The new European Directive on cross-border conversions, mergers and divisions

On 12 December 2019, the EU Directive No. 2019/2121 of the European Parliament and Council amending the former Directive No. 2017/1132 on cross-border conversions, mergers and divisions was published in the Official Journal of the European Union.

The new directive, which shall be implemented by all Member States by 31 January 2023, introduces a harmonised regime for cross-border transformations and divisions for the first time, namely those involving more than one Member State. Until now, only cross-border mergers have been subject to harmonised rules, first contained in Directive 2005/56/EC and then consolidated in Directive 2017/1132.

Regarding cross-border conversions, the aim of the new regulation is to allow a company incorporated in accordance with the law of a particular Member State to convert into a company governed by the law of another Member State, assuming that the conditions foreseen by the law of such other Member State are satisfied, with particular reference to the criteria therein provided, such as  connecting factors to the national legal system.

Among the peculiar aspects of the new regime, the most important is the introduction of harmonised substantive rules, which operate in relation to the safeguard of shareholders, creditors and employees, with the aim of ensuring a “minimum level of protection” for their respective interests.

In fact, the Directive provides for the protection of the categories of company stakeholders involved in conversion operations, by providing, inter alia, that dissenting shareholders must be guaranteed the right to dispose of their shares in exchange for an appropriate monetary settlement; there must be an adequate system of protection for the interests of creditors whose claims pre-date the publication of the cross border conversion project and are not overdue at the time of the abovementioned publication;  and that the rights to information and consultation of employees must be guaranteed.

The procedure requires the management board of the company being converted to prepare a plan for cross-border conversion and a report for members and employees justifying the operation in legal and economic terms. Subsequently, the shareholders’ meeting of the company, after having acknowledged the reports, the opinions expressed by the employees and the observations, will decide whether or not to approve the cross-border conversion project.

Each Member State will have to designate the competent authority (e.g. notary public, judicial authority) to verify the regularity of the cross-border conversion procedure for the part governed by the law of the Member State of departure. The abovementioned authority will issue, following the inspection, a “pre-conversion certificate” which will be recognized by the Member State of destination and will constitute proof that all of the applicable conditions have been met and that all procedures and formalities in the Member State of departure have been properly fulfilled. The pre-processing certificate should be shared through the system of interconnection of registers.

To summarize, the Directive removes unjustified obstacles to the freedom of establishment of EU companies in the single market by effectively facilitating cross-border conversions, mergers and divisions of EU companies.