The Ministry of Justice and Security has presented the Implementation of the Directive on Cross-Border Conversions, Mergers and Divisions Act for consultation.
The proposal provides procedural rules for cross-border conversions and divisions and changes the procedural rules for cross-border mergers. In addition, the proposal contains substantive rules for the protection of shareholders, creditors and employees in the event of a cross-border conversion, merger or division.
Cross-Border Conversions
Cross-border conversions have taken place in the Netherlands with some regularity in recent years, although there is no regulatory framework for this in European (and Dutch) law. Freedom of establishment is invoked as the legal basis for a cross-border conversion.
The Directive provides a harmonized framework for cross-border conversions of limited liability companies. A company can change its legal form under the law of a Member State of the EU or the European Economic Area (EEA) to a comparable legal form under the law of another Member State through a cross-border conversion without losing its legal personality.
This directive also states that the cross-border conversion in itself does not affect the company, its establishments or employment contracts with employees. Finally, shareholders who vote against the cross-border conversion have the right to withdraw for consideration.
Cross-Border Divisions
The preliminary draft also introduces the cross-border legal division in our law. As a result of a cross-border division, assets and liabilities are transferred by universal title from the dividing company to one or more newly created companies. In short, the Directive provides in the figure of a division or division of a company under Dutch law into at least one newly established company in another Member State of the EU or the EEA. And vice versa, division or demerger of a company in another Member State of the EU or EEA to at least a newly established Dutch company. Shareholders who vote against the cross-border division have the right to withdraw for consideration, as in the case of the cross-border conversion.
Cross-Border Mergers
The Directive also changes the rules already included in the Companies Directive for cross-border mergers of limited liability companies. In short, a cross-border merger concerns the merger of two or more companies from different EU or EEA Member States. Amendments to this scheme on certain points are considered necessary to increase the effectiveness and efficiency of the scheme. The following points will be adjusted:
- The board of each merging company must notify the shareholders, creditors and works council that they can submit comments to their respective company on the proposal for a merger at the latest five days before the date on which the cross-border merger is decided. the cross-border merger. This notification must be made public at the same time as the merger proposal.
- The already included opposition period for creditors is extended from one month to three months.
- Shareholders can have the amount of compensation in the event of withdrawal and the share exchange ratio checked via the chairman of the Enterprise Division.
- Establishment of a special bargaining body for employee participation may already be required in a merging company with 80 or more employees instead of the previously included 200 or more employees.
Fraud test
Finally, in the case of the cross-border conversion as well as the cross-border merger and the cross-border division, a civil-law notary must also perform a ‘fraud test’ in addition to checking whether formal requirements have been met.
The notary is designated as the competent authority in the Netherlands to issue the pre-certificate. A fraud test is entered with the pre-certificate. This means that the notary will not issue the certificate if he finds that the cross-border conversion, merger or division has been set up for unlawful or fraudulent purposes leading to or aimed at evading or circumventing Union or national law, or for criminal purposes.
The latest date on which this directive must be transposed into Dutch law is January 31, 2023.