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EU to harmonise cross-border company move and merger rules

New rules allowing companies to merge, divide or relocate to other countries within the EU single market have been proposed by the European Commission.27 Apr 2018

The proposals are intended to harmonise the existing rules around cross-border 'conversions' and 'divisions', allowing companies to relocate without first having to go through liquidation and lose their legal personality. They will also prevent companies from entering into abusive arrangements for tax avoidance purposes, or to undermine the rights of workers or creditors.

The Commission also intends to fully digitise company registration and filing procedures across the single market. Only 17 member states currently offer a fully online procedure for registering new companies, even though this takes on average only half the time and can be up to three times cheaper than traditional paper-based filing formats, the Commission said.

EU justice commissioner Vera Jourovà said that the intention was to "modernise" EU company law rules.

"Too often, European companies are prevented from looking for business opportunities abroad," she said.

"I want to change this and modernise the company law rules. First, I want more online solutions for European businesses so that they cut costs and save time. Second, I want to offer the honest entrepreneurs the choice of where to do business and how to grow or reorganise their businesses," she said.

Rules governing how companies can move from one EU country to another, merge or divide into two or more new legal entities across border differ greatly between EU member states. Last year, in response to a referral from the Polish courts, the Court of Justice of the EU (CJEU) ruled that EU freedom of establishment rules required that companies must be able to convert themselves into companies governed by the law of other EU member states provided that the relocated company met the incorporation requirements in its new location.

The proposals put forward by the European Commission are intended to address the lack of harmonised regulation in this area, while guarding against potential abuse. The package would allow companies to be fully created online, including across borders, and to move, merge or divide across national borders within the EU more easily and cheaply.

To guard against abuse, the member state of departure in conversion cases would be able to intervene in artificial arrangements aimed at obtaining undue tax advantages or undermining the legal or contractual rights of employees, creditors or shareholders. In more complex cases involving medium or large companies, an independent expert would be appointed to summarise the factual elements of the case in order to assist the member state of departure when making its assessment.

Companies intending to enter into new cross-border arrangements would be required to provide their employees with a report setting out the impact that their plans will have on them. Employee views about the proposed new arrangement should be taken into account during any company general meeting on the plans and, in cross-border conversion and division cases, by the departure member state in its assessment of the plans. The Commission has also proposed specific protections for employee rights where the national law of the destination state does not provide for the same level of employee participation in company management.

The Commission has produced two draft directives as part of its proposals: one on cross-border conversions, mergers and divisions; and one on digital tools and processes in company law. These will be submitted to the European Council and Parliament for their consideration and adoption.