Adventure Travel Ltd. Settings: Adventure Travel Ltd was founded 1985. Adrian Stuart, founder of Adventure Travel Ltd, managing director and owner of 80% corporate stock. Martin Stuart, brother of Adrian, owns 10% of shares Deborah Stuart, sister of Adrian, owns 10% of shares 1) He has heard that something called a ‘European Company’ can be created in the next year or so and he wants to know whether this will provide advantages to him as regards his proposed expansion into Europe. Prepare a brief report on the European Company Statute for him. (approx 900 words).
Speaking about the European Company as a way for Adrian to penetrate the European markets, one should remember that the European Company Statute is a new legal instrument based on European Community law that gives companies the option of forming a European Company – known formally by its Latin name of ‘Societas Europeae’ (SE).
The primary advantage that comes with the setting up the European Company is that it gives the company a right to be represented in more than one European state, merge with and operate together with the other European companies on the basis of uniform set of rules, reporting and unified corporate management. On the contrary, the company that does not have European company status has to undergo registration procedure in each European state it wants to operate in (Clarkson, 23).
The European company will save tremendous costs to its creator and will allow the owner to avoid complex procedures that each individual state of the European Union requires. In particular, it should be noted, there will be advantages in terms of significant reductions in administrative and legal costs, a single legal structure and unified management and reporting systems. I will also note that should Adrian decide to set up the European company he will be able to operate on a European-wide basis and be governed by Community law directly applicable in all Member States. One must remember that the European Company Statute is established by two pieces of legislation: 1. Regulation establishing the company law rules (directly applicable in Member States that company covers); 2.
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Directive on worker involvement (which will now have to be implemented in national law in all Member States).
It should also be noted that both, Regulation and Directive will enter into force on 8 October 2004. The European company that Adrian is thinking about to create can be set up in one of four possible ways: 1. By the merger of two or more existing public limited companies from at least two different EU Member States; By purchasing Foreign Travel Ltd, Adventure Travel Ltd (owned by Adrian) can indeed merge into a European company. This appears to be the most viable way of turning Adventure Travel Ltd into a European company that Adrian craved to create. 2. By the formation of a holding company promoted by public or private limited companies from at least two different Member States; it should therefore, be stated that, If Adrian decides to buy different travel companies around Europe instead of establishing his Adventure Travel Ltd in each European country, he can create a holding company that would centrally control all the daughter companies bought by Adrian in different European countries.
In this particular case it is also permissible by law to give his holding company a status of European company. 3. By the formation of a subsidiary of companies from at least two different Member States; Similar to the #2 (holding company), formation of subsidiary companies (that possess the same name of the Adventure travel Ltd) gives the reason for the formation of the European company. 4. By the transformation of a public limited company which has, for at least two years, had a subsidiary in another Member State. As far as we know, Adventure Travel Ltd does not have any subsidiary company in another Member state of the EU, thus, Adrian cannot turn his company into European company in this fourths way (Clarkson, 28).
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Speaking about particular advantages of the European Company I should note that the creation of the European Company Statute of Adventure Travel ltd, will mean in practice, that companies established in more than one Member State will be able to merge and operate throughout the EU on the basis of a single set of rules and a unified management and reporting system. There will be no need to keep track of particular state laws and report to each states authority. Adrian will therefore avoid the need to set up a financially costly and administratively time-consuming complex network of subsidiaries governed by different national laws. In particular, there will be advantages in terms of significant reductions in administrative and legal costs, a single legal structure and unified management and reporting systems. I would also like to note that by setting up as a European Company a business can restructure fast and easily to take the best possible advantage of trading opportunities across the European Union. At the same time, European Companies with commercial interests in more than one Member State will be able to move across borders easily as the need arises in response to the changing needs of their business. This presents another advantage to Adrian and his Adventure Travel Ltd The Statute of the European company, will allow Adventure Travel Ltd registered in Member State A to move its registered office to Member State B without, as is the case now, having to wind up the company in Member State A and re-register it in Member State B, thus providing tremendous cost savings to Adrian and his Adventure Travel Ltd.
For pan-European projects, that Adventure Travel Ltd might become one day, a single European Company could attract private venture capital more easily than a series of national companies all operating under national rules. Speaking about the provisions for worker involvement in European Companies that Adventure Travel Ltd might become in the future, I should note that under the Directive on worker involvement, the creation of a European Company will require negotiations on the involvement of employees with a body representing all employees of the companies concerned. Therefore, if it proves impossible to negotiate a mutually-satisfactory arrangement, then a set of standard principles, laid down in an annexe to the Directive, will apply. Essentially these principles oblige European companies managers to provide regular reports on the basis of which there must be regular consultation of and information to a body representing the companies’ employees. The reports of Adventure Travel Ltd of Adrian must detail the companies’ current and future business plans, production and sales levels, implications of these for the workforce, management changes, mergers, divestments, potential closures and layoffs. It should also be note that the minimum capital requirement for the company to become European Company is 120 000 euros. A European company like Adventure Travel Ltd, will, for tax purposes, be treated as any other multinational company that already operate in Europe, according to the national fiscal legislation applicable at company level or branch level.
