New rules from Europe on cross-border transformations, mergers and demergers
In order to improve the functioning of the European internal market for companies and the related exercise of the freedom of establishment, it has been necessary to act on the rules governing cross-border operations.
The European legislator, related to this topic, adopted the following Directives : 2005/56, 2009/101, 2011/35, 2012/30 and 2017/1132. Despite these, nowadays the regulation of cross-border operations is too unclear and lacking.
On 18 November 2019, the European Council, following an agreement with the Parliament earlier this year, adopted a new Directive on cross-border mergers, demergers and transformations , which will have to be formally approved by the European Parliament in the following weeks.
In addition to the aforementioned clarifying purpose the new Directive has as its objective the elimination of obstacles relating to cross-border operations, facilitating access to markets and increasing business competitiveness to enable EU companies to make the best use of the market and remain competitive at a global level.
The new Directive introduces:
- Comprehensive procedures for transformations and demergers
- mandatory anti-abuse control procedure that will allow national authorities to block a cross-border operation when it is carried out for abusive or fraudulent purposes
- Simplification procedures that will apply to all three operations
- rules on employee participation in operations, protection of members and creditors
As regards point 1, it should be noted that Directive 2017/1132 only provides for rules on cross-border mergers and demergers of companies at national level. It was therefore necessary to include a complete set of rules for the two operations of demergers and transformations.
Articles 5 and 23 of the last Directive, modifying the 2017 Directive, inserted two new chapters dealing respectively with the transformations and the demergers of limited companies. The procedure relating to the two operations is similar to the merger procedure, described in detail in the 2005 Directive. In this procedure the European Legislator inserts, as mentioned in point 2, interesting elements to verify legality. For all three operations, a procedure is provided for to block the execution of the operation in the event of fraudulent purposes.
Article 14 of the new Directive replaces Article 127 of Directive 2017/1132, now entitled “Pre-merger Certificate”, describing the procedure to verify the legality of the cross-border merger. Member States will be responsible for designating the court of tribunal, notary or other authority competent to review the legality of cross-border mergers. This “competent authority” will then have to issue the pre-merger certificate attesting to the fulfilment of all applicable conditions and the proper compliance of all procedures and formalities in the Member State of the company involved in the merger operation. At paragraph 8 of the Article 14 it is provided that “ Member States shall ensure that the competent authority does not issue the pre-merger certificate where it is determined – in compliance with national law – that a cross-border merger is set up for abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of Union or national law, or for criminal purposes.“.
As provided for in point 3, the new Directive also aims to simplify the procedure for transactions. It’s underlined the importance of using electronics means to avoid that the applicants have to appear in person before a competent authority in the Member States. Than the Member States should apply the ‘once-only’ principle in the area of company law, which entails that companies are not required to submit the same information to more than one public authority. For example, companies should not have to submit the same information both to the national register and to the national gazette. Furthermor there is also the possibility of speeding up the procedure by waiving reports for members and employees in the event that shareholders agree, or if the company or any of its subsidiaries do not have any employees.
Member States will also have to undertake to protect the members, creditors and employees of companies involved in this type of transaction. For this purpose, Articles 126 bis, 126 ter and 126 quater of are Directive 2017/1132 are amended. The new articles introduce provisions that protect the above-mentioned persons.
We await with interest the publication of the Directive in the Official Journal of the EU. We hope that the transposition of this Directive into national law will be rapid.