Cross-border mergers of limited liability companies 2023 – Part 6

These FAQs are the sixth 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).

Part 5 of the FAQs focused on the enhanced protections granted under the 2023 CBM Regulations to stakeholders of a Maltese merging company when compared with the repealed CBM regulations.

This part focuses on the simplified procedures and timing in the context of a cross-border merger (the ‘MBR’).

Q: When do the simplified procedures apply?

A. Regulation 27 of the 2023 CBM Regulations contemplates for the application of simplified procedures in the instances when the cross-border merger by acquisition involves two types of scenarios.

In the first instance, the procedures would be simplified where Company A holds all voting shares in Company B, and Company A and B merge (across borders) upstream. In the second scenario, the said simpler formalities would apply where the two merging companies are owned directly or indirectly by the same person.

In either case, in the context of such a cross-border merger, since the merging companies have the same ownership, the acquiring company would not allot any shares in this context, thus essentially creating a simpler process in itself.

Although not specifically referred to in Regulation 27 in this manner, one can interpret the simplified process in scenario B to apply automatically and cater for the newly added fourth form of merger included in the definition section (Regulation 3 “merger” (d)).

Q: What are the implications in practice of the applicability of the simplied formalities?

A: Once there is a determination that the simplified process applies, then certain requirements can be done away with, such as:

1. Certain items in the cross-border terms of merger (the ‘CDTs’) – for example the share exchange ratio − in view of the fact that no shares are allotted, then the share-exchange ratio, as well as the terms for allotment of shares, would of course not be required;

2. The independent expert’s report and the directors’ report; and

3. The approval by the shareholders in general meeting.

The idea, generally, is that once there is a common shareholding in the simplified process, then there is no need to include shareholder protection and approval mechanisms, as well as certain details related to the issuance of shares, thus making the process simpler by its very nature. 

Q: What is the general timing under the 2023 CBM Regulations?

A. The timing of the cross-border merger process varies depending on whether the formalities are the simplified ones or otherwise. It will also vary depending on whether certain objections are filed, and on whether the documents submitted to the MBR are in the proper format or otherwise.

The regulations are complex and detailed

It is not always easy to determine how long the process will take, especially because the 2023 CBM Regulations give certain leeway to the registrar through the use of phrases like “without delay” without specifying exactly what this entails. In general, however, the following should be considered:

The Directors’ Report must be made available to the members and employees not less than six weeks before the date of the general meeting (the ‘GM’) of the Maltese merging company (the ‘MMC’) (or that of the other merging company, where the approval of the merger is not required by the MMC);

1. The written declaration of solvency must be made within the month immediately preceding the disclosures under Regulation 10 (namely the registration with the registrar of the CDTs, etc);

2. The independent expert’s report must be made available to the members not less than one month before the date of the GM of the MMC (that of the other merging company, where the approval of the merger is not required by the MMC);

3. The filing by the MMC of the CDTs, declaration of solvency and the notice to shareholders, must be done one month before the date of the GM of the MMC (that of the other merging company, where the approval of the merger is not required by the MMC);

4. The extraordinary resolution approving the merger must be filed within 14 days from its approval;

5. Once the one-month period from the last publication required at law, has elapsed, then an application for a pre-merger certificate can be made to the registrar;

6. The registrar has three months from the receipt of the application to review the documents submitted in the said application; and

7. A pre-merger certificate cannot be issued before the lapse of three months from the date of the first publication of the CDTs made in terms of Regulation 10 – though this may be extended by a further three months if further investigation is required.

In the case of simplified procedures, the timing will obviously be also simplified and shortened in that some of the above documents and approvals will not be required.

In general, when carrying out or planning a cross-border merger, drafting/approvals/filings needs to be calculated carefully in order to respect the timings under the 2023 CBM Regulations. Often one needs to work backwards, as it were, to ensure that, if a merger needs to be completed by a certain date for various reasons, the first filings would be duly timed to factor in an approximate five-month frame (more or less) (assuming all goes to plan and without hitches).

Q: What other time frames should be considered in the context of a cross-border merger?

A. When considering timing one needs to also factor in the time frames imposed by law in connection with objections and court-related procedures. The following considerations should be made:

• Dissenting shareholders: In cases where the shareholder wishes to redeem its shares before the merger, it must make a declaration to the company not later than one month after the GM. Similarly, where dissenting shareholders wish to redeem their shares, but are not in agreement with the cash compensation, they need to file an application in court not later than one month after the GM, and in this case the court needs to decide on the merits of the application within 30 days from its service. This timing is also applicable where an application is filed under Regulation 12(5) by shareholders who consider the share-exchange ratio inadequate, and no agreement is reached in this regard.

• Interested parties: Any interested party may also contest the publication of the CDT and the resolution within one month from the publication of the said CDT (under Regulation 10) and within one month from the publication of the resolution under Regulation 14). Once again, the court has 30 days from the filing of the application in this respect to decide whether to dismiss or uphold the application.

• Creditors: Other applications may be made by creditors whose debt existed before the publication of the CDTs under Regulation 10, and such applications must be made within the three-month period from the said publication. There is a 30-day period from the date of the notification for the court to decide whether to dismiss or uphold the application.

• Appeals: Appeal applications may be made within 30 days from the date of the relative judgment and the Court of Appeal has one month from when the appeal is brought before it, to set down the hearing.

As can be seen from above, the time frames in the 2023 CBM Regulations are detailed and complex and attention must be made by all concerned to adhere to them as closely as possible.

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

Part 7 of these FAQs, the final part in this series of FAQs addressing the 2023 CBM Regulations, will focus on the final stages of the cross-border merger process in terms of the said regulations.