In a previous article, we examined the liability of management members and experts for acts or omissions connected with the preparation and implementation of a merger. However, the liability of the persons participating in the merger procedure is not the only consequence of defects that may arise during its implementation. Thus, Article 20 of Law 4601\/2019 provides, subject to specific conditions, for the possibility of judicial annulment of the merger. This possibility remains exceptional. It does, however, directly affect management, shareholders, creditors and those dealing with the companies. It may reverse organisational and financial changes that have already been implemented. Here, we examine the grounds for annulment of a merger, the consequences of the annulment decision and the specific provisions protecting third parties who have entered into transactions with the participating companies.<\/p>\n
The relevant provision of the law (Article 20 of Law 4601\/2019) is primarily intended to safeguard the validity of a published merger and to enhance legal certainty. For this reason, the possibility of annulment is significantly restricted, without being excluded. This approach protects the reliance of third parties and limits the risk of completed transactions being reversed. At the same time, it does not leave serious defects without remedy.<\/p>\n
A balance is thus sought between the stability of the transformation and the protection of those affected by material infringements. For management, shareholders, creditors and advisers, the provision establishes a clear boundary: not every deviation results in annulment, but not every material defect is excused.<\/p>\n
The grounds for annulment of a merger concern exclusively mergers that have been completed, that is, mergers completed pursuant to Article 18 through publication of the merger agreement with the G.E.MI. of the absorbing company.<\/p>\n
Before that point, there is no question of annulling a completed merger. Rather, the issue concerns a non-existent or incomplete transformation.<\/p>\n
For this reason, the distinction is critical for management and advisers. It determines whether the defect is addressed preventively, at the review stage, or subsequently, through an application for annulment.<\/p>\n
The legal existence of the merger does not, however, depend on every individual preparatory act.<\/p>\n
The grounds for annulment primarily concern the decision of the general or special meeting.<\/p>\n
Annulment may be sought where the decision was not taken, is legally non-existent or, although legally existent, is null and void or subject to annulment. Accordingly, the focus lies on the legality of the corporate will.<\/p>\n
For legal advisers, it is critical that the convening of the meeting, the provision of information, the quorum, the majority and the content of the decision are reviewed in good time.<\/p>\n
Of decisive importance is whether the defect in question is functionally connected with the decision-making procedure. Defects concerning only the preparatory procedure are not, in principle, sufficient to justify annulment.<\/p>\n
Such a deviation may have other consequences, such as liability, compensation or administrative consequences. It does not, however, automatically result in the reversal of a merger that has already been completed.<\/p>\n
In this context, aspects of the procedure that do not form part of the decision-making process do not, by themselves, establish a defect in the merger. They are primarily reviewed at the stage of the legality review (Article 17).<\/p>\n
If they are not identified at that stage, subsequent annulment should not be transformed into a general mechanism for re-examining the entire transformation. This requires increased attention to the initial file.<\/p>\n
For example, obligations serving to inform shareholders or partners (Articles 7\u201311) are functionally connected with the adoption of the decision. Failure to comply with them may constitute grounds for annulment where the infringement is material.<\/p>\n
By contrast, defects concerning exclusively the protection of creditors (Article 13) are not always connected with the meeting. They will usually give rise to other claims or protective measures, rather than necessarily to annulment.<\/p>\n
There are, however, cases that do not constitute a defect in a completed merger.<\/p>\n
The first concerns the incorrect determination of the exchange ratio. The consequence is not annulment but a claim for compensation by the affected shareholder or partner pursuant to Article 21.<\/p>\n
The distinction is of considerable practical importance. An incorrect financial calculation may give rise to liability without reversing the transformation as a whole.<\/p>\n
Similarly, the subsequent judicial annulment or revocation of an administrative approval does not affect the validity of the merger. This approach protects transactional security. Otherwise, every subsequent administrative challenge could destabilise legal relationships that have already arisen.<\/p>\n
For management, however, the practical consequence remains clear: approvals must be reviewed preventively and properly documented.<\/p>\n
