1. What is the Mobility Directive?
Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 (the "Mobility Directive") amends Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions. The Mobility Directive amends the existing procedures for cross border mergers and introduces a new harmonised framework across the European Union (the "EU") in respect of cross-border conversions and cross-border divisions. The Mobility Directive recognises that the lack of a legal framework for cross-border conversions and divisions had previously led to legal uncertainty and acted as a barrier to the exercise of the freedom of establishment within the EU. It does, however, aim to reconcile these principles with the need for shareholder protection, balancing company mobility against employee, member and creditor rights.
2. Updates to the Cross-Border Merger Regime
Under existing rules, limited companies can engage in cross-border mergers with companies in other EU Member States. The Mobility Directive has introduced a number of key updates to the existing cross-border merger regime to include the following:
- the definition of 'merger' has been extended to encompass an operation where, in certain circumstances, a company may be dissolved pursuant to a merger by acquisition without triggering a requirement for the issuance of any shares to the shareholder(s) of the transferor company;
- the Directors' Explanatory Report (where applicable) must now be made available to members and to employees (or their representatives) for a period of six weeks prior to the general meeting of each merging company;
- protections for 'dissenting members' of merging companies to receive cash compensation in lieu of shares in the successor company have been enhanced; and
- provision has been included to allow all filings in respect of the merger hearings and the merger hearings themselves to be undertaken electronically.
3. Cross-border Conversions
A cross-border conversion is the conversion of a limited liability company formed in accordance with the law of a Member State, into a limited liability company governed by the law of another Member State ("Conversion"). Following the Conversion all the assets and liabilities of the company shall be those of the converted company, the members shall continue as members of the converted company and the employment relationships existing at the date on which the Conversion takes effect shall be those of the converted company. A Conversion provides flexibility for companies to move jurisdictions in a manner previously only contemplated for SEs (Societas Europaea) as it allows a limited company to move registered office to another Member State without the need for a winding up or the loss of its legal personality.
4. Cross-border Divisions
A cross-border division involves the division of a company, without going into liquidation, whereby all or a portion of the assets and liabilities of the divided company are transferred to one or more companies. The members of the divided company are issued shares (and cash payments where relevant) in the recipient companies. The new regime in respect cross-border divisions complement the existing procedures contained within the Irish Companies Act 2014 (as amended) which provides for divisions between Irish companies.
5. Timeline for implementation into Irish law
The Mobility Directive was due to be transposed by 31 January 2023. This date has passed and although transposition, which is expected to be by way of regulations made by Statutory Instrument, is expected soon, the Department of Enterprise, Trade and Employment has not confirmed a date by which this will occur.
6. What are the transitional arrangements?
The Mobility Directive does not provide for transitional arrangements for cross-border mergers commenced under the current cross-border merger regime but not having completed prior to the operation of the new regime. Accordingly Member States will need to take their own approaches to a transitional period. The Irish Department of Enterprise, Trade and Employment has indicated that an Irish company currently planning to engage in a cross-border merger and seeking to rely on the current legislative regime may be permitted to publish the common draft terms of merger in advance of the regulations transposing the Mobility Directive coming into effect but then have a six month period within which to complete the merger under the current regime notwithstanding the introduction of the new regime.
It will not be possible to undertake a cross-border conversion or a cross-border division of an Irish company until the Mobility Directive has been transposed.
The introduction of cross-border conversions, cross-border divisions and the bolstering of the cross-border merger regime is a welcome development. The Mobility Directive will significantly expand the restructuring options available to Irish companies within the EU.