Cyprus Companies Law, Cap 113 is the main legislation regulating mergers and acquisitions in Cyprus. In particular, sections 198-202 of the law contain provisions relating to mergers, reconstruction and amalgamation of companies.
Cyprus Companies Law implemented Directive 2005/56/EC on cross-border mergers of limited liability companies (Cross-border Mergers Directive). The later directive, Directive (EU) 2017/1132 codified six different directives relating to company and commercial law and at the same time repealed, with effect from 20 July 2017, Directive 2005/56/EC. However, since the provisions of the repealed directives have been transposed into Cyprus law, Directive (EU) 2017/1132 does not affect the existing framework for cross border mergers.
A brief summary of the procedures involved in effecting a cross border merger between EU / EEA member state and Cyprus companies under Cyprus law is provided below.
1. Common draft terms / Cross Border Merger Plan
The directors of each merging company which takes part in the cross-border merger must compile the common draft terms. The terms must contain at least the following information:
- the form, name and registered office of the merging companies and the relevant information on the company that results from the cross-border merger;
- the share exchange ratio of the share capital, and if relevant, the amount of any cash payment in settlement;
- the terms of allotment of shares or securities of the share capital of the company which result from the cross-border merger;
- the potential consequences of the cross-border merger on employment;
- the date from which the shares or securities in the share capital will have a right to a dividend and every special term regarding this right;
- the date from which the transactions of the merging companies are regarded for accounting purposes as being those of the company that results from the cross-border merger;
- the rights that are conferred by the company that result from the cross-border merger on the holders of shares to which special rights are attached or for the holders of securities, other than shares, or the measures proposed concerning them;
- any special advantages granted to the experts who have examined the cross-border merger plan or members of the board of directors of the management or supervisory organs of the merged companies;
- the memorandum and articles of association of the company which result from the cross-border merger;
- where necessary, information on the procedures in accordance to which the rules on the role of the employees and the determination of their right of participation in the company which results from the cross-border merger;
- information on the allocation of the assets and liabilities to be transferred to the company which results from the cross-border merger;
- the dates of the accounts of the merged companies which were used for the determination of the terms of the cross-border merger.
Once drafted the cross-border merger plan must be approved by the board of directors of the company.
2. Filing and Publication in Cyprus
The common draft terms must be filed, at least one month before the date of the general meeting of the shareholders of the company to approve the cross-border merger, with the Registrar of Companies in Cyprus. The exact procedures which are required to be followed depend on the provisions of the company’s articles of association.
3. Directors Report
A directors report must be prepared by of each merging company.
The report must:
- contain an explanation of the legal and economic grounds for the merger;
- set out the share exchange ratio; and
- refer to valuation difficulties (if any).
The report is presented to the shareholders and representatives of the employees (or the employees themselves if there is no such representative) at least one month before the general meeting of the shareholders of the company to approve the cross-border merger is scheduled.
The employees opinion on the report maybe attached if received in time.
4. Expert`s Report
Following an application by the company, an independent expert is appointed by the appropriate District Court of Cyprus to examine the directors report.
A joint request by the companies for the appointment of an independent expert is possible, either under Cyprus Law or under the law where the non-Cyprus company is incorporated.
The report must include:
- the method adopted to arrive at the exchange ratio proposed
- whether such method is adequate and
- any special valuation difficulties encountered.
The expert`s report is addressed to the shareholders of the companies and states their opinion as to whether the exchange ratio is fair and reasonable.
The requirement for an expert`s report can be waived, where all the shareholders of the companies involved in the cross-border merger agree.
5. Approval of the common draft terms
The resolution proposing the merger of the companies must be passed as a special resolution. That is, it the common draft terms must be passed by a majority of at least 75% of the shareholders or class of shareholders present and voting either in person or by proxy at the meeting.
The shareholders have the right to make the completion of the cross-border merger subject to the express ratification by them of the arrangements decided on with respect to participation of employees in the company which will arise from the merger.
6. First application to the Court – Pre-Merger Certificate
If the shareholders of the company approve the common draft terms, the company must apply to the appropriate District Court in Cyprus to obtain the Pre-Merger Certificate.
