Merger Involving a European Cooperative Society
Article 53 of Law 4601/2019
The European Cooperative Society (“SCE”) was established to facilitate cooperative activity at European level, allowing, among other things, mergers between cooperatives from different Member States. A merger involving an SCE is governed by the application, mutatis mutandis, of the rules applicable to civil cooperatives (Article 53 of Law 4601/2019). Regulation (EC) No 1435/2003 and Part D of Law 4099/2012 also apply. The distinction between the formation of a new SCE and a merger involving an existing SCE determines the procedure, the reviews and the risks.
Scope of Application and Applicable Law
The special regime (Article 53) concerns a merger involving an SCE with its registered office in Greece. It does not independently regulate mergers involving an SCE with its registered office in another Member State. The formation of an SCE through a merger constitutes a separate case, in which the special EU and national rules take precedence.
The rules governing mergers involving a civil cooperative apply mutatis mutandis to a Greek SCE (Articles 47 to 52). However, the special provisions of Regulation (EC) No 1435/2003 and Part D of Law 4099/2012 take precedence. This reference is consistent with the principle that an SCE is, in principle, treated in the same way as a cooperative in the Member State in which it has its registered office.
Particular attention must be paid to the nature of the SCE’s activities. An SCE may carry out activities corresponding to those of a civil or agricultural cooperative, or even mixed activities. In the case of mixed activities, the supplementary national law is determined by the predominant activity (Article 138(2) of Law 4099/2012). If that activity is agricultural, the application of Law 4673/2020 must be examined, subject to the special EU and national rules.
Formation of an SCE Through a Merger
A particular case is the formation of the SCE itself as a result of a merger. Regulation (EC) No 1435/2003 permits its formation through a merger of cooperatives, provided that at least two are governed by the laws of different Member States. Consequently, the formation of an SCE through a merger cannot result exclusively from cooperatives of the same Member State.
The merger may take place by acquisition, in which case the acquiring cooperative takes the form of an SCE simultaneously with the merger, or by the formation of a new SCE. Matters not regulated by the Regulation are governed by the law applicable to each participating cooperative (Article 20 of Regulation (EC) No 1435/2003). For a Greek cooperative, Part D of Law 4099/2012 and the relevant provisions on mergers are taken into account. In the event of a conflict, the special provisions governing the formation of an SCE prevail over the general rules (Articles 47–53).
The administrative bodies prepare a draft merger agreement setting out the exchange ratio for the shares, the terms of their allocation and the measures for the protection of creditors. The draft also includes the statutes of the SCE and information on the procedures for determining arrangements for employee involvement. Each management body prepares a report providing the legal and economic justification for the merger, particularly the exchange ratio. The draft must also be examined by independent experts, who prepare a corresponding report for the members (Article 26 of Regulation (EC) No 1435/2003).
Timely publication of the draft and the provision of information to members constitute essential stages of the procedure. For a Greek cooperative, the draft is registered and published in the General Commercial Registry (G.E.MI.) (Article 145 of Law 4099/2012). At least one month before the General Meeting, each member is entitled to examine the draft and the required financial information at the cooperative’s registered office. The documents include the accounts for the three preceding financial years and the reports of the management bodies and experts. The General Meeting of each cooperative approves the draft merger agreement. Members of a Greek cooperative who voted against the merger may, where serious grounds exist, request the purchase of their shares (Article 148 of Law 4099/2012).
The legality review is initially carried out for each cooperative by the competent authority of its State, which issues the relevant certificate. This is followed by a review of the completion of the merger in the State where the SCE has its registered office. If the registered office is in Greece, the competent authority is now the Single-Member Court of First Instance, under the provisions currently in force (Article 150 of Law 4099/2012). Registration also requires compliance with the rules on employee involvement (Article 11 of Regulation (EC) No 1435/2003 and Presidential Decree 44/2008).
For a Greek cooperative, an objection by the competent tax or supervisory authority on grounds of public interest prevents the merger (Article 149 of Law 4099/2012). Such an objection must be raised before the legality certificate is issued. A solemn declaration is also required, confirming that no objections have been raised by minority members and creditors or that any such objections have been resolved (Article 150(3) of Law 4099/2012). The certificates must be submitted to the authority of the State where the SCE has its registered office within six months of their issue (Article 30(2) of Regulation (EC) No 1435/2003).
The merger and formation of the SCE take effect upon its registration. In a merger by acquisition, all the assets and liabilities of the acquired cooperatives are transferred by universal succession to the acquiring cooperative, which takes the form of an SCE, while the acquired cooperatives cease to exist. Similarly, in a merger through the formation of a new SCE, the assets and liabilities of all merging cooperatives are transferred to the new entity, and the merging cooperatives cease to exist. In both cases, the members of the cooperatives become members of the SCE (Article 33 of Regulation (EC) No 1435/2003).
Following registration, the merger may not be declared null and void. However, failure to carry out the prescribed legality reviews may constitute grounds for the winding-up of the SCE (Article 34 of Regulation (EC) No 1435/2003). For this reason, any deficiencies must be addressed before completion. Acts performed in the name of the SCE before registration create a particular risk of liability. If the SCE does not assume the obligations, those who acted are jointly and severally liable without limitation, unless otherwise agreed (Article 18 of Regulation (EC) No 1435/2003).
Participation of an Existing SCE in a Merger
An SCE may also participate in a merger after its formation. In principle, it may acquire another cooperative, be acquired by a company of a different legal form, or merge with another SCE. These possibilities arise from the general framework governing transformations between companies of different legal forms (Article 2), subject to the specific qualifications set out below.
Regulation (EC) No 1435/2003 specifically governs the formation of an SCE through a merger, but does not exhaustively regulate every subsequent merger involving an existing SCE. For a Greek SCE, the national framework governing corporate transformations applies (Article 53), in conjunction with the Regulation and the special regime applicable to its activities.
The participation of an existing SCE in a merger is subject to significant restrictions. The formation of a new SCE through a merger is permitted only with the participation of cooperatives that meet the conditions laid down in the Regulation. Consequently, the general possibility of mergers between different corporate forms is not sufficient for the formation of a new SCE.
The Regulation prohibits the conversion of an SCE into a cooperative before two years have elapsed since its registration and the accounts for its first two financial years have been approved (Article 76 of Regulation (EC) No 1435/2003). However, it does not expressly provide for the application of the same restriction where the SCE is acquired by a company of another legal form. It has been argued that the restriction should apply by analogy, in order to prevent circumvention of the prohibition on conversion. This is a matter of interpretation rather than an express statutory prohibition; a specific legal review is required before such a merger.
In Summary: Practical Significance and Value
The participation of an SCE in a merger requires a combined examination of the EU framework and the applicable national law. The transaction structure, protection of members and creditors, employee rights and legality reviews determine its secure completion. Particular attention is required where an existing SCE is to be acquired by a company of another legal form, due to the interpretative restrictions that arise. This special framework concludes our examination of mergers. In the next article, we turn to demergers as a distinct form of corporate transformation.
Managing Partner
Koumentakis and Associates Law Firm
Note: This article forms part of a broader series of articles by our Law Firm on corporate transformations. In this series, we seek to analyse, article by article and always from a business perspective, the provisions of the principal law governing this field (Law 4601/2019).