Cross-border Conversions

The world is getting smaller everyday. We can meet people from other countries via social media just by using our phones, eat fruit in Germany that was grown in Indonesia and fly non-stop around the world in 67 hours (and one minute, but who’s counting?). The boundaries of countries are fading. This continues in law. Cross-border reorganizations are becoming more common everyday. Business opportunities or change in demand require companies to go abroad. They are setting up new companies in other countries, moving companies or merging companies with companies from other countries.

Legal framework cross-border conversions in general

Dutch corporate law, as it currently stands, is silent on cross-border conversions of companies. However, from an EU-perspective and from a Dutch corporate law perspective, cross-border conversions of companies should be possible and may be implemented on the basis of (i) the freedom of establishment as laid down in article 49 in conjunction with article 54 of the Treaty on the Functioning of the European Union, (ii) case law of the Court of Justice of the European Union (“EU Court”) (more in particular the Sevic-case, the Cartesio-case, the Vale-case and the Polbud-case) and (iii) Dutch legislation on national conversions of companies.

In the Sevic case (2005), the EU Court ruled that cross-border mergers, like other methods of ‘conversions of companies’ fall within the scope of the freedom of establishment, which freedom of establishment is also applicable to companies. In the Cartesio-case (2008), the EU Court explicitly confirmed that cross-border conversions are possible on the basis of the freedom of establishment, to the extent that the laws of the ‘host member state’ (i.e.: the ‘inbound’ member state) allows such cross-border conversion. In addition thereto, the EU court clarified in the Vale-case (2012) that national rules concerning national conversions fall within the scope of the freedom of establishment and that EU member states may not prohibit or obstruct cross-border conversions. The considerations of the previous cases have been confirmed by the EU Court in the Polbud-case (2017).

In 2019, a new EU directive on, inter alia, cross-border conversions entered into force and effect. The rules of this new directive provide for a legal framework on cross-border conversions, which have to be implemented in the laws of the EU member states by 2023.

In the considerations of this new directive, the EU legislator explicitly confirmed that cross-border conversions are possible on the basis of the freedom of establishment. In implementing the Conversions, several Dutch legal writers take the position that the rules laid down in said new directive have to be applied already when implementing a cross-border conversion prior to the directive being implemented in Dutch legislation.

Relevant experiences HVK Stevens with cross-border conversions

HVK Stevens has extensive knowledge on and are specialised in cross-border restructurings, with a strong focus on cross-border mergers, cross-border demergers, cross-border conversions, supranational legal forms (such as the Societas Europaea (SE)) and aspects of private international law regarding these restructurings.

HVK Stevens has advised many clients on cross-border restructurings and implemented such cross-border restructurings with almost all jurisdictions within the EU and the most important jurisdictions outside the EU. HVK Stevens has also acted as advisers of other reputable law firms. Furthermore, the associates of HVK Stevens have written numerous publications on these topics in Dutch and international literature.

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