Hoofdstuk 10 Summary

A legal merger is the legal transaction of two or more legal entities in which one of these legal entities acquires the assets of the other legal entity (entities) by universal title or in which a new legal entity - incorporated by the legal entities first mentioned in this legal transaction — acquires their assets by universal title.

A cross-border merger is a merger in which at least two of the companies involved are subject to the laws of different countries.

The cross-border merger distinguishes between inbound mergers and outbound mergers. An inbound merger is a cross-border merger viewed from the country that governs the acquiring legal entity. An outbound merger is a cross-border merger viewed from the country that governs the disappearing legal entity. Thus, viewed from the Netherlands an inbound merger is a merger in which a Dutch legal entity acts as the acquiring legal entity. In case of an outbound merger, the Dutch legal entity disappears and its assets are transferred to a foreign legal entity.

Since the implementation of the Cross-Border Mergers Directive, Dutch law recognises rules for cross-border mergers of capital companies and cooperative societies within the European Union or the European Economic Area. This offers capital companies that are organised under Dutch law (the NV, the BV and the SE with registered office in the Netherlands) the opportunity for a cross-border merger that is worked out in the national laws. This merger must be distinguished from the cross-border merger based on the SE Regulation and the merger based on the freedom of establishment.

In cross-border mergers based on the law and involving a Dutch capital company, the Dutch civil law notary fulfils a number of important legal tasks.

For example, the minutes of the general meeting of shareholders in which the merger resolution is adopted must be drawn up by deed executed by a civil law notary. The civil law notary is in charge of supervising the legality of the merger procedure for both inbound mergers and outbound mergers. In case of an inbound merger, the civil law notary is also in charge of supervising the legality of realising the merger and executing the deed setting forth the merger.

In order to promote cross-border trade, the European Union aims to harmonise company law. We know the following sources of harmonisation:

The system chosen to achieve harmonised mies comprises substantive harmonisation of national law. The major (current) statutory rules regarding cross-border mergers are the SE Regulation from 2001 and the Cross-Border Mergers Directive from October 2005. My study focused primarily on (statutory provisions based on) this directive (in combination with the statutory mies governing national mergers, which are based on the Third Council Directive from 1978).

The implementation of the Cross-Border Mergers Directive created a legal framework for the cross-border merger of capital companies within the European Economic Area. There are no statutory rules for cross-border mergers outside the European Economic Area. Nor are there any statutory rules in the European Economic Area for cross-border mergers of legal entities other than capital companies. The question relevant to practice is whether these merger variants that have not been explicitly worked out in the law are nonetheless possible.

The answer to this question can be approached from a number of points of view. One way to approach this is from the international private law viewpoint. Van Solinge already used this approach in his dissertation in 1994, where he made a distinction between a conflict of laws sub-question and an admissibility question. At the time of Van Solinge's dissertation, the admissibility question was not generally answered affmnatively.

In assessing the question regarding the possibility of cross-border company fransactions, including the cross-border merger, after Van Solinge's dissertation European Union law in general and the freedom of establishment as expressed in Articles 49-54 11-.EU in particular played a central and crucial role in the past years. The case law and literature devote a lot of attention to the question regarding the extent to which a cross-border merger can be directly based on the freedom of establishment within the European Union. Judgments that have played an important role in the perception in this regard are the decisions in Daily Mail, Centros, überseering, Inspire Art, Sevic en Cartesio.

Many authors perceived the decision in the Sevic case, in particular, to be a licence for cross-border inbound and outbound mergers within the European Union without any further statutory mies. However, the broad interpretation ascribed to the judgment was put in perspective in the judgment in the Cartesio case.

Based on the series of ECJ judgments I conclude in respect of the admissibility question that, in general, the recognition of a cross-border merger that is admissible based on the laws of the Member State of the disappearing company may not be refused in the Member State of the acquiring company.

