Act on the Transposition of the European Mobility Directive enters into force
On 1 September 2023, the Act on the Transposition of the Directive on cross-border conversions, mergers and demergers (the “Act”) will enter into force. The Act seeks to transpose European Directive (EU) 2019/2121 (the "Mobility Directive") into Dutch law. The Mobility Directive, which entered into force on 1 January 2020 and should have already been transposed into national law by 31 January 2023, aims to promote freedom of establishment for capital companies within the European Union ("EU"), while also strengthening the rights of stakeholders. This is achieved by introducing new rules on cross-border conversions and demergers and adapting the already existing rules on cross-border mergers.
Currently, the Netherlands does not yet have a legal framework for cross-border conversions and divisions, although in practice they are already taking place, pursuant to case law of the European Court of Justice. However, the lack of a legal framework makes the implementation of cross-border conversions and demergers difficult and leads to legal uncertainty and therefore a legal regulation is highly desirable.
The Mobility Directive does not apply to legal persons other than limited liability companies. Similar to the Mobility Directive, the Act has only applies to public and private limited. Furthermore, the foreign companies involved in the merger, division or conversion must be capital companies incorporated under the law of another member state of the EU or the European Economic Area. In the case of demergers, the Act provides that a cross-border demerger whereby an existing company is the acquiring company is not possible so that only demergers to newly incorporated acquiring companies are possible.
The process concerning cross-border mergers, demergers and conversions has three stages:
- the preparatory phase, which includes the preparation of a proposal, a written explanation and a notification to shareholders, employees and creditors, and the deposit of relevant documents for inspection;
- the decision-making phase, in which the general meeting resolves on the proposed cross-border transaction; and
- the executive phase, which includes the issuance of the pre-transaction certificate and the final certificate, the execution of the notarial deed and making the necessary entries in the commercial register and other public registers.
The Act designates the notary public as the competent authority in the Netherlands to issue the pre-execution certificate and the closing certificate. In connection with the pre-transaction certificate, the notary must perform, among other things, a fraud test, which test does not exist in the already existing statutory regulations on cross-border mergers. If the notary establishes that the proposed merger, demerger or conversion is being used for unlawful or fraudulent purposes, he must refuse to issue the pre-transaction certificate as a result of which the proposed cross-border transaction is prevented from proceeding.
The Mobility Directive also provides for certain safeguards for shareholders, employees and creditors.
Safeguards for shareholders
Shareholders who have voted against the decision on the proposed cross-border merger, demerger or conversion have a right of exit. In addition, after the decision on the cross-border transaction has been taken, shareholders have the right to challenge the following parts of the proposal at the Enterprise Chamber if they consider them unreasonable:
- the remuneration for the shares (being the amount of the compensation) if the right of exit has been exercised by the shareholders; and
- the share exchange ratio, or the number of shares in an acquiring company granted to the shareholders in exchange for the shares held by them in the merging or demerging company.
Safeguards for creditors
If creditors do not agree with the safeguards included in the proposal, such as guarantees and pledges, they have the possibility to enforce additional safeguards (such as guarantees or rights of pledge). Creditors can file an objection by filing an application with the court specifying the safeguards they require from the company. The opposition must be filed within three months of disclosure of the transaction proposal.
Safeguards for employees
In the event of a cross-border merger, the company will, more often than before, have to enter into negotiations with its employees in order to reach an agreement on the "company law employee participation" in the company after the cross-border merger. This refers to the right to exercise influence on the composition of the management or supervisory body (in the Netherlands particularly relevant for companies subject to the so-called structure regime). A similar regime will apply to cross-border demergers and conversions.
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