Part 3: Cross-Border Mergers of Limited Liability Companies under Maltese Law

Part 3: Cross-Border Mergers of Limited Liability Companies under Maltese Law

The second part of this series focused on the procedure for obtaining pre-merger certificates and the steps involved in completing a cross-border merger.

The third and final part of the series will examine the safeguards provided under the CBM Regulations, particularly the protections available to stakeholders such as creditors, shareholders, and employees.

One of the key features of the CBM Regulations is their emphasis on balancing efficiency in facilitating cross-border mergers with the need to protect those most affected by them. Compared to the repealed 2007 framework, the new rules significantly enhance the rights and remedies available to stakeholders.

CONTESTATION OF REGISTRATION

The registration of the Common Draft Terms of Merger (“CDTs”), as well as the registration of the extraordinary resolution approving the merger, may be challenged in court by any interested party.

Such an application must be filed against the Registrar within one month of publication, either on the grounds that the CDTs were not prepared in line with the law or that the extraordinary resolution of the general meeting is void or voidable. That said, Regulation 15 indicates an important exception – resolutions cannot be challenged solely on the grounds that for example, the cash compensation or share-exchange ratio were inadequately set.

Any application under this Regulation must be decided by the court within thirty days of filing. Once judgment is delivered, the Registrar is required to publish a notice of the decision in the Government Gazette or on the its website.

Where a defect exists that could render the cross-border merger void or voidable but is capable of being remedied, the court shall grant the Maltese merging company a period of up to one month to rectify the situation.

CREDITOR PROTECTIONS

The CDTs of the cross-border merger must include clear safeguards for creditors, allowing them to properly assess any risks involved.

Any creditor of a Maltese merging company whose debt existed before the publication of the CDTs may, within three months of that publication, file an application requesting adequate safeguards for the protection of their claims, on the ground that the safeguards offered in the CDTs are inadequate.

If the creditor demonstrates that the cross-border merger puts the satisfaction of their claims at risk and that no adequate safeguards have been provided by the Maltese merging company, the court will uphold the request. In such cases, the court will order that additional safeguards be provided, subject  to the  cross-border merger becoming effective.

The court must decide whether to dismiss or uphold the creditor’s application within thirty days from the date of notification of the application on the Maltese merging company and the Registrar.

SHAREHOLDER PROTECTIONS

Under the CBM Regulations, shareholders of a Maltese merging company enjoy several safeguards. In particular, the CDTs must clearly state any cash compensation available to dissenting shareholders, and shareholders have the right to submit comments on the CDTs at least five days before the general meeting at which the merger is to be approved.

Once a Maltese merging company approves the CDTs by extraordinary resolution, it must redeem the shares of any dissenting shareholders who request it and provide them with adequate cash compensation. This safeguard is intended to protect shareholders who would otherwise be left holding shares in a company governed by foreign law after the merger. To exercise this right, dissenting shareholders must notify the company within one month of the general meeting. The company is then required to redeem the shares and pay the cash compensation specified in the CDTs before the cross-border merger takes effect.

If dissenting shareholders believe the cash compensation offered is inadequate, they may apply to court for additional compensation. The court must decide the application on its merits within thirty days of the application being served on the Maltese merging company.

Shareholders who choose not to redeem their shares are also protected. If they consider the share-exchange ratio in the CDTs to be unfair, they may may dispute the ratio and request a cash payment. Where no agreement is reached, the shareholders may also apply to court for an additional cash payment, with the court again required to decide within thirty days of service of the application being served on the Maltese merging company.

Notably, the Registrar may still issue the pre-merger certificate while such applications are pending, but the certificate must expressly state that proceedings have been filed and are ongoing.

RIGHT OF APPEAL

Any party who feels aggrieved by the court’s judgment on the above matters, may file an appeal to the Court of Appeal within thirty days from the date of the judgment.

After appointing the application for hearing and after the parties’ oral submissions, the Court of Appeal must deliver its decision within the shortest time possible, and in any event no later than three months from the date the appeal was filed and the parties and the Registrar had been duly notified.

PROTECTION OF HOLDERS OF SECURITIES.

Holders of securities (other than shares) in a Maltese merging company to which special rights are attached must be granted rights under the CDTs that are at least equivalent to the rights they hold before the merger. In other words, their position should not be weakened as a result of the merger.

If any such security holders do not agree with the terms offered, they are entitled to have their securities redeemed.

EMPLOYEES’ PROTECTIONS

The CBM Regulations also provide specific protections for employees. The Directors’ Report must include a dedicated section explaining how the merger will impact employment matters and how the company will operate afterwards. This requirement ensures that employees remain informed and that their interests are considered throughout the process.

In addition, on the date the cross-border merger takes effect, all rights and obligations arising from existing employment contracts or relationships automatically transfer to the resulting company.