Cross-border conversions, mergers & divisions

On the 1st of January 2020 the New Directive (EU) 2019/2121 entered in to force. This Directive concerns cross borders conversions, mergers and divisions. It is an amendment to the existing Directive (EU) 2017/1132 (The Company Law Codification Directive). The Directive can be found in the Official Journal of the European Union. The decision to adopt Directive 2019/2121 was decided on the 12th of December 2019 by the European Parliament. Since Directives do not have direct effect, it will only be effective once transposed into the National law of the Member States. Member States must implement it into their National legislation by the 31st of January 2023. On the one hand the Directive updates existing provisions concerning the increasingly popular cross-border mergers within the EU, it also adds new provisions and conditions concerning cross-border conversions and divisions for limited liability companies. The exact scope of some of the new provisions such as the pre-conversion check is yet to be established. Another new provision is the so-called Anti-Abuse Check, which may prove difficult to use in practise as it requires a competent National authority to carry out a check for fraudulent or criminal cross-border activities. This Directive is particularly important for limited liability companies within the EU. Legislation was previously non-existent in the area of cross-border conversions and divisions. Member States who do not have legislation in this area like the Netherlands, must rely on case law from the European Court of Justice concerning freedom of establishment. The area of cross-border divisions and conversions is not harmonised or legislated on extensively in many Member States, so it will no doubt provide a practical tool for practitioners across the EU. The Directive shall apply to all Member States across the EU, but it is unlikely that it will apply to the UK. This is because the UK will have left the EU before the transposition deadline in 2023. More clarity on the UK’s position should be visible by the 31st of December 2020 when there should be a withdrawal agreement. 

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