The following FAQs are the fourth 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, (the ‘2023 CBM Regulations’) following the repeal of the 2007 regulations previously governing cross-border mergers (Subsidiary Legislation 386.12, the ‘repealed CBM regulations’).
The previous set of FAQS (Part 3) focused on the documentation required under the 2023 regulations, whereas Part 4 sheds light on the main changes (including the new requirements now applicable) to the cross-border merger documentation under the 2023 CBM Regulations when compared with the repealed CBM regulations.
Q. What are the main changes introduced by the 2023 CBM Regulations in relation to the common draft terms of cross-border merger (‘CDTs’)?
A. While the core requirements for preparing the CDTs remain largely unchanged under the 2023 CBM Regulations, certain additional obligations have been introduced. The key changes, which were not previously included under the repealed CBM regulations, are as follows:
Additional information to be included in the CDTs.
The CDTs must now contain the following additional particulars:
• The instrument of constitution of the company resulting from the merger, where applicable (i.e. not just the statutes, as previously required);
• Details of the cash compensation offer for shareholders;
• A description of any safeguards offered to creditors, such as guarantees or pledges;
• The electronic address to be used by any dissenting shareholders.
The Directors’ Report must now address both members and employees of the Maltese merging company
Refined disclosure requirements for special advantages
The previous requirement to list any special advantages granted to the experts who may examine the CDTs has been removed, and now applies only with respect to any special advantage granted to members of the administrative, management, supervisory or controlling organs of the merging companies:
• Clarification on responsibility for drafting the CDTs
The responsibility for drawing up the CDTs is now expressly assigned to the board of directors of each merging company. The repealed CBM regulations referred more generally to “the management or administrative organ” of each merging company;
• Requirement of a legal opinion (in certain cases)
If any of the merging companies or the resulting company is not incorporated or registered in an EU/EEA member state, a legal opinion is required to be obtained confirming that the cross-border merger is permitted under the laws of the relevant non-EU/EEA jurisdiction, which opinion must be attached to the CDTs.
Q. What are the main changes introduced by the 2023 CBM Regulations regarding the directors’ report?
A. The 2023 CBM Regulations have introduced changes to both the content of theDirectors’ Report, as well as the time frame for making such report available to the relevant stakeholders of the Maltese merging company.
Content
The Directors’ Report must now address both members and employees of the Maltese merging company, either through a single report containing a section specifically for the members and a section specifically for the employees, or by way of two separate and distinct reports. In either case, the content is required to include:
1. For members:
• the cash compensation offered and the method used to determine it;
• the share exchange ratio and the methodology applied, where applicable;
• the implications of the cross-border merger for members; and
• the rights and remedies available to members.
2. For employees:
• the implications of the cross-border merger for employment relationships, as well as, where applicable, any measures to safeguard these relationships;
• any material changes to the applicable conditions of employment or to the location of the company’s places of business; and
• the impact of the above factors on any subsidiaries of the Maltese merging company.
Timing
The time frame for making the Directors’ Report available has been extended. The report must now be provided to members and employees not less than six weeks before the date of the general meeting convened to approve the CDTs. Under the repealed CBM regulations, this requirement was set at a minimum of one month prior to the date of the said general meeting.
Q. Are there any exceptions to the Director’s Report requirements under the 2023 CBM Regulations?
A. The 2023 CBM Regulations provide specific exceptions to the new requirement to include a section for both the members and employees as qualified under the 2023 CBM Regulations, namely that:
1. The section for members will not be required where the Maltese merging company is a single-member company;
2. The section for members may be waived by all members of the Maltese merging company, if they so agree;
3. The section for employees will not be required where any Maltese merging company (and its subsidiaries, if any), have no employees other than those who form part of the board or other management bodies of the said Maltese merging company; and
4. If the members’ section is not required or waived (as per points 1 and 2 above) and the employees’ section is not required (as per point 2 above), the Directors’ Report as a whole will not required to be drawn up.
Q. What are the key changes to the independent Expert’s Report under the 2023 CBM Regulations?
A. The 2023 CBM Regulations have introduced the following notable updates to the independent Expert’s Report requirement, which aim to enhance transparency for members while also reducing administrative burdens in straightforward merger scenarios:
1. The report must now assess not only the share exchange ratio but also the adequacy of the cash compensation offered for members. In particular, the report must state whether the cash compensation is sufficient and indicate the methods used to determine the cash compensation proposed.
2. While the exception to the requirement of the independent Expert’s Report where all the members of the merging companies has not changed from the repealed CBM regulations, under the 2023 CBM Regulations, the report is now also expressly and automatically exempted “if the Maltese merging company is a single member company”.
Look out for Part 5 of this FAQs series which will continue to explore key aspects of the 2023 CBM Regulations, providing further clarity on issues of practical and legal significance.
Sarah Fenech is a senior associate at Fenech & Fenech Advocates.