DG JUST JUST/2015/PR/01/0003. FINAL REPORT 5 February 2018

Transcription

1 DG JUST JUST/2015/PR/01/0003 Assessment and quantification of drivers, problems and impacts related to cross-border transfers of registered offices and cross-border divisions of companies FINAL REPORT 5 February 2018

2 This document has been elaborated on the basis of the requirements and information communicated to us, with reference to the current context, and taking into account the current legal and economic environment. The information and views set out in this study are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this Study. Neither the Commission nor any person acting on the Commission s behalf may be held responsible for the use which may be made of the information contained therein; The findings presented, were elaborated on the basis of our methods, processes, techniques and know-how, which, together with the support medium, are our property. The decision as to whether or not to implement these findings, as well as the methods of such implementation, is your responsibility. We do not assume any liability with respect to third parties. In the data gathering and investigative phases of this project, we identified that some fundamental data from the Member States and statistical sources are unavailable and/or non-existent. In order to quantify our findings and conclusions, a specific model was developed based on estimates and assumptions clearly explained in this and accompanying Annexes. While available data at national and EU level was used to design a model in good faith and through the application of best practices in research statistics, it is acknowledged that the initial data forming the basis of our model was limited. 2

3 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final Contents Glossary 7 1 Introduction 8 2 Cross-border mobility of companies in the EU and baseline situation 12 3 Problem definition and analysis 31 4 Policy options and packages 96 5 Identification of impacts Conclusions 134 3

4 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final LIST OF TABLES Table 1 Estimation of the top 5 Member States with the highest and the lowest number of limited liability companies in 2016 (in thousands) Table 2 Estimation of Top 5 Member States with the highest number of micro, small, medium and large limited liability companies in 2016 (in thousands) Table 3 : Complexity of procedures and attractiveness per Member State Table 4 : Complexity of procedures and attractiveness per Member State Table 5 SE Regulation Provisions relating to the protection of minority shareholders, creditors and employees Table 6 CBMD Provisions relating to protection of minority shareholders, employees and creditors.. 36 Table 7 Existence of specific national procedures in relation to cross-border transfers Table 8 Member States permitting cross-border transfers of registered offices Table 9 National jurisprudence relating to cross-border transfers identified in the Member State Fiches Table 10 Examples of steps for execution of a cross-border transfer in Cyprus and Malta where specific procedures for cross-border transfers are in place Table 11 Competent Authority scrutinising the cross-border transfer in Member States with specific procedures in place Table 12 Safeguards for stakeholders for cross-border transfers in Member States with specific procedures in place Table 13 Right to block a cross-border transfer in Member States with specific procedures in place.. 51 Table 14 What is the main motivation for companies to transfer their registered office abroad? Table 15 Estimations of costs for different approaches to undertake a cross-border transfer Table 16 Member States authorising cross-border divisions by analogy Table 17 Use of indirect solutions for cross-border divisions in Member States Table 18 Estimates of cost breakdowns Table 19 Policy options for the cross-border transfer of registered offices Table 20 Packages of policy options relating to the cross-border transfer of registered offices Table 21 Policy options for the cross-border division of companies Table 22 Packages of Policy Options relating to the cross-border transfer of registered offices Table 23 Impacts Package 1: Maintenance of the Status Quo Table 24 Impacts: Package 2: Establishment of European rules which would make it possible to perform a direct cross-border transfer of a registered office Table 25 Package 3: Establishment of a legislative instrument providing for European rules for the legal effects of the cross-border transfer of registered offices in the Member States Table 26 Package 4: Establishment of European rules laying down procedural requirement for crossborder transfers Table 27 Preliminary impacts Policy Option 1: Maintenance of the Status Quo Table 28 Impacts: Package 2: Establishment of European rules which would make it possible to perform a direct cross-border division Table 29 Impacts: Package 3: Establishment of a legislative instrument providing for European rules for the legal effects of the cross-border divisions in the Member States

5 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final Table 30 : Impacts: Package 4: Establishment of European rules providing for the procedural requirements for the cross-border division Table 31 Assessment of impacts for cross-border transfers of registered offices Table 32 Assessment of impacts for cross-border division of companies LIST OF FIGURES Figure 1 Linkages among Phases Figure 2 Overview of our methodology Figure 3 Hypothesis Framework for the Study Figure 4 Number of companies in the EU between 2011 and 2016 (in million) Figure 5 Number of companies in 2016 (in thousands), by Member State Figure 6 Limited liability companies as percentage of total number of companies per Member State 14 Figure 7 Estimation of limited liability companies in the EU by size, in Figure 8: Estimation of the value added of the non-financial business sector generated by companies in 2016, by Member State (M ) Figure 9: Percentage of added value of the non-financial business sector generated by limited liability companies in the EU, by company size Figure 10 Number of European Companies (SEs) Figure 11 Current number of registered SEs by headquarter country (when superior to 5 SEs) Figure 12 Estimated number of domestic transfers in 2016 in the 28 Member States Figure 13: Estimation of the number of cross-border transfers per Member State in Figure 14: Number of cross-border transfers of seat undertaken by SEs per year Figure 15 Number of transfers of seat undertaken by SEs since their creation Figure 16 Estimation of the cost (in k ) of a cross-border transfer of registered office per Member State Figure 17 Estimated number of domestic divisions in 2016 in the 28 Member States Figure 18: Estimation of the number of cross-border divisions per Member State in Figure 19 Estimation of the cost (in k ) of a cross-border division of registered office per Member State Figure 20 Problem Tree in relation to the cross-border transfer of registered offices Figure 21 Key steps of a cross-border transfer through the application of CJEU jurisprudence between France and Luxembourg Figure 22 Costs of alternative solution winding up Figure 23 Alternative Solutions Cross-border merger Figure 24 Alternative Solutions Conversion of the company to an SE Figure 25 Top 3 motivations for investors to exercise cross-border movement Figure 26 FDI Drivers in the EU Figure 27 Outline of cost divergences for cross-border transfers Figure 28 Outline of divergences for the duration of cross-border transfers Figure 29 Problem Tree relating to the cross-border division of companies Figure 30 Procedural Requirements for undertaking a cross-border division in Denmark

6 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final Figure 31 Procedural Requirements for undertaking a cross-border division in Finland Figure 32 Procedural requirements for undertaking a cross-border division in the Czech Republic Figure 33: Question 1 of the Public Consultation on cross border mergers and divisions (section divisions): Why would a company want to carry out a cross-border division? Figure 34 Alternative Solution A for cross-border division Figure 35 Alternative Solution for a Cross-Border Division Transfer of Business Assets Figure 36 Alternative Solution for a Cross-Border Division Use of a cross-border merger Figure 37 Alternative Solution for a Cross-Border Division Use of a Cross-Border Merger Figure 38: Question 3.1 of the Public Consultation on cross border mergers and divisions (section divisions): Please identify which costs you consider as major : Figure 39 Divergences in costs for undertaking a national and cross-border division Figure 40 Examples of duration for undertaking a cross-border division

7 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final Glossary Term Registered Office Statutory Seat Real Seat Division Definition The company s official address in the State where it was incorporated and which is registered in the Member State s official registry. The place indicated in the company s statute where its seat is supposed to be located. The place where the company s centre of administration and control is located. This is often used interchangeably with central headquarters and head office. A division (or split) entails the transfer of assets and liabilities of a company either to a new company formed for that purpose or to an existing company. The latter is sometimes referred to as a partial merger. 1 1 A merger would require the dissolution without liquidation of at least one company, which is not the case where a division is made. 7

8 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final 1 Introduction 1.1Objectives of the Study The purpose of this Study is to provide the Commission with a thorough assessment and quantification of drivers and problems caused by the issues existing with regard to cross-border transfers of registered offices and cross-border divisions of companies. As outlined in the Commission s Work Programme for , a company law initiative should be presented in 2017 to facilitate cross-border transfers and divisions. In response to the Commission s Work Programme, the Study contributes to assessing the current state of play in relation to the drivers and problems existing in relation to cross-border transfers of registered offices and cross-border divisions of companies, an issue which has been of particular concern since the mid-2000s. This supplements the research already undertaken in relation to transfers of registered offices in 2016 on the Law Applicable to Companies. Moreover, the data collected through this Study may assist the Commission in undertaking an Impact Assessment for a future initiative. 1.2Outline and main messages of the In accordance with the Terms of Reference, the Draft Final includes the following: A complete assessment of the drivers as regards cross-border transfers of registered offices and cross-border divisions A complete assessment and quantification of the problems under both Task A and Task B A quantification of the target impacts of potential EU level solutions to the identified problems under Task A and Task B The following Annexes also accompany this : Annex 1: Overview of the Work undertaken Annex 2: List of documentation consulted Annex 3: List of interviews consulted Annex 4: Summary of European Court of Justice Jurisprudence Annex 5: Key Sources and Assumptions Annex 6: Overview of the legislation in place in the Member States Annex 7: Overview of the costs and duration of the procedures in place in the Member States 1.3Methodological approach The approach adopted for this Study is adapted to the two tasks presented in the Terms of Reference: 1. Task A: Cross-border transfers of registered offices; and 2. Task B: Cross-border divisions of companies. For each task, three key activities were undertaken: 2 COM (2016) 710 final Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Commission Work Programme 2017 Delivering a Europe that protects, empowers and defends 8

9 Study on the cross-border transfers of registered offices and cross-border divisions of companies Final Identification and analysis of key drivers relating to (A) cross-border transfers of registered offices and (B) cross-border divisions of companies; Identification and assessment of problems caused by the drivers relating to (A) cross-border transfers of registered offices and (B) cross-border divisions of companies; Measurement of targeted impacts of policy options at EU level relating to (A) cross-border transfers of registered offices and (B) cross-border divisions of companies. In order to fulfil the objectives of both tasks, a methodology was constructed under three main Phases and aimed to gather the data to (1) assess the drivers and gather evidence to validate drivers for Task A and B; (2) Assess the problem and gather evidence to validate the problem for Task A and B; (3) Measure the impacts of policy options to address the problem for Tasks A and B. The figure below presents the work undertaken during Phase 1 and Phase 2 for each of the tasks. 9

10 Figure 1 Linkages among Phases 10

11 The Figure below presents a comprehensive overview of the Phases and steps followed and the key deliverables that were produced. Figure 2 Overview of our methodology A full overview of the work undertaken for the Study is presented in Annex 1 as well as a list of documentation consulted (Annex 2) and a list of interviews conducted (Annex 3). 11

12 2 Cross-border mobility of companies in the EU and baseline situation This Section presents an overview of the baseline with regard to the scale of companies exercising cross-border mobility in the EU as well as the scale of both transfers of registered offices and divisions of companies undertaken. Since the most available up to date data referred to 2014, the Study team developed estimations in order to provide a picture of the 2016 companies in the EU, as well as a picture of the 2016 limited liability companies in the EU. An overview of companies in the EU is provided (Section 2.1), followed by the baseline situation regarding the cross-border transfer of registered offices (Section 2.2) and the cross-border division of companies (Section 2.3). This report is limited to the Study of cross-border divisions and transfers of limited liability companies. To overcome the lack of data, especially for 2015 and 2016, we set several hypothesis following the framework described below. Figure 3 Hypothesis Framework for the Study A full overview of key sources and assumptions are provided in Annex 5 of this. 12

