EU companies’ mobility Directive – step forward to the unification of EU internal market or poor favor to EU companies?
As we are approaching the deadline for the implementation of the Directive (EU) on cross-border conversions, mergers and divisions (the “Directive”), it is time to look back at the Directive and shortly recap on its goals. The Directive that should be implemented by 31 January 2023 aims to eliminate unjustified barriers to the freedom of establishment of EU companies in the single market. It should create a common legal framework to cross-border operations and right of establishment of limited liability companies (private and public) incorporated in Member States.
First of all, companies cannot be the subject of the Directive in case they are in the process of liquidation, insolvency or any restructuring procedure. Directive provides strict rules and procedure on conducting the cross-border operation, strengthening the position of interested parties – shareholders, creditors and employees. Furthermore, the Directive underlines the importance of securing the proper informing of all interested parties and publicity of such cross-border companies’ mobility.
Namely, the procedure implies several steps in order to properly conduct the cross-border operation within the EU:
- publishing the draft terms proposal of the cross-border operation;
- report to the shareholders and employees;
- respecting the employees’ rights on proper informing and participation;
- independent expert report with an opinion on the draft terms proposal;
- shareholders’ general meeting for approving the cross-border operation;
- obtaining the relevant certificate proving the completion of all required steps;
- verification by the destination Member State and registration.
As previously mentioned, the Directive emphasizes the importance of the protection of all affected parties – shareholders, creditors and employees. Creditors are allowed to require (additional) safeguards, while the protection of employees should be achieved by the obligation of timely exchange of information of all consequences and implications that the relevant cross-border operation will have on their status. Finally, shareholders are entitled to oppose the proposed cross-border operation and to exercise their right to exit the company with appropriate cash compensation.
Although the purpose of rules unification is to result with improvement of the EU internal market and freedom of goods and services movement within the EU, it is still a big question whether this strict and time consuming procedure, with extensive documentation and involvement of different counterparts, will in fact make the companies more reluctant to enter these types of operations with their businesses. Such considerations may result with them trying to find alternatives to transfer their operations to other EU Member States, without entering the procedure and rules on cross-border movements. For instance, the companies could rather decide on incorporation of the entirely new companies. However, such could not provide the same result for companies wishing to take advantage of their capital, competitiveness, reputation, all important for business improvement. Finally, new rules will definitely generate additional costs for the companies that could also affect the companies’ decision makers to hesitate more from making such business moves in the future.
How much effect will the Directive have and whether it will achieve its proclaimed goals it remains to be seen in the next period.
Finally, in the event this Directive results with serious engagement of the European Court of Justice, due to a lot of discrepancies and difficulties shown in practice, such will serve as the best indicator of this Directive success.