Directive on Cross-border Conversions, mergers and Divisions (Implementation) Act has been saved
Directive on Cross-border Conversions, mergers and Divisions (Implementation) Act
The internet consultation on the Draft Proposal Directive on Cross-border Conversions, Mergers and Divisions (Implementation) Act (‘the Draft Proposal’) was opened in early February of this year. This blog briefly discusses the background and the content of the Draft Proposal.
The Draft Proposal regulates the implementation of Directive (EU) 2019/2121 (‘Mobility Directive’) of the European Parliament and the Council of 27 November 2019, amending (and extending) Directive (EU) 2017/1132 (‘Company Directive’) as regards cross-border conversions, mergers and divisions.
On the back of case law of the Court of Justice of the European Union it is already possible to implement cross-border conversions and divisions, but a regulatory framework for cross-border conversions and divisions is lacking. The resulting legal fragmentation and uncertainty is a barrier to exercising the freedom of establishment within the EU. The Mobility Directive aims to remove this barrier so it will be easier for companies to implement cross-border conversions, mergers or divisions.
The Mobility Directive creates a regulatory framework for cross-border conversions and divisions and amends cross-border merger procedures, to enhance the efficiency and effectiveness of the Company Directive.
The Draft Proposal copies the scope from the Mobility Directive. The Mobility Directive does not apply to legal entities other than limited liability companies, i.e., the Draft Proposal only applies to the Dutch private limited company (B.V.) and the public limited company (N.V.). The rules as laid down in the Draft Proposal do not apply to other Dutch legal entities, such as associations, cooperatives, mutual insurance associations, and foundations.
In line with the Mobility Directive and the rules in Book 2 of the Civil Code on domestic mergers and divisions, the Draft Proposal divides the process for cross-border conversions, mergers and divisions into three phases: 1) the preparatory phase, 2) the decision-making phase and 3) the implementation phase. The preparatory phase involves carrying out all preparatory activities regarding the cross border conversion, merger or division, such as preparing the conversion, merger or division proposal and informing shareholders, creditors and (if established) the Works Council. The decision making phase is when the general meeting decides on the proposal drawn up in the preparatory phase. If the general meeting gives the green light, the implementation phase starts. This phase includes the execution of the deed by the notary and the registration of the conversion, merger or division with the Chamber of Commerce.
Other than stipulated in the Company Directive, an interesting change in the preparatory phase is the provision of more information about the cross border conversion, merger or division to the shareholders and the Works Council (or employees) of the company (or companies) involved, on top of which this information is provided in an earlier phase. One example is the expansion of the list of subjects to be included in the explanatory statement and another is the distinction between information for the shareholders and for the employees. The issues about which the shareholders need to be informed include the consequences that the conversion, merger or division will have for them and the rights and remedies available to them should they disagree with the proposed compensation, while the employees are informed about topics such as the effects of the conversion, merger or division on employment relationships and material changes to the employment conditions.
What’s more, the board of each company involved must prepare a notification for the shareholders, the creditors and the Works Council (or employees), notifying them about their option to comment on the proposal to their respective companies, no later than five days before the date on which the general meeting decides on the proposal. Simultaneously with the deposition or publication of the proposal, this notification must either be deposited with the Trade Register, or published with the Trade Register electronically.
The Mobility Directive likewise provides for certain safeguards for shareholders, creditors and employees, such as the safeguard for creditors to have the possibility to oppose the proposal before the Court within three months after the merger, conversion or division proposal, mentioning the safeguard required.
More background information on the Draft Proposal can be found in the Explanatory Memorandum (download, Dutch only).
Member States have until 31 January 2023 to implement the Mobility Directive.
If you have any questions about (the consequences of) Mobility Directive and/or the Draft Proposal, you can contact John Paans, Thijs Butter or Boudewijn Renshof.
John Paans Thijs Butter Boudewijn Renshof
Partner Deloitte Legal Manager Deloitte Legal Legal Consultant
T: +31 88 288 5748 T: +31 88 288 0370 T: +31 88 288 9575
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