Directive on Cross-Border Conversions, Mergers & Divisions

As we are a few days away from the 31st January 2023-deadline imposed upon Member States to transpose EU Directive 2017/1132 on cross-border conversions, mergers and divisions (the “Directive”), it is worth-shedding light on the implications of the Directive prior to it being implemented into Maltese law.

At the outset, the EU Directive widely defines cross-border conversions as,

“an operation whereby a company, without being dissolved or wound up or going into liquidation, converts the legal form under which it is registered in a departure Member State into a legal form of the destination Member State […] and transfers at least its registered office to the destination Member State, while retaining its legal personality.”[1].

The Directive contributes to the European Union’s efforts to enhance legal certainty and to harmonise cross-border mobility and freedom of establishment with a view to sustain the evolution of the EU’s single market, and to close the gaps amongst the Member States’ current fragmented frameworks for cross-border and divisions of limited liability companies. In doing so, the Directive establishes a streamlined legislative regime regulating cross-border conversions namely by virtue of (a) merger by acquisition; (b) merger by formation (c) merger between a parent company and its subsidiaries and (d) merger between companies having the same ownership. 

In this context, it is worth-noting that as opposed to the previous (now repealed) version of the Directive, the Directive reinforces creditors and minor shareholders protection notably through the newly introduced anti-abuse process aimed at identifying abusive or fraudulent purposes, namely for the circumvention of the rights of employees and creditors, social security payments or tax obligations, or for criminal purposes. 

From a more practical perspective, the Directive provides for the following procedural steps which ought to be adhered to by companies intending to avail themselves of the conversion scheme contemplated therein;

  1. Draft terms of cross-border conversion constituting the primary document employed to effect the conversion and to set out the particulars pertaining thereto;
  2. Directors’ report addressed to the shareholders and employees detailing and justifying the legal and economic aspects of the cross-border conversion, as well as the implications thereof for the employees;
  3. Independent expert’s report relating to the draft terms of cross-border conversion;
  4. 3-month statutory creditor notice period;
  5. Once the afore-listed documents have been drawn up and duly executed, a meeting of the converting company’s shareholders must be held to approve the draft terms of cross-border merger;
  6. The competent authority of the departing Member State scrutinises the legality of the cross-border conversion, and consequently issues a pre-conversion certificate;
  7. The competent authority of the destination Member State assesses the legality of the cross-border conversion, and consequently approves the same;
  8. Once the merger is approved by the competent authority of the destination Member State, it is registered with the national public registers of the departure and destination Member States and is deemed legally effective.

In conclusion, the Directive is a welcome development offering new corporate restructuring options to businesses operating within the EU. It shall certainly be interesting to track the uptake of the procedures contemplated by the Directive once the same is implemented into Maltese law in the coming days.

Should you require our assistance on cross-border matters and/or transactions, please do not hesitate to get in touch, and we shall gladly discuss any of your corporate restructuring plans and guide you through the applicable process.

[1] Article 86b point (2) of the Directive