Written by: Hektor Kastrioti
In Kosovo, the primary legislation governing mergers, divisions, and cross-border mergers of companies is the Law No. 06/L-016 on Business Organizations. This law outlines the procedures and requirements for corporate restructuring, including mergers and divisions, and addresses the specifics of cross-border mergers involving Kosovo-registered companies.
Merger:
The combination of two or more companies into one, typically to achieve greater efficiency, market power, or profitability. This can involve the pooling of resources, assets, liabilities, and management. There are different types of mergers, such as mergers of equals, acquisitions, or consolidations.
Division:
Demerger: A demerger occurs when a company separates part of its business operations into a new company, transferring assets, liabilities, and responsibilities to the new entity. This could happen through a sale, distribution, or transfer of shares.
Cross-Border Merger:
A cross-border merger occurs when companies from different countries join together to form a single new entity, or one of the merging companies absorbs the other(s). It allows businesses from different legal and regulatory environments to combine their resources, operations, and structures.
Article 44: Application for Registration of Corporate Mergers and Demergers
1. If two or more Corporations wish to merge, after completing the procedures in Part Eight of this Law, each Corporation shall submit to the Registry:
1.1. the merger agreement;
1.2. the merger plan provided in Part Eight of this Law; and
1.3. Charter of the remaining Corporation or the new Corporation which has been established by the merger.
2. The merger enters into force on the date the plans and the Charter are registered and published by KBRA
3. An application for registering a demerger conducted pursuant to this law shall have the content and shall be submitted pursuant to Article 248 of the present Law.
4. Nothing in this Article or this Law shall be interpreted or applied in any manner that alters or impairs any provision or requirement specified in any other law which limits, prohibits or regulates mergers or demergers. It is the legal responsibility of the respective Corporations to ensure that these provisions and requirements are fully observed before submission to KBRA of the documents specified by paragraph 1. or 3. of this Article.
5. KBRA shall have no authority to refuse the registration of a merger or demerger which has been done based on the provisions or requirements specified in another law, unless KBRA is specifically obligated to refuse to register a merger or demerger by the Court or a competent public authority having the responsibility to enforcement these provisions or requirements.
Article 216: Merger of a Limited Liability Company
1. One or more Limited Liability Companies may merge into a Limited Liability Company established under the present Law.
2. For this purpose, a “merger” means a transaction in which one or more Limited Liability Companies:
2.1. merge and transfer all of their assets and obligations into one of them; or
2.2. merge and transfer all of their assets and obligations in a new Limited Liability Company established according to the present Law, and according to the conditions specified in Article 220 of this Law
3. In order to merge, the Managing Director(s) entitled to represent the Limited Liability Companies shall enter into a Merger Agreement. Rights and obligations shall arise from the Merger Agreement after approval of the agreement pursuant to the procedure provided for in Article 218 of this Law.
4. A merger agreement shall set out:
4.1. the official name, and trade names if any, and registered addresses of the Limited Liability Companies;
4.2. an agreement to transfer all the assets of the Limited Liability Company being acquired to the acquiring Limited Liability Company in exchange for a transfer of shares of the acquiring Limited Liability Company;
4.3. the share exchange ratio for the Limited Liability Companies and the amount of additional payments if additional payments are made;
4.4. the terms and conditions of transfer of the shares of the acquiring Limited Liability Company;
4.5. the date as of which the transferred shares shall grant the right to a share of profit of the acquiring Limited Liability Company and the special conditions affecting this right;
4.6. the rights which the acquiring Limited Liability Company will grant to the shareholders of the Limited Liability Company being acquired;
4.7. the consequences of merger for the employees of the Limited Liability Company being acquired;
4.8. the date as of which the transactions of the Limited Liability Company being acquired shall be deemed to be undertaken by the acquiring Limited Liability Company (merger balance sheet date);
4.9. the remuneration paid to the auditor who audits the merger agreement, other advisers and consultants and the advantages granted in connection with the merger to the Managing Director(s) or the Shareholders entitled to represent the Limited Liability Company.
5. The sum of additional payments prescribed in the merger agreement which are to be paid by an acquiring Limited Liability Company to the Shareholders of the Limited Liability Company being acquired shall not exceed one-tenth of the sum of the nominal values or book values of their exchanged shares.
6. If all shares of a Limited Liability Company being acquired are held by the acquiring Limited Liability Company, the merger agreement need not indicate the information specified in paragraphs 4.2.- 4.4. of this Article.
