To carry coals to Newcastle would be to write about the effects of globalisation upon world business in a business or legal magazine. Indeed, the effects of globalisation are clearly visible and very present in today's business climate and every company hoping to succeed in worldwide competition needs to be aware of any new developments.

The European Union (EU), faced with enlargement by 10 new member states in Central and Eastern Europe, made it one of its priorities to make the most of the internal market. One of the ways to achieve this priority was to enable the restructuring of holdings not only in a single country, but also on an EU-wide basis. For such purposes, apart from the European corporate forms of European Society and European Cooperative, the process of cross-border mergers is tailor-made.

The Tenth Directive (on cross-border mergers) was adopted in October 2005. The member states were given until 15 December, 2007, to draft and implement the necessary legislation in order to comply. The Slovak Republic parliament was lagging a little behind – the new Act amending the commercial code allowing the cross-border mergers of and with Slovak companies entered into force on 1 January, 2008.

The Tenth Directive's scope was originally limited to the so-called limited liability companies (defined by the so-called First Directive). Nevertheless, this limited scope was in the meantime overruled by the case law of the European Court of Justice, which opened the opportunity of cross-border mergers to other companies as well, subject to the limitation that they are allowed to take part in a merger under the respective national regulations.

Considering the requirements of Slovak law applicable to mergers, the opportunity of being party to a cross-border merger is opened to all legal forms of Slovak companies having their own legal personality, i.e. a general partnership, a limited partnership, a limited liability company, a joint-stock company and a cooperative.

The only limitation in this respect (with one single exception) is that the legal form of the merging and the surviving companies must generally be identical. In case of a cross-border merger, the identity of the legal forms needs in practice to be assessed by comparing all the relevant legal characteristics; an opinion of legal experts from the jurisdiction concerned would most certainly be advisable.

The cross-border merger may generally take three basic forms (although certain exceptional differences may occur): (i) two or more companies, on being dissolved without going into liquidation, merge together and create one new company, whose members (shareholders) are the former shareholders of the merging companies; (ii) two or more companies on being dissolved without going into liquidation, merge with one existing surviving company and their members (shareholders) acquire shares in the surviving company; or (iii) a company owned solely by another company, on being dissolved without going into liquidation, merges with its sole member (shareholder).

The process to be taken by the Slovak merging companies on cross-border mergers is similar to that to be taken in the case of a national merger. The merging companies need to enter into a merging agreement, governing the necessary particularities of the merger. Of particular notice are the provisions on the ratio applicable to the exchange of securities/shares representing the company capital and the amount of any cash payment in connection with the protection of members (shareholders). The respective management of the merging companies need to draw up a report for the relevant members explaining and justifying the legal and economic reasons for the merger. An independent expert's report must be elaborated as well, the manner of appointment of the independent expert being specified by law.

The merging companies need to observe specific publication and filing obligations in respect of the documents and information on the contemplated cross-border merger. The publication obligation is of significant importance as the lawmakers in the Slovak Republic used the opportunity offered by the Tenth Directive and provided for specific procedure for the protection of creditors and minority shareholders. Each creditor holding a receivable against the Slovak merging company may require that the company provide a security for such receivable. The type and amount of the security are to be agreed between the merging company and the creditor; should an agreement not be reached, then the dispute is to be decided by a court. Similarly, each shareholder of the Slovak merging company to become the shareholder of the surviving company may disagree with the ratio applicable to the exchange of securities/shares and ask the company for compensation; should no agreement be reached within a specified period, the court may be invoked by the shareholder. In addition, each shareholder of the Slovak merging company may oppose the merger and may subsequently demand that the company purchase his/her shares at an appropriate consideration. Should no agreement be reached within a specified period, the shareholder may bring the case to court.

The merging agreement must be approved by the general meetings of merging companies. For such approval, a majority of two-thirds of present shareholders is required, if the company is required to establish a registered capital, otherwise, a unanimous consent of all members (shareholders) is required.

In order to provide for the protection of employees, the merging companies are, in certain cases, required to enter into negotiations with the employees' representative body established for that purpose and within to reach an agreement on the participation of employees in the surviving company within six months after the establishment of the employees' representative body. Should no agreement be reached, standard provisions on protection of employees defined by law shall apply.

In the Slovak Republic, a notary was designated to issue the certificate attesting the completion of the pre-merger requirements to the merging Slovak company. It is worth noting that such a certificate may generally not be issued, if a court proceeding has been initiated by a creditor for the security or by a member (shareholder) or a withdrawing member (shareholder), as described above, unless it is stated in the merging agreement that such claims and proceedings can be brought against the surviving company at a Slovak court and according to Slovak law even once the cross-border merger is effective. It cannot be issued, either, until an agreement with the employees' representative body has been reached, or the six-month negotiation period has lapsed. Therefore, the risk of delay caused by potential actions brought by the creditors and members (shareholder), combined with the relatively slow course of proceedings at the Slovak courts, and the negotiations with the employees appear to be the most critical point for cross-border mergers in the Slovak Republic.

For the cross-border merger to become effective, it is necessary that the surviving company be registered into the commercial or other relevant register in that member state to which it should be subject. Should the Slovak merging company cease to exist, deregistration from the Slovak commercial register maintained by the respective district court is required. Generally, once all the requirements have been satisfied, the deregistration of the Slovak merging company and the registration of the surviving company, if its seat is to be in the Slovak Republic, should be completed by the court within five working days after submitting a complete application.

Michal Novotny is a lawyer at Weinhold Legal in Bratislava.