European Communities (Mergers and Divisions of Companies) Regulations, 1987 [S.I. No. 137 of 1987].
An Roinn Tionscail agus Trachtala
I am directed by Mrs. Gemma Hussey, TD, Chairperson of the Joint Committee on the Secondary Legislation of the European Communities to refer to European Communities (Mergers and Divisions of Companies) Regulations, 1987 [S.I. No. 137 of 1987] which implement Council Directives 78/855/EEC and 82/891/EEC.
The Joint Committee would be glad to have your Department’s assessment of what the likely practical effect the Regulations will have. In this connection if the information is readily available it would be interested in knowing whether any mergers or proposed mergers notified to the Minister under Section 5 of the Mergers, Take-over and Monopolies (Control) Act, 1978 come within the Regulations and would have come within them had they been in force.
The Joint Committee notes that the Regulations appear to be wider than Directives where the consideration includes a cash payment as well as shares in the acquiring companies. It would appear that a cash payment exceeding ten per cent of the nominal or par value of the shares issued would put a merger or division outside the provisions of the Directives but the Regulations would apply where the consideration includes any cash payment. The Joint Committee would welcome your observations on this apparent disparity.
Finally, I am to request you to state what is intended to be covered by “securities other than shares ..... to which special rights are attached” which are referred to in Articles 18 and 37 of the Regulations. Would an option to subscribe for shares come within this category?
a/s Cleireach an Chomhchoiste.
3 Meitheamh, 1988.
Ms. P.A. Ryan,
Cleireach an Chomhchoiste,
Joint Committee on the Secondary
Legislation of the European Communities,
I wish to refer further to your minute of June, 1988 concerning the European Communities (Mergers and Divisions of Companies) Regulations, 1987 (S.I. No. 137 of 1987) implementing Council Directives 78/855/EEC and 82/891/EEC.
With regard to the question as to the likely effect of the Regulations, it should be noted that the Regulations apply only to mergers and divisions between public limited companies. Of a total of approximately 80,000 companies registered at the Companies Registration Office, only 200 are registered as plc’s. Furthermore, the type of operation covered by the Regulations is common on Continental Europe but is virtually unknown in Ireland.
The type of operations covered by the Regulations are:
(i)Mergers: The Regulations apply to an operation whereby all the assets and liabilities of one or more companies are transferred to another company (the acquiring company), the shareholders of the company or companies being acquired become shareholders in the acquiring company and the company or companies being acquired are dissolved.
(ii)Divisions: The Regulations apply to an operation whereby all the assets and liabilities of a company are transferred to more than one other company, the shareholders of the company being acquired become shareholders in the acquiring company or companies and the company being acquired is dissolved.
In the usual merger operation in Ireland, the acquiring company acquires a controlling interest in the target company. As the Directives which were implemented in the Regulations do not deal with this type of operation, and as they do not apply to private companies, the practical implications for Ireland are not significant.
It is worth noting that in their first report in 1977, commenting on the proposed Directive on mergers, the Joint Committee expressed the view that the practical implications of the Directive were not significant and that the proposed Directive would have a very limited application in Ireland.
As far as can be ascertained, the Regulations would not apply to any of the mergers which have, to date, been notified to the Minister under the Mergers, Take-overs and Monopolies (Control) Act, 1978.
On the question of the application of the Directives where the consideration involved is in excess of 10% of the nominal value of the shares, I should point out that Article 30 of the Third Directive and Article 24 of the Sixth Directive allow Member States to apply the Directives to operations where the cash payment exceeds 10%. It was decided to avail of this option as otherwise the Directives could be completely avoided simply by providing for a cash payment in excess of 10% of the nominal share value.
In relation to the meaning of the phrase “securities, other than shares, to which special rights are attached”, the definition of “securities” in the Central Bank Act, 1971 is relevant. Section 2 of the Central Bank Act provides that “securities” means “shares in the share capital of any body corporate or stock of any body corporate or debentures, debenture stock or bonds of any body corporate, whether constituting a charge on the assets of the body or not, or rights or interests (described whether as units or otherwise) in any such shares, stock, debentures, debenture stock or bonds …”. While this definition would not automatically apply to the Regulations, it is this definition which was used as a guideline in the drafting of the Regulations and it is to be expected that the courts would be guided by this definition in interpreting the phrase in the Regulations. On this basis, it would appear that an option to subscribe for shares would be covered by the phrase in question.
19 August, 1988.