The Mergers and Acquisitions regime in Cyprus has developed swiftly in the past decade, mainly as result of the 2004 accession of Cyprus to the European market, as an official integrated member of the European Union. Since then, various mechanisms have been established in order to facilitate the country's harmonisation with the EU law and the Mergers and Acquisitions regime was an important element in the current positive recovery of the economic situation of Cyprus.
A key development in the shaping of the Mergers and Acquisitions regime was Cyprus' implementation of the EU Cross-Border Mergers Directive 2005/56/EC. The directive was arguable the initial legislative step for simplifying a cross-border merger between corporate entities registered in Cyprus and respective entities incorporated in any other EU member state. In 2007, the Cyprus Companies Law, Cap. 113 was amended to include the new law N.186(I)/2007 which implemented the EU Directive 2005/56/EC, on cross border mergers of limited liability companies.
Accordingly, cross border mergers are possible between Cypriot companies limited by shares and companies registered in the EU. It is important to note that limited liability companies by guarantee and companies subject to liquidation are not permitted to take part in cross border merger.
Other important legislation related to the mergers are the Control of Concentration Between Enterprises Law (22(I)/1999) and the Safeguarding and Protection of Employees Rights in the Event of the Transfer of Undertakings, Businesses or Parts Thereof (104/(I)/2000). These laws promote fair competition and safeguard employees' rights in the event of a transfer of undertakings, respectively.
One of the most important features of the EU Directive is that the Cross-Border Merger process is monitored entirely by the national applicable rules and regulations of the Member State, where the new company will emerge and which the companies involved are already familiar with. In this respect, Cyprus may be considered to be one of the best available options to commence a Cross-Border Merger, as the companies involved will enjoy the following benefits and advantages:
- reduced administrative costs;
- fast and easy domestic applicable process;
- tax efficiency; the tax regarding dividends, which is only 12.5% and it is the lowest standard rate in the EU;
- trading securities are exempt, no withholding tax in Cyprus;
- the development of energy sector and public infrastructure schemes will stimulate increase cash flow and investment in the Cyprus market;
- Cyprus legal system is solid;
- Cyprus is situated between Asia, Africa and Europe, encourages new trading possibilities for companies.
As mentioned above, Cyprus Companies Law, Cap. 113 governs the restructuring procedure of a company, which includes mergers. Initially, the first step that needs to be taken by the Company involves the preparation of the proposed terms of the cross border merger by the Directors, and convene a meeting of the Board of Directors to approve the merger plan, as well as calling a general meeting to approve the same. Then the Directors must file with the Registrar of Companies, the common draft terms of the cross border merger, which shall be published at least one (1) month before the date of the general meeting, held in order to approve the merger plan and the director's report.
The Directors of each merging companies must draw up a report to the members of the Company, explaining and justifying the legal and economic aspects of the cross border merger, as well as the implications of the cross border merger for the members, creditors and employees. Such report must be available to the members and the representatives of the employees, one month before the general meeting. The cross border merger plan and the director's report must be then examined by an independent expert, which is appointed by the Cyprus Court. However, under the simplified formalities of the Law, the expert report is not a requirement, where all the members of each company involved in the merger, agree to the same or where the cross border merger is carried out by a limited liability company of another Member State, which holds all the shares and other securities conferring the right to vote at the general meetings of the acquiring company.
The General Meeting of each of the merging companies, after taking into account the Director's report and the expert report if applicable, decides on the approval of the common draft terms of the cross border merger. The General Meeting must pass a special resolution i.e. the majority of at least three-fourths of the members shall approve to the proposed merger.
Application to the Court to obtain the pre-merger certificate
Once the General meeting of the Company approves the common draft terms of the merger, the Company shall make an application to the Court, supported by an affidavit in order to obtain a pre-merger certificate in the form of a court order, confirming that the pre-merger acts and formalities have taken place and are satisfied.
A similar pre-merger certificate must be obtained by each merging non Cypriot company in its own jurisdiction.
Completion of the Cross Border Merger
Where the limited liability company resulting from the cross
border merger is governed by the laws of the Republic of Cyprus, a
second application must be filed within six (6) months of the
issuance of the pre-merger certificate with the District Court,
supported by an affidavit for further examination by the Court. The
Court will examine that the merging companies approved the merger
plans under the same conditions, and if the methods of
participation of the employees in relation to each company have
been followed pursuant to the law. If the Court is satisfied with
the legality of the procedure followed, then it will issue a
certificate approving the completion of the merger and finally will
authorise the entry into force of the cross border merger.
Upon the filing with the ROC of the Completion Certificate, the Registrar will remove all the absorbed Cypriot companies from the registry.
Consequences of the completion of cross border merger
As soon as the merger is completed then all the assets and liabilities of the absorbed company shall be transferred to the acquired company and the members of the absorbed company shall become members of the acquiring company. Therefore, the company being acquired ceases to exist.
In conclusion, the procedure related to the mergers and acquisitions is not complicated, and the unique structure of the Cyprus economy, along with the motivation to invest in Cyprus – either directly by acquiring a Cypriot company or indirectly by means of a merger, makes Cyprus M&A's a very attractive tool, in line with EU Directives on M&A's.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.