Approval of the Merger and the Merger Agreement
A merger materially alters the legal and financial position of the companies participating in it. For this reason, its prior approval by the competent corporate bodies is absolutely necessary. The legislator provides for a specific framework for approving the proposed transformation. At the same time, it regulates the rights of partners and shareholders, so that the interests of all those involved are protected.
The Decision Approving the Merger
According to the law (Article 14 of Law 4601/2019), the decision approving the merger belongs to the supreme body of each participating company. Depending on the case, this is the meeting of shareholders or the partners. This competence is exclusive. It is exercised with the quorum and majority required for the relevant company type. The applicable requirements arise either from the law or from the articles of association of each participating company.
The law (Article 14) operates as a general provision and is supplemented by the more specific rules applicable to each corporate form. Thus, in partnerships, the decision requires, in principle, unanimity. The partnership agreement may, however, provide for a majority of at least 3/4 of the total number of partners (Article 27 of Law 4601/2019).
In S.A.s, an increased quorum of 1/2 of the paid-up capital is required. A majority of 2/3 of the votes represented is also required (Articles 130 and 132 of Law 4548/2018).
In Private Companies (I.K.E.), an increased majority of 2/3 of the total company shares is required (Articles 72 and 68 of Law 4072/2012).
For Limited Liability Companies (E.P.E.), a majority of more than 1/2 of the partners is required. These partners must represent at least 65% of the capital (Article 41 §1 of Law 4601/2019 and Article 38 of Law 3190/1955).
The articles of association may provide for different quorum and majority thresholds. This applies only insofar as, and to the extent that, the law governing the relevant company type permits it.
By contrast, a provision in the articles of association that excludes in advance the company’s participation in a merger is not accepted. Such a provision would, moreover, negate the purpose of the relevant legislation (Law 4601/2019).
The approval decision must cover the entirety of the draft merger agreement as it has been formulated. Once the decision is taken, both the company and its bodies are bound by it.
If the draft is not approved by the competent body of even one participating company, the merger fails.
A particular issue arises as to whether the approving body may amend the draft when taking its decision. According to one—and correct—view, the meeting or the partners are not limited to merely approving or rejecting the draft; they may amend its content.
The matter nevertheless remains disputed. In any case, the amendments must also be approved by the competent bodies of the other participating companies. If this does not happen, the merger fails.
Finally, the approval decision may also include approval of the necessary amendments to the articles of association of the absorbing company. This concerns, in particular, changes in capital or corporate purpose where these are required by the merger.
Exceptions
Exceptions to the rule requiring approval of the draft by the meeting or the partners are also provided for by law (Articles 35 & 36 of Law 4601/2019).
They concern cases of absorption in which the absorbing company already holds all (100%) or 90% of the absorbed company. The participation may concern shares or other corporate participations, depending on the company type.
In such cases, the need for an approval decision by the meeting of the absorbing company is limited. The corporate will of the absorbed company is already, in substance, controlled by the absorbing company.
For this reason, the merger may be completed without a decision of the general meeting of the absorbing company. This applies subject to the specific conditions of the law (Articles 35 and 36), which will be analysed in a subsequent article.
Specifically in the case of Article 35, no approval decision of the absorbed company is required either.
Special Classes of Participations
According to the specific provision of the law (Article 14 §2 of Law 4601/2019), where there are several classes of corporate participations, separate approval is required.
The draft is submitted to each class of shareholders or partners where the rights of that class are prejudiced or affected by the merger.
It is accepted that the provision also applies where the effect is not direct. It is sufficient that it is indirect or is expected to arise at a later stage.
Its scope includes preference shares. It also covers every special form of participation that differs from an ordinary corporate participation.
The practical scope of the provision is limited and differs according to the company type.
In partnerships, because of the principle of equality of corporate participations, several classes of participations are not recognised. Accordingly, there does not appear to be any scope for the application of this provision. The same applies, as a rule, to cooperatives. An exception may arise in specific cases, such as credit cooperatives with optional preference shares.
In Limited Liability Companies (E.P.E.), deviation through the articles of association is possible. In Private Companies (I.K.E.), in principle, there does not appear to be scope for application of the article. Company shares represent all forms of contributions. Special rights or differentiated voting rights may, however, create a distinct class of participation.
In S.A.s, the specific provisions of the law apply (Articles 32–34 of Law 4601/2019). These provisions concern classes of shareholders, bondholders and holders of other securities.
Approval is therefore required only where the merger affects the rights of the special class. The concept of effect is broad. It may also cover indirect or future consequences.
Examples include an alteration of participation percentages, the loss of special rights or the participation of an over-indebted company.
The Merger Agreement
(a) Form of the Merger Agreement
Following the approval decision, the representatives of the companies draw up the merger agreement.
The required form of the agreement is governed by law (Article 15 of Law 4601/2019). This provision introduces a specific exception to the principle that legal acts are not subject to formal requirements.
As a general rule, the merger agreement is drawn up in a private document. This document must be certified by a notary public, lawyer or competent public official.
By way of exception, a notarial deed is required where a company participating in the merger is one whose incorporation requires, in principle, a notarial deed.
This applies whether the company is the absorbing or the absorbed company.
Indicatively, the requirement applies to an S.A., Limited Liability Company (E.P.E.), European Company (S.E.) and Civil Cooperative. It also applies to a European Cooperative Society (S.C.E.).
A notarial deed is also required where another law so provides. A characteristic example is the transfer, through the merger, of rights in rem over immovable property.
(b) Content of the Merger Agreement
The law (Law 4601/2019) does not regulate exhaustively the content of the merger agreement.
The agreement must, however, include at least the elements contained in the draft merger agreement (Article 7). It must also comply with the specific provisions governing the relevant company type.
Beyond these mandatory elements, its content is shaped on the basis of the private autonomy of the parties.
The provision applies to all forms of merger. It also covers mergers involving companies that have been dissolved, as well as special forms of absorption or acquisition. This applies provided that there is no contrary statutory provision.
The approval of the merger and the conclusion of the merger agreement constitute the critical transition point from planning to implementation.
At this stage, the corporate will acquires binding form. At the same time, the merger agreement consolidates the essential terms of the transformation and renders them operationally applicable.
For management, shareholders, partners and advisers, precision at this stage is not a mere formality. It is a prerequisite for security, coordination and the proper implementation of the transaction.
In the next article of this series, we will examine publicity and preventive legality review. There, we will see how the corporate will already formed passes into the sphere of legality review and the protection of third parties.
Managing Partner
Koumentakis and Associates Law Firm
Note: This article forms part of a broader series published by our Law Firm on corporate transformations. In this series, we attempt an article-by-article analysis—always from a business-oriented perspective—of the principal relevant legislation, Law 4601/2019.