254 5 Equity and Shareholders’ Capital
In the past, company laws only rarely contained similar rules on cross-border
mergers. In the absence of legal rules, cross-border mergers were prohibited.
There was therefore a difference in treatment in most Member States between in-
ternal and cross-border mergers. This forced firms to own subsidiaries in the coun-
tries in which they did business or to choose the company form of an SE.
However, in Sevic Systems,^592 the prohibition of cross-border mergers was held
to amount to discrimination of foreign companies. The ECJ did not think that a
general refusal to register cross-border mergers or the harmonisation of the legis-
lation at the Community level would be necessary,^593 although cross-border merg-
ers can give rise to special problems.^594
Mergers permitted. The judgment of the ECJ in Sevic Systems, in effect, forced
Member States to permit cross-border mergers.^595 Cross-border mergers of lim-
ited-liability companies are now governed by the Directive on cross-border merg-
ers.^596 This Directive applies to all companies governed by the First Company Law
Directive (all limited-liability companies). Cross-border mergers are also gov-
erned by the SE Regulation^597 and the SCE Regulation,^598 as an SE can be formed
by private or public limited-liability companies by means of a cross-border merger
(Articles 2(1), 17 and 32) and an SCE can be formed by means of a cross-border
merger of existing cooperative societies.
The entities that may merge to form an SE under the SE Regulation or an SCE
under SCE Regulation may merge even under national law. As regards limited-
liability companies in general, cross-border mergers are only possible if the par-
ticipating companies may merge under national law.^599
In rare cases, a cross-border merger may be prohibited on grounds of public in-
terest (see below).
Governing law. In a domestic merger, the governing law is not an issue. In a
cross-border merger, three jurisdictions can be relevant: the law that governs an
entity that will not survive the merger; the law that governs the entity that will
survive the merger; and the law of the entity that will be founded by the merger.
The judgment of the ECJ in Sevic Systems^600 did not change the governing law.
If a company is formed in accordance with the law of a Member State and has its
registered office, central administration or principal place of business within the
Community, it must be recognised as a company governed by the law of that
Member State.^601 To apply the company law provisions in force in another Mem-
(^592) Case C-411/03 Sevic Systems [2005] ECR I-10805, paragraph 23.
(^593) Case C-411/03 Sevic Systems [2005] ECR I-10805, paragraph 26.
(^594) Case C-411/03 Sevic Systems [2005] ECR I-10805, paragraphs 24 and 27. In principle,
there might be circumstances in which imperative reasons in the public interest will jus-
tify a measure restricting the freedom of establishment. Paragrah 28.
(^595) Case C-411/03 Sevic Systems [2005] ECR I-10805, paragraph 23.
(^596) Directive 2005/56/EC (Directive on cross-border mergers).
(^597) Regulation 2157/2001 (SE Regulation).
(^598) Regulation 1435/2003 (SCE Regulation).
(^599) Article 4(1)(a) of Directive 2005/56/EC (Directive on cross-border mergers).
(^600) Case C-411/03 Sevic Systems [2005] ECR I-10805, paragraph 23.
(^601) C-208/00 Überseering [2002] ECR I-9919, paragraphs 59 and 76.