A cross-border merger is an operation whereby one or more companies from different countries are dissolved, but not liquidated, and that pass on all of their net assets (assets and liabilities included) to an existing or new company.

In Luxembourg, the merger of any type of companies is possible.  

Cross-border mergers are treated just like any merger under Luxembourg law, supplemented by certain rules that allow taking into account any of the other country's laws which apply to the companies concerned by the merger.

Cross-border mergers can be either mergers by acquisition or mergers by incorporation of a new company.

Who is concerned

Mergers involving a Luxembourg company are possible for all companies with legal personality as well as for economic interest groupings.

A company or economic interest grouping can also enter into a merger transaction with a company or economic interest grouping governed by foreign law.

Prerequisites

The merger is accomplished by:

• the absorption of one or more companies by another company (the acquiring company); or
• the incorporation of a new company.

The cross-border merger of a Luxembourg company is possible provided the national law applicable to the foreign company does not prohibit it.

How to proceed

Foreign law formalities applicable to the foreign company involved in a cross-border merger include:

• the decision-making process leading up to the merger;
• the protection of the creditors of the merging companies;
• the protection of unitholders, securityholders or shareholders;
• the situation of the employees.

Preparing the cross-border merger

The companies that plan to merge must first establish the draft terms of the cross-border merger. The draft terms of the merger is an important information document for third parties and the company partners. It is not legally binding for the company given that formal decisions are taken at a later stage.

The draft terms of the cross-border merger must state:

• the type, name and registered office of the merging companies and those proposed for the company resulting from the cross-border merger;
• the ratio applicable to the exchange of units or shares and the amount of any cash payments;
• the terms for the allotment of units or shares of the acquiring company;
• the date from which the holding of such units or shares will entitle the holders to their share in the profits and any special conditions affecting that entitlement;
• from an accounting point of view, the date from which the transactions of the merging companies will be considered to being those of the acquiring company;
• the rights conferred by the acquiring company on members enjoying special rights or on holders of securities other than shares or units, or the measures proposed concerning them;
  
• any special advantages granted to the experts who examine the merger or to the members of the controlling organs of the companies;
• the articles of association of the acquiring company;
• a description of the merger's likely effect on employment;
• where applicable, information on the procedures relating to the involvement of employees;
• information on the evaluation of the assets and liabilities which are transferred to the acquiring company;
• the dates of the accounts of the merging companies used to establish the conditions of the cross-border merger.

The draft terms of the merger must be published in the electronic compendium of companies and associations (Recueil électronique des sociétés et associations - RESA) and in the national gazettes of the other states concerned at least one month before the decision on the merger is taken by the general meeting.

In addition to the information to be provided depending on the type of the company, the publication must also include:

• the type, name and registered office of the merging company;
• information on access to the registers where the information regarding the financial and accounting statements is published;
• the registration number from these registers of each merging company;
• the arrangements made for the exercise of the rights of creditors of the company concerned;
• the address at which complete information on the merger may be obtained free of charge.

Report on the terms of the merger of the company's management organ

The company management's report is intended for the company's partners explaining and justifying the legal and economic aspects of the merger and, in particular, the exchange ratio of shares or units.

The report must be made available to the partners, the employees and their representatives not less than one month before the date of the general meeting deciding on the merger.

The report must explain the consequences of the merger for the:

• partners;
• creditors;
• employees.

Where the management or administrative organ of any of the merging company receives, in good time, an opinion from the representatives of their employees, that opinion shall be appended to the report.

This report can contain the same information as the auditor's report. It is possible to forego this report by unanimous decision of the partners and other holders of decision-making rights, in order to simplify the procedure.

The statutory auditor's report on the terms of the merger

The intervention of a statutory auditor shall be required to draw up a report on the terms of the merger for each of the companies. Their intervention is mandatory. The report must be made available 1 month prior to the general meeting during which the joint merger project shall be decided upon.

However, the management organs of the companies than plan to merge may agree on the appointment of an independent expert to be nominated by:

• the president of the district court with jurisdiction at the place of the registered office of one of the merging companies in Luxembourg; or
• the authority of a competent court of the state in which one of the merging companies is located.

The expert's report shall not be required if all partners and holders of other securities conferring voting rights in each of the companies involved in the merger have unanimously so agreed.

Implementation of the cross-border merger

There is a significant overlap in the rules of:

• the merger of companies under Luxembourg law;
• cross-border mergers where the foreign legislation of the companies concerned also applies.

These common rules apply to aspects such as:

• shareholder and creditor rights;
• liabilities in case of a merger.