Article 217: Contents of the Merger Plan
1. A merger plan shall contain:
1.1. the official name, and trade names if any, and the registered address and Unique Identification Number of each Limited Liability Company involved in the proposed merger;
1.2. the official name, and trade name if any, and the registered address of the Limited Liability Company, which is proposed to survive, into which the other Limited Liability Companies merge (fuse);
1.3. the material conditions of the proposed merger
1.4. for each merged Limited Liability Company other than the acquiring Limited Liability Company: a detailed description of the manner and basis that is proposed to be used for converting the Shares of this Limited Liability Company being merged into:
1.4.1. cash;
1.4.2. other property, and/or
1.4.3. shares and/or other securities, debts or other obligations of the surviving Limited Liability Company or of any Shareholders of the surviving Limited Liability Company;
1.5. the entire text of the Charter of the Limited Liability Company or Charter of the surviving Limited Liability Company that will be created after this merger.
2. If a Joint Stock Company is a party to the merger, then the requirements set out in Articles 222-224 of this Law must also be met.
Article 219: Registration and Date the Merger Enters Into Force
1. After completion of the merger, all the parties to the merger must submit the merger agreement and the Merger plan to KBRA in accordance with Article 44 of this Law. KBRA registers the merger agreement and merger plan, if they are in compliance with the requirements of Articles 216 - 217 of this Law. The merger agreement and merger plan shall be published according to Article 22 of this Law.
2. The merger shall enter into force immediately after publication by KBRA in accordance with paragraph 2. of Article 44 and Article 22 of this Law.
3. The merging Limited Liability Companies are strictly obligated to ensure, prior to the completion of the merger, that all the applicable legal conditions have been fulfilled and to obtain all the approvals required by any Law or sub-legal acts.
4. Any Shareholder or creditor who believes the merger has violated his rights may claim from the competent Court:
4.1. compensation for damages and/or
4.2. if specifically provided for by a law, nullification of the merger.
5. Registration of the merger agreement shall not constitute a decision by KBRA that the merger
complies with any requirements or provisions of other laws. Any Public Authority that has lawful reasons to believe that the merger violates the requirements provided in a law for which the public authority is principally responsible to implement, may seek in a competent Court, pursuant to that law:
5.1. a fine for the merging Limited Liability Companies or surviving Limited Liability Company, and/or
5.2. declaring the merger invalid.
6. Immediately after a merger has been registered by KBRA, the surviving Corporation shall publish a merger notice to the creditors of the merged Limited Liability Companies in national daily newspaper, informing them of the possibility to submit, within six months after the publication of the notice, their claims to the surviving Limited Liability Company in order to receive a security.
7. The surviving Limited Liability Company shall secure the claims submitted by the creditors of the Limited Liability Companies being merged within six months after the publication of the notice specified in paragraph 6. of this Article if the creditors have no possibility to demand satisfaction of the claims and they prove that the merger may endanger the fulfilment of the claims.
Article 221: Definition of Merger
1. For purposes of the present law, a “merger” means a transaction in which a merging Joint Stock Company transfers all of its assets and liabilities to another Joint Stock Company. The acquiring Joint Stock Company may be an existing Joint Stock Company or a new Joint Stock Company that has been established for the purpose of acquiring such assets and liabilities. In such a transaction:
1.1. the merging Joint Stock Company is dissolved;
1.2. only the acquiring Joint Stock Company survives the transaction; and
1.3. the shareholders of the merging Joint Stock Company surrender their shares in the merging Joint Stock Company and receive in exchange shares or other ownership interests in the acquiring Joint Stock Company and/or a cash payment.
Article 229: Cross-Border Merger
A Corporation registered in Kosovo may merge with another Corporation founded on the basis of the law of the foreign country with which the Republic of Kosovo has an international agreement establishing such a right of cross-border mergers of Corporations and whose registered address, location of the Board of Directors and Managing Directors or principal place of business is in the foreign country.
Article 230: Merger Agreement by Cross-Border Merger
1. In addition to the provisions of Article 216 or Article 222 of this Law, the merger agreement shall set forth:
1.1. the type of the Corporation being acquired and the acquiring Corporation;
1.2. in the case of the right to receive a share of the profit, the specifics for performance of such right;
1.3. information concerning the evaluation of the assets to be transferred to the acquiring Corporation;1.4. the dates of the financial statements used for determining the terms and conditions for the merger;
1.5. in the case provided by law, the data concerning the participation by the employees in the management of the Corporation.
2. If all the shares granting voting rights of the Corporation being acquired belong to the acquiring Corporation, the data specified in sub-paragraphs 1.1.1 – 1.1.4 of Article 208 of this Law and sub-paragraph 1.2 of paragraph 1. of this Article need not be set forth in the merger agreement.
