Rivista Orizzonti del Diritto CommercialeISSN 2282-667X
G. Giappichelli Editore


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The protection of shareholders in cross-border conversions, mergers, and divisions (di Lorenzo Benedetti, Ricercatore di diritto commerciale, Università degli Studi di Pisa)

The article examines the rules about shareholder protection in cross-border extraordinary operations under Directive 2019/2121, which introduces a new harmonized legal framework about this topic. In particular, it focuses on the shareholders' exit right and on the right to dispute the exchange ratio. The work also addresses how the rules of the Directive have been implemented in the Italian, as well as in other European national legal systems and tries to scrutinize their compliance with the EU guidelines.

La tutela dei soci nelle trasformazioni, fusioni e scissioni transfrontaliere

Il saggio analizza le regole in materia di protezione dei soci nelle operazioni straordinarie transfrontaliere ai sensi della direttiva 2019/2121, così come la loro implementazione nel­l’ordinamento italiano con spunti relativi anche altri ordinamenti nazionali. Particolare attenzione viene dedicata alla comparazione fra i diversi sistemi giuridici esaminati e alla conformità delle regole nazionali di attuazione rispetto a quelle eurocomunitarie.


1. Foreword. - 2. Member risks. - 3. Tools to protect minority members in cross-border operations: the right to exit the company. - 4. The right to dispute the exchange ratio. - 5. Further instruments for member protection. - NOTE

1. Foreword.

One of the aims of Directive 2019/2121, concerning the introduction of common rules for cross-border conversions, mergers, and divisions and amending Directive 2017/1132, is the protection of the rights of stakeholders (members, creditors, employees: Recitals 4, 5, 6, 17). The Directive aims to offer the same minimum level of protection to shareholders in all Member States to overcome the barriers to cross-border operations represented by different forms of protection [2], leading to complexity and legal uncertainty (Recital 17) [3]. The Directive provides uniform minimum protection in the three cross-border operations for each stakeholder category, except for some specific rules linked to the particular characteristics of the different operations. On the one hand, cross-border conversions do not entail any change in the assets (i.e., estate) and ownership of the converting company’s shares. On the other, mergers and divisions result in i) changes in assets and members, ii) the creation of new entities, as well as iii) an indirect change in the applicable lex societatis for some of the companies’ stakeholders (the ones of companies being merged or divided are subject to the lex societatis that governs the acquiring or newly created company if they receive shares in these companies) [4]. Therefore, the risks and possible conflicts differ in the three cross-border operations. In a conversion, there is no risk of an inadequate valuation of the company’s assets. In contrast, this risk may arise in the case of a merger and in the company being divided (since the recipient companies can only be newly created companies in a cross-border division). The incorrect valuation of the merging companies and the company’s assets being divided also implies the risk of determining an unfair exchange ratio to the detriment of members given new shareholdings in the companies resulting from the merger or division. Lastly, while a conversion cannot entail the risk of worsening the company’s assets and liabilities, this risk may arise in the case of mergers and divisions. Directive 2019/2121 introduces new instruments for protecting minority members, reflected in various steps of the procedure for the three cross-border operations. This is a significant regulatory innovation in EU law compared to Directive 2017/1132: according to this one, national laws could adopt rules protecting minority shareholders (voting against the [...]

2. Member risks.

Legal scholars have identified three different risks for shareholders associated with cross-border operations. Firstly, the operation can have a value-destroying effect. Secondly, the exchange ratio in mergers and divisions may be inadequately determined. Thirdly, the operation can result in a change of the applicable law [10]. The aim of the new Directive is to protect shareholders against such risks.