In the case of a cross-border merger, the rules on cross-border mergers are added to the rules on mergers of companies governed by Luxembourg law.

Procedures for communicating with partners

A merger is a complex operation and it is therefore important to give the partners the necessary information to make informed decisions.

At least one month before the date of the general meeting called for the purpose of deciding on the common draft terms of the merger, each partner is entitled to examine the following documents at the registered office:

• the common draft terms of the merger;
• the annual financial statements;
• the management reports of the merging companies for the last 3 financial years;
• where applicable, an accounting statement closed on a date which must not be earlier than the first day of the third month preceding the date of the common draft terms of merger, if the latest annual accounts relate to a financial year that ended more than 6 months before said date;
• where applicable, the management's and the auditor's reports relating to the merger.

Each partner is entitled to obtaining this information on demand and free of charge. If the partners agree, the company can distribute this information electronically or publish it on the internet.

Merger decision

The cross-border merger requires the approval of the partners or shareholders, or holders of voting securities of each of the merging companies.

The decision requires that the conditions of quorum and majority as foreseen in the case of amendments to the articles of association are met. Consequently, the majority conditions depend on the legal form of the company.

Except in special circumstances, the agreement of all partners is required in partnership companies as their rights may change. This rule also applies to holders of securities representing the capital.

The general meeting of each of the merging companies can make the completion of the cross-border merger subject to the condition that it expressly ratifies the arrangements decided on regarding the participation of employees in the company resulting from the cross-border merger.

In the case of a cross-border merger where the acquiring company is holding 90 % or more of the shares, units and securities conferring voting rights of the company to be absorbed, the approval of the general meeting of each of the merging companies and, where applicable, of the holders of securities other than shares or units, after examination of the management's and the auditor's reports, is not required.

The merger decision is published in the RESA.

Intervention of a notary or a competent foreign authority

A Luxembourgish notary must:

• verify and certify the existence and legality:
  • of the acts and formalities to be carried out by the company that mandated the notary;
  • of the common draft terms of the cross-border merger;
• issue a certificate. 

Where the new acquiring company is a company governed by Luxembourg law, the notary's review of the legality also applies to the incorporation of the company.

If, in another state concerned by the merger, there is a procedure for modifying the exchange ratio of units or shares or a procedure for indemnifying minority partners, the other merging companies must explicitly accept this provision if it is not provided for in their country's legislation. The notary or the competent authority can issue the certificate, even if such a procedure is initiated. However, the certificate must indicate that such a procedure is under way.

The decision taken at the end of the procedure will be binding on the company resulting from the cross-border merger and on all of its partners.

Publicising the merger

The company being acquired must publicise its dissolution in the RESA.

Nullity of a merger

A merger can only be declared null and void by a court. The court may grant the company time to rectify the situation.

The grounds for nullity are limited and only concern fundamental rules, such as:

• the absence of a notarial deed;
• the nullity of the merger decisions.

However, in the case of a merger by acquisition in Luxembourg of a company governed by foreign law, the nullity can no longer be pronounced after the publication formalities have been completed.

The acquiring company continues to be bound by the obligations entered into.

Effects of a merger

For a company governed by Luxembourg law, the effects of a cross-border merger are the same as for a domestic merger with regard to the dissolution of the acquired company, the transfer of assets and the situation of the contracts.

Entry into effect

The legal effective date of the merger is determined by the law of the state where the acquiring company is established. This date may be different from the effective accounting date.

The merger by acquisition of a company governed by foreign law in Luxembourg shall take effect and is effective against third parties, from the date of publication in the RESA of the minutes of the general meeting of the acquiring company deciding on the merger.

In the case of a merger by acquisition where a company under Luxembourg law is acquired by a company under foreign law, the dissolution of the acquired company takes effect as soon as the Trade and Companies Register (Registre de Commerce et des Sociétés - RCS) is notified of the merger taking effect by the trade register where the acquiring company is registered.

The obligations resulting from employment contracts are transferred to the acquiring company on the effective date of the merger.

Taxation

The acquiring company is a foreign company

The regime for cross-border mergers is aligned with the regime applicable to domestic mergers. The merger profit will be exempt under the same conditions as if the merging companies were both Luxembourg companies. However, the regime will vary depending on whether the acquiring company is established in a Member State of the European Union or not.

The acquiring company is a Luxembourg company

The acquiring Luxembourg company will have the option of valuing the assets obtained as part of the merger:

• at their book value; or;
• at their operating value; or
• at any other intermediate value between these 2.

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