The long-awaited EU mobility directive came into effect as of January 31, 2023, paving the way for both public and private companies incorporated in one EU Member State to relocate to any other EU Member State. To put it another way, after a corporate migration, the firm (which will continue to exist without being dissolved) will no longer be subject to the laws of its place of incorporation but rather those of the state of destination.
The aim of Directive (EU) 2019/2121 is to make up for the shortcomings of its predecessor, Directive (EU) 2017/1132 and to encourage the freedom of establishment and mobility within the EU Member States.
In addition to improving the cross-border merger provisions already in place, the new EU Mobility Directive adds up provisions aimed at harmonizing cross-border conversions and cross-border divisions across the European Union in order to achieve the desired result in a more efficient and reasonable manner.
The three primary changes that the (EU) 2019/2121 Directive is putting into effect are: Cross-Border Conversions, Cross-Border Divisions and Cross-Border Mergers. The EU Mobility Directive is being transformed into the Maltese legislation by virtue of the following Legal Notices:
Cross-Border Divisions of Limited Liability Companies Regulations, 2023 (L.N. 26 of 2023);
Cross-Border Conversions of Limited Liability Companies Regulations, 2023 (L.N. 27 of 2023);
Cross-Border Mergers of Limited Liability Companies Regulations, 2023 (L.N. 28 of 2023).
I. Cross-Border Conversions
As defined in Article 86b the (EU) 2019/2121 Directive, a Cross Border Conversion is
“an operation whereby a company, without being dissolved or wound up or going into liquidation, converts the legal form under which it is registered in a departure Member State into a legal form of the destination Member State, and transfers at least its registered office to the destination Member State, while retaining its legal personality”
II. Cross-Border Divisions
The (EU) 2019/2121 Directive establishes regulations for cross-border divisions, including partial divisions, full divisions and divisions by separation, but solely for cross-border divisions involving the establishment of new companies.
The EU mobility directive does not provide a harmonised framework for cross-border divisions in which a company transfers assets and liabilities to one or more existing companies because such cases have been deemed extremely complex, necessitating the involvement of competent authorities from multiple Member States.
The below definitions may be found in Article 160b within (EU) 2019/2121 Directive.
- Full Division is defined as:
“a company being divided, on being dissolved without going into liquidation, transfers all its assets and liabilities to two or more recipient companies, in exchange for the issue to the members of the company being divided of securities or shares in the recipient companies and, if applicable, a cash payment not exceeding 10% of the nominal value, or, in the absence of a nominal value, a cash payment not exceeding 10% of the accounting par value of those securities or shares (full division)”
- Partial Division:
“a company being divided transfers part of its assets and liabilities to one or more recipient companies, in exchange for the issue to the members of the company being divided of securities or shares in the recipient companies, in the company being divided or in both the recipient companies and the company being divided, and, if applicable, a cash payment not exceeding 10% of the nominal value, or, in the absence of a nominal value, a cash payment not exceeding 10% of the accounting par value of those securities or shares (partial division)”
- Division by Separation:
“a company being divided transfers part of its assets and liabilities to one or more recipient companies, in exchange for the issue to the company being divided of securities or shares in the recipient companies (division by separation).”
III. Cross-Border Mergers
With the aim to make it easier for SMEs to choose their preferred business strategies and to better adapt to changes in market conditions without weakening existing employment protection, the (EU) 2019/2121 Directive provides additional protections for employees, members, and other stakeholders, and these safeguards apply to all three types of cross-border operations discussed here.
It is important to note:
- that any corporation that is through liquidation, insolvency, or other comparable processes is exempt from the 2019 Directive;
- L.N. 25 of 2023 repeals the ‘Cross-Border Mergers of Limited Liability Companies Regulations’ (S.L. 386.12);
- Any action, decision or proceeding, taken or commencing before the coming into force of the new 2023 regulations shall be referred to the previous legislation.
What does the change of legislation entail?
Alongside the new amendments that came in place, Malta Business Registry has carried out fundamental re-structuring within the operation of the Registry Unit.
The restructuring is intended to strengthen the supervisory functions and to maintain an accurate and transparent register of basic and beneficial ownership information.
At SMM Advocates we provide legal advice depending on the particular circumstances of the case, assist with company or branch formation or company redomiciliation, as well as file relevant applications before the competent authority and do all as required in order for your matter to be handled in the shortest time possible.
We are available for both face-to-face or online consultations, get in touch by filling in our contact form or call +356 2123 7167 for immediate assistance.