The EU Directive No. 2019/2121 (New Directive) amended the Directive (EU) 2017/1132 (2017 Directive) as regards cross-border conversions, mergers and divisions, was published on 12 December 2019. It is set to be transposed into national law by the Member States by 31 January 2023. This New Directive is part of the major efforts being undertaken by the European Union (EU) in order to enhance cross-border mobility and freedom of establishment with a view to sustain the development of the Single Market.
The 2017 Directive was primarily limited to regulating cross-border mergers of limited liability companies. As part of the proposal leading up to the enactment of the New Directive, it was acknowledged that the lack of a legal framework for cross-border conversions and divisions resulted in legal fragmentation and legal uncertainty. Following a number of decisions issued by the Court of Justice of the European Union (CJEU) (notably see. Polbud case), the need was felt to introduce harmonised rules on cross-border conversions (re-domiciliations) and divisions across the EU, whilst also further harmonising the current framework applicable cross-border mergers.
Establishing a harmonised legal framework governing cross-border conversions. Currently, companies wishing to move their registered office cross-border need to rely on Member States' laws and CJEU jurisprudence. That said, such Member States laws, where available, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions.
Establishing a harmonised multi-layer procedure governing cross-border divisions. These will, however, be limited to cross-border divisions by formation of new companies.
Amending the current framework governing cross-border mergers, particularly to align these with those introduced in the context of cross-border divisions and introduce a simplified merger procedure for ‘less complex mergers’. In this regard, the EU felt that despite the overall positive assessment, there were still certain issues with the current cross-border merger framework that impeded the full effectiveness and efficiency of the purpose behind the rules.
In line with the EU’s efforts to enhance the freedom of establishment and remove legal barriers, the New Directive will also be harmonising substantive rules to increase creditor protection and minority shareholder protection, which rules were not catered for in the 2017 Directive.
Our Firm is well placed to assist you and your organisation with all the advice you may require throughout the various stages of a cross-border transaction.
Should you require further information or any assistance in this regard, please do not hesitate to contact us.
This document does not purport to give any legal, financial or tax advice.
