Anyone who has ever been involved in a merger or demerger (also collectively referred to as “transformations”) knows that the paperwork involved takes time to complete even when the merger/demerger process is proceeding smoothly. There must be at least a one-month lender protection period between the moment the merger/demerger plan drafted by the board of directors or executives is published and the moment at which the plan is approved by the general meeting, following which the merger/demerger is registered in the commercial register.

The question of whether and, if so, how ownership interests in the companies involved in a merger/demerger can be transferred during the course of the merger/demerger approval procedure is relevant to limited liability companies in particular. The merger/demerger plan must include information on the post-merger/demerger size of the ownership interests in the companies involved, and generally there is a strict requirement that the merger/demerger plan must be approved in exactly the same wording in which it was disclosed at the beginning of the process (i.e. even two to three months prior to the effective date of the merger/demerger).

The legislation applicable prior to the new amendment failed to deal with the issue of transferring ownership interests after a merger/demerger plan is produced. This tended to result in the parties involved considering (for the sake of caution) the size and status of the ownership interests described in the merger/demerger plan to be “frozen” until the merger/demerger was completed by registration in the commercial register.

However, there is now no reason to “freeze” ownership interests during a merger/demerger, save perhaps when a technical difficulty in interpreting the law arises. The change introduced by the amendment is therefore welcome.
Ownership interests can now be transferred even after the merger/demerger plan is completed without the parties having to worry about the fate of the merger/demerger during the registration proceedings. If, however, there is any deviation from what is described in the merger/demerger plan, the procedure to be adopted will depend on whether the ownership interests were transferred before or after the general meeting approved the merger/demerger.

If the ownership interest is transferred before the general meeting, the members must be informed of and approve the change in the merger/demerger plan. If the transfer takes place afterwards, the merger/demerger can still be completed, provided the members approve it again by a majority of votes.

Therefore the moment when the general meeting approves the merger/demerger is critical. Should ownership interests be transferred after a merger/demerger plan is completed but before the general meeting is held, then the registration of the merger/demerger in the commercial register is in serious jeopardy if the general meeting has not been informed of and explicitly approves the changes in the ownership interests.