i. Limited liability companies established in an EU/EEA member state and having their registered office, central administration or principal place of business within an EU/EEA member state, provided that:

• at least two of such companies are regulated by the laws of different EU/EEA member states; and

• at least one of the merging companies (or, in the case of a merger by formation, the company resulting from the merger) is registered in Malta; and

ii. Limited liability companies established in any other approved country or jurisdiction provided that:

•  at least two of such companies are governed by the laws of different approved countries or jurisdictions; and

•  at least one of the merging companies, (or, in the case of a merger by formation, the company resulting from the merger) is registered in Malta;

Unlike the repealed CBM Regulations, therefore, the 2023 CBM Regulations now also regulate the cross-border merger of non-EU/EEA limited liability companies (provided that there is the Malta connection by having one of the entities involved in the merger duly registered in Malta).

As part of the effort to reduce legal ambiguities and streamline the process for cross-border mergers, the 2023 CBM Regulations have, for the first time, explicitly defined the term ‘company’

It should be further noted that: the 2023 CBM Regulations also apply where the law of at least one of the jurisdictions involved in the merger, allows the relevant cash payment (referred to in the first two paragraphs of the definition of ‘merger’ i.e. merger by acquisition and merger by formation, where a cash payment is involved) to exceed 10% of the nominal value (or the accounting par value, as applicable) of the securities or shares representing the capital of the recipient companies.

This is in line with the repealed CBM Regulations; and the fact that the companies involved in a cross-border merger are subject to preventive restructuring frameworks, or, are the subject of crisis prevention measures (as defined in Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014, establishing a framework for the recovery and resolution of credit institutions and investment firms) does not preclude them from benefitting from the provisions of the 2023 CBM Regulations.

Q. When are the 2023 CBM Regulations deemed not to apply?

A. The 2023 CBM Regulations also provide for specific exclusions to their applicability. They will, in fact, not apply to:

i. Cross-border mergers involving a company, the object of which is the collective investment of capital provided by the public, which operates on the principle of risk-spreading and the units of which are, at the holders’ request, repurchased or redeemed, directly or indirectly, out of the assets of that company;

ii. A company that is subject to resolution tools, powers and mechanisms under title IV of Directive 2014/59/EU (which, broadly speaking, establishes resolution options for credit institutions and investment firms) or in title V of Regulation (EU) 2021/23 (which, broadly speaking, establishes resolution options for central counterparties); and

iii. A company that is the subject of either insolvency or liquidation proceedings.

Q. Do the 2023 CBM Regulations provide any guidance as to the definition of ‘company’?

A. As part of the effort to reduce legal ambiguities and streamline the process for cross-border mergers, the 2023 CBM Regulations have, for the first time, explicitly defined the term ‘company’, as further set out below:

In the first instance:

i. a limited liability company formed in accordance with the Companies Act (Chapter 386 of the laws of Malta);

ii. a limited liability company listed in Annex II (which lists different types of EU companies) of Directive 2017/1132/EU (which tackles aspects of company law across the EU); and

iii. any corporate body formed and incorporated or registered under the laws of any other approved country or jurisdiction which is similar in nature to a company registered under Maltese law.

Also falling within this definition are companies with share capital and having legal personality, possessing separate assets which alone serve to cover their debts and that are subject, under the national law governing them, to conditions concerning guarantees such as are provided for by Directive 2017/1132/EU for the protection of the interests of members or others. This clearer definition is all important, especially considering the possibility for non-EU/EEA companies to be involved in the mergers which necessitated such a robust definition of the ‘company’ involved.

Q. Briefly, what are the most substantive changes introduced by the 2023 CBM Regulations when compared with the repealed CBM Regulations?

A. While the cross-border merger process does not radically depart from that governed under the repealed CBM Regulations, some significant amendments were made, namely the introduction of:

i. Cross-border mergers between Maltese companies and companies formed outside the EU/EEA and coming from an approved jurisdiction;

ii. A new and fourth type of cross-border merger − essentially a merger by acquisition between companies having the same ownership without the issue of new shares;

iii. Certain changes in and/or additions to the documentation required to be drawn up to complete the cross-border merger process (e.g. the introduction of the declaration of solvency);

iv. New filing obligations; and

v. New timing considerations.

Sarah Fenech and Krista Pisani Bencini are senior associates at Fenech & Fenech Advocates.

Part 3 of these FAQs will delve into further detail on the main changes and/or new requirements affecting the procedure for the cross-border merger of companies in terms of the 2023 CBM Regulations.