The existence of grounds for annulment does not automatically lead to annulment. The law seeks, to the extent possible, to preserve the validity of the transformation.<\/p>\n
For this reason, it provides the possibility of remedying defects before a decision is issued. This approach rewards timely correction and prevents disproportionate reversals.<\/p>\n
If the defect is eliminated or remedied by the hearing of the application, the merger is not declared invalid.<\/p>\n
Where remedy is possible, the court may set a time limit. It may also adopt interim measures for the regulation of corporate affairs. For the persons involved, a prompt response is critical.<\/p>\n
Even where grounds for annulment continue to exist, the court is not always required to annul the merger. It may reject the application if reversal of the transformation would be disproportionate to the seriousness of the defect.<\/p>\n
This assessment shifts the focus towards a practical balancing of consequences rather than a formal automatic outcome.<\/p>\n
In carrying out this balancing exercise, account is taken of the seriousness of the infringement and its consequences for companies, partners, creditors and third parties.<\/p>\n
Thus, a defect of limited impact should not disproportionately reverse a complex business structure. By contrast, a material infringement affecting the corporate will may result in annulment.<\/p>\n
Where the merger is preserved despite the defect, the applicant may retain a claim for compensation against the absorbing company.<\/p>\n
Compensation operates as an alternative mechanism of protection. In this way, the affected person is not left without legal protection, while reversal of the entire transformation is avoided.<\/p>\n
Annulment of the merger results, in principle, in the retroactive reversal of its effects.<\/p>\n
The absorbed companies are revived in the condition in which they were before completion of the merger. Their organisational structure and corporate bodies are also revived, to the extent that this is practically possible.<\/p>\n
This consequence creates significant management obligations for management bodies and advisers.<\/p>\n
The revival may give rise to complex practical issues. During the intervening period, participations in the absorbing company acquired as a result of the merger may have been transferred.<\/p>\n
Upon annulment, those participations are retroactively extinguished. The acquirer may cease to be a partner, with consequences for subsequent transfers. Issues may then arise concerning impossibility of performance, restitution and restoration of the financial position.<\/p>\n
An additional issue concerns the allocation of profits and losses generated up to the annulment.<\/p>\n
The allocation is, in principle, connected with the participation of the partners or shareholders in the consolidated structure. In practice, however, assets, contracts and financial results must be separated.<\/p>\n
The process may prove difficult, particularly where the consolidated company has developed new business activities.<\/p>\n
Annulment produces, in principle, retroactive effects. However, transactions entered into by the absorbing company from completion of the merger until publication of the annulment remain valid.<\/p>\n
This exception protects third parties who entered into transactions in good faith and preserves market security. Without it, annulment could affect a large number of contracts.<\/p>\n
At the same time, the absorbed company returns to legal existence and is jointly and severally liable with the absorbing company.<\/p>\n
This liability concerns obligations arising during the intervening period. The provision strengthens the protection of lenders and persons dealing with the companies. In relation to third parties, there is no need to determine from which assets each obligation originated.<\/p>\n
The internal allocation of the burden between the companies is a separate matter. It may be determined on the basis of the connection between the obligation and specific assets.<\/p>\n
Where no such connection exists, the proportion of the respective net asset positions at the time of the merger may be taken into account. For this reason too, the financial file relating to the transformation must be complete.<\/p>\n
The annulment of a merger constitutes an exceptional but critical instrument for reviewing serious defects. It does not operate as a general second opportunity to reconsider every procedural step. It focuses on defects connected with the corporate decision and the lawful formation of the relevant corporate will.<\/p>\n
For management, legal entities and advisers, the central message is clear: prevention is more valuable than cure. A complete review of the convening of corporate bodies, information provided, decisions, publicity and approvals is required. A file capable of demonstrating why each critical choice was lawful and reasonable is also required.<\/p>\n
Departure from the applicable requirements may lead to annulment, compensation, costs, delays and challenges to transactions.<\/p>\n
In the next article of this series, we will examine compensation arising from an incorrect exchange ratio and its function as an alternative means of protecting affected partners or shareholders.<\/p>\n
<\/p>\n