Actualités du cabinet Catherine CATHIARD

 The Scope of the Directive

The legal framework for cross-border conversions and divisions

The Directive only deals with limited liabilities companies (as listed in annex II of directive 2017/1132) having their registered office, central administration or principal place of business in the European Economic Area. It introduces a legal procedure for a limited liability company to convert the legal form in which it is incorporated in a Member State of departure – without being dissolved, liquidated or put into liquidation – into a legal form of a limited liability company of the Member State of destination by, at least, transferring its registered office to the Member State of destination while retaining its legal personality8.

The Directive also introduces a legal procedure for limited liability companies, with at least two of them being governed by the laws of different Member States, to operate a cross-border division9 – which covers full divisions, partial divisions and divisions by separation as described by the Directive.

The amendments and the extended scope for cross-border mergers

The Directive amends provisions of directive 2017/1132 on cross-border mergers. It extends its scope to the operation whereby one or more companies transfer, as a result of or at the time of its/their dissolution without liquidation, all its/their assets and liabilities to another pre-existing company (the ‘acquiring company’) with no new shares issued by the acquiring company – provided that a person holds, directly or indirectly, all the shares of the merging companies or that the members of the merging companies hold their shares in the same proportions in all the companies that merge10.

The Protection of Stakeholders

The Directive ensures the protection of stakeholders (mainly creditors and co-contractors, employees and shareholders) during a cross-border operation which falls under the scope of the Directive.

The protection of creditors and co-contractors

The creditors concerned are those whose claims antedate the publication of the draft terms of the cross-border operation and have not yet fallen due at the time of such publication. The protection rules provided for them mainly include

• a right of information on the safeguards proposed by the company;

• a right to make observations before the general meeting called to decide on the operation;

• in case of division, a right to benefit from the joint and several liabilities of the companies concerned; and

• a right to apply to the competent authority for adequate safeguards.

Legal certainty for third parties is also ensured by measures of traceability of the operation on the national registers. A cross-border operation which has taken effect in compliance with the procedures transposing the Directive may not be declared null and void11. In addition, companies in the liquidation process or other winding-up proceedings should be excluded from the application of the Directive12.

The protection of employees

The Directive ensures that employees are properly informed and consulted about the expected effects of the cross-border operation according to the national rules applicable.

Regarding the participation rights (i.e., the right to have the employee(s) representative at the management level13), mainly the same principles and procedures as those applicable for cross-border mergers14 apply for conversions and divisions.

The protection of shareholders

Minority shareholders disapproving of the cross-border operation have a right to dispose of their shares and receive adequate cash compensation (the ‘exit right’). The cash compensation is examined by an independent expert who has to give its opinion on whether the cash compensation is adequate, except if the shareholders renounce to such report.

The shareholders should also benefit from

• extended information rights,

• the right to challenge the calculation and the adequacy of the cash compensation (in case of an exercise of the exit right) and

• in cross-border mergers or divisions, the right for members who have not exercised the exit right to contest the share exchange ratio.

The Pre-operation Assessment and the Anti-fraud/Anti-abuse Control

Two controls of the legality of the cross-border operation are introduced for cross-border conversions and divisions, quite similar to those already in force for cross-border mergers subject to the following modifications:

• a first control of legality operated by the competent authority (to be determined at the national level) in the State of departure (or of the merged or divided company) followed by – within no more than three months extendable once in case of serious doubts of abuse or fraud – the issuance, by the competent authority, of a pre-operation certificate of legality and

• a second control of legality carried out by the competent authority (to be determined at the national level) in the State of destination (or of the beneficiary company/companies) to ensure compliance with the provisions of national law on the incorporation and registration of companies and, where appropriate, arrangements for employee participation have been correctly determined.

The most sensitive provisions are those stating that the pre-operation certificate of legality will not be issued by the competent authority in the State of departure and the cross-border operation will be blocked ‘if it is determined in accordance with the national legislation that the cross-border operation is carried out for abusive or fraudulent purposes with the aim or leading to evasion or circumvention of national law or EU law, or for criminal purposes’.

The competent authority should be able to consult not only the company but also any other relevant authorities and/or experts to obtain useful information and documents and conduct investigations.

If we refer to the situation currently in force in Luxembourg for cross-border mergers, the notary is the competent authority in Luxembourg to deliver the pre-merger certificate and perform the second control of legality according to article 1021-12 of the Law of 10 August 1915 as modified. We could assume that the same competence could be allocated to the notary for cross-border conversions and divisions. But is the notary able to solely identify if the operation is based on abusive, fraudulent or criminal purposes? The answer mainly depends on the contents of the assessment as analysed in our second article below15.

The Implementation and Application of the New Rules

It will be necessary to wait for the publication of the final versions of the Directive in the language of each of the Member States after legal-linguistic revision. The Directive will become effective 20 days after its publication and Member States will have to transpose it into national law16 within 36 months of its effective entry into force.

But what will be the situation between the publication of the Directive and the publication of the implementation rules by the Member States?

In principle, the Directive only takes effect once transposed17. However, the Court of Justice of the European Union considers that a directive that is not transposed can directly produce certain effects when

• the transposition into national law has not taken place or has been done incorrectly,

• the terms of the Directive are unconditional and sufficiently clear and precise and

• the terms of the Directive give rights to individuals. For example, this could refer to stakeholders such as individual creditors, co-contractors, shareholders or employees.