6. Cross Border Mergers between Bulgarian and other Member State Companies
The bellow paragraphs summarize the main aspects and procedures related to the cross border mergers between Bulgarian and other Member State Companies.
An important part of the cross border mergers are the merger terms (also known as general merger plan) containing the main terms and conditions of the merger.
6.1. Merger terms
In compliance with the Commercial Act, the merger terms shall be set forth in a ‘general merger plan’. Prior to the adoption of the resolution on the merger, the involved companies shall draw up the general merger plan in writing. It shall be signed by the representatives of the companies involved. The general merger plan shall include at least the following particulars:
- the types, names and registered offices of the merging companies;
- the ratio applicable to the exchange of shares determined as of a selected date;
- the amount of (ancillary) cash payments to shareholders for attaining an equivalent exchange ratio (in an amount not exceeding 10 per cent of the aggregate nominal value of the interest stakes or shares acquired);
- a description of the shares which each partner or shareholder is to acquire in the newly formed or acquiring company, including the envisaged increase of capital of the acquiring company, if any such increase is required in order to effect the merger, as well as the conditions regarding the allotment and delivery of shares in the newly formed or in the acquiring company;
- the date as of which the holding of securities or shares representing the company capital will entitle the holders to a share in profits and any special conditions affecting that entitlement;
- the date as of which the transactions of the merging companies will be treated for accounting purposes as being those of the company emerging from the cross border merger;
- the rights conferred by the company emerging from the cross border merger on shareholders enjoying special rights or on holders of securities other than shares;
- any special advantages granted to the experts who examine the draft terms of the cross border merger or to members of the administrative, management, supervisory or controlling bodies or the auditors of the merging companies;
- the likely repercussions of the cross border merger on the employees of the companies involved;
- where appropriate, information on the procedures by which arrangements for the involvement of employees in the definition of their rights to participation in the company resulting from the cross border merger are determined;
- information on the evaluation of the assets and liabilities which are transferred to the company resulting from the cross border merger;
- a precise description and allocation of rights and obligations from the property of the transferring company which pass to each newly emerging or absorbing company (to the extent there is more than one emerging or absorbing entity).
The following shall constitute an integral part of the general merger plan: (i) a draft of the Articles of Association of the newly formed company or, respectively, the clauses amending and supplementing the Articles of Association of the acquiring company; and (ii) the annual financial statements and the activity report and/or the balance sheet of the merging companies on the base of which the general merger plan was drawn.
The general merger plan has to be filed with the Commercial Register at least one month before the date of the General Meeting of the Bulgarian company adopting the resolution on the merger. The plan has to be presented together with the report of the management (see item 6.2.1) and a list containing (i) the company name; (ii) registered address and (iii) the register(s) in which each of the merging companies are registered; (iv) information for each of the companies regarding the applicable rules for protection of its creditors and minority shareholders, as well as (v) the address at which the complete information on those arrangements can be obtained. The report of the management shall be made available to the employees. Any opinions received from the employees shall be enclosed to the report.
The merger terms should be accompanied with the report of the management, and the independent expert report.
6.2. Report of the Management, Independent Expert Report
6.2.1. Report of the management
The management board of each of the merging companies shall draw up a written report on the merger. The report shall explain in detail and shall justify the legal and economic aspects of the general merger plan, and particularly concerning the exchange ratio, as well as the impact of the merger on the position of the shareholders, creditors, and employees.
The report of the management and the independent expert report (see item 6.2.2) shall be made available (free of charge) at the registered address of the company to both the shareholders and the employees' representatives, if any, or the employees themselves, at least one month prior to the date of the general meeting held to decide upon the proposed cross border merger.
The employees’ representatives may prepare an opinion on the report of the management and such opinion is then to be attached to the report.
6.2.2. Independent expert report
An independent financial expert report intended for the shareholders and made available at least one month before the date of the General Meeting shall be drawn up for each merging company. The expert report shall:
- indicate the method/methods used to arrive at the exchange ratio of compensation;
- the extent to which the use of these methods is appropriate and proper in that particular case;
- determine whether the share exchange ratio proposed for the cash compensation is fair and reasonable;
- indicate the values arrived at using such method, and the relative significance of the method in determining the value of the shares or participating interests;
- particular difficulties encountered in the evaluation, if any.
