Cyprus has been an attractive international financial center since 2004 when it became a member of the EU and subsequently in January 2008 became a core member as soon as it joined the Eurozone. As a member of the EU, Cyprus has aligned its laws with the relevant directives and regulations of the EU regarding Mergers and Acquisitions.
A cross-border merger is the merger of companies established in Member States within the Community or within the wider economic area, provided that at least two of these companies are governed by the law of different Member States.
The cross-border merger in Cyprus as a member of the European Union is governed by the European Directive 200/56 on cross-border mergers. The EU Directive 200/56 has been substantially amended several times and in the interests of clarity and rationality, this Directive among others has been codified with the European Directive 2017/1132.
The European Directive was incorporated in articles 201Θ-201KD of the Cyprus Companies Law Chapter 113. These Articles shall apply to a proposed merger of capital companies, which are incorporated under the laws of a Member State and have their registered office, central administration, or principal place of business within the Community, provided that at least two of the companies they are governed by the law of different Member States and one is a Cypriot company, other than a company limited by guarantee or a company in liquidation, or the capital company resulting from the merger is a Cypriot company.
It is understood that the other merging companies should also be companies whose cross-border merger is permitted by their relevant domestic legislation and any company registered in Cyprus can participate in a cross-border merger with the exception of companies limited by guarantee and companies in liquidation.
A Cypriot company participating in a cross-border merger must comply with the provisions of the Cyprus Company law, including the provisions regarding the decision-making process in relation to the merger, and the protection of the merging companies’ creditors, bondholders, and bearers’ securities or shares.
The cross-border merger can be done in three ways as follows:
- by absorption when one or more companies dissolve, without going into liquidation, and during their dissolution they transfer all the assets and liabilities to another pre-existing company – the absorbing company ∙
- by incorporation when two or more companies dissolve without going into liquidation and upon their dissolution transfer all their assets to a new company which they incorporate; or
- by acquisition when a company is dissolved without going into liquidation and, upon its dissolution, transfers all its assets to the company that owns all the securities or shares of its corporate capital.
Regardless of the way of cross-border merger, if you choose to proceed when the Cypriot company is the absorbed one the following procedure should be followed:
- Preparation of a joint Cross-Corder Merger Plan
The board of directors of each company participating in the cross-border merger draw up the joint cross-border merger plan a ‘’Merger Plan’’ – Common Draft Term and their contents must be identical between them. The Merger Plan of Cypriot company, in accordance with the Company law, must set out the main terms and conditions of the merger to be observed. This plan includes at least the following elements:
(a) the legal form, name, and registered address of the merging companies,
(b) the likely impacts on employees of the merging companies.
(c) the ratio which applies to the exchange of securities and/or shares of the company’s capital
Once the Merger Plan is ready then the Directors at the Board Meeting and the shareholders at the General Meeting must approve it.
In accordance with the Chapter 113 Cyprus Company Law, in order to protect the interests of the merging companies’ shareholders and creditors who may be affected by the cross-border merger, the Merger Plan shall be published by the Registrar in the Official Gazette of the Republic of Cyprus at least one month before the General Meeting of the shareholders.
- General Meeting Approval
As soon as approved by the board of directors then the Merger Plan is taken to shareholders for approval through a vote. In order to enter into force, it must be approved by virtue of a special resolution in accordance with the Cyprus Company Law. The required voting percentage is determined either by the Cyprus Company Law or by the Corporate Documents (Articles of Association).
- Court Procedure
The cross-border merger process must be verified in two main stages by submitting two consecutive applications to the Court. The first stage is the issuance of the Pre-Merger Certificate and the second stage is the Court Order that approves the completion of the cross-border merger.
- Pre-Merger Certificate
In the event that the Cyprus Company is the absorbed company then it must file an application to the Cyprus District Court, in the district where it is the registered office is located. With the aforementioned application will request by the District Court to issue the Pre-Merge Certificate.
- Completion of the Cross-Border Merger
Once the pre-merger certificate is issued, it should be sent to the absorbing company which will submit an application to the District Court requesting the issuance of a court order approving the completion of the cross-border merger.
- Informing the Registrar of Companies to complete the process.
As soon as the Court proceedings are completed, and the court approves the completion of the cross-border merger, then must inform the Registrar of Companies by filing the Court Order, and accordingly, the Registrar will publish in the Official Gazette of the Republic of Cyprus the completion of the Cross-border Merger.
Consequences of cross-border merger
The consequences of a cross-border merger are the following:
All the assets, rights, obligations, and liabilities of the absorbed company shall be transferred to the new company resulting from the merger and the members of the company being merged shall become members of the new company.
Cross-border mergers in European Union provide flexibility to the business models and are clearly a means of corporate restructuring at the European Union level, whereby the participants have the right to choose the most appropriate legal framework to place their investments within the most effective organizational structure.
The above article is purely informative in nature and in no way constitutes legal advice or opinion regarding the process of the Cross-border Merger. Our law firm provides services for Cross-border merges, and specialized advice and is able to represent clients in all Districts of the Republic of Cyprus. You can reach us by calling +357 24 727313 or sending an email to [email protected].