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Certainly, there will be a fiscal advantage in creating a European Company by merger registered in one European Member State but operating through branches in a variety of Member States (Gleichmann, 86).
If the Member State where the head-office is located taxes the world-wide income of the European Company, it will be possible, in the Member State where the head-office is located, to offset corporate losses from some permanent establishments against profits from other ones. In practice, such compensation is not very often possible if the parent company is established as an independent entity operating through a variety of legally-independent subsidiaries rather than as a European company. These peculiarities, although might become interesting for Adrian and adventure travel ltd in the future, still provide him with a good start to establish oneself in Europe. 2) Advise Adrian what recourse he may have against Foreign Travels Ltd with regard to their backing out of the sale of their business. He has already written to them and has been told that a formal contract was never signed, nor was Acquisitions Number 1 Ltd in existence at the time, that there is no liability as far as Foreign Travels Ltd are concerned. (approx 1800 words).
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First of all I should note that in the business world most merger and acquisition (M&A) agreements have material adverse change clauses.
Because Foreign Travels Ltd backed out of the sale of their business to Adrians Adventure Travel Ltd, one needs to properly examine the situation with respect to the adverse change clauses. Essentially, if some type of catastrophic event occurs, the buyer or seller can back out of the deal. Still, it is hard to tell exactly what events. Usually, it will cover severe problems in the financial system or a war. For instance, after the events of 9/11 in the USA, Mr.Warren Buffet backed out of his deal to buy the bonds of Finova Group. He considered the terrorist attack to be an “act of war.” He also relied on another clause in the deal document, which applies to “any general suspension of trading in securities of any national securities exchange.” At the same time in the USA the court ruled that Tyson Foods could not terminate its acquisition of IBP because of a deterioration of finances. Foreign Travels Ltd did not have these special circumstances and most likely will be obliged to keep up with the contract.
There are several reasons that can allow the company to back out of the deal based on the material adverse effect. Some of them are shown below, but technically are limited only to ones imagination: Changes or developments in international, national, regional, state or local wholesale or retail markets for electric power or fuel or related products including those due to actions by competitors Changes or developments in national, regional, state or local electric transmission or distribution systems caused by acts of terrorism or war (whether or not declared) occurring after the date of this Agreement which materially impair the Company’s ability to conduct its operations except on a temporary basis, Effects of weather or meteorological events, except to the extent causing damage to the physical facilities of the Company and its subsidiaries. I should also note that the above clauses are fairly vague. After all, there is no definition of “acts of terrorism.” In addition, the phrase “material worsening” is not clear. In fact, such vague phraseology may make it difficult for the clause to be enforced. I would like to draw the readers attention to the fact that once two or more organizations are legally merged, they are one organization in the eyes of the law, and the process for dissolution of the organization is the same as for any other nonprofit. One should remember that Adventure Travels and Foreign Travels Ltd were not merged yet.
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Still, you cannot truly go back to being the same organizations you were before, as in all likelihood at least one of the former corporate entities no longer exists. One could, however, set up a new nonprofit corporation, going through all the normal steps, and then transfer a subset of the merged organizations’ assets and programs to that new organization. One could then probably even give the new corporate entity the same or similar name as one of the pre-merger organizations. Also I would like to make a brief note on the Due Diligence issue that certainly should keep Foreign Travels Ltd in the deal. While there is normally less risk in selling a business than in purchasing one, one should not forget to do the homework when the deals are conducted. This process is called “Due Diligence”. It is the period where the buyer (Adrian and Adventure Travel Ltd) “inspects” Foreign Travels Ltd Company.
This stage is not simply the verification of the company’s financial statements (which were found to be unsatisfactory); it is the only period during which the buyer has the opportunity to completely study the business and to really check it out. Foreign Travel Ltd needs to be prepared with accurate comprehensive information for Adventure Travel Ltd (or future Acquisitions Number 1 Ltd company that will be formed as a result of the merger) prospects and be able to justify the price and terms against competing sellers and types of investments. A company like Foreign Travels Ltd is a separate legal person and if a purchaser acquires all its share capital, it acquires a complete entity, with the possibility that it has greater actual or contingent liabilities than envisaged (Gleichmann, 88).
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By getting financial help from Adventure Travel Ltd, it created a binding agreement (notes ….