13 2.1Companies in the EU According to Eurostat data, there were approximately 23 million established companies in the EU in On the basis of this data, the Study team estimated that the number of companies in the EU was approximately 24,4 million in Methodological note: EY estimations were based on Eurostat data. The number of companies in 2016 is a forecast based on the average growth rate calculated from Eurostat data on the number of companies between 2010 and The number of limited liability companies is a forecast based on Eurostat data on the percentage of limited liability companies in Figure 4 Number of companies in the EU between 2011 and 2016 (in million) Source: Eurostat database for data, EY estimation for 2015 and 2016 data on the basis of Eurostat database, the indicator covers the number of companies active during at least part of the reference period. As shown in the figure below, companies are estimated to not be equally distributed across Member States. Over 50% of companies are concentrated in four Member States and 91% of the companies in 15 Member States. The number of companies can be linked with the overall size of the Member State. Italy, on top of the list, had 3.7 million companies in 2016 or 15% of the total companies in the EU. It was followed by France (3.1 million: 15%), Germany (2.4 million: 11%) and Spain (2.3 million: 10%). On the other hand, less than companies per Member State are located in smaller Member States e.g. Estonia, Cyprus, Luxembourg and Malta in Figure 5 Number of companies in 2016 (in thousands), by Member State Source: EY estimation based on Eurostat database for

14 Based on EY estimations, it can be assessed that Member States witnessing the highest growth rate in terms of number of companies between 2010 and 2014 were Ireland (+53%), Lithuania (+52%), the Netherlands (+36%), France (+27%) and Latvia (+24%). Inversely, the number of companies decreased the most in Greece (-13%), Croatia (-11%) and Malta (-9%). The sub-sections below present a statistical overview relating to limited liability companies (Section 2.1.1), SMEs (Section 2.1.2), the added value of limited liability companies (Section 2.1.3) and the number of European Companies (Section 2.1.4) Limited liability companies representing 80% of the companies in the EU Globally, the Study Team estimated on the basis of Eurostat data that in 2016 there were approximatively 18 million limited liability companies in the EU, or 80% or the total number of companies in the EU (average percentage of 2010 applied to 2016 statistics). The figure below provides an overview of the percentage of limited liability companies in each Member State in To estimate these figures, the Study Team applied the same distribution of company types than the last available data provided for 2010 in the Eurostat database. Therefore, the 2010 percentage of limited liability companies for each Member State is used to estimate the volume of limited liability companies in 2016 according to the previous estimation of the total number of companies in As illustrated, the majority of companies are limited liability companies in all but two Member States (Germany and Poland). The percentage of limited liability companies out of the total number of companies ranges from 21% in Poland to 96% in Latvia. Figure 6 Limited liability companies as percentage of total number of companies per Member State Source: EY estimation based on Eurostat database on limited liability companies for 2010 The table below shows the top 5 Member States with the highest and the lowest number of limited liability companies in the EU. 14

15 Table 1 Estimation of the top 5 Member States with the highest and the lowest number of limited liability companies in 2016 (in thousands) Top 5 Member States with the highest number of limited liability companies in 2016 Member State Number of limited liability companies Total number of companies Top 5 Member States with the lowest number of limited liability companies in 2016 Member State Number of limited liability companies Total number of companies France Latvia Italy Estonia Spain Cyprus United Kingdom Luxembourg Germany Malta Source: EY estimation based on Eurostat database on limited liability companies for SMEs representing 99% of limited liability companies in the EU According to Eurostat data, 99% of limited liability companies in the EU were SMEs in In order to estimate the number of companies that are SMEs with limited liability in 2016 per Member State, the following steps were followed by the Study Team. Step 1 : Estimating the number of companies per Member State in 2016 from available data Data is available from Eurostat on the number of companies per Member State from 2010 to 2014 (5 years). For each Member State, the Study Team calculated the average annual growth during This growth rate was then applied twice to data in 2014 in order to obtain the estimation for Step 2 : Estimating the distribution of companies by size The same distribution as occurred the past years based on Eurostat data was applied, leading the Study Team to obtain the estimated number of small companies in 2016 for each Member States based on the previous estimate (Step 1). Step 3 : Estimating the number of limited liability companies per Member State in 2016 Data is available from Eurostat on the percentage of limited liability companies out of the total number of companies per Member State for 2010 only. Data were missing for a few Member States. For these Member States, the calculated EU Average for 2010 was applied. The Study Team applied the hypothesis that the percentage of limited liability companies is constant, with the same percentages therefore used for 2016 as for Step 4 : Estimating the number of SMEs with limited liability in 2016 per Member State In order to estimate the number of SMEs with limited liability in 2016 per Member State, the Study Team applied the percentages calculated in Step 3 to the calculation in Step 2. This provided the estimation of number of SMEs with limited liability in 2016 per Member State. 15

16 Based on the Study Team s estimations, among the total number of companies, it was estimated that 92,8% had between 0 and 9 employees; 6% had between 10 and 49 employees, 1% had between 50 and 249 employees and 0,2% had more than 249 employees. Moreover, as the table shows below, French, Italian and Spanish markets were estimated to have the most numerous micro enterprises, while Germany, the United Kingdom and France dominated in terms of small and medium companies. Figure 7 Estimation of limited liability companies in the EU by size, in % 1% 0,2% 92,8% Micro Small Medium Large Source: EY estimation based on Eurostat database on companies by size, 2014 figures *Eurostat definition of micro, small, medium and large companies was used: micro have between 0 and 9 employees; small have from 10 to 49 employees, medium have from 50 to 249 employees, large have 250 or more employees) Table 2 Estimated number of micro, small, medium and large limited liability companies in 2016 in Member States (in thousands) Micro companies Small companies Medium companies Large companies France 3142 Germany 184 Germany 30 France 7 Italy 2107 United Kingdom 125 United Kingdom 20 Germany 5 Spain 2067 France 119 France 20 Italy 5 United Kingdom 1215 Spain 98 Spain 13 United Kingdom 4 Germany 1118 Italy 94 Italy 11 Spain 2 Netherlands 955 Netherlands 38 Netherlands 7 Netherlands 1 Czech Republic 761 Romania 34 Romania 6 Romania 1 16

17 Micro companies Small companies Medium companies Large companies Sweden 638 Greece 33 Greece 6 Greece 1 Portugal 560 Sweden 30 Czech Republic 5 Czech Republic 1 Belgium 538 Austria 28 Sweden 5 Sweden 0,9 Greece 495 Belgium 26 Austria 4 Austria 0,8 Hungary 367 Czech Republic 24 Belgium 3 Belgium 0,8 Romania 321 Portugal 23 Portugal 3 Poland 0,6 Poland 318 Hungary 19 Poland 3 Hungary 0,6 Slovakia 280 Denmark 16 Hungary 3 Denmark 0,5 Austria 228 Finland 14 Denmark 3 Portugal 0,5 Ireland 199 Bulgaria 14 Bulgaria 2 Finland 0,5 Bulgaria 191 Ireland 13 Lithuania 2 Ireland 0,4 Lithuania 187 Lithuania 13 Ireland 2 Bulgaria 0,4 Finland 187 Poland 12 Finland 2 Lithuania 0,3 Denmark 165 Latvia 8 Slovakia 1 Slovakia 0,3 Slovenia 103 Slovakia 7 Latvia 1 Croatia 0,2 Croatia 100 Croatia 7 Croatia 1 Latvia 0,2 Latvia 96 Slovenia 4 Estonia 0,9 Slovenia 0,1 Estonia 50 Estonia 4 Slovenia 0,9 Estonia 0,1 Cyprus 36 Luxembourg 3 Luxembourg 0,5 Luxembourg 0,1 Luxembourg 25 Cyprus 2 Cyprus 0,4 Cyprus 0,08 Malta 20 Malta 1 Malta 0,2 Malta 0,04 Source: EY estimation based on Eurostat data on companies by size, for Limited liability companies provide an added value of around 4.9 trillion euros, mainly generated by SMEs According to EY estimates based on 2014 Eurostat data, 17 million limited liability companies in the EU represented an added value of around 4,9 trillion euros in More than half of the total value added was generated by small and medium companies. Figure 8: Estimation of the value added of the non-financial business sector generated by companies in 2016, by Member State (M ) 17

18 Source: EY Estimations based on Eurostat database on the added value of companies, 2014 figures Figure 9: Percentage of added value of the non-financial business sector generated by limited liability companies in the EU, by company size 21% Micro 43% Medium and small 36% Large Source: EY estimation based on Eurostat database of Added value by size for

19 2.1.4 The number of European Companies is notably low in comparison to the total number of companies in the EU Thirteen years after their establishment in 2004, Societas Europeas (SEs) 3 are today of a limited number and only represented around 0.01% of the total number of companies in the EU in However, the growth rate of the number of SEs between 2011 and 2016 was much higher than the growth rate of traditional companies over the same timeline. Figure 10 Number of European Companies (SEs) Source: ETUI Database ( updated in February 2017 Moreover, although SEs are spread in 27 Member States, 90% of them have their headquarters located in three Member States: Czech Republic, Germany and Slovak Republic, with 69% of them located in the Czech Republic (the Czech government had anticipated important creations of SEs without an actual operational reality today). Figure 11 Current number of registered SEs by headquarter country (when superior to 5 SEs) Source: ETUI Database ( updated in February A Societas Europeas is defined as a European public limited liability company 19

20 It is important to note that as the development of SE is still in the embryonic stage, the relevant data was not used by the Study Team to estimate current and future numbers of cross-border transfers and divisions. 2.2Cross-border transfers of registered office in the European Union Volume: Approximatively 600 cross-border transfers occur each year in the EU Information on cross-border transfers was available for only 4 Member States. In order to estimate the annual volume of cross-border transfers in the EU, the following sources of information were gathered and used: Statistics on annual cross-border transfers between 2010 and 2016, provided by business registers for 4 Member States (BE, CZ, DK, LT); Statistics on annual domestic transfers between 2010 and 2016, provided by business registers in 16 Member States (BE, CY, CZ, DK, EE, FI, IE, HR, HU, IT, LT, MT, NL, RO, SE, UK); Statistics on the total number of companies in the EU, collected from Eurostat; Two qualitative parameters: the attractiveness of Member States in terms of foreign direct investments and the complexity of the procedures, as estimated by the Study team following collection of Member State Factsheets. As presented in Figure 3, a two-step approach was followed. 1. Estimation of domestic transfers for the 28 Member States Concerning domestic transfers, business registers of 16 Member States (BE, CY, CZ, DK, EE, FI, IE, HR, HU, IT, LT, MT, NL, RO, SE, UK) were able to provide specific data. In order to estimate the number of national transfers for the Member States for which statistics were not available, the Study team estimated the average percentage of national transfers per year among the total number of companies in the Member States for which data were available. The obtained percentage was then applied to numbers of companies (available for all member states thanks to Eurostat database) in order to estimate the missing data of national transfers per year. The graph below shows the number of national transfers estimated for the 28 Member States, on the basis of the two different sources. As illustrated, the estimated number of national transfers varies from one Member State to another. Figure 12 Estimated number of domestic transfers in 2016 in the 28 Member States 20