The expert shall be liable to all companies involved in the merger and to their shareholders for any damages due to non-performance of his obligations.
Neither an examination of the common draft terms of cross border merger by independent experts nor an expert report shall be required if all the shareholders of each of the companies involved in the cross border merger have agreed on that. Such a waiver shall be given in writing.
For a jointly appointed expert, the involved parties shall file a respective request to the competent clerk at the Commercial Register.
6.3. Approval by the General Meeting
On the basis of the general merger plan, the management report, and the expert report (unless waived), the General Meeting of each of the merging companies shall approve the general merger plan of the cross border merger and shall adopt a respective resolution on it.
Where the acquiring company is a sole owner of the capital of the merging companies, the transformation (as the merger is then called) shall take place on the basis of a resolution of the sole owner. In such cases an appointment of a financial expert and an expert report are not required. Furthermore, the general merger plan does not need to contain: (i) the ratio applicable to the exchange of shares; (ii) the amount of the cash payments to shareholders for attaining an equivalent exchange ratio; (iii) a description of the shares which each partner or shareholder is to acquire in the newly formed or acquiring company; (iv) the date as of which the holding of securities or shares representing the company capital will entitle the holders to share in profits and any special conditions.
6.4. Minority Shareholders' Protection
The Commercial Act does not explicitly define the cash compensation of minority shareholders in case of a cross border merger. Such shareholder protection is provided for in the Commercial Register Act which is referring to the general rules of the Commercial Act applicable to mergers of Bulgarian companies. Under the Commercial Register Act a claim lodged by a shareholder for cash compensation or participation termination notice (exit notice) shall not be considered an obstacle preventing the issuance of a Certificate under Art. 10 of the Directive; however, the registry official shall note the respective circumstances in the Certificate.
Within a period of three months after the date of legal effectiveness of the merger:
- a shareholder (in a limited liability company or a joint stock company) whose legal status is changing as a result of the merger and who has voted against the resolution on transformation may withdraw from the company where he has received shares. Termination of his participation shall be effected by a written and notarized participation termination notice to the company. The shareholder has the right to receive the equivalent of his shares held prior to the transformation, according to the exchange ratio provided for in the merger agreement or plan; as well as
- any shareholder may file with the competent court a claim for a cash compensation in case the ratio applicable to the exchange of shares determined under the general merger plan is not equivalent.
6.5. Employment Issues
The general principle with regard to employees' rights to participate in the merger process is that national laws apply, governing the company emerging from the cross border merger. By way of exception, the principles and arrangements relating to workers' participation laid down in the relevant rules and provisions of the Member State of the absorbing company shall not apply where:
- at least one of the merging companies within six months before publication of the draft terms of the cross border merger, has an average number of employees that exceeds 500 and is operating under an employment participation system;
- the national legislation applicable to the company emerging from the cross border merger does not provide for at least the same level of employee participation as the one kept in the relevant merging companies, measured against the proportion of employees’ representatives in the administrative or supervisory body which covers the profit units of the company, subject to employee’ representation;
- the national legislation applicable to the company resulting from the cross border merger does not provide for employees of establishments of that company that are situated in other Member States, the same entitlement to exercise participation rights as is enjoyed by those employees employed in the Member State where the company resulting from the cross border merger has its registered office.
The above mentioned exceptions result into either (i) the companies involved in the merger and the board of employees’ representatives agreeing on arrangements for the employees’ involvement, or (ii) if such agreement cannot be reached (in due time), application of the so-called standard rules for participation. In principle, those standard rules provide for the application of the highest participation level of the involved companies. In contrast to the SE Regime, the management of the involved companies can decide without any prior negotiations to directly employ the standard rules for participation. The employees’ representatives must be informed about this decision.