The Pre-Merger Certificate is a court order stating that the that the pre-merger formalities prescribed by the Cyprus Companies Law, Cap. 113 have taken been satisfied.
7. Second application to the Court – Completion of the Cross Border Merger
If the registered office of the company which results from the cross-border merger is in Cyprus, the District Court where the registered office is situated will have jurisdiction over deciding the legality of the procedures followed for the completion of the cross-border merger.
A second court application must be made to appropriate District Court within 6 months from the date of issue of the Pre-Merger Certificate. The following documents must be submitted by each merging Cyprus company to the District Court:
- Pre-Merger Certificate for each merging Cyprus company;
- the equivalent of a pre-merger certificate issued for the non-Cyprus merging; and
- common cross border merger plan approved in the shareholders general meeting by each Cypriot merging company and non- Cyprus merging company.
In assessing whether the prescribed procedures and formalities have been followed, the Court will examine the following:
- whether the merging companies approved the common cross border merger plan under the same conditions; and
- if the methods of participation of the employees in relation to each merging Cyprus company have been followed in accordance to the Cyprus law and in accordance to the national legislation for every merging non-Cyprus company.
If the Court is satisfied that the procedures followed for the completion of the cross-border merger are in accordance with local law, it will issue a Completion Certificate. The certificate takes the form of a court order which states that the completion of the merger has been approved. It also prescribes the date on which the cross-border merger will be deemed to take effect.
An official copy of the Completion Certificate must be delivered by the merged Cyprus company to the Registrar for registration and publication.
According to the provisions of Cyprus Companies Law, Cap. 113, the order must be attached to every copy of the memorandum of the new company which is incorporated following the finalization of the cross-border merger.
In addition, the Registrar is obliged, on receipt of the Completion Certificate, to inform, without delay, the relevant registrar for each non-Cyprus merging company to which the non-Cyprus merging company had a duty to and shall file the documents evidencing the coming into effect of the cross border merger.
On receipt by the Registrar of the consent and approval of the completion of the cross-border merger by the authorised body of the other member state, the Registrar ensures, again without delay, the registration and publication.
On the registration of the copy of the Completion Certificate, the Registrar removes any Cyprus companies which have been absorbed in the merger from the Register of Companies and refers to the date of the commencement of the cross-border merger.
The cross-border merger by acquisition of one or more companies by another company takes effect from the date set by the Court in the Completion Certificate for completion of the cross border merger and the following consequences arise:
- all the assets and liabilities of the company being acquired are transferred to the acquiring company. This takes effect vis a vis the transferring company, transferee company and third parties;
- shareholders of the company being acquired become shareholders of the acquiring company; and
- the company being acquired (transferor) ceases to exist.
A cross border merger by the formation of a new company takes effect from the date set by the Court in the Completion Certificate for completion of the cross-border merger and the following consequences arise:
- all the assets and liabilities of the merging companies are transferred to the new company;
- shareholders of the merging companies become shareholders of the new company; and
- the merging companies cease to exist.
9. Simplification of the procedure
A simplified procedure can be followed any of the following instances apply:
- the cross-border merger by acquisition takes place by a Cyprus company which holds all the shares and securities granting a voting right in the general meeting of the company being acquired or
- where the cross-border merger by acquisition takes place by a non-Cyprus company of another member state, which holds all the shares and securities granting a voting right in the general meeting of the company being acquired.
The following are also relevant:
- Cross Border Mergers of Cyprus Limited Liability Companies
- Mergers & Acquisitions in Cyprus – The Main Legal Framework
- Local Mergers under Cyprus Law
How can we help?
We have acted or advised in relation to numerous mergers and acquisitions, of both local and international character. We can assist and provide advice with regards to all aspects of mergers. In particular we can assist in:
- structuring and control of mergers, acquisitions and joint ventures;
- cross-border transactions;
- contract drafting and review;
- legal, financial and tax due diligence;
- share and asset acquisition and management;
- corporate dispute resolution.
Theodorou Law is a Cyprus law firm with Cyprus lawyers and other legal experts on legal matters involving Cyprus law, EU law and international law.
The above should be used as a source of general information only. It is not intended to give a definitive statement of the law.
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