21 Source: Data collected by business registers (BE, CY, CZ, DK, EE, FI, IE, HR, HU, IT, LT, MT, NL, RO, SE, UK) and EY estimations (AT, BG, DE, ES, EL, FR, PL, PT, SK, SI, LV, LU) 2. Estimation of cross-border transfers for the 28 Member States Concerning cross-border transfers, business registers of 4 Member States (BE, CZ, DK, LT) were able to provide specific data. In order to estimate the number of cross-border transfers in the Member States for which statistics were not available, the Study team assumed that the number of cross-border transfers was a function of the number of domestic transfers according to the following equation: Number of cross-border transfers = F * Avg * Number of domestic transfers F, is a function of the attractiveness of the Member State and the complexity of the procedure: Two qualitative parameters built on a 3 level scale and estimated via interviews with stakeholders in Member States. The attractiveness of the Member State is based on the total number of foreign direct investments FDI- projects inside the Member State 4. The complexity of the procedure is linked to the regulatory requirements of each country, it might be linked to data communication requirements, legal formalisation (for example some countries like the UK are demanding to go through the court not only a notary), dissuasive measurement as a strong right of entry, etc. and was estimated on the basis of the information provided by the 28 EY legal experts when completing the Member States Fiches. Avg, the average number of cross-border transfers as a percentage of domestic ones with available data. The average number is equal to 0,04%. Number of domestic transfers, calculated previously or given by the business registers of 12 Member States. The table below shows for each Member State the value of F, the attractiveness ranking (due to foreign direct investment projects and jobs and the EY barometers measuring the attractiveness of Member States) and the resulting percentage. Table 3 : Complexity of procedures and attractiveness per Member State Member State Process complexity (1 simple; 3 complex) Ranking (EY barometer) F 4 EY Attractiveness Annual Barometer ( 21

22 Member State Process complexity (1 simple; 3 complex) Ranking (EY barometer) F Bulgaria 1 >19 0,03% Germany 3 2 0,03% Estonia 3 >19 0,00% Ireland 2 8 0,09% Greece 2 >19 0,02% Spain 3 4 0,03% France 3 3 0,03% Croatia 2 >19 0,02% Italy ,09% Cyprus 1 >19 0,03% Latvia 1 >19 0,03% Luxembourg 2 >19 0,02% Hungary ,02% Malta 1 >19 0,03% Netherlands 3 6 0,05% Austria 2 >19 0,02% Poland 2 5 0,16% Portugal ,02% Romania ,09% Slovenia 1 >19 0,03% Slovakia ,02% Finland 2 9 0,09% Sweden ,09% United Kingdom 3 1 0,03% Source: Eurostat, Business registers and EY analysis. Complexity level is based in our appreciation of interviews and ranking is based on EY attractiveness barometer Therefore, it was possible to estimate the number of cross-border transfers in 2016 in all Member States. As it is illustrated in the figure below, the number of cross-border transfers occurring annually varies from one Member State to another, ranging from 0 in Luxembourg, Estonia and Czech Republic to approximatively 186 in the United Kingdom. The total number amounts Figure 13: Estimation of the number of cross-border transfers per Member State in if we consider the sensitivity 42 of the 2 qualitative parameters of the formula presented above, a range between 350 and 900 should be considered

23 Sources: Data collected by business registers (BE, CZ, DK, LT); data collected from national expert estimation (NL), data collected from Case Studies (HU), EY estimations (AT, BG, CY, DE, EE, EL, ES, HR, FI, FR, IE, IT, LV, LU, MT, PL, PT, RO, SI, SK, SE, UK) Following our expert consultation it was agreed that, across the EU, there are approximatively 600 cross-border transfers per year Cross-border transfers of registered offices of European Companies Data is available with regard to the cross-border transfers of registered offices for European Companies (SEs). As outlined in the figure below, the number of cross-border seat transfers of SEs increased since their creation, reaching the highest in In total, there have been 115 transfers of seat since If it is considered the number of established SEs was in February 2017, it is found that around 4% of the established SEs operated a cross-border transfer of seat. Figure 14: Number of cross-border transfers of seat undertaken by SEs per year Source: ETUI Database ( 23

24 As illustrated below, seat transfers are limited to a few number of Member States. In 25% of the cases they happened between bordering countries. Figure 15 Number of transfers of seat undertaken by SEs since their creation SEs cross-border mobility INTO one MS SEs cross-border mobility FROM one MS Source: ETUI Database ( updated at February

25 2.2.3 Cost: A cross-border transfer costs in average at EU level, between 20,000 and 40,000 euros According to the information collected from the Member State Fiches, the procedure to undertake a cross-border transfer of registered office is more expensive for companies, as expected, than undertaking a national transfer. Given the complexity of the exercise, it was difficult to obtain a precise idea of costs per operation from the business registers. Indeed, this cost depends on many parameters, with this information unavailable. This cost depends on the type and the size of the company, hosting and home countries, current procedures, registration fees, etc. The objective of this section is to estimate an average range per Member State of the overall cost of a transfer. This cost has been divided into three main categories: - Legal advisory costs (tax advisory costs are excluded the Study team took into account direct costs of the transfer after the decision took place); - Registration costs within public administrations; - Costs related to the execution of the transfer (production of documents, organisation of general meetings, etc.) in man days. The assumptions made were validated by the Expert Panel. In terms of methodology used, a standard cost of legal advisory and registration fees was initially estimated as well as the number of man-days required to complete the transaction. These three terms were then weighted to the complexity of the procedure and to the cost of the man-day applied in each member state (on the basis of the average annual salaries obtained thanks to the Eurostat database). Figure 16 Estimation of the cost (in k ) of a cross-border transfer of registered office per Member State Source: EY estimations The average cost per unit at EU level is estimated at between 20,000 and 40,000 euros depending on the Member States involved and on the companies. Especially, when a procedure requires a validation by the court, cost can significantly increase (like in the United Kingdom). 25

26 To summarise, cross-border transfers represent each year approximately 600 operations with an average cost per unit of 30,000 euros. The total addressable cost is therefore reaching approximately 20 million euros per year. 2.3 Cross-border divisions of company in the European Union Volume: Around 100 direct cross-border divisions occur each year in the EU The EY estimation only concerns direct cross-border divisions, which are undertaken through existing procedures for cross-border transfers (CZ, DK, FI) and through the application, by analogy, of the procedures existing for national divisions (AT, BE, BU, ES, FR, HR, LT, PT, SE) and/or cross-border mergers (AT, BE, IT, LT, NL, PT, SE). Given the difficulty to collect data on indirect cross-border divisions, as explained in our section of data collection, our estimation does not include the cross-border divisions that are undertaken through the use of alternative solutions. Information on cross-border divisions was available for only 7 Member States. In order to estimate the annual volume of cross-border divisions in the EU, the following sources of information were gathered and used 6 : Statistics on annual cross-border divisions between 2010 and 2016, provided by business registers for 7 Member States (BE, CY, CZ, DK, FR, LT, LV, SE); Statistics on annual domestic divisions between 2010 and 2016, provided by business registers in 16 Member States (BE, BG, CY, CZ, DK, IE, EE, HU, FI, IT, LT, MT, PL, RO, SE, UK); Statistics on the total number of companies in the EU, collected from Eurostat; Two qualitative parameters: the attractiveness of Member States in terms of foreign direct investments and the complexity of the procedures, as estimated by the Study team following collection of Member State Fiches. As presented in Figure 17, a two-steps approach was followed. 1. Estimation of domestic divisions for the 28 Member States Concerning domestic divisions, business registers of 16 Member States (BE, BG, CY, CZ, DK, IE, EE, HU, FI, IT, LT, MT, PL, RO, SE, UK) were able to provide specific data. In order to estimate the number of national divisions for the Member States for which statistics were not available, the Study team estimated the average percentage of national divisions per year among the total number of companies in the Member States for which data were available. The obtained percentage was then applied to numbers of companies (available for all member states thanks to Eurostat database) in order to estimate the missing data of national divisions per year. 6 The Study team decided not to base the estimations on the answers available in the public consultation, as the latter was considered less reliable than the statistics provided by business registers. Firstly, because they are estimations provided by the respondents to the public consultation, secondly because they include ranges which therefore makes difficult to understand the exact estimation (especially when ranged between 0 and 10 operations). 26

27 The graph below shows the number of national divisions estimated for the 28 Member States, according to the different sources. As illustrated in the graph below, the estimated number of domestic divisions vary from one Member State to another. Figure 17 Estimated number of domestic divisions in 2016 in the 28 Member States Source: Data collected from business registers (BE, BG, CY, CZ, IE, EE, HU, FI, IT, LT, MT, PL, RO, SE, UK), EY estimations (AT, DE, DK, EL, ES, FR, HR, LU, LV, NL, PT, SI, SK) 2. Estimation of cross-border divisions for the 28 Member States Concerning cross-border divisions, business registers of 7 Member States (BE, CY, CZ, FR, LT, LV, SE) were able to provide specific data. In order to estimate the number of cross-border divisions in all Member States where statistics were not available, the Study team assumed that the number of cross-border divisions was a function of the number of domestic divisions according to the following equation: Number of cross-border divisions = F * Avg * Number of domestic divisions F, is a function of the attractiveness of the Member State and the complexity of the procedure: two qualitative parameters built on a 3 level scale and estimated via interviews with a wide range of stakeholders in the Member States; Avg, the average number of cross-border divisions as a percentage of domestic ones with available data. The average number is equal to 7,1%; Number of domestic transfers, calculated previously or given by the business registers of 10 Member States. The table below shows for each Member State the value of F, the attractiveness ranking (thanks to FDI projects and jobs and EY barometers) and the resulting percentage. Table 4 : Complexity of procedures and attractiveness per Member State Member State Process complexity (1 simple; 3 complex) Ranking F Bulgaria ,5% Germany 3 3 2,6% Estonia 2 >19 1,0% Ireland ,5% 27

28 Member State Process complexity (1 simple; 3 complex) Ranking Greece 2 >19 1,0% Spain 3 8 1,3% France 2 5 6,5% Croatia 2 >19 1,0% Italy ,4% Latvia 2 >19 1,5% Luxembourg 2 >19 1,0% Hungary 2 9 3,0% Malta 1 >19 2,6% Netherlands 2 >19 1,0% Austria ,0% Poland 2 2 6,0% Portugal 2 >19 1,0% Romania 2 4 6,0% Slovenia 2 >19 1,0% Slovakia ,0% Finland 2 >19 1,0% United 3 >19 0,4% Kingdom Source: Eurostat, Business registers and EY analysis Thus, the Study Team estimated the number of cross-border divisions in 2016 in all Member States. The figure below summarises the results and shows that the estimated number varies from one Member State to another and ranges between 0 in 14 Member States to 55 in Sweden. The total number amounts to Figure 18: Estimation of the number of cross-border divisions per Member State in 2016 F if we consider the sensitivity of the 2 qualitative parameters of the formula presented above, a range between 106 and 344 cross-border divisions occur annually in the EU. Following discussions with the economic and legal experts, it was estimated that the low range better reflected the reality 28

