These FAQs are the fifth 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the repeal of the 2007 regulations previously governing cross-border mergers (Subsidiary Legislation 386.12, the ‘repealed CBM regulations’).
Part 4 of the FAQs focused on the main changes and the new requirements affecting the cross-border merger documents required to be drawn up in terms of the 2023 CBM Regulations, whereas this Part 5 focuses on the enhanced protections granted under the 2023 CBM Regulations to stakeholders of a Maltese merging company when compared with the repealed CBM regulations.
Q. What additional protections are available to shareholders of a Maltese merging company under the 2023 CBM Regulations, beyond those provided under the Repealed CBM Regulations?
A. 1. Disclosure of cash compensation from the outset: Shareholders of a Maltese merging company now benefit from more detailed disclosure requirements in the draft terms of cross-border merger (‘CDTs’), including details of the cash compensation offer available to shareholders who may dissent to the cross-border merger.
2. Right to comment: Shareholders are granted the new right to submit any comments on the CDTs at least five days before the date of the general meeting convened for their approval.
3. Right to the redemption of shares against cash compensation: Where a Maltese merging company approves the common draft terms of merger by extraordinary resolution, any dissenting shareholder may request the redemption of its shares in exchange for adequate cash compensation (as specified in the CDTs).
This right applies if the shareholder would, as a result of the cross-border merger, acquire shares in the company resulting from the merger which would be governed by the law of a jurisdiction other than Malta as a result of the cross-border merger.
To exercise this right, a dissenting shareholder must submit a written declaration confirming its decision to have its shares redeemed, which declaration must be received by the Maltese merging company within one month after the relevant general meeting, and the Maltese merging company shall be obliged to redeem the shares held by the dissenting shareholder and pay the specified cash compensation before the cross-border merger becomes effective.
4. Right to request additional cash compensation on the basis that it was not adequately set: A dissenting shareholder who has requested the redemption of its shares as per paragraph (c) above, but who considers that the cash compensation offered is inadequate, may apply to the Court within one month after the relevant general meeting, requesting the Maltese merging company to pay additional cash compensation. The court shall decide the matter on its merits within 30 days from the date the application is served on the company.
5. Right to dispute the share-exchange ratio and claim additional compensation: Shareholders of a Maltese merging company who did not have or did not exercise the right to dispose of their shares, but who consider the share-exchange ratio stated in the CDTs to be inadequate, may challenge that ratio and request a cash payment.
If no agreement is reached, the shareholders may file a court application within one month after the relevant general meeting, requesting an additional cash payment from the company, and the court shall decide the application on its merits within 30 days from the date of service of the application.
Alternatively, where one or more shareholders dispute the share-exchange ratio as outlined above, the company resulting from the cross-border merger may choose to offer shares or other forms of compensation instead of a cash payment.
Shareholders of a Maltese merging company now benefit from more detailed disclosure requirements
Q. How has the protection afforded to creditors of the Maltese merging company been enhanced under the 2023 CBM Regulations?
A. 1. Disclosure of creditor safeguards in the CDTs: The CDTs must now clearly outline any safeguards offered to creditors of a Maltese merging company, such as guarantees or pledges.
2. Right to comment: Creditors are granted the new right to submit any comments concerning the CDTs at least five days before the date of the general meeting convened for their approval.
3. Judicial remedy for inadequate safeguards: Creditors now have a clear remedy to request enhanced safeguards for their claims ‒ without effectively blocking or delaying the merger process ‒ by demonstrating to the satisfaction of the court, during the three-month creditor period, that their claims are at risk due to the merger and that the safeguards in the CDTs are inadequate.
In such case, the court is authorised to mandate appropriate additional safeguards subject to the cross-border merger becoming effective.
In contrast, there was no specific requirement for creditors to assess the adequacy of safeguards under the repealed CBM regulations. Instead, shareholders had the right to object to a proposed merger under the three-month creditor period, by showing “good cause” which could potentially halt or delay the merger process.
Q. How have the 2023 CBM Regulations reshaped the right to contest the extraordinary resolution approving a cross-border merger?
A. The 2023 CBM Regulations have introduced new limitations on the ability of interested persons to challenge an extraordinary resolution approving a cross-border merger.
Any action to contest the resolution on the grounds that it is void or voidable must now be filed within one month from the date of the last publication by the registrar concerning the resolution.
This marks a significant reduction from the previous three-month period allowed under the repealed CBM regulations.
Moreover, the extraordinary resolution can no longer be challenged solely on the grounds that the share exchange ratio or cash compensation is inadequate, or that related disclosures did not comply with legal requirements.
This is because all relevant information concerning the share exchange ratio and cash compensation is now required to be disclosed from the outset in the CDTs, and stakeholders are therefore granted the opportunity to review and raise concerns regarding the share exchange ratio and/or cash compensation prior to the general meeting at which the CDTs are approved.
Sarah Fenech is a senior associate at Fenech & Fenech Advocates.
Part 6 of this FAQs series will address key aspects of the simplified cross-border merger procedures and timing considerations under the 2023 CBM Regulations.