The Luxembourg Parliament recently passed legislation to fully implement into national law Directive 2005/65/EC (the “Cross-Border Merger Directive”), which was partially implemented in March 2007. The new law also introduces certain changes to the Luxembourg law on commercial companies of 10 August 1915, as amended (the “Companies Act”).
The key rules on cross-border mergers applicable under Luxembourg law, following the changes in 2007 and the most recent amendments this year, can be summarized as follows:
- Cross-border mergers or divisions involving a Luxembourg company and a company based in another EU Member State or in a non-EU country are allowed, provided the national law governing the foreign company does not prohibit the cross-border merger or division.
- Cross-border mergers or divisions of entities with different corporate forms are possible, e.g., public limited-liability companies (sociétés anonymes), private limited-liability companies (sociétés à responsabilité limitée), partnerships limited by shares (sociétés en commandite par actions) and economic interest groupings (groupements d’interêt économique).
- Luxembourg civil-law notaries have been designated the competent authority for the purposes of scrutinizing the legality of cross-border mergers and divisions under Luxembourg law and issuing the official certificate conclusively attesting to completion of the requisite pre-merger acts and formalities.
- The Luxembourg legislature chose not to include any provisions in the Companies Act aimed at protecting minority shareholders in the context of a cross-border mergers or divisions.
- It is possible to waive the requirement of an independent expert’s report on the share-exchange ratio for the various companies involved.
The new law also adds an entirely new section to the Luxembourg Labour Code dealing with the participation rights of the employees of merging companies. Furthermore, the law provides that, where applicable, the draft terms of a cross-border merger must include information on the procedures by which arrangements for the involvement of employees in defining their rights to participate in the company resulting from the cross-border merger shall be determined pursuant to the Cross-Border Merger Directive.
The Act also expressly introduces partial divisions into Luxembourg law. A company can thus be divided into two or more companies without disappearing, a portion of the initial company’s assets remaining with it.
Changes to the provisions on the acquisition by public limited-liability companies of their own shares
The prohibition on public limited-liability companies acquiring more than 10% of their own shares has been abolished. Henceforth, there is no maximum percentage of own shares which such companies may hold.
The maximum period during which a public limited-liability company may hold its own shares has been extended from 18 months to five years.
When acquiring own shares, public limited-liability companies must take care to treat all similarly situated shareholders equally and to comply with the provisions of Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse).
Loosening of the financial assistance rules applicable to public limited-liability companies
The law now allows, under certain strict conditions, notably with the prior approval of the general meeting of shareholders, a public limited-liability company to advance funds, make loans and provide security to third parties with a view to the acquisition of it own shares.
Exceptions to the requirement that contributions in kind must be assessed by an independent auditor
Until the new legislation, the value of all non-cash contributions to Luxembourg public limited-liability companies had to be assessed by an independent auditor (réviseur d'entreprises).
The new law provides that, under certain circumstances, a valuation will no longer be required. This concerns notably contributions of securities issued by listed companies and assets that have recently been valued by an independent auditor or the value of which can be ascertained from recent audited accounts.