Proposed EU Directive on cross-border mobility

On 25 April 2018, the European Commission proposed new company law rules making it easier for companies to merge, divide or move by way of a cross-border operation within the European Union.

The proposal can be regarded as a response to the Polbud ruling  by the Court of Justice. This landmark  case concerned a Polish company that intended to move to Luxembourg which was, however, not possible due to Polish legislation requiring the liquidation of the company before removing it from the Polish commercial register. The European Court of Justice ruled that this legislation is a breach of the freedom of establishment, since freedom of establishment includes the right for a company to convert itself into a company governed by the law of another EU Member State.

The European Commission now proposes to introduce new, common procedures for cross-border conversions and divisions and to update the already existing rules for cross-border mergers whereby  new rules for “simple” mergers are introduced. The procedures for conversions and divisions will be mostly the same as the procedure for cross-border mergers.

The proposal sets up strong safeguards to protect the rights of employees, shareholders and creditors. Employees will have to be informed about the impact the cross-border operation will have on them. Amongst other rights, employees will have the right to express their views on what should be taken into consideration in respect of the proposed cross-border operation and their views must be taken into account by the competent authorities when scrutinizing the legality of the operation.

Also shareholders will have to be informed about the impact of the operation on their rights and position in the company. Shareholders who oppose the cross-border operation will have an exit right which they can exercise in exchange for an adequate cash compensation.

Furthermore, Member States may require companies to make a declaration stating that the company is not aware of any reason why the company after the cross-border operation should not able to meet its liabilities towards its creditors. Creditors who are not satisfied with the protection provided may request appropriate safeguards at the competent court.

The proposal also introduces safeguards to prevent the procedures being used to avoid taxes or to undermine employees’ rights. The authorities of the departure Member State and of the destination Member State will have to scrutinize whether the operation is lawful. The departure Member State will have to assess if all conditions for the operation are fulfilled and whether the operation constitutes an artificial agreement. For medium and large companies an independent expert will provide the factual elements for this assessment. If the competent authority of the departure Member State comes to the conclusion that the cross-border operation is lawful it will issue a certificate. After receiving the certificate the competent authority of the destination Member State will also have to check whether the operation is lawful. Amongst other things, it must check and confirm whether the company has fulfilled the applicable incorporation requirements and whether the rights of the employees have been respected. 

The proposal will be submitted to the Council of the European Union and the European Parliament for their consideration and adoption. When the proposal has been adopted, the new Directive would have to be implemented into the laws of all EU Member States.