There are information duties towards the employees’ representatives (if any) or to the employees during the process of the cross border merger: The report of the management must include all implications of the merger that would affect the status of the employees. This report shall be made available to the employees’ representatives (or the employees) at least one month before the general meeting. The employees’ representatives have the right to provide an opinion which is to be attached to the management report.
The employees (or the employees’ representatives, if any) must be informed about the merger in writing regarding the (proposed/scheduled) date of transfer, the reason for it, the legal, economic and social implications on the employees and any measures envisaged in relation to their status.
Upon the merger becoming legally effective, the employment contracts together with all rights and obligations attached to each employment contract are automatically transferred to the absorbing company.
Please note that the Commercial Register can only issue a pre-merger certificate if evidence is presented showing either (i) the correct negotiation with the employees’ representatives concerning the participation of the employees; or (ii) the management has informed the employees’ representatives / the employees about its decision to choose to be directly subject to the standard rules for participation.
6.6. Creditor Protection
In order to secure the protection of creditors of merging companies, a list containing an indication, for each of the companies, regarding the rules applicable to protection of its creditors and minority shareholders, as well as the address at which complete information on those arrangements might be obtained, is to be enclosed together with the general merger plan. The list should be filed with the Commercial Register together with the general merger plan.
6.7. Merger Filings
The Competition Protection Act requires pre-merger notification to be filed with the Competition Protection Commission if the companies involved in the merger have had an aggregated turnover of more than BGN 25 million in the business year prior to the merger and the turnover of each of at least two of the companies participating in the concentration on the territory of Bulgaria for the previous financial year exceeds BGN 3 million, or the turnover for the previous financial year, of the acquired Bulgarian company, exceeds BGN 3 million.
6.8. Registration Procedure
6.8.1. Inbound merger
The competent authority for registration procedures related to corporate entities and their status in Bulgaria is the Commercial Register. Under the Commercial Act only newly formed and absorbing companies with a registered address in Bulgaria may initiate the registration procedure before the Commercial Register. For companies having their registered address outside Bulgaria the procedure is not applicable. The procedure is divided into the following steps:
1. filing of the general merger plan together with the attachments and required further documents (for details please see below);
2. registration of the merger.
Any documents to be filed with the Commercial Register must be translated into Bulgarian language by a certified translator.
The management board of the newly formed or absorbing company which has its registered office in Bulgaria applies for registration of the merger in the Commercial Register. The following documents have to be enclosed in the application:
- general merger plan and the resolutions of all companies involved related to the merger;
- certificate referred to in Art. 10 of the Directive;
- copy of the Articles of Association of the absorbing company, which contains all amended and supplemented clauses, certified by the representatives; or the adopted Articles of Association of the newly formed company and the documents necessary for the registration of the bodies elected;
- experts' reports;
- consent of shareholders becoming general partners (if any);
- list of persons acquiring shares, participating interests or membership in a newly formed or absorbing company, the type of membership, as well as data concerning any existing pledges;
- declaration of the depositories to the effect that the interim certificates or the shares have been delivered thereto (in case of dematerialized shares).
The merger is effective from the moment of the registration in the Commercial Register of the absorbing or, respectively, newly formed company which has its registered office in Bulgaria, as well as on the files of the transforming companies which have their registered offices in Bulgaria, not earlier than fourteen days after the applying if the:
- transforming companies which have their registered offices in other Member States have submitted certificates under Art. 10 of the Directive;
- companies involved in the merger, which have their registered offices in Bulgaria, have complied with the requirements of the Commercial Act regarding the adoption of the resolution on the merger;
- transforming company and the absorbing company have approved a general merger plan; and
- requirements of the Bulgarian law regarding the acquisition or the newly formed company have been complied with.
6.8.2. Outbound merger
Where the newly formed or the absorbing company has its registered office in another Member State, the transforming companies which have their registered offices in Bulgaria shall:
- require the issuance of a premerger certificate; and
- once the merger is completed the Bulgarian company, shall file a request for deletion from the Commercial Register on the basis of a notification from the register of the relevant Member State in which the absorbing or newly formed company is registered.
Both requisites should be filed with the Commercial Register by the representatives of the transforming Bulgarian company.