Implementation of the EU Mobility Directive reaches final stage

Short wrap-up on the background of the implementation of the Mobility Directive: Aimed at further strengthening the European common internal market and the free movement of companies, the 2019 Mobility Directive is intended to create the long-demanded uniform legal framework for cross-border conversion measures and thus to facilitate such projects. The existing legal regulations on cross-border mergers are to be supplemented and updated by the Mobility Directive. In addition, a basis for cross-border transfers of registered offices or changes of legal form as well as for cross-border demergers shall be established for the first time. The requirements of the Mobility Directive must be implemented into national law by the national legislators of the member states by 31 January 2023. After no significant progress on this issue for some time, the long-awaited implementation of the Mobility Directive has gained momentum since late spring 2022. In response to the draft bill of the Federal Ministry of Justice (BMJ) and the various comments received, the Federal Government published a government draft on 6 July 2022, in respect of which the German Federal Council (Bundesrat) published its statement on 16 September 2022. On 5 October 2022, the Federal Government published a counterstatement and submitted its draft bill of the UmRUG to the German parliament (Bundestag) for adoption. Thus, there is a realistic chance that the UmRUG will be finally adopted in the last quarter of this year.

Although, the draft of the UmRUG to be negotiated and resolved by the German parliament is essentially based on the BMJ's draft bill and retains its structure, it contains some adjustments being of particular relevance for practice.

• Limitation of the so-called "abuse control": The first draft bill provided that the respective competent commercial register courts must assess whether the respective cross-border measure serves abusive or fraudulent purposes, section 316 para. 3 UmwG-E. However, the draft bill failed to provide a clear definition or concrete specification as to which cases are to be considered abusive in this respect. This was criticised by various parties. Above all, it was criticised that the registry courts would be overburdened, and that the procedure would be considerably delayed. The current draft bill takes up this criticism: section 316 sub-section 3 UmwG-E now provides that the registry court should only carry out a corresponding abuse control "if there are indications".
• Deletion of the so-called "register block": Furthermore, according to the draft bill of the BMJ, the entitlement of creditors of the legal entity being affected by the cross-border conversion measure to claim a respective collateral payment, which already exists under the current legal situation, was to be considerably extended. In this respect, the draft of the BMJ originally provided that affected creditors could apply to the competent registry court for the respective conversion measure not to be registered until they had been provided with sufficient collateralization. In this respect, the affected creditors would have been given the opportunity to intervene directly in the register proceedings and block the registration/consummation of the cross-border measure in question. This provision, which was perceived by various parties as not being pragmatic, has been deleted without replacement in the current draft bill of the government, section 314 sub-section 2 UmwG-E. The members of the representative body of the transferring legal entity must now only affirm in the context of the registration of the conversion measure that no such security payments have been asserted in court within three months of the publication of the conversion plan, section 315 sub-section 3 no 2 UmwG-E.
• Deletion of the so-called "concentration of proceedings": Furthermore, the government draft refrains from the concentration of proceedings as were provided for in the initial draft bill of the BMJ. Pursuant to the rules being set out under BMJ’s original draft bill, it was envisaged that the registry court responsible for the transferring legal entity would also be competent for the decision on applications filed by creditors for the provision of collateralization payments. Also this provision was widely criticised. It was feared that it would deepen the already existing overload of the registry courts and delay the corresponding proceedings. The current draft bill meets these objections by deleting the rules on jurisdiction previously provided for in section 314 para. 3 UmwG-E. Accordingly, the court with jurisdiction under general provisions is the competent court for applications by creditors for the provision of securities.
• No extension of the rules on co-determination protection: In its statement as of 16 September 2022, the Federal Council had suggested that negotiations on co-determination (Mitbestimmung) in cross-border conversion transactions shall be mandatory even if the relevant co-determination thresholds of the exit state are only reached subsequently. In its counter-statement, the German government rejected this amendment proposal, stating that such a provision would not be compatible with the co-determination rules of the Company Law Directive (Directive (EU) 2017/1132). Neither the member state to which the respective company is being shifted nor the German legislator may arbitrarily create further exceptions in order to force foreign companies to negotiate on co-determination at a point in time after the conversion has been completed.

With the aforementioned adjustments, the Federal Government has responded to the criticisms on the draft bill of the BMJ draft as of 20 April 2022. All in all, the modifications made are to be welcomed. In particular, the previously envisaged blocking of the registration process would have further complicated the already complex and sometimes lengthy registration procedures in case of cross-border conversions measures. The same applies to the concentration of proceedings originally envisaged in the draft bill, which would have placed the substantive examination of creditors' claims for security with the registry courts as well. This examination would have represented a foreign object in the otherwise rather formal register procedure and would in all likelihood have had a slowing effect on the proceedings. Finally, from a practical point of view, the limitation of the so-called “abuse control” merely to conspicuous constellations, as provided for in the current draft law, is to be welcomed. However, since the draft law unfortunately also does not further specify the circumstances in which indications of abusive arrangements can be seen, it remains to be seen how the registry courts will deal with this. Further possible modifications have to be monitored in the course of the parliamentary legislative process. Also, it is questionable whether the suggestions put forward by the Federal Council on the topic of "protection of co-determination" will be taken up again by the German Parliament.

We are constantly monitoring the further legislative process and will inform about any changes and innovations. In addition, we will present the various conversion measures and discuss individual relevant topics and key points in further articles.

_{Published: October 2022}