Cross-border merger of companies under the EAC Common Market Protocol

The long awaited Common Market Protocol for East African Community has finally come to pass. This Protocol will accelerate economic growth and development of partner states by facilitating free movement of goods, persons, services, capital and the right of establishment.

The long awaited Common Market Protocol for East African Community has finally come to pass. This Protocol will accelerate economic growth and development of partner states by facilitating free movement of goods, persons, services, capital and the right of establishment.

It is quite interesting to note that, before the EAC Common Market Protocol came into force, some smart thinking corporate bodies from the EAC region had already started reaping the benefits from cross-border investments.

The last time I checked, Kenya Commercial Bank (KCB) had operations in the four EAC partner states- apart from Burundi. Once KCB opens its doors in Bujumbura, one cannot refrain from acknowledging that KCB will be a truly East African bank. KCB’s presence in the four partner states is a real testimony to the practical implementation of the EAC Treaty.

However, in order to facilitate cross-border investments in the EAC region, a solution for one important corporate issue must be provided. Do the company laws of all partner states allow cross-border mergers of companies from different partner states?

If not, is this issue catered for by the Common Market Protocol?  Company lawyers define the term “cross border merger” as a legal merger between two or more companies that have been duly incorporated under the laws of different countries.

Such mergers involve a company incorporated under the laws of country A emigrating and immigrating to country B. The complicating factor is that the company from country A merges into a company of country B.

It is also possible that both companies merge into a new company in country A, B or C. Such an operation requires rules of two sorts: on one hand, rules concerning the mechanism of cross-border mergers as stipulated in the company law of a given state and, on the other hand, rules that enable the crossing of the border by the company.

Apparently, all company laws from the EAC partner states allow mergers between two domestically incorporated or national companies. Which law will be applied for instance in a situation where a company from Rwanda needs to merge with a company in Kenya?

The solution for this important corporate concept should be provided by either the Common Market Protocol or the company laws in the partner states.

Cross-border mergers facilitate the international movement of capital, technology, goods and services, which translates into efficiency gains through economies of scale.

Cross-border mergers can also have positive impacts on growth and employment, particularly if governments have policies which facilitate the associated industrial restructuring.

Mergers may also contribute to capital accumulation through the transfer of new technology, advanced management skills and other forms of intangible assets to the host country. Foreign direct investment, in general, can have a favourable influence on industrial innovative capacity through technology transfer and dissemination. Mergers also increase competition in the host country by adding new entrants into markets.

What is needed to address the above issues? Firstly, the Common Market Protocol has to show how cross border merger of companies from partner states will be carried out.

The Common Market Protocol is envisaged as one of the tools that will lead to greater regional integration among the five EAC partner states, as it will seek to promote free movement of persons, goods, labour and services.

Secondly, the partner states need to reform and finally harmonise their company laws in a bid to accommodate this corporate concept and other new international company law concepts that will attract investment into the EAC.

justhappy2006@yahoo.com

Happy E. Mukama is a LLM student in the Netherlands

 

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