The Directive is not directly applicable and thus requires implementation into national law. Lower House of German Parliament (Bundestag) passed the new law on cross-border mergers on 9 November 2006. The new law mainly amends the Act on the Transformation of Companies (Umwandlungsgesetz) and the Labour Courts Act (Arbeitsgerichtsgesetz).
The Directive enables cross-border mergers of limited liability companies in the European Union which until now had been impossible or very difficult and expensive. It will be of particular interest to small and medium-sized companies wanting to operate in more than one Member State, but not throughout Europe, and are unable to incorporate under the European Company Statute.
The directive applies to cross-border mergers of limited liability companies, formed in accordance with the law of a member state and having their registered office, central administration or principal place of business within the Community. Furthermore, the companies have to be subject to the law of two different member states. A “limited liability company†in the sense of the Directive is a company having a legal personality and possessing assets which alone serve to cover its debts (Haftungskapital) and being subject to disclosure requirements. In Germany, such entities are the stock corporation (Aktiengesellschaft), the limited partnership on shares (Kommanditgesellschaft auf Aktien) and the limited liability company (Gesellschaft mit beschränkter Haftung).
The Directive is based on the principle that each company taking part in a cross border merger remains subject to the provisions and formalities of the national law which would be applicable in the case of a national merger. The Directive sets up a simple framework based on the basic modules: draft merger terms, management report, expert report and approval by the general meeting.
Corner stone of the new merger procedure are the draft merger terms which have to be set up by the management of the merging companies. The Umwandlungsgesetz already more or less fulfils the requirements of the Directive on draft merger terms. Amendments have to be made concerning the implementation of the Articles of Association in the draft merger terms and certain minimum requirements such as employee participation. Generally, the national law of the company resulting from the cross-border merger shall govern employee participation.
The management of each of the merging companies shall draw up a report analysing the legal and economical effects of the merger and its consequences for the employees. The expert report shall address issues such as fairness of the exchange ratio of the shares, etc. Such expert report may be waived by all shareholders of the merging companies.
After taking note of the management report and, if any, the expert report, the general meeting of each the merging companies shall decide on the approval of the draft merger terms.