29 Sources: Data collected from business registers (BE, CY, CZ, DK, FR, LT, LV, SE), EY estimations (AT, BG, DE, EE, EL, ES, FI, HR, HU, IE, IT, LU, MT, NL, RO, PL, PT, SI, SK, UK) Following discussions with the Expert Panel, it was estimated that across the EU, there are approximatively 100 direct cross-border divisions per annum Cost: A cross-border division costs in average at EU level, between 55,000 and 70,000 euros According to the data collected, the procedure to undertake a cross-border division is more expensive for companies than the procedure to undertake a national division. Given the complexity of the exercise, it was difficult to obtain figures related to the costs per operation from the business registers. Indeed, this cost depends on many parameters and the related information is missing: type and size of the company, host and home countries, current procedures, registration fees, etc. The objective of this section is to estimate an average range per Member State of the overall cost of a cross-border division. This cost has been divided into three main categories like for cross-border transfers with the costs assumed by companies: - Legal advisory costs ; - Registration costs within public administrations; - Costs related to the execution of the division (production of documents, organization of general meetings, etc.) in man days. The Study Team assumed that the costs follow the same distribution as indicated by the Portuguese Business Register: 55% for legal advisory, 5% for registration and 35% as time to operate. These assumptions were validated by the Expert Panel for the Study. In terms of methodology, the costs of a national division were identified in the Member States. These costs were then weighted to the complexity of the cross-border division procedure and to the cost of the man-day applied in each Member State (on the basis of the average annual salaries obtained thanks to the Eurostat database). Figure 19 Estimation of the cost (in k ) of a cross-border division of registered office per Member State 29

30 Source: EY estimations *Italian estimation is biased because of the large number of companies. The estimated figure does not correspond to reality, so it has been discarded from the total (according to our expert panel opinion) The average cost per unit within the EU is estimated to be between 55,000 and 70,000 euros depending on the Member States and type of company involved. Especially, when a procedure requires a validation by the court, the cost can significantly increase, like in Germany and the United Kingdom). At EU level, cross-border divisions represent an annual cost for companies of around 20 million euros per year. 30

31 3 Problem definition and analysis This Section presents the problem definition and analysis in relation to (A) Cross-border transfers of registered offices and (B) Cross-border division of companies. The analysis provided is based on data collected and analysed through primary and secondary research. The analysis provides an assessment of the drivers as regards cross-border transfers of registered offices and cross-border divisions as well as a complete assessment and quantification of the problems relating to these issues. 3.1Cross-Border Transfers of Registered Offices Problem Definition and Analysis The problem tree presented below provides a visual representation of the drivers, effects and problems existing in relation to the cross-border transfer of registered offices. This problem tree has been reviewed following the data collection in order to reflect the problems identified through documentary review and interviews undertaken with stakeholders. These are further elaborated in turn below. 31

32 Figure 20 Problem Tree in relation to the cross-border transfer of registered offices 32

33 3.1.1 Scale of the Problem As outlined in Section 2.2 above, the recorded number of transfer of registered offices occurring is currently minimal, with a significantly low proportion of cross-border transfers measured in relation to companies and SEs. It is estimated that approximately 600 cross-border transfers occur on an annual basis. While the data on cross-border transfers is currently low, the lack of data in a number of Member States on cross-border transfers of registered offices undertaken indirectly leads to an inaccurate picture of the scale of the current phenomenon. Due to the transfer of registered offices being undertaken both directly and indirectly in the Member States, as further outlined and explained in Section below, the full scale of the problem existing is difficult to quantify. However, based on stakeholder interviews undertaken with legal practitioners, notaries and company representatives, transferring the registered office of a company from one Member State to another is a phenomenon that occurs frequently in the Member States Drivers A number of drivers have been identified that lead to problems in relation to the cross-border transfer of registered offices. Lack of common procedures for the cross-border transfer of registered office; Divergences and incompatibilities in national legislation relating to cross-border transfers of registered offices. These drivers are discussed in turn below Lack of common procedures for the cross-border transfer of registered office A lack of procedures currently exist concerning the cross-border transfer of registered office due to the lack of EU legal instruments on this matter as well as the uneven application of CJEU jurisprudence in the Member States. DRIVER: Lack of EU instruments dealing directly with the cross-border transfer of registered offices While a number of legal instruments exist to promote and assist in the freedom of establishment within the EU, such as the Regulation establishing the European Society and the Cross-Border Mergers Directive, there is a lack of common procedures for the cross-border transfer of registered office. While these instruments are used when companies exercise alternative solutions to counteract the lack of European legislation relating to cross-border transfers, they do not directly deal with the cross-border transfer of registered offices and cannot compensate for the lack of legislation in place on this subject. These two instruments are discussed in turn below. Council Regulation (EC) No 2157/2011 on the Statute of a European Company (hereafter SE Regulation ) The SE Regulation established the European Companies and enabled companies to transfer their registered office and to adapt their organisational structure throughout the European Union (EU) and the European Economic Area (EEA) without significant legal obstacles. European Companies can be formed by way of merger, conversion, by the establishment of a European holding company and by the establishing of a European subsidiary. While the first two options are addressed to public limited liability 33

34 companies, all limited liability companies can form a SE by establishing a European holding company and all companies can be formed by the establishment of a European subsidiary. Article 8(1) of the SE Regulation provides that the registered office of an SE may be transferred to another Member State [ ]. Such a transfer shall not result in the winding up of the SE or the creation of a new legal person. Paragraphs 2 to 13 of Article 8 provide for the procedure to be followed in order to undertake the transfer of the registered office. As outlined in Section above, the number of crossborder transfers of registered offices and real seats of SEs has increased since the creation of the SE with an increase from 1 (2005) to 25 (2016). Article 7 of the SE Regulation requires that the registered office of an SE be located within the Community, in the same Member State as its head office. As outlined in the EY 2009 Study on the operation and impacts of the Statute for a European company, the establishment of SEs offer a few advantages for companies across the EU: The possibility to undertake a cross-border transfer of registered office without having to wind-up and reincorporate in another Member State and benefitting from the jurisdiction of the Member State of the company s real seat location; The possibility to simplify the group structure: The conversion into SEs allows companies to operate a group restructuring, for example to reduce the number of legal entities inside a crossborder group or to rationalise and harmonise the corporate structure of the cross-border group; The possibility to undertake a cross-border merger: The SE statute enables companies in different Member States to merge, from a holding company or joint subsidiary whilst avoiding the constraints that arise from the different legal systems across the EU. While the SE Regulation has brought benefits, the statistics with regard to SEs demonstrate that a limited take up of the SE status has occurred. As outlined in Section 2 above, the number of SEs only represented approximately 0,009% of the total number of companies in the EU in The limited uptake of SEs in the Member States can be explained by the costs, the complexity and the legal uncertainty arising with regard to the SE Statute. The creation of an SE is considered to be costly and time-consuming, as confirmed through interviews undertaken. While the SE Regulation is limited, provisions of the Regulation could be considered in the future when considering an EU procedure on cross-border transfers of registered office. Some key provisions relating to protection of stakeholders is presented in the table below. Table 5 SE Regulation Provisions relating to the protection of minority shareholders, creditors and employees Type of Protection Protection of minority shareholders Description Rights of creditors and minority shareholders are protected by the SE Regulation all along the procedure. Article 8 of the SE Regulation provides for the protection of creditors, employees and minority shareholders by means of information all along the procedure for an SE transfer of seat. For example, the management or administrative organ shall draw up a transfer proposal stating any rights provided or the protection of shareholders and/or creditors and shall draw up a report explaining and justifying the legal and economic aspects of the transfer and explaining the implications of the transfer for shareholders, creditors and employees. The protection of these groups is relatively vague however, with Article 8(5) provides that a Member State may, in the case of SEs registered within its 34

35 Type of Protection Description territory, adopt provisions designed to ensure appropriate protection for minority shareholders who oppose the operation. The protection is therefore not mandatory. Protection of employees Article 1(4) of the SE Regulation provides that employee involvement in a SE shall be governed by the provisions of Directive 2001/86/EC. Council Directive 2001/86/EC was adopted to supplement the Statute for a European Company with regard to the involvement of employees. The Directive aimed to preserve the rights of employees in relation to decisionmaking, given the diversity of rules and practices across Member States. Article 1(2) of the Directive provides that arrangements for the involvement of employees shall be established in every SE in accordance with the negotiating procedure referred to in Articles 3 to 6. Article 3(2) provides for the creation of a special negotiating body representative of the employees of the participating companies and concerned subsidiaries or establishment. Paragraph 6 provides that the negotiating body may decide by the majority [ ] not to open negotiations or to terminate negotiations already opened, and to rely on the rules on information and consultation of employees in force in the Member States where the SE has employees. The standard rules will apply in case the parties so agree or the agreement could not be reached within the deadline (Article 7). Protection of creditors Article 8(7) of the SE Regulation provides that the SE shall satisfy that, in respect of any liabilities arising prior to the publication of the transfer proposal, the interests of creditors and holders of other rights in respect of the SE (including those of public bodies) have been adequately protected in accordance with requirements laid down by the Member State where the SE has its registered office prior to the transfer. Directive 2005/56/EC of the European Parliament and of the Council on cross-border mergers of limited liability companies The Cross-Border Mergers Directive, also referred to as the 10 th Company Law Directive was adopted in 2005 with the aim of facilitating mergers of companies across the EU and therefore responding to the need to foster efficiency and competitiveness of business in the EU. Following the adoption of the Merger Taxation Directive in 1990, the Cross-Border Mergers Directive aimed to complete a project to remove the lack of common procedures and provide a common framework. The Directive is addressed to limited liability companies and enables them to merge with a company in another Member State. The Directive provides for three types of mergers, following which the transferor company is dissolved without having to wind up. The three ways to undertake a cross-border merger are the following: By means of acquisition, through which all assets and liabilities of the transferor company or companies are transferred to another existing legal entity By means of new formation, through which the transferor company or companies create a new legal entity to which all assets and liabilities are transferred By means of a group merger, which is a specific case enabling the transferor legal entity to transfer the assets and liabilities to the parent company. 35

