Implementation of alternative dispute resolution mechanisms in cross border mergers: International legal study

Parg2: the cross-border merger's feasibility

Cross- border merger transactions tend to be facilitated (B) despite many pitfalls (A).

A: Pitfalls to carrying-out cross-border mergers

Cross-border transactions present all the usual problems of a merger, often intensified because the acquirer is not familiar with the legal system of the country in which the target company is resident which render the deal more complex. Such complexity puts a heavy burden on both inside and outside Lawyers. There are many pitfalls that could impede this activity across border that will be analyzed from the European and the American perspectives.

From European perspectives, cross-border mergers technically cannot exist. For legal reasons it was not possible to merge companies in different jurisdictions. There are different methods by which two companies can engage in a cross-border merger. According to the European Company Law, the mainly used focuses on legal (or direct) mergers. The term "legal merger" means that there are at least two companies, a legal transfer of all assets and liabilities of at least one of the companies, the winding up of at least one of them without liquidation, and one remaining company⁸⁸.Regarding legal (or direct) mergers, three different types can be distinguished: those between member states where cross-border mergers are legally permissible, those involving member states with cross-border merger difficulties and those involving member states where cross-border mergers are not directly permissible⁸⁹.

⁸⁸ Fédération des Experts Comptables Européens, Survey on Business Combinations 6 (March 2002), available at http:// www.iasplus.com/resource/feebcrpt.pdf

⁸⁹ Cornette de Saint-Cyr, A.S, "Cross border Mergers", International Company and Commercial Law Review. (2002) west law

Examples of the first group are France, Spain and Italy. In the case of a merger by way of absorption, these countries accept that a domestic corporation may be either the acquiring or the acquired company. In a number of member states, such as Belgium⁹⁰, there are no specific provisions on cross-border mergers. As academics often disagree about its Lawfulness, a direct cross-border merger would be risky, and due to the lack of cases, there is also no clear judicial authority to allow or forbid cross-border mergers. Furthermore, some countries, such as the U.K, distinguish between different kinds of mergers, while other countries, such as Luxembourg, only permit cross-border mergers if the domestic company will survive and will not be absorbed⁹¹.

Finally, in some member states, such as Germany, cross-border mergers are not possible at all. Legal mergers are only possible between companies which are incorporated in the same jurisdiction. This is explicitly stated in the German corporate Law⁹² . In Germany, mergers are governed by the Umwandlungsgesetz (national Law on transforming companies: 'the UmwG'). Paragraph 1(1) of this Law, which governs transformations, refers only to the merger of companies established in Germany and provides as follows: 'Legal entities established in Germany may be transformed: 1. by means of merger. A German company cannot merge with a company organized under the Laws of another country. Apparently there is neither legal possibility of direct merger under German Law or Case Law supporting the feasibility of the cross-border transaction.

The situation is different in the US.

90 _Id

91 _Id

⁹² the German Transformation Act governs only merger between domestic companies

From the U.S. perspective, mergers are legally permissible and may be divided into "inbound" transactions in which a foreign company acquires a U.S. target and "outbound" transactions in which a U.S. company acquires a foreign company. According to Section 252 of the Delaware general Corporate Law: "any one or more corporations of this state may merge... with one or more other corporations of any other states of the united states, or of the District of Columbia if the Laws of the other state or states, or of the District permit a corporation of such jurisdiction to merger... with a corporation of another jurisdiction" ⁹³. In other words, American companies incorporated in Delaware may acquire or be acquired by companies incorporated in France or Tunisia provided that the French or Tunisian company corporate Law permits the merger across borders.

Equally, under Tunisian corporate Law, merging with foreign is legally permissible. Following the national legislation in force regulating the merger regime, Tunisian companies can merge with a company organized under the Laws of another country. In addition article 412 (3) of the Commercial company Code states that merger of one or more foreign companies with one or more Tunisian companies must lead to the incorporation of a company , the majority of the capital of which must be detained by Tunisian individuals or legal entities" ⁹⁴.

At first glance, the reading of article 412 appears unclear.

The possibility of merging with foreign companies is legally admitted , however , the condition stipulated by this article tends to render more difficult the transaction in practice , because it requires that the majority of the capital of the company that is going to absorb the other company must be detained by Tunisian shareholders. In other words the absorbing

⁹³ Section 252 of the DGCL (a): "Any 1 or more corporations of this State may merge or consolidate with 1 or more other corporations of any other state or states of the United States, or of the District of Columbia if the laws of the other state or states, or of the District permit a corporation of such jurisdiction to merge or consolidate with a corporation of another jurisdiction.

⁹⁴ Article 412 of the TCCC: "La fusion d^,une ou plusieurs sociétés étrangères avec une ou plusieurs sociétés tunisiennes doit aboutir à la constitution d^,une société dont la majorité du capital doit être détenu par des personnes physiques ou morales tunisiennes. (personal translation)

company must be incorporated under the Tunisian legislation and acquire the Tunisian nationality. According to the regulatory provisions in force regulating the nationality of companies in Tunisia⁹⁵, a company will have the Tunisian nationality⁹⁶ provided that its registered place of business is in Tunisia, at least 50% of its capital securities must be held by Tunisian individuals or legal entities; a majority of its directors' board or management or supervisory board must be composed of individuals or legal entities having the Tunisian nationality and their chairman or managing director must be a Tunisian citizen⁹⁷.

Foreign companies which are not resident⁹⁸ in Tunisia must obtain the authorization of the competent authorities (the Central Bank, the High Commission of Investment)⁹⁹ to have the business domicile in Tunisia in order to become shareholders of a Tunisian company. Case studies of cross-border mergers in Tunisia remain to be seen.

It appears from all these considerations that the treatment to carrying out cross-border mergers transactions lack harmonization and coordination between national company Laws. Many attempts towards harmonisation of the Law on cross-border mergers has been made to unify laws enabling companies to make cross-border business merger a feasible and less complex business combination.

⁹⁵ article 4 of Decree-Law n° 14 , issued in 30/6/1961 modified par law n°84 in 11/8/1985 related to the nationality of companies

⁹⁶ The distinction made between « companies having the Tunisian nationality » and « companies of Tunisian Law » shall not be discussed here

⁹⁷ Article 3 of decree-law 1961 Op.cit note 1 page 31

⁹⁸ resident means legal person having established in Tunisia article 5 of the Code of Exchange and Foreign Trade promulgated by law n°76-18, dated January 21^st ,1976 outlining reworking and codification of the legislation of exchange and foreign trade regulating the relations between Tunisia and Foreign Countries

⁹⁹ Article 20 the Code of Exchange and Foreign Trade .id.