EU updates mergers law to enable cross-border restructuring

Out-Law News | 25 Nov 2019 | 9:41 am | 1 min. read

Limited liability companies will be able to transfer their assets and liabilities to companies based elsewhere in the EU more easily under recently-finalised new laws.

The new directive on EU companies' cross-border conversions, mergers and divisions was approved by the Council of Ministers earlier this month. It is expected to take effect in national laws by late 2022, or early 2023 at the latest.

The rules complement and update reforms to EU rules impacting cross-border mergers of limited liability companies that were finalised in 2017.

"The lack of a legal framework for cross-border conversions and divisions leads to legal fragmentation and legal uncertainty, and thus to barriers to the exercise of the freedom of establishment," a recital in the new directive states. "It also leads to the suboptimal protection of employees, creditors and minority members within the internal market."

The new legislation sets out the procedures that businesses will need to follow when engaging in cross-border conversions and divisions, including divisions that concern the formation of a new company. Limited liability companies will need a pre-conversion or pre-division certificate from national authorities to proceed with a cross-border conversion or division. Their administrative or management bodies will first be required to draw up the draft terms of those arrangements and make them available for scrutiny.

The protocols provided for are designed to ensure pre-conversion or pre-division certificates are not issued in cases where the new operations are for abusive or fraudulent purposes, and further restrictions mean businesses in the middle of being liquidated will also be prevented from pursuing conversions or divisions under the new regime. Further measures are designed to ensure employees are given information about the changes being made to operations, and in addition that there is board level employee representation in the decision on the draft terms of a cross-border operation where that is provided for in national law.

In some cases, however, shareholders will be able to vote to reduce the information requirements and consultation process to speed up the time taken for conversions and divisions to happen. The new framework envisages the exchange of information by national authorities via "existing, digitally interconnected, business registers", the Council of Ministers said.

Anna-Maja Henriksson, minister of justice in Finland, which drove the final agreement on the new text, said: "These new rules enable EU companies to make the best out of the single market so that they remain competitive globally. At the same time, the directive provides for appropriate safeguards that discourage abuses and protect the legitimate interests of workers, minority shareholders and creditors." 

The new directive will enter into force 20 days after it is published in the Official Journal of the EU. EU member states will have up to three years from that point to implement the directive into national law.