36 While the CBMD includes limited provisions relating to the protection of creditors and minority shareholders, divergent national rules relating to creditors, minority shareholders and employees at national level continues to lead to diverging practices in relation to their protection. The table below provides an overview of the protection provided through the CBMD. It is important for the purposes of this study to take note of these elements since they can be considered when considered a future EU instrument on transfers. Table 6 CBMD Provisions relating to protection of minority shareholders, employees and creditors Type of Protection Protection of minority shareholders Description When undertaking a cross-border merger both by formation or acquisition, shareholders of the transferor company (or companies) become the shareholders of the new company. The CBMD is based on the information model, on the assumption that minority shareholders make informed decisions when approving the merger during the general meeting (during the draft terms of the merger, merger report and export report). Minority shareholders are not provided with specific protection in the Directive. According to Article 4(2) of the Directive, Member States participating in a cross-border merger may adopt provisions designed to ensure appropriate protection for minority members who have opposed the cross-border merger. The protection in Article 4(2) is not mandatory, with Article 10(3) of the Directive ensuring additional protection only in specific circumstances by establishing procedures to scrutinise and amend the share exchange ratio and procedures to compensate minority shareholders without preventing the registration of the merger. Protection of employees Article 16 of the Directive provides that the company resulting from the crossborder merger shall be subject to the rules in force concerning employee participation in the Member States where it has its registered office with three important exceptions: 1. Where at least one of the merging companies has an average number of employees that exceeds 500 and is operating under an employee participation system; 2. Where national law applicable to the resulting company does not provide for at least the same level of employee participation as operated in the relevant merging companies [measured by reference to the proportion of employee representatives amongst the members of the administrative or supervisory organ]; 3. Where national law applicable to the company resulting from the cross-border merger does not "provide for employees of establishments of the company resulting from the cross-border merger that are situated in other Member States the same entitlement to exercise participation rights as is enjoyed by those employees employed in the Member State where the company resulting from the cross-border merger has its registered office". Protection of creditors Article 4(1) and 4(2) of the Directive provides for the protection of creditors. If a company participates in a merger it shall comply with the provisions and 36

37 Type of Protection Description national laws to which it is subject. Moreover, it shall take into account the protection of creditors. Academic literature has found it problematic that the Directive does not provide for the full harmonisation of creditor protection but only establishes minimum standards, inviting Member States to apply the rules applicable for national mergers. Member State legislation therefore still diverges in terms of protection regimes or timeframes. Interpretations differ on the sense to be given to this provision on whether the company shall foresee special protection to the creditors in case of crossborder mergers or just ensure that the protection of creditors is taken in account. Following the CJEU judgment in KA Finanz, Member States have today to ensure that the protection of creditors is taken into account. While the Cross-Border Mergers Directive is used when companies exercise alternative solutions to counteract the lack of European legislation relating to cross-border transfers (as outlined in Section below), the Directive does not directly deal with the cross-border transfer of registered office and cannot compensate for the lack of legislation in place on this issue. DRIVER: Uneven application of CJEU jurisprudence in the Member States Case law of the CJEU has provided that any company formed in accordance with the law of a Member State which has its registered office, central administration or principal place of business within the Community, must be recognised as such in all other Member States regardless of the place of its head office. The judgments of the Court uphold the distinctions existing between outbound versus inbound and primary versus secondary freedom of establishment, with the cases accepting differences in the treatment of cross-border movement of companies depending on whether the Member States involves are real seat or incorporation States. A full overview of the jurisprudence is provided in Annex 4 to this. While the jurisprudence clarified the recognition of transfers, this jurisprudence has not been codified into national and EU legislation. While judgments have also been made at national level relating to the transfer of seats, the lack of codification of the jurisprudence at EU level leads to ambiguity and lack of clarity regarding the CJEU jurisprudence in the Member States, depending on the level of awareness of national authorities of the findings of the CJEU jurisprudence. As outlined by an EY legal expert, few cases were identified illustrating an uneven application of the CJEU jurisprudence and constituting an obstacle to the companies freedom of establishment. 37

38 Example 1: Confirmation of refused registration in the absence of common rules OLG Nuremberg, decision of W 2361/11, NZG 2012, 468 ( Moor Park I ) OLG Nuremberg; decision of W 520/13, NZG 2014, 349 ( Moor Park II ) In this case, the application for registration of a company willing to transfer the registered seat was refused by the competent commercial register in Furth, which argued that no legal ground existed in German or EU laws. The decision was confirmed by the OLG Nuremberg, which elaborated on the CJEU existing rulings but concluded that: No legal framework on an EU level existed to allow a cross-border conversion by way of transfer of registered seat; The Company had not filed all relevant documents required under German law for a change of legal form. However, on 19 June 2013 (12 W 520/13), i.e. a year after the ruling of the ECJ in the VALE Case, the OLG Nuremberg had to decide on a Cross-Border Conversion from Luxembourg to Germany again. The Company had refiled its application to the competent commercial register in Fürth which had, again, rejected the application and did not redress the refiled complaint by the Company. The Company then filed an appeal to the OLG Nuremberg which, in its decision of 19 June 2013 the OLG Nuremberg followed the view of the ECJ in the VALE decision. The court held that, in the absence of specific legislation on cross-border conversions, the relevant general rules on company conversions under national legislation apply; in particular, it confirmed the view of the ECJ stating that in accordance with Art. 49 and 54 TFEU, if national laws allow the conversion into a different legal form on a domestic level, these provisions must also apply to companies governed by the laws of another EU Member State. Example 2: Confirmation of refused registration following legal uncertainty concerning the procedure to apply KG, decision of W 64/15, BeckRS 2016, 2016, The decision of the KG (higher court in Berlin) dealt with the Cross-Border Conversion of a French S.à r.l. (Société à responsabilité limitée) into a German GmbH. The competent commercial register had rejected the application to register a German GmbH, not because of a possible lack of rules for a Cross-Border Conversion, but because the registry court was of the opinion that the procedural rules to be applied should be those for a European Corporation (Societas Europaea) which were not met in the case at hand. The Company filed a complaint and the commercial register approached the KG for a decision. The KG ruled that the provisions on SEs did not apply in this case as such rules are stricter than the German rules on the conversion of a corporation into a GmbH pursuant to the provisions of the German Transformation Act (Umwandlungsgesetz). Thus, applying the provisions for SEs would discriminate companies governed by the laws of another EU member state wishing to convert into the legal form of another EU member state. In the underyling case, the German commercial register was aware of the VALE decision but took the view that the procedural rules to be applied from a German legal perspective were not met. This was overruled by the KG. Example 3: Confirmation of refused registration following legal uncertainty concerning the procedure to apply OGH, decision of Ob 224/13, ÖJZ 2014,

39 The ruling of the Austrian Supreme Court of Justice (Oberster Gerichtshof) deals with the Cross-Border Conversion of an Italian S.A.S. ((Societá in accomandita semplice) a partnership) into an Austrian limited partnership (Kommanditgesellschaft). On 8 May 2013 the Company applied for registration of the Austrian limited partnership in the Austrian commercial register which rejected the application. The competent court at first instance held that neither Italian nor Austrian law provided for rules allowing cross-border conversions and in particular Austrian law only allowed domestic changes of legal form of corporations but not of partnerships. Just like German higher courts the Austrian court followed the rulings of the ECJ in its VALE and CARTESIO decision and stated that the following conditions must be met: The transfer involved transfers of the registered and administrative seat to Austria; The company complies with the national transformation act of the exit state; The company complies with the Austrian laws regarding the establishment of the intended legal form. The court seems to allow an application of these rules to partnerships wishing to change their legal form into a partnership of a different Member State (and not only corporations). However, in the specific case at hand the court held that national procedural requirements for the establishment of an Austrian partnership were not met. Thus, the court followed the decision of the previous instances and the Company was not registered in the Austrian commercial register. This issue is further discussed below in Section regarding the direct transfers of registered offices through the interpretation of the CJEU jurisprudence Divergences and incompatibilities in the national legislation relating to cross-border transfers of registered offices A number of divergences and incompatibilities exist in national legislation amongst Member States relating to the cross-border transfer of registered offices. These relate to the following: National rules which make it impossible to perform a direct cross-border transfer of a registered office with some Member States imposing an obligation to wind-up the company; No compatible or national rules laying down procedural requirements for cross-border transfers; No compatible rules relating to communication by electronic means; Incompatible national rules concerning the designation/nomination of a competent authority scrutinising the cross-border transfer; Incompatible national rules concerning the safeguards for stakeholders involved including the legal effects of transfers for these groups. These divergences are discussed in turn below. Firstly, the primary difference existing in Member States with regard to the cross-border transfer of registered office relates to the existence of two competing approaches to determine: The place of incorporation the company is governed by the law of the country where it was incorporated/registered. The real seat the company is governed by the law of the country where its headquarters or principal place of business or head office are located. 39

40 Some Member States have adopted a mixed system in this regard. The different legal regimes in place leave an uneven playing field for companies wishing to move their registered office. For example, companies from Member States that have a principle of incorporation in place can move their real seat cross-border without dissolution or a change in legal regime. However, companies from Member States where the applicable company law is determined on the basis of the real seat have to be dissolved in the home Member State and re-incorporated in the host Member State. 8 The complexity of the situation in relation to the divergences and incompatibilities in national legislation led to the jurisprudence of the CJEU on this subject. DRIVER: Existence of national rules which make it impossible to perform a cross-border transfer of a registered office Differences in national rules exist in the Member States which make it impossible for some to perform a cross-border transfer of a registered office. A full overview of the procedures in the Member States is presented in the Member State Fiches accompanying this report. The mapping of Member State legislation undertaken for this Study has identified three groups of Member States: Member States with national procedures in place in relation to cross-border transfers of registered offices; Member States with no national procedure in place but authorising the cross-border transfer of registered offices at national level; Member States not authorising the cross-border transfer of registered office. Member States with national procedures in place in relation to the cross-border transfer of registered offices The mapping of Member State legislation provides that a limited number of Member States have actual procedures in place at national level regarding the cross-border transfer of registered office. Cyprus, the Czech Republic, Denmark, Malta and Spain enable and clearly regulate incorporations through company law, as outlined in the Table below. Table 7 Existence of specific national procedures in relation to cross-border transfers Member State Cyprus Czech Republic Description Section 354A-354R of the Cyprus Companies Act Governed by Civil Code and Transformations Act applicable to commercial companies Denmark Danish Companies Act 2014 Malta Continuation of Companies Regulations Spain Inbound re-incorporations are allowed pursuant to articles 93 and 94 of the Structural Modifications of Companies Act 8 It is important to note that the Study on Applicable Law found that in virtually all Member States, it is now relatively well established that real-seat theory based private international law rules can no longer be applied to companies incorporated in other EU Member States. However, significant variation was found in how the relevant connecting factor is formulated and whether the conflict rules contain exceptions to this connecting factor where the foreign company has substantial links to the host state. The Study found that some countries still formally adhere to the real seat doctrine, but do not effectively apply it in practice because of the use of presumptions. Others apply their domestic law to foreign companies at the choice of third parties if the company s real seat is located within the host state. Yet others apply specific provisions of their domestic company law [ ] to foreign companies if idiosyncratic links of differing intensity with the host state are present. 40

