Luxembourg is on its way to reforming rules regarding “cross-border conversions”
The Luxembourg legislator is presently implementing into Luxembourg law a new draft bill law. This draft law will implement into Luxembourg law the provisions set out in Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 regarding cross-border conversions, mergers, and divisions (the “Mobility Directive”) which amends Directive (EU) 2017/1132 of 14 June 2017 about specific aspects of “Company law”.
The laws specified by the EU Mobility Directive are aimed at supplementing and optimizing the already existing regulations on cross-border mergers. It is also aimed at codifying a clear set of rules for cross-border shifts of an entity’s statutory seat and cross-border splitting/spin-off criteria by way of new incorporation.
What is a cross-border conversion under the “Mobility Directive”?
A cross-border conversion is the modification of the legal form of a company with legal personality in a departure (outbound) Member State, e.g, Luxembourg, into another legal form in a destination (inbound) Member State. The converting company does not cease, wind up or liquidate and maintains its legal personality.
The benefits of the current applicable regime for cross-border conversions to and from Luxembourg.
- Outbound cross-border conversions from Luxembourg to a Member State or non-EU Member State presently benefit from a brief implementation period with minimal documentation needed.
- Another benefit of the existing regime is that cross-border conversions are within the power of the shareholder(s) involved.
The main documents needed from a Luxembourg legal perspective are shareholder authorization resolutions to cross-border conversion, to be taken in form of a notarial deed. And depending on the destination jurisdiction, additional documentation may be needed.
- Luxembourg steps (outbound) can usually be finalized within one to two weeks. The steps to be taken in the destination country differ, but they usually require the enactment of shareholder(s) resolutions approving the cross-border conversion and can also generally be completed rather quickly.
- Inbound cross-border conversions from an EU or non-EU Member State to Luxembourg can be executed within the same time frame and with the same requirements as outbound cross-border conversions, with a little exception.
Upcoming Mobility Directive regime: the aims of the Directive
The Directive aims at creating a common legal framework for cross-border conversions and divisions and to refine the current provisions on cross-border mergers within the EU.
The laws of many Member States presently provide codified provisions for cross-border mergers of LLCs, and these laws either totally lack or include only marginal codified provisions on cross-border conversions. But once enforced into national laws, the Directive will close this gap, improving legal certainty, and harmonization of rules on cross-border conversions and divisions all over the EU, in addition to enhancing the rights of shareholders, creditors, and employees in EU cross-border operations.
Main features of the upcoming Mobility Directive regime
The primary objective of the draft law is to update the legal procedures with regards to mergers and divisions established in the Luxembourg law of 10 August 1915 on commercial companies, as amended (“Company Law”).
- The extent of the EU cross-border conversion regime
The conversion of LLCs into LLCs overseen by the law of another member state will be covered by this particular regime. With respect to Luxembourg, only the following LLCs are in scope: the public limited company (sociétés anonymes), limited liability company (sociétés à responsabilité limitée) and limited partnership by shares (société en commandite par actions).
Also, without being exhaustive, specific operations for the collective investment of capital invested by the public and companies in liquidation where the distribution of assets has started or that are subject to bankruptcy proceedings are excluded from the scope of this regime.
- A more complex procedure
A specific number of procedural steps will have to be acknowledged to complete a European cross-border conversion.
This draft law also aims at opening up both internal and cross-border mergers, divisions, and contributions to special limited partnerships (société en commandite spéciale – SCSp).
Pros of the upcoming Mobility Directive regime
- The Directive will enhance legal certainty by creating harmonized rules throughout the EU and stakeholder safety rights for employees, creditors, and shareholders of LLCs, including a shareholder exit right in case of the objection of a cross-border conversion.
- Other advantages of the Directive are that it gives modernized rules throughout, and facilitates the legal mobility of companies within the EU.
Cons of the upcoming Mobility Directive regime
- Once executed into national laws, cross-border conversions will be more sophisticated and time-consuming, and less predictable, due to a substantial increase in the required documentation, the involvement of extra parties, and extra stakeholder rights that need to be considered.
- Also, the process will be longer, with less planning predictability respecting the completion date, and the involvement of public authorities for pre-conversion requirement confirmations will be stricter than the presently applicable regime.
The enactment of this Europe Union Restructuring Rules must be attained by 31 January 2023 and apply to mergers, divisions, and cross-border conversions, so given the deadline, it can be speculated that the legislative procedure will now move forward swiftly.
If you would like to move your company within or outside the EU without losing its legal personality, let’s go ahead and contact your Damalion expert now and let us help.