3. The charter of the acquiring Corporation shall also be annexed to the merger agreement.
4. The sum of additional payments prescribed in the merger agreement which are to be paid by the acquiring Corporation to the shareholders of the Corporation being acquired may exceed one-tenth (1/10) of the sum of the nominal values or book values of the shares of the acquiring Corporation if permitted by the law of the foreign state to the acquiring Corporation participating in the cross-border merger.
5. Paragraphs 2. and 3. of Article 211 of this Law apply to the disclosure of the merger agreement. A notice published in national daily newspaper shall set forth the following:
5.1. the type, official name and trade name if any, and registered address of each merging Corporation;
5.2. the register in which the merger of each merging Corporation has been registered and the number of the register entry;
5.3. a reference that the merger agreement contains information concerning the protection of minority shareholders and creditors.
Article 233: Merger Decision upon Cross-Border Merger
1. At least one (1) month before the general assembly which decides on the merger, the shareholders shall be granted an opportunity to examine the merger agreement, merger plan and auditor’s opinion. The merger plan shall be made available to the representative of the employees of the Corporation or, in the absence thereof of representatives, to the employees of the Corporation at least one (1) month prior to the meeting or general meeting which decides on the merger.
2. If all the shares of the Corporation being acquired granting voting rights belong to the acquiring Corporation, the meeting or shareholders assembly of the Corporation being acquired which decides on the merger need not approve of the merger agreement.
3. The shareholders assembly of the Corporation being acquired may set, as a condition for approval of the merger decision that the acquiring Corporation has expressly approved of the procedure for participation by the employees of the acquiring Corporation in the management of the Corporation.
Article 238: Methods of Demerger
1. Demerger shall be effected without a liquidation proceeding by distribution or separation
2. Upon distribution, the Corporation being divided shall transfer its assets to the recipient Corporations. A recipient Corporation may be an existing or new Corporation. Upon distribution, the Corporation being divided shall be deemed to be dissolved.
3. Upon distribution, the shareholders of the Corporation being divided shall become shareholders of a recipient Corporation.
4. Upon separation, the Corporation being divided shall transfer part of its assets to one or several recipient Corporations. A recipient Corporation may be an existing or new Corporation.
5. Upon separation, the shareholders of the Corporation being divided shall become shareholders of a recipient Corporation, or the Corporation being divided shall become the sole shareholder.
6. Existing and new Corporations registered at KBRA may simultaneously be recipient Corporations.
Article 239: Demerger agreement
1. In order to demerge, the Managing Directors of Corporations participating in demerger shall enter into a demerger agreement. Rights and obligations shall arise from the demerger agreement after approval of the agreement with demerger decision. A demerger agreement shall set out:
1.1. the official name, and trade name if any, and registered addresses of the Corporations participating in demerger;
1.2. upon distribution or separation, the distribution and exchange ratio of shares in the Corporations participating in the demerger to be transferred to the shareholders of the Corporation being divided, and the amount of additional payments, if additional payments are to be made, for the exchange of shares to the shareholders of the Corporation being divided;
1.3. upon distribution or separation, the terms and conditions of transfer of the shares of the recipient Corporations for the exchange of shares with shareholders of the Corporation being divided;
1.4. the date as of which the transferred shares shall grant the right to a share of profit of the recipient Corporations and the special conditions affecting this right;
1.5. the rights which the recipient Corporations will grant to the shareholders of the Corporation being divided, including the holders of preferred shares and convertible bonds;
1.6. a list of assets to be transferred to each recipient Corporation and the distribution of obligations which belong to the assets among the Corporations participating in demerger;
1.7. the consequences of demerger for the employees;
1.8. in the case of distribution, the date as of which the transactions of the Corporation being divided shall be deemed to be undertaken by the recipient Corporation (demerger balance sheet date);
1.9. the remuneration paid to the auditor who audits the demerger agreement and the advantages granted to the Managing Director(s) and members of Board of Directors of the Corporations participating in demerger.
2. The sum of additional payments prescribed in a demerger agreement which are to be paid by a recipient Corporation to the shareholders of the Corporation being divided shall not exceed one-tenth (1/10) of the sum of the nominal values or book values of their exchanged shares.
3. If an approved demerger agreement is conditional and a condition is not met within five (5) years after conclusion of the agreement, a Corporation may terminate the agreement by giving at least six (6) months’ advance notice of termination unless the demerger agreement prescribes a shorter term for advance notice.
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