The new 'European company' structure designed to facilitate cross-border mergers within the EU will be difficult for lawyers to advise on and will contain as many pitfalls as advantages, City solicitors said this week.

Solicitors said the structure, created by the European Company Statute and implemented in the UK last week, is unlikely to be popular with domestic clients.



So far only the UK, Belgium, Austria, Denmark, Sweden, Finland and Iceland have implemented the statute.


Under the structure, European companies may merge into one single entity without the need for one partner to become a subsidiary. The companies, which will have the suffix 'Se', will be able to base themselves in any member state, subject to insolvency safeguards. They will also have the flexibility to set up a two-tier board.



However, UK companies are likely to be deterred by provisions forcing them to allow employee representation on the board when merging with a European partner that already has such participation - which is widespread in many countries.


Vanessa Knapp, chairwoman of the Law Society's company law committee, said: 'UK companies are worried about employee participation at board level. There is no tradition of that here and it looks unattractive.'


Herbert Smith partner Alex Kay added that the structure would be difficult to advise on. He said: 'There will be uncertainties on how the different matrix of rules in different countries will interrelate. It will be used by banks in structuring transactions and companies that want a European identity with the Se suffix, and there will be some benefits for jurisdiction shopping.'


Clifford Chance partner Tim Herrington added: 'I would be surprised if there was a big take-up of the structure over here - if you look at it closely it is a European wrapper around a local law vehicle. There is a degree of uncertainty about the processes for merging companies and it would be very hard to draft for a two-tier board in the UK without creating uncertainty. Lawyers will be reluctant to plunge into the unknown without any clear benefit.'



Internal market commissioner Frits Bolkestein said the European Company Statute would cut out red tape in cross-border operations. He called on member states to cease holding the project back and put the framework in place to allow European companies to be set up.