The Mobility Directive soon to be transposed in Luxembourg: Innovations framing the mobility of companies within the EU
The bill No. 8053 (the "Bill"), is intended to transpose Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 (the "Mobility Directive") amending Directive (EU) 2017/1132 (the "Companies Directive") as regards cross-border conversions, mergers and divisions, and amends the amended law of 10 August 1915 on commercial companies (the "1915 Law") as well as the amended law of 19 December 2002 on the Register of Commerce and Companies and the accounting and annual accounts of undertakings.
The aim of the Mobility Directive is to eliminate the imperfections of the pre-existing regime for cross-border mergers under the Companies Directive, and in particular the lack of harmonisation with regard to (i) the accounting effective date of the operation, (ii) the valuation rules affecting both the exchange ratio and the valuation of the assets transferred, (iii) the protection of the interests of creditors, minority shareholders and of the employee participation, but also the practical problems of communication between the different national registers, in particular (i) by splitting up the report of the management body, (ii) by clarifying certain aspects of the double legality control, (iii) by introducing a much higher degree of harmonisation of the mechanisms for the protection of minority shareholders and creditors, and (iv) by altering the regime of the protection of employee participation rights.
The Bill introduces a harmonised regime for cross-border mergers, cross-border conversions and a procedure for cross-border divisions by incorporation of new companies as well as the right for minority shareholders to exit the company against a cash compensation.
The Bill also intends to open up both internal and cross-border mergers, divisions and contributions (other than those covered by the Mobility Directive) to special limited partnerships (SCSp) in order to further enhance the attractiveness of this corporate form.
The provisions of the Bill will apply to any merger, division and conversion operation for which the draft terms of merger, terms of division or terms of conversion, as applicable, are published on the first day of the month following the entry into force of the law.
The Bill slightly modifies the rules applicable to cross-border mergers and introduces two new chapters detailing the rules applicable to two other operations, i.e. the cross-border conversion and division by incorporation of new companies.
This reform of company law is part of a desire to promote the cross-border mobility of companies, which remains complicated, by providing a clear, predictable and appropriate legal framework, while taking into account the risks that this increased mobility poses to the employees, creditors, shareholders and partners of these companies.
In addition, the Bill introduces the right to exit the company for minority shareholders who voted against the approval of the draft terms and in order to further enhance the attractiveness of special limited partnerships (SCSp), the Bill intends to apply to them the regime of mergers, divisions and contributions, both domestic and cross-border (other than those covered by the Mobility Directive).
The Mobility Directive intends to modify the current framework governing cross-border mergers, in particular to align it with that introduced in the context of cross-border divisions and to introduce a simplified merger procedure for "less complex mergers".
The Bill clearly stipulates the general merger regime which applies as well to domestic mergers as to cross-border mergers other than those covered by the new special regime for European cross-border mergers.
The Bill also introduces a protection of the employees by sti a rule that the general meeting of each of the merging companies may subordinate the realisation of the domestic or cross-border merger on its express approval of the terms and conditions agreed for employee participation in the merged company or any other condition it may deem appropriate in the circumstances. In the case of a European cross-border merger, the administrative or management body of each of the merging companies shall draw up a report for the shareholders and for the employees (a section for the shareholders and a section for the employees) explaining and justifying the legal and economic aspects of the European cross-border merger and explaining the implications of the European cross-border merger for the employees and for the future activities of the company.
The Bill foresees the possibility for shareholders who voted against the proposed operation to exercise their right to exit the company by selling their shares in exchange for a cash compensation.
Furthermore, the Bill provides that, subject to prior notification to the debtor company, creditors may demand additional guarantees before the president of the “Tribunal d’arrondissement de Luxembourg”. However, they will have to demonstrate, in a credible manner, that the restructuring operation compromises the recovery of their claim. This procedure will not suspend the contemplated cross-border operation.
As to the date of effect of the merger, both cross-border and domestic, vis-à-vis third parties, the Bill replaces the date of effect after publication in the RCS of the minutes of the general meeting deciding on the merger for each of the merging companies, by the publication of the minutes of the general meeting of the acquiring company only or, by way of derogation, to a date determined by the law of the Member State governing the company resulting from the cross-border merger.
Cross-border divisions by incorporation of new companies
The Mobility Directive includes provisions for European cross-border divisions, both for partial and full divisions, but limited to divisions involving only one pre-existing company. This considerable limitation of the scope ratione materiae is explained by the fact that divisions by acquisition and mixed divisions are viewed as being "very complex, requiring the involvement of competent authorities of several Member States and entailing additional risks in terms from circumvention of Union and national and rules". These divisions therefore remain governed by the general regime for divisions.
Whereas the domestic conversions referred to in Chapter I of Title X of the 1915 Law are heterogeneous and do not involve a concurrent transfer of the registered office, European cross-border conversions may be homogeneous (a public limited liability company under Luxembourg law may be converted into a public limited liability company under Belgian law) and systematically involve, at the very least, the transfer of the registered office. Consequently, cross-border conversions are more comparable to what has long been known in Luxembourg practice as a voluntary transfer of registered office. Accordingly, the new provisions on cross-border conversions have been transposed into a new Chapter VI of Title X of the 1915 Law and the concept of "European cross-border conversions" has been introduced. A company incorporated under Luxembourg law may convert into a company incorporated under foreign law without being dissolved or liquidated or put into liquidation and, where applicable, without interruption of its legal personality, provided that the law of the State of destination does not prevent this.
Nevertheless, a number of procedural steps will have to be complied with in order to carry out a European cross-border conversion, including in particular (i) a draft terms of cross-border conversion setting out the particulars of the proposed conversion, (ii) a report from the administrative or management body to the attention of the shareholders and of the employees explaining and justifying the legal and economic aspects of the conversion and its implications for future business (in certain circumstances, however, it is possible to waive the report to the shareholders or parts of the report concerning the shareholders), (iii) a report by an independent expert (auditor) on the draft terms of conversion, made available to the shareholders at least one month before the date of the general meeting approving the operation, unless the shareholders waive this report, (iv) approval, amendment or rejection of the plan of cross-border conversion and of the new articles of association of the company by the general meeting, (v) two legality checks, the first one in the Member State of departure and the second one in the Member State of destination (the notary has been designated as the competent authority to carry out both checks in Luxembourg).
Opening to SCSp
In addition to the transposition of the new provisions introduced in the Companies Directive by the Mobility Directive and still with a view to giving Luxembourg company law the means to withstand increasingly sharp regulatory competition not only from other Member States, but also from other attractive jurisdictions in the field of company law, the Bill also intends to open up mergers, divisions and contributions, both domestic and cross-border (other than those covered by the Mobility Directive), to special limited partnerships. Indeed, the latter were originally excluded from the benefit of these operations because of their formal absence of legal personality, but it must be noted that in fact they enjoy all the attributes of legal personality, namely a corporate name, a domicile, a nationality and a certain form of patrimony. In order to further enhance the attractiveness of this corporate form, it was therefore deemed appropriate to give it the possibility of carrying out these reorganisation operations without first undergoing an inappropriate transformation into a limited partnership.
While having the merit of providing harmonised rules across Europe and filling the gap in European provisions on cross-border transfers of registered offices, and new safeguards for shareholders, creditors and employees, the Mobility Directive introduces a complex and burdensome regime in terms of the steps to be taken in order to carry out a European cross-border merger, division or conversion.
Our teams at BONN & SCHMITT are ready to assist you with any questions relating to this new development.