Cross-border mergers in EU

The European Court of Justice rendered a judgment in the Case ”Sevic” (C 411-03) on December 13, 2005. The Court determines that a general prohibition against registration of a cross-border merger is inconsistent with the freedom of establishment.

In the particular case a German Commercial Register (Local Court of Neuwied) refused to register a merger between a German and a Luxembourg company. Its reason was that German laws allow mergers between German companies only. Such rule is a violation of the EC-Treaty’s freedom of establishment.

Under Danish laws as hitherto applied a registration of a merger between a Danish company and a German company would not be allowed either. Regardless whether it is inconsistent with EC-law and should be possible in theory to do so, one would face many practical obstacles/hinderances – both in the jurisdiction, where the continuing company is domiciled and where the discontinuing company was domiciled (de-registration without normal winding up procedures).

A Danish and German company may however merge into a new SE-company (societas europae) with domicile either in Denmark or in Germany. Applicable uniform rules have already been passed to that effect.

In practical life, cross-border mergers between companies of different EU-member states will be possible only, when the 10th EC-company directive is implemented in national laws of the member states. Implementation must take place before December 15, 2007. There are of course various corporate tax implications which need to be considered.