3. Tools to protect minority members in cross-border operations: the right to exit the company.

A. Rationale and foundations of the right. The rules on all three cross-border operations include a provision that protects members (Arts. 86i for conversions, 126a for mergers, 160i for divisions; Recital 18). A common element of the three provisions is the right of members who vote against the operation to exit the company, i.e., to dispose of their shares for adequate cash compensation [11]. Although not contained in Directive 2017/1132, a provision on an appraisal or withdrawal right is already present in some European legal systems when an extraordinary operation occurs. Therefore, the Directive merely adopts an instrument for protecting minorities that is already widespread in some national legal systems. For example, in Spain, shareholders are granted the right of separación in the case of a cross-border merger under Art. 62 of LME and in the case of a transfer abroad of the company’s headquarters, according to Art. 99 of LME. In Germany, §122i of the Transformation Act provides, in the case of a cross-border merger, that the company resulting from the merger, which is not governed by German law, must offer each member who voted against the operation the possibility to purchase their shareholding for adequate cash compensation [12]. Before the Directive’s recent implementation, in Italian legal system Art. 2506-bis, paragraph 4 of the Italian Civil Code, regulating non-proportional divisions, states that “the draft terms (...) must provide for the right of members not approving the division to have their shareholdings acquired for compensation determined following the criteria laid down for withdrawal, with an indication of who has the purchase obligation”. Moreover Art. 2437, paragraph 1) of the Italian Civil Code, provides that i) conversions, and therefore also cross-border conversions, are a cause for withdrawal as well as the transfer abroad of the company’s headquarters. Furthermore, for limited liability companies only, Art. 2473, paragraph 1, of the Italian Civil Code provides that mergers and conversions, therefore also cross-border ones, are a cause for withdrawal. The Italian legal system also included Legislative Decree 108/2008, which implemented the Directive on cross-border mergers [13]. Article 5 of that Decree provided that where the company resulting from the merger was governed by the law of another Member State, the members of the merging Italian company who had not [...]

4. The right to dispute the exchange ratio.

Only in the case of cross-border mergers and divisions does the Directive allow members who did not have or did not exercise the right to exit the company to dispute the exchange ratio they consider inadequate and claim a complementary cash payment (Arts. 126a.6 and 160i.6). This is a protection tool already provided by Directive 2017/1132 for mergers and which finds its origin in German law [57]. This provision limits the application of the right to dispute the exchange ratio to members i) who do not have the right to exit the company pursuant the Directive and to which a Member State decide not to extend such a right; ii) who do not exercise it: the shareholders who chose to participate in the cross-border merger/division and to remain members of the acquiring company, to become shareholders of the resulting company, to remain members of the divided company, or to become members of the recipient companies [58]. However, given that the aim of the Directive is only to provide a minimum level of protection, national laws may provide that all shareholders can choose whether to opt for the protection of their right to exit the company or for the protection deriving from the right to dispute the exchange ratio, bearing in mind that the protections deriving from the first or second right are different and alternative [59]. Voting against the operation is not a prerequisite for the right to dispute the exchange ratio, so members are not required to act in this way in order to maintain this remedy [60]. Such a solution is justified by the Directive’s intention to remove barriers – also with regard to member protection – to cross-border operations. Italian law grants shareholders the right to obtain a complementary cash payment in the event that they consider the exchange ratio inadequate when they i) have not voted for the cross-border operation and ii) have not exercised the right of exit (Arts. 26 and 45 L.D.). While the latter rule is the same provided by the Directive, the first prerequisite does not seem to comply with this one, as it results in a reduction of shareholders’ protection below Directive’s minimum threshold. The Directive does not clarify who is required to make the complementary cash payment, nor, in the event of exercising the right to exit the company, who is required to pay cash compensation to the members. This problem does not arise in the case of a merger, since at the end of the [...]

5. Further instruments for member protection.

A. Information. In addition to the above-mentioned instruments for shareholders’ protection, the Directive provides for additional procedural requirements in cross-border operations to safeguard their interests. The first is the management body’s report to the members. In the case of a conversion, it must be drawn up by the directors of the company being converted (Art. 86e); in the case of a merger, by the administrative body of each company taking part in the operation (Art. 124); and in the case of a division, by the administrative body of the company being divided (Art. 160e). The report is not required where all the members have agreed to waive that requirement. In the common section, the report must explain the legal and economic aspects of the cross-border operation, as well as the implications for employees and the company’s future business. In the section for members, the report must illustrate: a. the cash compensation and the method used to determine it; b. the implications of the cross-border operation for members; c the rights and remedies available to members in accordance with Articles 86i, 126a, 160i; d. for mergers and divisions, the share exchange ratio and the method(s) used to determine that exchange ratio, if applicable[70]. In addition to the information contained in the report, the Directive provides for another information instrument for members, namely the independent expert report: the expert must assess the adequacy of the exchange ratio in the case of mergers and divisions. Furthermore, in all extraordinary operations, the expert must give an opinion – as state above – on the adequacy of the cash compensation offered to the member exercising the right to exit the company [71]. This report is not required if all the shareholders have so agreed. This is a particularly important tool for the protection of minorities since it is intended to avoid the risk of errors by management as well as the opportunism of controlling members in determining the exchange ratio [72]. The expert report must be made available to members not less than one month before the date of the general meeting called to approve the operation. The administrative body’s report must be made available to members no less than six weeks before the date of the general meeting called to approve the operation. Protection through information was already the main instrument of member protection under Directive [...]

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