New EU proposal aims to make mergers, divisions simpler

Last year the Commission set out an action plan on reducing administrative burdens in the priority areas of business law, accounting and auditing. Feedback on this was said to have been positive, and the preference for company law was seen to be on changing existing directives rather than repealing and replacing them.

The new proposal would review the rules of the third and sixth company law directives on domestic mergers and divisions on a larger scale. It is said to have particular relevance of SMEs, which have fewer resources to comply with regulations and may therefore find curbs on their business potential.

Indeed, SMEs are said to make up 99 per cent of the EU food sector – around 280,000 businesses in total.

According to the Confederation of the Food and Drink Industries of Europe (CIAA), these businesses employ about 61 per cent of food and drink workers, and generate about 50 per cent of revenues. (The food and drink sector had a turnover of €870bn in 2007).

The CIAA has argued that the framework for the industry must be flexible and business-friendly for the needs of SMEs.

Overall, the Commission estimates that the effect of the proposal, in combination with two other fast track measures proposed will reduce the administrative burdens on EU companies by some 25 per cent by 2012.

“The total savings potential of the measures proposed so far in the area of company law, with the current proposal, is brought to €1 billion per year,”​ said the Commission statement.

The two other ‘fast track’ proposals are on expert reports for domestic mergers and divisions in the cross-borders mergers directive, and on the first and eleventh company law directives and accounting directives.

A new technological era​

“The directives we want to modify date back about 30 years,”​ said Charlie McCreevy, internal market and services commissioner. “If we want to keep administrative burdens for EU companies to a minimum we must make sure that these rules are brought in line with today’s technological possibilities and business practices”. ​

Amongst other aims, the new proposal introduces the possibility of companies using the internet and e-mail to publish draft terms of a merger or division, and to send out required information to shareholders.

It looks to reduce the reporting requirements of companies in the case of mergers and divisions, especially where shareholders decide that some reports are not needed and when the transaction involves a parent company and its subsidiaries.

It also aims to avoid duplication of reporting, if the same information is needed under different EU rules.