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Beyond Borders: Eversheds Sutherland's ICR insights series. EU Mobility Directive – Legal Update – Ireland

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Country specific - Ireland

This country specific outline contains further information regarding the implementation of the provisions of the EU Mobility Directive into Irish law and provides further local insight.

For further information and to access any of our other country-specific briefings that we have prepared, please refer to the bottom section of our general briefings page here.

Directive (EU) 2019/2121

The primary purpose of Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (the “Directive”) is to enhance cross-border mobility and freedom of establishment within the one EU market. In doing so, this will facilitate the merging, division and movement of entities within the EU whilst protecting the rights of employees, creditors and shareholders.

By amending certain cross-border merger rules and introducing new rules regarding cross-border conversions and divisions, any unnecessary hurdles inhibiting EU companies from freely establishing in Member States will be removed and a consolidated legal framework will govern all such transactions.

Status of implementation

All Member States, including Ireland, have until 31 January 2023 to transpose the Directive into national law. However, those provisions contained in the Directive that are unconditional, sufficiently clear and precise will take direct legal effect even if Ireland fails to domestically implement them ahead of the 2023 deadline. When domestic transposition of the Directive does occur, this will likely be by way of statutory instrument in the form of regulations. To-date, no suggestion of any transitional arrangements have been put forward with respect to the regulation of transactions that have commenced before but complete after the new law enters into force.

A number of the Directive’s provisions are discretionary and therefore Ireland can elect whether or not it will implement these into its own domestic law. Public consultations were held in 2020 by the Department of Enterprise, Trade and Employment and the Company Law Review Group in respect of both the general and discretionary aspects of the Directive. While these consultations are now closed and submissions received are subject to review, it remains to be seen which discretionary aspects of the Directive will be incorporated in Ireland’s draft legislation.

Application of the Directive and geographic scope

The Directive applies to limited liability companies established in the EU or an EEA Member State and who have their registered office or principal place of business within the EU. Limited liability companies in liquidation are excluded from the scope of the Directive given that the distribution of assets of such entities has already commenced in such circumstances.

Current Irish legal landscape

From an Irish perspective, the domestic law that regulates cross-border mergers stems from Directive 2005/56/EC. This directive was transposed into Irish law via Statutory Instrument 157/2006 (also referred to as the European Communities (Cross-Border Mergers) Regulations 2008, as amended by Statutory Instrument 306/2011) and was subsequently codified as Directive 2017/1132. It is worth bearing in mind that Directive 2005/56 solely relates to cross-border mergers of limited liability companies. This earlier directive will therefore be amended by the new Directive to ensure standardisation and clarification regarding the cross-border merger procedure.

In terms of cross-border divisions of limited liability companies, the Directive will be the first piece of EU legislation of its kind and will set out rules governing cross-border divisions that involve forming a new company. This is thus a welcome legislative addition introduced by the EU as at present there are no EU provisions which operate to harmonise this area of law. From an Irish standpoint, this means that there are two means of conducting a domestic division under the Companies Act 2014 as the rules contained in the Directive solely concern the formation of new companies while a division by acquisition can also occur under the Companies Act 2014.

Similar to cross-border divisions, there is currently no harmonised EU legal framework for conducting a cross-border conversion. The CJEU previously recognised the right of EU companies to conduct a cross-border conversion on foot of the freedom of establishment afforded by the EU treaties, even if the legislation of the Member State in question did not permit such a transaction (as per the Cartesio and Vale cases). Given the Directive is the first piece of defined legal framework for completing cross-border conversions, this transaction is relatively new to the Irish landscape. A cross-border conversion essentially involves the relocation of a company, without being dissolved or going into liquidation, from one member state to another by operation of law. This means that a limited liability company registered in Ireland could, subject to both the conversion rules contained in the Directive and the Irish legislation transposing the Directive, convert into, for example, a Dutch limited liability company.

Procedure for EU cross-border conversions and divisions in an Irish context

The essential ingredient of the Directive is the provision of a harmonised legal framework for cross-border mergers, divisions and conversions. While there will be slight distinctions between each transaction, similar steps can effectively be followed when conducting all three cross-border transactions which include the following:

1.     Draft proposal

Draft terms or a proposal are drawn up in respect of the cross-border transaction

2.     A members and employees report

This document will outline the legal and economic rationale of the cross-border transaction. In an Irish context, the board of directors will prepare this report.

3.     An independent expert report

This report must be drafted unless the shareholders agree otherwise. 

4.     The draft terms

The draft terms of the cross-border transaction must be filed in the Companies Registration Office in Ireland. A notice must also be circulated to members, creditors and representatives of employees who will be afforded an opportunity to submit their comments on those terms.

Member States may elect to exempt companies from this disclosure obligation should they decide to publish the draft terms of the cross-border transaction together with the notice to the members, creditors and representatives of employees on the company’s website for a period of one month before a meeting of the members is convened approving the transaction in question.

5.     Approval by general meeting

A meeting of the members must then be convened to approve the draft terms. As stipulated in the Directive, approval will be effective if a majority of not less than two thirds but no more than 90% of the votes attached to the shares or subscribed capital represented at the general meeting votes in favour of approving the transaction.

6.     Pre-transaction certificate

Member States must designate an appropriate authority to thoroughly review the legality of the cross-border transaction. The court, notary or other competent authority will scrutinise the draft terms and, if in order, issue a pre-transaction certificate confirming that all necessary pre-conditions have been satisfied. As the Irish High Court is the competent authority with respect to cross-border mergers, it is likely that they too will act as the competent authority when it comes to cross-border conversions and divisions.

Where an Irish company is converting or transferring to a company based in another EU / EEA Member State then such a cross-border transaction will be finalised in that Member State. The designated competent authority of the other Member State involved will legally complete the procedure on foot of the pre-transaction certificate issued by the Irish competent authority. On the other hand, the Irish competent authority will require the pre-transaction certificate from the other Member State’s designated authority in a scenario where a company based in another EU / EEA Member State transfers or is converted into an Irish company.

In addition to the pre-transaction certificate, the Directive introduced a new anti-abuse check that must also be performed. Where there is any indication that a cross-border transaction could be used for an abusive, fraudulent or criminal purpose to evade or circumvent EU or national law, the competent authority will not issue the pre-transaction certificate and may instead extend the period of three months during which it normally has to decides on whether to issue the pre-transaction certificate by an additional three months. This particular provision is discretionary which means each Member State may elect whether or not to avail of the additional time for review when transposing the Directive into their own national law.

7.     Registration

Once approved by the competent authority of the destination Member State, it will be registered accordingly on the departure and destination Member States national public registers.

Key local contacts

Should you have any questions or in case you require any assistance in this regard, please do not hesitate to contact us.

Other country specific

For reference, please find other country-specific information we prepared as part of this Insight Series here.