Corporate Structures Newsletter - September 2016
CJEU provides more clarity on how cross-border mergers affect loan agreements
In a recent judgment, the Court of Justice of the European Union (CJEU) provided a useful explanation of the effect of a cross-border merger on a loan agreement.
In short, the case was as follows: Sparkassen Versicherung AG (Sparkassen), established under Austrian law, demanded the payment of interest under two subordinated loans that it had granted to Kommunalkredit International Bank Ltd (Kommunalkredit), established under Cypriot law. Sparkassen granted these loans before Kommunalkredit, as the disappearing company, entered into a cross-border merger with KA Finanz AG (KA Finanz), established under Austrian law, as the acquiring company. The loan agreements were governed by German law. Alternatively, Sparkassen claimed that, based on creditor protection rules for holders of securities, other than shares, to which special rights are attached, KA Finanz must grant Sparkassen rights of equal value. KA Finanz, on the other hand, argued that the loans were terminated as a result of the merger and no compensation was required under Austrian law.
Why keeping company records is important
On 1 July 2016, the Penalization of Bankruptcy Fraud Amendment Act (the Act) came into force. The Act aims to combat bankruptcy fraud and stimulate companies to keep proper records at all times.
A Dutch company’s board of managing directors must keep records of the company’s financial position and everything related to the company’s activities. Additionally, it must keep the company’s books, records and other data in such a manner that the company’s rights and obligations can be ascertained from them at any time.
In the event of a bankruptcy, failure to keep company records may result in liability of the managing directors for the insolvent company’s deficit under civil law. In addition, a company and its managing directors may also be held criminally liable for a lack of company records. This may be the case in the event of a bankruptcy, but also in other situations.
Sellers of shares should be mindful of a new restriction on the possibility of exculpation from tax liabilities
As a result of an amendment to the law governing Dutch tax collection, it will now be easier for Dutch tax authorities to hold a seller of shares in a company liable for that company’s Dutch corporate income tax debts, even after the shares in the company have been sold.
Individuals and entities that sell shares in a company can be held liable for the Dutch corporate income tax debts of that company as at the end of the year in which the sale occurs. This also applies to Dutch corporate income tax debts of the company in the three years following the sale that relate to certain reserves allowed for tax purposes and unrealized capital gains existing on the date of the sale.