41 Member State Description 3/2009 Member States authorising the cross-border transfer of registered offices While explicit procedures exist in only five Member States of the EU with regard to cross-border transfers, the majority of Member States authorise cross-border transfers. For Member States authorising cross-border transfers, different strategies are followed in relation to inbound and outbound transfers. The table below provides an overview of the Member States permitting cross-border transfers of registered offices based on the data provided by the EY Legal Network in the Member State fiches and from the Study on the Law Applicable to Companies. Table 8 Member States permitting cross-border transfers of registered offices Member State Inbound Outbound Austria Belgium Bulgaria 9 Croatia Cyprus Czech Republic Germany Denmark Estonia 10 Greece Finland France Hungary 11 Italy Ireland Latvia Lithuania Luxembourg Malta 9 While the EY Member State legal correspondent indicates that an inbound transfer could occur through notification to the Bulgarian Company Register, this diverges from information provided in the Study on the Law Applicable to Companies which indicates that an inbound transfer cannot occur. 10 As with the information provided in the Study on the Law Applicable to Companies, it is unclear in Estonia whether an outbound or inbound reincorporation could occur. 11 It is indicated that it is possible to undertake an inbound incorporation, however, this has not occurred in practice apart from the VALE judgment. 41

42 Member State Inbound Outbound Netherlands Poland 12 Portugal Romania 13 Sweden Slovak Republic Slovenia 14 Spain United Kingdom Source: EY Member State Fiches, Study on the Law Applicable to Companies Member States not authorising the transfer of registered office From Table 8 above, some Member States do not authorise the transfer of registered office. Croatia, Finland, Ireland, Lithuania, Romania and the United Kingdom do not permit either inbound or outbound transfers. Companies in these Member States cannot relocate their registered office abroad and reincorporate under the law of a different Member State. In some Member States, inbound transfers are permitted without permitting outbound transfers (Hungary, Poland and Sweden). Where Member States do not authorise the transfer of registered office, companies have no choice but to apply alternative solutions in order to achieve the same result. These alternative solutions are presented in Section below. While the transfer of registered office is permitted in the majority of Member States following the development of case law of the CJEU in the Cartesio and Vale judgments, several jurisdictions still prohibit or make impossible outbound incorporations. Legal uncertainty still applies with regard to the application of CJEU jurisprudence. This uncertainty was identified through interviews with stakeholders who indicated that some national authorities are not fully aware of the jurisprudence of the CJEU with the jurisprudence therefore not being applied by the authorities. Moreover, the legal uncertainty existing was identified through the mapping of Member State legal systems undertaken by the EY legal network as well as on the basis of the Study on the Law Applicable to Companies which demonstrated that despite the judgments of the Court, the jurisprudence has not been applied yet in practice with ambiguity existing. For example, as outlined in the Study on the Law Applicable to Companies, discussions continue among legal scholars as to the possibility of outbound and inbound re-incorporations in certain Member States, with the judgments of the CJEU not being tried by national courts in many instances. This was indicated, for instance, for Sweden, where it was indicated that the impact of the CJEU rulings had not yet been tried by any courts, with ambiguity thus existing. The Member State fiches drafted by EY, as presented in Annex to this report, also demonstrate the ambiguity existing. 12 According to the Member State Fiche for Poland, transfers are not permitted. However, it is stated in the Law Applicable to Companies that inbound incorporations are allowed according to legal scholars though no explicit provision or case law exists. 13 Unclear inbound incorporations should not be allowed. It is stated in the Law Applicable to Companies that the trade register accepts to register foreign companies reincorporating as Romanian entities. This subject is still debated by legal scholars 14 As outlined in the Study on the Law Applicable to Companies, there are no explicit rules though legal scholars maintain that such operations should be allowed. 42

43 In certain Member States, the decisions of the CJEU have been confirmed by national courts. For example, in Austria, the Supreme Court confirmed in 2014 the possibility of an inbound transfer of the registered office from an EU Member State to Austria following the Vale judgment. In Germany, while no Supreme Court decisions have been taken, the Higher Regional Courts of Nuremberg and Berlin accepted outbound packages for cross-border transfers. The table below presents an overview of the national jurisprudence identified through the Member State mapping. Table 9 National jurisprudence relating to cross-border transfers identified in the Member State Fiches Member State Austria Bulgaria Germany Hungary Romania National Jurisprudence relating to transfers On 4 April 2014, the Austrian Supreme Court ruled on the admissibility of the cross-border transfer of an Italian partnership to Austria. The Court referred to the CJEU 2012 decision Vale (for more precisions on the case, see below) and confirmed that an inbound crossborder transfer of a foreign company from another Member State to Austria is admissible, if the real seat of the company has been transferred to Austria, and under the condition that the company has fulfilled all requirements under the jurisdiction of the Home Member State and all the requirements for the Austrian legal form under Austrian laws. No Supreme Court decisions relating to transfers. Sofia City Court (18/03/2014): the court found that a refusal to enter the transfer of address in the BCR was unlawful based on arguments from the Vale CJEU case. No Supreme Court decisions or pending procedures on Supreme Court level The Higher Regional Court of Nuremburg as well as the Higher Regional Court of Berlin (Kammergericht Berlin) expressly accepted cross-border conversions (both outbound packages). The Higher Regional Court of Berlin ruled that the provisions on the cross-border transfer of the registered seat of an SE do not apply for cross-border conversions. The Hungarian Supreme Court initiated the preliminary ruling procedure that led to the CJEU Vale case. Ultimately, the Hungarian Supreme Court stated that that if a company registered in another Member State applies for registration in Hungary, such application shall be assessed on the basis of Hungarian legal provisions. However, these legal provisions shall not be discriminative and shall not make the cross-border re-incorporation practically impossible The CJEU Cartesio case (2006) regarded Hungarian law: the CJEU stated that EU law does not preclude such Member State legislation according to which a company incorporated under the law of that Member State may not transfer its seat to another Member State if it wants to keep its status as a company governed by the law of the Member State of incorporation. Three relevant cases relating to transfers: Bucharest Court of Appeal decision (October 2008)/ Timisoara Court of Appeal (October 2009): Refer to the cross-border transfer of seat (of a limited liability company) from an EU Member State to Romania. These two decisions essentially outline that: (1) There is no supporting (national or European) legislation, expressly allowing the transfer of seat of a company; (2) Only the right to incorporate a new legal entity in Romania or establish a secondary seat (i.e. a branch) are recognized under the (national and EU) legislation, thus far. 3. In the absence of a convention for the mutual recognition of companies and the preservation of their legal personality in case of transfer of their headquarters from one country to another, and respectively, in the absence of legislation to this effect in the country of transfer (i.e. Romania), companies do not benefit from a EU rule allowing the effective transfer of the registered seat of the company. Brasov Court of Appeal decision (September 2014): The decision of the court of appeal outlines that: 1. no supporting national legislation exists for the transfer of seat without the dissolution and liquidation of the company; 2. the Romanian State cannot decide, in absence of a legal provision in this respect, on the de-registration of a company registered on its territory without winding up and liquidation, and only based on the simple intention of the company related to the virtual relocation procedure to be carried out. In addition, it is noted that the first tier court, Brasov Tribunal, outlined in its decision that: 1. the rule regarding SE cannot be applied (mutatis mutandis) to limited liability companies (as 43

44 Member State United Kingdom National Jurisprudence relating to transfers was our case); 2. the Member State legislation provides that a transfer of seat may be performed, only to the extent that specific legislation exist in the country of origin (i.e. Romania) allowing such a procedure, which is not the case; 3.. In the absence of a convention for the mutual recognition of companies and the preservation of their legal personality in case of transfer of their headquarters from one country to another, and respectively, in the absence of legislation to this effect in the country of transfer (i.e. Romania), companies do not benefit from a EU rule allowing the effective transfer of the registered seat of the company. The Equitable Life case of September 9 th 2009 (OLG Celle 8 U 46/09) relates to the recognition of the validity of an English Scheme of Arrangement by foreign jurisdictions. The appellate Court of Celle (Das Oberlandesgericht Celle) refused to recognise the English scheme of arrangement on the basis of the article 35(1) of the Judgment Regulation (Regulation EC n 44/2001). The German court stated that the English courts had violated the special jurisdictional rule for insurance matters (art. 12 1); which exclusively allocates jurisdiction over the policyholders domiciled in Germany to German Courts. The 2009 decision was upheld by the German Federal Court on February 15 th 2012, considering that schemes would not be automatically recognised in Germany pursuant to the Judgment Regulation. The Court concluded that only German courts had jurisdiction in respect of any claims by German insurance holders. DRIVER: Incompatible rules relating to procedural requirements for cross-border transfers of registered offices Currently, there is a lack of compatible rules at national level relating to the procedure to be followed for the cross-border transfer of registered offices. These rules relate to the following: The provision of information obligations etc. prior to exercising a cross-border transfer; The dates and deadlines to be met in order to comply with procedural requirements; The publication requirements in place in the Member States for the protection of stakeholders. In order to present the divergences existing in relation to procedures at national level, a focus has been placed on the Member States with specific procedures in place for cross-border transfers. With regard to information obligations, in the Czech Republic, the company has two months prior to the approval of the transfer to provide information under Section 33 and 33a of the Transformations Act. The company is obliged to file with the Collection of Deeds maintained by the registry court the project on the cross-border transfer of registered office and publish a notice stating that the project on the transfer was filed with the Collection of Deeds and publish a notice to the creditors of their rights in the Commercial Bulletin. In Spain, the transfer project shall be published in the Official Gazette, with the calling of the General Stakeholders meeting also to be published in the Official Gazette and in order of the newspapers of main circulation in the province in which the company has its domicile. In Cyprus, a company that wishes to re-domicile abroad must publish a notice of the special resolution authorising the re-domiciliation in two daily newspapers, with proof of publication to be filed at the RoC within fourteen days from the date of publication. From the above, it is apparent that diverging rules and timelines are in place in the Member States with regard to the provision of information obligations. With regard to Member States where procedures do not exist, information obligations can still apply where other procedures are used by analogy. They include the following: Obligation to register the transfer plan (e.g. Austria, Finland, Germany); 44

45 Publication of a notice in a newspaper/official gazette empowered to publish legal notices (e.g. Belgium, France, Netherlands); Filing with the national authority e.g. French Trade Register (Belgium, Austria, France); Decision of transfer to be decided by shareholders before the Notary Public (Belgium). A full overview of the information obligations existing are presented in Annex 6 of this. The divergences existing in relation to information obligations can create legal uncertainty for companies when wishing to execute a cross-border transfer. For example, should a cross-border transfer need to be executed between the Czech Republic and Austria, lawyers in both Member States would be accustomed to the application of different rules. While in the Czech Republic, a specific procedure applicable for cross-border transfers with a 2 month period would apply, in Austria, lawyers would apply the rules applicable to SEs. The divergences can create delays in identifying the right procedure to apply. Steps for execution of a transfer The steps for the execution of a transfer also differ depending on the Member State in question. For those Member States where cross-border transfers are regulated by national law, the steps for the execution of a transfer can differ slightly. The table below presents an overview of the execution of steps for an outbound cross-border transfer in Cyprus and Malta. Table 10 Examples of steps for execution of a cross-border transfer in Cyprus and Malta where specific procedures for cross-border transfers are in place Cyprus Outbound Transfer: Receipt of consent from the Registrar of Companies Consent to be received after the lapse of three months from the date of publication of the special resolution authorising the application. Consent to be received provided no objection filed by any creditor for the proposed redomiciliation. Following consent, certificate to be received from host Member State on transfer. Following receipt of certificate, the Registrar of Companies in Cyprus shall strike off the name of the company from the register Inbound Transfer: Application made by company in the home Member state is made to the Registrar of Companies Documents submitted to Registrar of Companies who once satisfied that they comply with the provisions of national law shall certify that the company is temporarily registered as continuing in Cyprus from the date of registration through issuing a temporary certificate to the overseas company Within a period of six months from the date of issuance by the Registrar of Companies of Malta Outbound Transfer Application for consent for compact to be continued outside of Malta Publication of intention to undertake a transfer in the government gazette and in a daily newspaper to provide creditors with the opportunity to object the continuation Consent to be received after the lapse of three months Company to deliver an instrument of continuation from the other jurisdiction to the Registrar Company in Malta shall be struck off the Registry Inbound Transfer: Request for transfer submitted by the foreign company Issuance by the Registrar of a provisional certification of continuation Submission of documentary evidence within 6 months from the data of issue of provisional certificate Issuance of certificate of continuation by the Registrar 45

