Changes regarding cross-border conversions, mergers and divisions
On 12 December 2019, Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 (“Directive 2019/2121”) amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (“Directive 2017/1132”), was published with the Official Journal of the European Union no. L 321/1.
Directive 2019/2121 sets forth comprehensive procedures for cross-border conversions and divisions and provides for additional rules on cross-border mergers of limited liability companies established in Member States.
In an innovative fashion, Directive 2019/2121 introduces the new concept of cross-border conversions. The cross-border conversion is an operation whereby a company, without being dissolved, wound-up or liquidated, converts the legal form under which it is registered in a departure Member State (i.e. the Member State which it proposes to leave) into a legal form in the Member State that it wishes to transfer to (i.e. the destination Member State) and transfers at least its registered office to the destination Member State, while retaining its legal personality.
In addition, Directive 2019/2121 is aimed at introducing stronger protection for creditors and minorities and significantly simplifying cross-border operations. To ensure an efficient and effective ex-ante control of cross-border operations, the competent authorities of the Member States of the company or companies carrying out the cross-border operation should have the power to issue a pre-conversion, pre-merger or pre-division certificate (hereinafter referred to as “pre-operation certificate”).
Directive 2019/2121 further amends Directive 2017/1132 with respect to the pre-operation certificate, by introducing digital tools and processes to ensure fully online application procedures and submission of any information and documents. Member States shall also ensure that the aforementioned certificate is available through the interconnection of registers system.
To allow all stakeholders’ legitimate interests to be taken into account in the procedure governing a cross-border operation, the company should draw-up and disclose the draft terms of the proposed operation. A key factor is that in addition to the mandatory information within the common draft terms of the cross-border operation, as set out in Directive 2017/1132, information concerning details of the offer of cash compensation for members and any safeguards offered to creditors, such as guarantees or pledges, shall also be included.
Pursuant to Directive 2019/2121, Member States shall ensure that an information notice, as well as the draft-terms are publicly available in the register of the Member State of each company merging, converting or being divided.
In order to provide information to its members and employees, the company carrying out the cross-border operation should prepare a report for them, which should explain and justify the legal and economic aspects of the proposed operation and the implications for employees. No section for employees should be required where the only employees of the company are in its administrative or management body. Employees, personally or by their representatives, should be able to provide their opinion on the report’s section setting out the implications of the cross-border operation for them.
Certain exemptions from the application of Directive 2019/2121 are also provided. For example, Directive 2019/2121 shall not apply to companies in liquidation where the distribution of assets has begun and Member States should be able to choose to exclude companies subject to other liquidation proceedings, insolvency proceedings, preventive restructuring frameworks, or crisis prevention measures.
Directive 2019/2121 shall enter into force on 1st of January 2020. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31st of January 2023.