Directive (EU) 2019-2121 on Cross-Border Conversions, Mergers and Demergers

On 27 November 2019, the European Parliament and the Council adopted Directive (EU) 2019/2121 (the "Directive") which amends the provisions of Directive (EU) 2017/1132 on cross-border mergers and creates harmonised rules on cross-border conversions and demergers.

The lack of a legal framework for cross-border conversions and cross-border demergers has been considered as a cause of legal fragmentation and uncertainty, leading to barriers to the exercise of the freedom of establishment within the EU.

Therefore, the Directive provides for harmonised rules for cross-border conversions and cross-border demergers in the EU and also reinforces the protection of shareholders, employees and creditors in case of cross-border mergers.

The procedures applicable for the implementation of cross-border conversions and demergers involve almost identical steps and information requirements as is the case for cross-border mergers including, in particular: the publication of the draft terms of the operation; issuance of a report for the shareholders and employees; issuance of an independent expert report; approval by the general meeting and obtaining of a certificate from a competent authority confirming compliance with legal obligations.

In contrast to the existing rules relating to cross-border mergers, additional information will now be required in the common draft terms relating to the relevant operation and in the report of the management body of the company for its shareholders and employees relating to the impact of the relevant operation on such persons. Shareholders and employees will thus be enabled to present their observations to the general meeting which is deciding on the operation.

Shareholders must be informed of their new right to dispose of their shares for adequate cash compensation if they vote against the approval of the common draft terms of the cross-border operation as well as their right to dispute the share-exchange ratio in a court of law.

The common draft terms also need to disclose the safeguards offered by the companies to their creditors, such as guarantees or pledges. If such safeguards are deemed insufficient by the creditors, the Directive allows them to apply for more adequate safeguards before the competent administrative or judicial authority within three months of the publication of the draft terms. Member States can also demand that financial statements reflecting the current financial state of the companies be published at the same time as the draft terms of the operation.

An obligation is imposed on Member States to ensure that their respective competent authority does not issue the confirmatory certificate regarding compliance with legal obligations if it is established that the operation has been set up for abusive or fraudulent purposes in order to avoid the application of, or in order to circumvent, European or national law or for criminal purposes.

The Grand Duchy of Luxembourg and the other Member States have until 31 January 2023 to transpose the Directive into national law.