46 Cyprus Malta the temporary certificate, evidence shall be submitted to the Registrar of Companies from the competent authority of the home Member State that it has ceased to be a company registered in the country in which it was originally incorporated Upon receipt of documentation, Registrar of Companies shall issue the final certificate of continuation confirming that the company is officially registered in Cyprus. While slight differences can be observed with regard to the steps for the cross-border transfer in Member States where procedures are in place, overall, the main steps are covered in these Member States. Moreover, the Study found that in some Member States, the time period for consent for a transfer is similar. This is the case, for example, in Cyprus and Malta where an outbound transfer should be validated within a three month period, with evidence to be provided for an outbound transfer within a period of six months. Despite Member States with procedures in place having followed similar steps overall, diversity particularly arises when comparing the procedures with those Member States who authorise transfers but do not have explicit procedures in place and those Member States who do not authorise transfers at all. For example, when comparing the procedures in place in Cyprus and Malta with the alternative ways applied in the United Kingdom, it is apparent that considerable divergences exist, with the United Kingdom availing of four different procedures (depending on the case in question) when wishing to achieve the same result as a direct cross-border transfer. In the United Kingdom, the following alternative methods are applied for undertaking a transfer: (i) Transfer of assets and incorporation of a new foreign company; (i) Use of a Scheme of Arrangement; (iii) Establishment of an SE; (iv) Use of a Cross-Border Merger. A full overview of the steps followed are presented in the Member State Fiches accompanying this. Publication of information The requirements for the publication of information differ also between the Member States. In Cyprus, for example, the company that wishes to transfer must publish a notice authorising the re-domiciliation in two daily newspapers, with the publication also to be filed to the Registrar of the Companies within 14 days from the date of the publication. In comparison, in the Czech Republic, document should be available for review at least one month before the determined date of the general meeting. Where Member States authorise cross-border transfers, the requirements for the publication of information also differ. For example, in Austria, by application of the Regulations on the transfer of the corporate seat of an SE by analogy, the transfer plan and the information about the shareholders and creditors rights need to be announced in the Viennese Gazette at least 2 months prior to the shareholders meeting. The divergences in the publication of information can therefore create legal uncertainty for companies (and their legal counsels) wishing to undertake transfers since the time periods and formalities to be applied for publishing information shall differ greatly depending on the Member States involved. Concerning the legal effects of a cross-border transfer concerning the situation of stakeholders concerned, divergences also exist. For instance, in Cyprus, in relation to an overseas company that wishes to re-domicile, the Law obliges the company to submit to the Register, among other documents, consent by shareholders, employees, debenture holders and/or creditors of the overseas company. In the Czech Republic, specific provisions are also in place to ensure the right of information for 46

47 employees, creditors and stakeholders. In Malta, consent will not be provided for a transfer if consent has not been received by shareholders or creditors of the company. The procedure applied for these groups can be compared to the lack of procedure (and thus protection) applying in Member States where transfers are permitted but not protected by specific procedures in place. While Member States apply other EU instruments by analogy in such a case, the receipt of consent would differ significantly. DRIVER: Incompatible rules concerning communication particularly by electronic means For those Member States where cross-border transfers are regulated through explicit national legislation, the Member States impose requirements for the registration of the transfer to the relevant authority. For an outbound transfer in Cyprus, the company must obtain the Registry of Companies consent for the continuation of the company in another jurisdiction. In the Czech Republic and Malta, the outbound transfer must be communicated and registered in the public register of the host Member State, with the transfer only becoming effective upon registration. In Spain, however, national rules do not provide any obligations relating to communication between registers involved in a cross-border transfer, in comparison to other Member States listed above. The means of communicating the transfer cannot be undertaken through digital means in Cyprus, Czech Republic, Malta and Spain with the filing to be done physically. Concerning the exchange of notifications and documentation between the companies registers of the Member States involved, the rules also differ in this regard. In Austria, no explicit regulation exists on this matter with regard to cross-border transfers, though if the regulations on the transfer of a registered seat of an SE are applied by analogy, the responsible commercial court needs to be notified about the transfer. In Belgium, the company register will need to be notified of the cross-border transfer. In Bulgaria, for an inbound incorporation, the Bulgarian Commercial Court should be notified. In outbound cases in Germany, the commercial register must be informed. In the absence of common rules on communication between authorities in the Member States, it can occur that authorities involved in cross-border transfers, either directly or indirectly, are not in fact informed of the transaction. This was the case, for example, in a Case Study example of a transfer between Hungary and Luxembourg where a lack of communication existed between both authorities due to the unclear procedures to be applied, leading to the company not being removed from the register in the home Member States for a few months. DRIVER: Incompatible rules concerning the designation/nomination of a competent authority scrutinising the cross-border transfer The existence of competent authorities for scrutinising the transfer of a registered office differs in the Member States. The table below provides an overview of the competent authority scrutinising the crossborder transfer in the Member States where a procedure is in place. Table 11 Competent Authority scrutinising the cross-border transfer in Member States with specific procedures in place Member State Cyprus Czech Republic Competent Authority The Registrar of Companies and Official Receiver (RoC) is the competent authority in Cyprus. The RoC is responsible for scrutinising the cross-border transfer and authorising the transaction. A Notary Public shall confirm by issuance of the respective certificate that the Czech company participating in cross-border transformation has fulfilled the requirements stipulated by Czech law. The respective Register court decides on the registration of the cross-border transfer with the Czech Commercial Register. 47

48 Member State Denmark Malta Spain Competent Authority The Danish Commerce and Company Agency is responsible for receiving the certificate of transfer and ensuring formalities have been met. The Registrar of Companies is responsible for scrutinising the transfer and issuing the certificate for transfer. The Commercial Registry of the Registered office of the company shall certify the fulfilment of the acts and procedures of the execution of the company before the transfer. With regard to the Member States where cross-border transfers are authorised though no explicit legislation exists, the following are examples of the competent authorities identified through the Member State fiches: Commercial court responsible for the company (e.g. Austria, Slovak Republic) Notary Public (e.g. Belgium, Netherlands) Patent and Registration Office (e.g. Finland) Commercial register (e.g. Germany, Portugal) Company Register (e.g. Latvia) The differences in types of competent authorities in the Member States demonstrate the divergences existing. However, it must be noted that the differences in competent authorities was not recognised by stakeholders interviewed as a considerable problem in the execution of a cross-border transfer since diverging competent authorities also exist, for example, in relation to the transposition of the Cross- Border Mergers Directive. The issues which were identified, however, was rather the lack of clarity as to who the competent authority was in the Member State. This is further described in the case study examples in Section below. DRIVER: Incompatible rules concerning the safeguards for stakeholders involved A variation of safeguards exist for stakeholders involved in the transfer. For direct transfers of registered offices, the following safeguards apply in Member States regulating cross-border transfers. Table 12 Safeguards for stakeholders for cross-border transfers in Member States with specific procedures in place Member State Creditors Employees Shareholders Cyprus Outbound incorporations: Consent to the transfer cannot be provided until three months have passed from the publication of the notice in two daily newspapers in Cyprus. Any creditor of the company within the three month period may object before a competent Court to the transfer. No particular provision applies for employees rights to oppose the transfer. The Court holds the discretion to scrutinise the legality of the contemplated operation. No particular provision applies for minority shareholders to oppose the transfer. The shareholders right are primarily guaranteed by their vote in the relevant resolution approving the transfer. Czech Czech law regulates rights of The employees (trade union) Sections 59r and 375 et seq. 48

49 Member State Creditors Employees Shareholders Republic certain groups in connection with transfer only for the case of outbound transfer. Section 35 and 59u of the Transformations Act governs protection of creditors as well as Section 384l (1) (in particular a right to be informed and to receive additional securities under conditions stipulated by law). of the Czech company participating in the outbound transfer have the right to be acquainted with the Project and with the (Sections 59n et seg. of the Transformations Act). In this context, employees (trade union) have to be informed about their right to express their opinion in writing thereto. The trade union s opinions shall be attached to the under the condition specified in the Transformations Act. of the Transformations Act protects shareholders (e.g. a right to cancel its participation in the company). Malta Creditors have the right to object a transfer within a three month time period and publication of the transfer in the official Gazette. National Regulations do not provide any specific safeguards for employees. National Regulations do not provide any specific safeguards for minority shareholders. Spain Creditors have the right to challenge during a period of one month since the last publication of the notice to transfer. The creditors have the right to ask for a guarantee of their credits. No information No information As outlined in the table above, some Member States provide specific safeguards for creditors, shareholders and employees while other Member States do not provide safeguards for specific groups. This is the case, for example, in Malta, where national regulations do not provide any specific safeguards for employees or minority shareholders in the case of a transfer. For the transfer of registered offices in Member States that authorise this transaction, a diverging set of safeguards also apply with rules relating to national transfers or to procedures in relation to cross-border mergers applying by analogy. The divergence of these rules provides for significant complexity to ensure protection of shareholders when a transfer occurs. For example, in case of an outbound transfer in Austria, creditors may demand safeguarding for their claims if they can demonstrate credibly that their claims are endangered due to the transfer. Shareholders who do not agree to the transfer may demand acquisition of their shares by the company or a third party for a reasonable purchase price. Moreover, a special negotiation committed for the protection of employee s interests needs to be called in case of a cross-border merger. In Belgium, within the two months waiting period after the publication of the report of the Board of Directors of the Cross-Border transfer, the creditors and holders of other rights towards the company whose claim has originated before the publication can claim a security or other guarantee. In Greece, minority shareholders have the right to request the repurchase of their share by the company, if the general meeting decides the transfer of the registered office. The divergences for safeguards leads to legal uncertainty for these groups, which are discussed further in detail in Section below. 49