The ECJ has still not rendered an explicit opinion regarding the cross-border outbound merger. The question regarding whether an outbound merger that is not based on the law is admissible viewed from the Netherlands must be answered based on the interpretation of a number of concepts and the text of the Dutch law. This interpretation is reserved for the ECJ.

In Chapter 3, I conclude that the civil law notary is only required to cooperate in the merger variants embedded in so many words in Dutch law or the variants that must be recognised based on the freedom of establishment under European case law. Specifically this means that under the present position of legislation and case law, the Dutch civil law notary can/may cooperate in the following forms of cross-border mergers, from the Netherlands (merely) involving Dutch capital companies:

In other forms of cross-border mergers the Dutch civil law notary must refuse to perform his official duties.

The legal tasks of the civil law notary in cross-border inbound mergers with capital companies can be broken down into the following tasks:

In outbound mergers, the civil law notary's tasks are limited to the tasks in (i) and (iii).

The tasks of the civil law notary can be separated into a formal framework and a substantive framework. The formal framework stipulates the mandatory tasks he performs or refuses to perform based on clear orders or prohibitions formulated in laws and case law. The substantive framework stipulates the tasks he performs or refuses to perform based on the definition of his work area, in part inspired by sources other than laws, case law and other rules. This last category also involves work that the civil law notary should refuse to perform based on society's expectations regarding the office of the civil law notary. Usually, the formal framework will start from a legal point of view and the substantive framework will start from a deontological point of view.

Supervision of the legality of the merger procedure is expressed as follows in Dutch law 'The civil law notary certifies that he is satisfied that the procedural requirements have been observed for all resolutions required by Parts 2, 3 and 3a of this Title and the articles of association for the cross-border merger and that for the rest, the regulations specified in these Parts have been complied with.'

These are formalities that relate to the preparatory phase of the merger. In this phase, the civil law notary may limit his investigation to his own jurisdiction. The scope of the investigation is expressed in the certificate. The civil law notary must certify that all resolutions regarding the merger adopted based on the merger legislation and articles of association have been adopted subject to the (procedural) requirements stipulated for this — in a broad sense — and that all regulations from the merger legislation have been complied with. This means that the procedural requirements in the articles of association and those outside Title 7 must be included in the investigation of the decision-making process. In respect of the other regulations (not being resolutions), the civil law notary can limit his investigation to the regulations of Title 7, Parts 2, 3 and 3A.

Chapter 4 lists the elements that the civil law notary must investigate in the scope of the pre-merger certificate he is to issue. In this respect, reference is made to the admissibility question regarding the merger, (elements of) the merger proposal, the explanation to the merger proposal, publication of merger documents, accounting supervision and the merger resolution. In respect of these elements, the question regarding the extent to which attention should be paid to these elements, the historical basis of the elements and whether there is any reason to modify or abolish these elements is addressed.

According to the parliamentary history, the pre-merger certificate must be issued in the form of a notarial deed. After analysing the text of the act and the legal system governing the notarial deed, I conclude that this approach is incorrect. An additional advantage of the conclusion that the certificate may also be issued in a different form is that this prevents the discussion regarding the question of whether the certificate may also be issued in a different language.

In inbound mergers, the civil law notary is also in charge of supervising the legality of realising the merger. This regulation resulting from the Cross-Border Mergers Directive has also been implemented in the national law: the civil law notary must certify at the end of the merger deed that he is satisfied that

Issuing the pre-merger certificate and executing the merger deed, including the statement at the end regarding the supervision of the legality of realising the merger, are two separate acts. In Chapter 4, I advocate statutory rules prescribing that the pre-merger certificate for inbound mergers is not issued until the day the merger deed is executed or the statement is included in the merger deed itself. Combining the two statements prevents circumstances which may occur in the period between issuing the pre-merger certificate and executing the merger deed from falling outside the supervision.

One of the subjects in cross-border mergers of capital companies that demands special attention is the position of the minority shareholder who opposes the intended merger. This shareholder has the protection afforded by law, which is expressed as follows in Section 333h:

I have expressed the necessary criticism and made a number of comments regarding the above rules.

