• Cross-border conversions, mergers and divisions, are part of companies' life-cycle 
  • No clear framework to ensure effective protection of stakeholders in cross-border operations 
  • New rules on cross-border divisions are estimated to bring savings of €12 000 to €37 000; €12 000 to €19 000 for conversions (per operation) 

Rules allowing companies to move, merge and divide across national borders and within the EU more easily, while ensuring legal certainty and safeguards against fraud were approved today.

The Legal Affairs committee approves rules, part of a Company Law package along with rules on digital tools, which facilitate companies to move, merge and divide within the EU, provided that operations are genuine and that the interests of affected workers and stakeholders are protected.

Common conversions and divisions procedures, updated merger rules

The new company rules on cross-border conversions, divisions and mergers aim to make procedures more simple, clear and effective by:

  • Setting up strong safeguards to prevent artificial arrangements aimed at obtaining tax advantages or circumventing legal or contractual rights of employees, creditors or shareholders;
  • Introducing a system of prior consent (pre-conversion, pre-division or pre-merger certificate) by competent national authorities to ensure the legality of cross-border procedures
  • Allowing for procedures to be entirely completed digitally, without the need to appear in person;
  • Strengthening employees’ right to information, consultation and participation in the company processes;
  • Enhancing protection measures for shareholders and creditors in the process.

Quote

"Today we decided on a framework that regulates company mobility within the European Union. It provides companies’ legal certainty and a clear procedure to follow, when they decide to move to another Member State. We could ensure that information and consultation rights of employees must be respected within the whole process, and set high safeguards for countries with participation rights and the companies' relevant stakeholders” said the rapporteur Evelyn Regner (S&D, AT).

“With these new rules for conversions and divisions, national authorities receive the option for a veto when identifying an artificial arrangement that constitutes a letter-box company used for social or tax fraud or any other abusive purposes" she added.

Next steps

The draft report was approved by 21 votes to 2. The committee also approved a mandate to start talks with European ministers as soon as the latter adopts its position and Parliament as a whole gives its green light.

Background information

There are around 24 million companies in the EU, of which 80% are limited liability companies (98% of which SMEs). The freedom of establishment plays a key role in the development of the Single Market as it allows businesses to pursue stable economic activities across borders. However, this remains difficult in practise, as company law is not sufficiently adapted to cross-border mobility in the EU.

The introduction of the 2005 Cross-Border Merger Directive laid down a harmonised procedure at EU level for limited liability companies which led to an increase in the number of cross-border mergers by 173% between 2008 and 2012. However, certain obstacles rose in relation to the lack of harmonisation of substantive rules, in particular for creditor protection and minority shareholder protection as well as the lack of fast track. In addition, the cross-border merger procedure does not sufficiently integrate digital tools and processes. The European Parliament also noted the necessity to revise it in order to improve its functioning.

Currently, companies wishing to move their registered offices cross-border need to rely on member states' laws and more than half of the member states do not provide any specific rules allowing for cross-border conversions and divisions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods.