Cross-border reorganizations possible throughout the EU in future

 

Status of the legislative procedure

On 1 January 2020, the European Directive on cross-border conversions, mergers and divisions (Directive (EU 2019/2121) came into force. This directive must be transposed into national law by the member states by 31.1.2023.

Need for regulation

So far, only cross-border mergers of corporations are regulated in the German Transformation Act. However, in recent years there have been a large number of rulings by the European Court of Justice (ECJ), which have made it clear that other conversions processes, such as cross-border demergers or cross-border changes of legal form, must also be permitted under the freedom of establishment.

Essential content

The EU Directive contains uniform rules for European corporations for the cross-border change of legal form to another EU corporation, which can also take the form of an isolated transfer of the registered office. The cross-border demerger expressly only covers cases of SEsplit-up, spin-off and drop-down by new formation. Furthermore, the procedure for cross-border mergers will be modernised and simplified.

The new procedural rules are essentially based on the procedural rules known in connection with the Societas Europaea (SE). For example, employee participation rights can be determined by negotiations between management and a special negotiating body. If this negotiation procedure is abandoned or fails, the standard statutory solution is provided for, which protects the current status of participation rights. This means that this status can be frozen permanently.

Conclusion

In practice, there are still considerable differences between Member States in the actual feasibility of cross-border restructuring. This is not only due to different national laws, but also to the different practices of the registries. A harmonisation and simplification of European conversion law is therefore to be welcomed. However, there should also be no doubt that an extension to other legal forms (partnerships) and other types of conversion (demergers for absorption) would be desirable.

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