For example, the rules do not indicate which shares are involved. Share holdings may fluctuate. In my opinion, the request can regard the shares that the shareholder will hold at the time of the merger, with a maximum of the number of shares he held at the time of the general meeting of shareholders in which he voted against the merger.

The protection is offered for `minority shareholders'. In defining this term, I pay attention to classes of shares, restrictions of the voting right, non-voting shares in the flex BV and (different classes of) depositary receipt holders.

The conditions stipulated by the Cross-Border Mergers Directive for a national protection scheme offer the possibility of applying the protection on a much broader scale than can be done now. In particular, the requirement of Section 333h (1) that the shareholder who wants to exercise the right to resign must vote against the merger leads to an unnecessary and undesirable restriction. Shareholders whose shares are encumbered with a right of pledge or usufruct and who do not have the voting right to the shares cannot automatically use the scheme. The same is true for shareholders whose voting rights have been suspended and (individual) holders of non-voting shares.

A broader area of application that falls within the boundaries specified in the Cross-Border Mergers Directive can simply be achieved by amending Section 333h. I present a proposed text for a new Section 333h in Chapter 5 and in Chapter 8.

In addition to determining the amount of the compensation, the course of the proceedings in determining the compensation, the payment, the right to resign in case of a cross-border SE merger, the voting right of resigning shareholders during the further merger process and the compensation in light of the 10% scheme, Chapter 5 addresses the compensation and the rules of capital protection. The link is made in part in view of the position of creditors. The (current) statutory capital protection rules are designed to prevent bound capital from leaving the company without the creditors being able to object to this in the event of distributions to shareholders.

In the past years, capital protection has received particular attention.

One of the reasons for this is a number of judgments rendered in the area of the freedom of establishment within the European Union (Inspire Art), paying up shares (Biggles, Wachtkamer Televisie Nederland, Bas-C) and wrongful act (Keulen/BLG, Beklamel, Nimox, Reinders Didam).

This series of decisions inter alia imply that, even if they comply with the letter of the law, the parties involved can still act wrongfully in respect of (other) creditors if they do not allow for the possible fact that as a result of the payment or distribution, (other) creditors can no longer be paid. The approach adopted in the case law is partially followed in the statutory (capital protection) rules for the flex BV and entails that following a distribution, the company must be able to continue to pay its payable debts. The system assumes liability of the persons involved; managing directors and shareholders.

Even though the statutory capital protection rules do not apply to payment of the compensation to a resigning minority shareholder in a cross-border merger, the approach adopted in the case law and statutory rules pertaining to the flex BV mentioned above does play a role.

This offers something to go on for those creditors for whom the statutory tules of objection in the scope of payment of compensation are shown to be an empty shell.

Payment of compensation by the acquiring company or by a disappearing company can be involved in both inbound mergers and outbound mergers. These variants are worked out in Chapter 5. However, in all cases it may be concluded that when as a result of the payment of compensation, (other) creditors of the Dutch company involved are paid less than they are due, the managing director must refuse to make the payment or must refuse to cooperate in the merger.

If the managing board fails to do this even though a right thinking managing director would have done so, this may result in liability based on a wrongful act.

Chapter 5 concludes with a critical consideration regarding application of Section 328 (1), second sentence. Based on that provision, an accountant must declare that the equity of the disappearing company (companies) exceeds the nominal capita' paid up on the shares that are issued to the shareholders of the disappearing company, plus the additional payments by virtue of Section 325 (2) (10% rounding off), plus the compensation based on the resignation rules.

The tules create a lack of clarity, are applied in different ways and are not obligatory based on the relevant directives. Therefore, the regulation should be abolished.

Participation in cross-border mergers is an important topic. In the scope of a cross-border merger based on the Cross-Border Mergers Directive — just as under the tules pertaining to the SE — the term `participation' refers to the right of the corporate body representing the employees and/or the right of the employee representatives to exen influence on the composition of the management or supervisory body in the company.

