Directive 2019/2121- The Mobility Directive

Directive 2019/2121- the Mobility Directive- came into force on 1 January 2020 and draws together provisions from previous directives to codify and clarify the law. Along with other provisions the directive amends provisions of Directive (EU) 2017/1132 of 14 June 2017 regarding cross-border conversions, mergers, and demerges. Member States must comply with the directive by the 31st of January 2023.

The 2017 Directive only contained provisions on cross-border mergers. The most important attribute of the new directive is that it provides uniform application of regulation on cross-border conversions and divisions in the European Union. The directive aims to codify the procedures for companies, ensure cost and time efficiency and promote legal mobility in the EU.

To allow for cost reduction the directive provides that information on cross-border operations can be submitted electronically and only once at the Business Register Interconnection System. The Member States are burdened with enforcing the once-only policy for these operations.

The significant changes of this directive are the following:

a)       Enforcing a codified legal framework governing cross-border conversions. Instead of relying on different domestic laws, which may not provide rules on cross-border conversions, all Member States are now requested to abide by the uniform procedure suggested in the new directive.

b)     Establishing a homogenous procedure governing cross-border divisions.

c)       Introducing a simplified merger procedure for less complicated mergers

d)     Introducing anti-abuse control procedures. Competent authorities are given the power to prevent a cross-border operation if satisfied with evidence of illegal, fraudulent, and abusive behavior.

e)     Ensuring transparency. Member States must guarantee that draft terms of the cross-border operations, and the notice prepared by the relevant stakeholders for the general meeting are disclosed publicly.

f)       Safeguarding the stakeholders. Stakeholders are provided with information, the right of approval, and the right of selling out if they are not in accordance with the merger.

g)       Safeguarding the creditors. Creditors unsatisfied with their safeguards in the merger draft will be given three months to apply to judicial authorities requesting adequate safeguards.

h)     Safeguarding the employees. Regarding cross-border operations, if employee participation laws are more lenient in the new Member State, the company must enter into negotiations with employees to ensure participation.

The procedures described in Directive 2019/2121 consider protecting the rights of the stakeholders involved, including creditors and employees. The Directive aims to prevent cross-border operations for fraudulent purposes. Most significantly it ensures a uniform application of cross-border regulation in the EU.

In Christys & Co LLC, we provide advice on a range of corporate and cross-border issues from start-up and first-round finance to M&A and EU Cross-Border mergers. Our team will ensure your compliance with the new Directive while you carry on with your cross-border operations. By staying on top of regulatory changes we are able to provide educated legal advice that takes into consideration current commercial and legal developments.

An Article by: Soteris Photiou, Advocate.

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