Draft bill for the implementation of the EU-Mobility Directive published
New developments regarding "cross-border conversions": With the end of the mandatory implementation period in sight, the German Federal Ministry of Justice (BMJ) has now published the long-awaited draft bill for the implementation of the Mobility Directive (EU) 2019/2121 of November 27, 2019. The draft bill is intended to provide the basis for a reliable legal framework for cross-border conversion processes. In addition, the BMJ draft also includes some novelties for domestic conversion measures. We have had a first look at the changes to come.
A brief review: With the "Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions", the EU legislator has established the basis for a uniform legal framework for cross-border conversion projects. The regulations specified by the EU Mobility Directive are intended to supplement and optimize the already existing regulations on cross-border mergers. In addition, it is intended to codify a clear set of rules for cross-border shifts of an entity’s statutory seat (grenzüberschreitende Sitzverlegung – also referred to as conversion of legal form) and for cross-border splitting/spin-off measures by way of new incorporation. In view of the legal uncertainties that have existed to date, experts have repeatedly called legislators for action for quite some time.
The requirements of the EU Mobility Directive are to be implemented into national law by January 31, 2023 at the very latest. Against the background of the German federal elections in fall 2021 and in light of the ongoing COVID-19 pandemic, there was no significant progress on this topic at the level of the German legislator for quite some time. Now, the said draft bill was published by the BMJ, as a preliminary stage of the legislative process marking the first step in the implementation of the EU Mobility Directive into German national law. The core of the amendments envisaged by the BMJ draft are the new sections 305 et. seq.to be added to the German Transfomation Act (Umwandlungsgesetz – UmwG).
In brief, the BMJ draft contains particularly the following points:
- In respect of stock corporations (Aktiengesellschaft - AG), limited partnerships (Kommanditgesellschaft - KG) and limited liability companies (Gesellschaft mit beschränkter Haftung – GmbH), for cross-border mergers, spin-off/splitting measures and changes of an entity’s statutory seat (change of legal form), a legally reliable Europe-wide compatible procedure will be introduced under which the respective commercial registers involved shall communicate with each other in digital format.
- For cross-border as well as for domestic conversion measures, the rights of minority shareholders will be harmonized. The different treatment of minority shareholders of the transferring and acquiring companies under the rules of the German UmwG in case of mergers shall be brought to an end. In particular, the so-called appraisal proceedings (Spruchverfahren) shall be made available to both groups of minority shareholders in the future. At the same time, the prompt execution of respective reorganization measures shall be ensured by excluding so-called execution-suspending actions by minority shareholders claiming that the respective exchange ratio be unfavorable.
- Instead of offering cash-based compensations, stock corporations shall be given the option of compensating for necessary adjustments to the value ratios of transferring and acquiring companies through the issuance of additional shares. This amendment is likely to be of considerable relevance in practical terms. It is aimed at preserving the liquidity of the companies concerned and facilitating investments in context of respective reorganization measures.
- The protection of creditors in connection with reorganization proceedings will be strengthened and their legal protection will be structured efficiently. This is to be achieved, amongst others, by the fact that the particular reorganization measure may not be registered if creditors claim that their respective claims have not been adequately collateralized.
- For cases of respective cross-border reorganizations, employees shall be granted their own specific information rights obliging their employers to comprehensively inform them in due time about the reorganization project enabling the affected employees to effectively exercise their rights.
All in all, the BMJ draft shows no major surprises. Nevertheless, it remains to be seen to what extent the draft will undergo significant changes in the course of the forthcoming legislative process. At this stage, a final assessment of the draft would therefore be premature.
Stakeholders now have time until May 6, 2022 to comment on the draft before it will be submitted to the parliament. We will closely monitor the implementation of the law and provide information on current developments. A detailed description of the main changes will follow in due time after the passing of the implementation bill. In view of the implementation deadline expiring on January 31, 2023, it can be assumed that the legislative process will now move forward swiftly.