On cross-border mergers of Limited Liability Companies in a comprehensible manner – Német Zoltán Law Firm, April 1, 2021
Due to the constantly changing factors of the international market economy, the desired business goals and company structure can now be achieved in many ways in the case of the structuring process or M&A transaction.
However, the main question is always what is the most effective and cost-efficiently way to achieve the company goals.
In this article, we present the rules on cross-border mergers to the market participants operating in the Member States of the European Union.
In the Hungarian law these cross-border mergers are governed by the Act CXL of 2007 as the transposition of the Directive 2005/56 / EC of the European Parliament and of the Council, besides the Act CLXXVI of 2013 on the Transformation, Merger and Division of Legal Entities (hereinafter referred to as “LPT”) and the Hungarian Civil Code.
The legal framework has paved the way for groups of companies within the European Union to better coordinate their governance and decision-making processes and make their operations more cost-effective.
In order to increase the competitiveness, it has become possible for companies established in the European Union to relocate to Hungary with their assets.
While the regulation itself may seem simpler at first glance, the process of the merger may take longer.
By way of measures of organization of the procedure, it is essential to consult a tax expert and an accountant about the tax and other costs. Measuring the costs during the preparation of the transaction may help to select the right design.
The transformation in Hungarian law means a „change of subject” matter between companies. During the transformation, in the company to be transformed (legal predecessor company) is dissolved with a legal successor, and the successor company established with a legal predecessor.
’Limited liability company’ pursuant to the LPT means: private limited-liability companies, public limited companies, European public limited-liability companies and, subject to the exceptions set out in Hungarian law cooperatives.
The application of the rules on cross-border mergers is subject to the following conditions:
a. where each company taking part in the merger has been formed in accordance with the law of a Member State of the European Union, and
b. having their registered office, central administration or principal place of business within a Member State of the European Union,
c. provided that at least one of them is governed by the law of another Member State of the European Union.
On the first place the management of each of the merging companies shall draw up the common draft terms of the cross-border merger.
An auditor’s report on the merger shall also be required, except in the case, if all the members of each of the merging companies have so agreed by unanimous decision.
The proceeding is a complex process in which companies have to reckon with the following tasks: preparation and publication of the common draft terms of cross-border merger; the executive officers’ report of the cross-border merger; obtaining the report prepared by the management of the companies (explaining and justifying the legal and economic aspects of the cross-border merger); an independent expert report concerning the cross-border merger; the approval decisions of the supreme body of the company.
At the end of the proceeding, the foreign company in the other Member State of the European Union is wound up, and its assets will be transferred to the company based in Hungary.
In the case of a cross-border merger, the members of the merging company become the members of the acquiring company. If all the documentation required for the merger has been prepared and submitted, the court of registry shall issue a pre-merger certificate accordingly. An application for the registration of the company resulting from the cross-border merger shall be submitted to the competent court of registry based on its registered office, within six months from the date of issue of the pre-merger certificate.
A limited liability company may be established in Hungary specifically to participate in a cross-border merger as the acquiring company. The court of registry shall enter the name of the acquiring company in the company register with the extension “in Hungarian: egyesülés céljára alapított” („e.a.”) [“established with a view to merger” (“e.m.”)].