Companies Cross-Border Mergers Regulations 2007 (the Regulations)
What are cross border mergers?
For groups with complex cross border structures involving multiple European Economic Area (EEA) subsidiaries, the Companies Cross-Border Mergers Regulations 2007 (the Regulations) are available to be used to merge companies based across the EEA. The mechanism allows a group to collapse companies across member states so that the assets of one company, which will cease to exist, are transferred to the survivor company. It follows that complex group structures, which have been inherited or which have arisen as a result of acquisition or out of date planning, can be redrawn.
How will Brexit impact this type of merger?
Whilst enacted into English law, the Regulations originate from EU legislation.
If the UK ceases to be a member state, subject to any agreed transition terms, references to EEA member states in the legislation of other EU members will cease to include the UK, meaning this type of merger will no longer be possible either at Brexit or from the conclusion of any transition that allows for the process to be available after Brexit. In such circumstances, obtaining parallel court or equivalent approval in different territories outside the UK is likely to take materially longer, six months so would be a reasonable pre-estimate.
Why use the Regulations?
The advantages of using the Regulations rather than a traditional asset transfer and/or liquidation route can, in some circumstances, be persuasive. Using the regulations, assets are transferred by operation of law and merged companies are automatically dissolved. A further practical advantage is the capacity to implement a large scale pan European reorganisation of this sort at a single point in time, at 23.59 on the last day of the group financial period for example.
When should EEA mergers including UK companies be completed by to benefit from the current regulations?
It seems reasonable to conclude that any such merger should, subject to the outcome of the UK ongoing negotiations with the EU, be completed before 29th March 2019 (Brexit Date), in order to fall within the existing legislative framework. At this stage we do not recommend assuming that a transition period will extend the Brexit Date.
The Rix & Kay corporate team has experience rationalising European group structures and project management of cross border restructurings internationally, including in the EU. If this is something you would like to discuss, please let us know.