The various Member States of the European Union have different participation schemes. Without further tules, participation would disappear if a legal entity in which (an organisation of) employees can exercise participation rights would merge as the disappearing company with a legal entity in a Member State where no participation applies.

The Netherlands recognises a special form of participation, which is part of the dual board regime. A company that is subject to the dual board regime is required to institute a supervisory board, consisting of at least three supervisory directors. When appointing each supervisory director, the Works Council has a right of recommendation with the proviso that the Works Council has an enhanced right of recommendation for one-third of the number of supervisory directors.

The participation mies have been worked out in Section 333k. The main mle is that the acquiring company is subject to the participation mies of the country in which it has its registered office.

This main mle is set aside if

If one of these two exceptions occurs, negotiations must be conducted with a special negotiating body representing the employees who are employed in the companies that will become part of the acquiring company.

If the average number of employees is less than 500, the main rule applies — the statutory system of the acquiring company applies — unless the applicable regime based on the main mle is at a lower 'level', as it were, than the applicable participation regime at one of the other merging companies. The Dutch legislator has taken the position that the Works Council's right of recommendation in a dualboard company is 'at the highest' level. As a result, when a Dutch dual-board company acts as the acquiring company, this cannot impair a regime that applies at one of the disappearing companies. This opinion of the legislator is not in line with the text of Article 16 of the Cross-Border Mergers Directive, on which the text of Section 333k is based. The legislator's choice of the current text of Section 333k has been criticised for several reasons. It would be desirable if this text would still be revised to conform to the text of the Cross-Border Mergers Directive.

If the main mle is set aside, negotiations must be conducted. These may have four po ssible results:

All this may result in a foreign participation system applying to a Dutch acquiring company. But in a merger between a Dutch company and a foreign company, as well, the participation regime of a third party (a country that is not involved) or a system devised by the companies involved in the merger may be agreed upon.

The mies that have become applicable or have been agreed on must be worked out in the articles of association of the acquiring company. This regulation leads to two potential problems:

In respect of the problem outlined in paragraph (i) above, the law dictates that the merger resolution may not differ from the merger proposal. It would be desirable if the text of Section 317 would be amended, and an exception made for the amendments to the articles of association as described here. As long as the law is not amended regarding this point, the civil law notary is faced with the dilemma of whether or not he can wake changes to the draft articles of association that are part of the merger proposal. In Chapter 6, I will defend the opinion that he can do so.

An important point of attention in the problem outlined in paragraph (ii) above is that the Cross-Border Mergers Directive stipulates that when at least one of the companies taking part in the merger has an employee participation system and the company that will emerge from the cross-border merger must fall under such a system, this latter company is required to adopt a legal form that makes the exercise of participation rights possible. In specific cases, this means that the Dutch company will have to provide a monistic management structure. The Dutch law does not yet provide explicit mies for this. The civil law notary that must implement such mies in the articles of association has a number of sources to rely on. Rules that may be relied on are the legislative proposal for amending Book 2 of the Dutch Civil Code in connection with amendment of mies governing the management and supervision of public limited liability companies and private companies with limited liability, the SE Regulation in combination with the SE Implementation Act, the Dutch Corporate Governance Code, the Recommendation of the European Commission regarding non-executive directors and supervisory directors, the statutory mies of the country whose laws govern the participation rules and, fmally, possible existing articles of association of companies that introduced a monistic system within the frameworks of the current mies of Book 2 of the Dutch Civil Code.

A number of practice cases are discussed in Chapter 7. Some of these cases address the question regarding whether the civil law notary may cooperate in effecting the envisaged result. This question is answered based on the duty for the civil law notary to perform or refuse to perform his official duties as embedded in the notaries act.

The following items are dealt with:

This doctoral thesis ends with a number of proposals and recommendations for further tules and legislation, including a number of proposals for amendment of existing statutory provisions.