50 With regard to the types of companies permitted to exercise a cross-border transfer, companies that are in liquidation or under bankruptcy proceedings are prohibited from transferring. In Malta, incoming companies should hold a certificate of good standing issued by the relevant foreign Registrar. Where a company is a public company or a company carrying out licensable activities, it must obtain the consent of the following authorities before being able to undertake the transfer: Public company: Consent of the recognised investment exchange and of the listing authority in Malta Company carrying out licensable activities: Consent of the competent authority in Malta. With regard to the right to block a transfer, the following applies in the Member States. 50

51 Table 13 Right to block a cross-border transfer in Member States with specific procedures in place Member State Cyprus Right to block A number of conditions exist which enables the Registrar of Companies and Official Receiver (RoC) to block the transfer for inbound incorporations. For outbound incorporations, provided national legislation is met and the RoC is satisfied, the legislation does not foresee any other circumstances in which public authorities may have the competence to block an outbound transfer. Czech Republic Malta Spain A Notary Public can block a cross-border transfer for the following reasons: In case of a failure to comply with the requirements settled by the legal regulations (e.g. fulfilment of provision related to creditors and stakeholders protection, submission of the project, proof of its publication and duly approval); If a public document confirming registration of the transfer in the foreign commercial register is older than 6 months, If the company does not submit all required documents to the Notary Public The National Regulations do not provide any public authorities with specific competence to block the transfer. The Commercial Registry has the right to deny the registration of the transfer and request the company to submit additional documentation or information in order to register the transfer. In the case of the transfer of a seat abroad, the Commercial Registry may deem that the requirements have not been fulfilled and issue a pre-transfer certificate that certifies that the requirements have not been fulfilled. As outlined in the Table above, Cyprus, Czech Republic and Spain provided for public authorities to block the transfer under certain conditions. Interestingly, in Malta, the national legislation does not provide any public authorities with specific competence to block the transfer. The differences can therefore lead to unequal treatment of stakeholders in the Member States with the rules and conditions for blocking a transfer varying, therefore leading to stakeholders not being able to request a transfer being blocked in all Member States Effects The divergences and incompatibilities in national legislation relating to cross-border transfers of registered offices may lead to obstacles to performing a direct cross-border transfer of a registered office. These obstacles can lead to one of the following: Action 1: Companies abandon the transfer of their registered office, remaining in the home Member State and not exercising the freedom of establishment; Action 2: Companies transfer the registered office directly through the use of national procedures or through the application of CJEU jurisprudence; Action 3: Companies transfer the registered office indirectly using alternative solutions. Action 1: Companies abandon the transfer of their registered office 51

52 The Study has found that the complexities of the legislation in place in the Member States can lead to some companies abandoning the transfer of their registered office from one Member State to another. However, concrete statistics do not exist at national level with regard to the level of deterrence occurring with interviews with stakeholders indicating that the lack of a legal framework does not always deter a company from transferring the registered office. This can be explained due to the main rationale identified for transfer of registered office being to profit of fiscal advantages in another Member State. For example, through interview with a Belgian notary, it was indicated that they had never experienced a company that abandoned the procedure to transfer due to the lack of common procedure at EU level. However according to a legal expert in Germany, it occurred that companies abandon the operation because of legal uncertainty, which increases the hesitance of commercial registries in some Member States questioning on the legality of the procedure, on the procedure to apply and on the requirements needed. Through interviews with legal practitioners in the Member States and the Expert Panel with experience advising companies on these issues, it was indicated that the tendency to abandon the transfer of a registered office would mainly apply to smaller companies such as SMEs who do not have the means nor the time to either (1) appeal the refusal to transfer the registered office through the use of the CJEU jurisprudence or (2) use alternative solutions to undertake the transfer. Despite the estimated low level of companies deterred from undertaking a transfer, it can be assumed that the missed opportunity to transfer the company s registered office from one Member State to another can lead to lost opportunities for companies for benefitting from the advantages offered in the other Member State as well as the advantages of the Internal Market as a whole. This can be considered through examining concrete practical cases relating to transfers. For example, in the Case Study concerning the Cross-Border transfer of a registered office of an Asset Management Company from the Netherlands to France, the reasons for undertaking the transfer were both for business opportunities and for fiscal reasons. The Asset Management Company had between 10 and 249 employees with offices in France, Italy, Luxembourg and outside Europe with more than 3 billion euros of assets under management. In this case, the transfer of registered office and the transfer of real seat was undertaken with the company thus benefitting from fiscal gains through the movement of its legal structures to France. In the case where the company had been deterred from undertaking the procedure, the following missed opportunities could be identified: Missed opportunity for the company to access markets within the EU and benefit from additional business opportunities (e.g. the Asset Management Company would have faced a missed opportunity to benefit from business opportunities in France through the concentration of its structure in this Member State); Missed opportunity for the company to benefit from the diversity of the internal market by benefit from the fiscal advantages (e.g. the Asset Management Company would not benefit from the fiscal advantages associated with moving its legal structures to France). The effects associated with the missed opportunity to benefit from the internal market are detailed further below. EFFECTS: Missed opportunity for the company to access markets within the EU and benefit from additional business opportunities Companies mainly transfer their registered office in a new Member State to take advantage of a favourable corporate tax regime or benefit from lower operational costs. Another commonly shared 52

53 reason is the research for new business opportunities as many companies look for new human, natural and product resources. 15 By not undertaking a cross-border transfer due to the complexities of procedures in place, this can lead to a company experiencing a missed opportunity to access other markets within the EU and benefit from additional business opportunities. In the Case Study relating to the asset management company transferring its registered office and real seat to France, this missed opportunity can be estimated as equal to the business opportunities (i.e. additional contracts) entered into in France due to the focus on business in this Member State. Not only does this missed business opportunity impact the company transferring but also other companies that would benefit from the asset management company s extended presence in France. The knock-on effect associated with missed business opportunities can demonstrate the significant impact the deterrence could have on the overall success of the internal market as a whole. The missed opportunity for transferring the registered office from one Member State to another can have a long term effect on companies. As outlined through interview with an SME representative, this effect can be particularly significant for SMEs. Other than reaching business friendly regimes, the companies deterred from transferring can miss out on the opportunity to enter into contact with new cultures and benefit from the interaction and exchange of best practices with companies having different backgrounds, techniques and expertise across the EU. The benefits of the internal market such as the possibility of enriching the enterprise DNA and human capital, specialising the competitive advantage and allowing economies of scale would therefore not be felt by companies deciding not to transfer. EFFECTS: Missed opportunity to benefit from the diversity of the internal market The interviews undertaken identified that the absence of a European framework creates an obstacle to the full opening of the internal market limiting all possible benefits generating from transnational business across Member States in terms of investment, employment etc. While an assumption can be made that the deterrence of companies transferring their registered company to another Member State could lead to economic losses for host Member States wishing to attract companies to their territory, interviews with Investment Agencies in a number of Member States indicated that the difficulties arising due to the divergences in legislation between the Member States are rarely, as such, a reason for a company choosing not to transfer their activity since the cost benefits of the transfer often outweigh the negative impacts associated. Through interviews, it was argued that Member States with favourable tax and social regimes experience economic losses due to the lack of common framework because companies normally attracted to those Member States might be deterred from moving. For Member States without a favourable tax and social regime, the main economic losses are engendered by the lack of regulation on fiscal and social dumping. In other words, Member States with a less competitive tax and social framework find it more difficult to develop their own competitive advantage and fear that the risk might persist or increase should a common framework be established without the provision of relevant compensations. While companies deterred from undertaking a transfer due to the complexities of national legislation can lead to missed opportunities, a distinction must be made between companies choosing to transfer only their registered office and those companies that transfer both their registered office and real seat. For companies wishing to transfer their registered office only, it is estimated that the impacts for these companies in not transferring are purely missed opportunities for the company to benefit from the fiscal 15 Public Consultation, European Commission

54 diversities existing of the internal market. However, for companies transferring both their registered office and real seat, the missed opportunities for these companies would be far greater since the company would not only miss benefits relating to potential fiscal advantages in the host Member State but also future business opportunities as well knock-on benefits of the internal market such as employment, future investment etc. which would not be experienced should a company simply transfer its registered office. Moreover, while it can be considered that abandoning the transfer of a registered office can have a negative impact on potential host Member States who could not benefit from the company s potential activity at national level, it must also be noted that the plus side to the company not transferring relates to the home Member State not losing economic activity associated with the company. As with all aspects of the internal market, there are both positives and negatives to gain from freedom of establishment, depending on whether the Member State is a home or host country. Action 2: Companies transfer the registered office directly through the use of national procedures or application of the CJEU jurisprudence Despite the divergences existing in national procedures regarding the transfer of registered offices, as further elaborated in Section above, the existence of either national procedures in place in Member States and the fact that transfers are permitted due to the interpretation of CJEU jurisprudence in the majority of Member States leads to companies transferring the registered office directly between one Member State and another. The box below provides an example of a cross-border transfer in the absence of national procedures but through the interpretation of CJEU jurisprudence. Box 1 Example of a direct cross-border transfer through application of CJEU jurisprudence Home Member State: France Host Member State: Luxembourg A cross-border transfer was undertaken between France and Luxembourg. The company in question, specialised in the professional organisation industry, was motivated by business opportunities in order to undertake the transfer. Luxembourg was chosen as the country of destination due to the active business in the insurance sector. The cross-border transfer was implemented through the interpretation of CJEU jurisprudence. In this case, the cross-border transfer was successfully undertaken within two months. The key steps of the cross-border transfer through the application of CJEU jurisprudence is provided in the figure below. 54

55 Figure 21 Key steps of a cross-border transfer through the application of CJEU jurisprudence between France and Luxembourg As outlined in Section above, the interpretation of the CJEU jurisprudence in the Member States remains unclear, with a number of Member States (and their courts) not yet confirming the jurisprudence of the CJEU within their national procedures. While this is the case, the Study has found, overall, that transfers occurring through the interpretation of CJEU jurisprudence functions well to a large extent. In the case relating to the transfer between France and Luxembourg above, no specific problems were encountered, with the transfer taking two months and legal costs estimated at 20,000 euros. However, it was noted by the legal practitioner involved in this case that while no specific problems occurred, the divergences existing in relation to the interpretation of the CJEU jurisprudence and the knowledge of the jurisprudence at national level can create difficulties. In this case, the transfer was undertaken through the Commercial Court register in Paris where clerks have full knowledge of the CJEU jurisprudence. However, it was indicated by the legal practitioner that issues can exist in other courts in France (e.g. Versailles) where officials have limited knowledge of the CJEU jurisprudence and therefore reject the application for a transfer. On this line, a few case laws are presented in the Section concerning the refusal of operations by the commercial registries and the jurisdictions. Through the Study, a Case Study was also identified where the outcome of a cross-border transfer between Bulgaria and Hungary was achieved through the winding up of a company in the home Member State. In this case, which is outlined further below, an indirect procedure was applied since it was indicated by the interviewee involved that the Commercial Court in Bulgaria did not accept a proposal for a transfer of registered office, despite the jurisprudence of the CJEU. The refusal entails the company appealing the decision of the Commercial Court in light of the Vale judgment in order for the transfer to be accepted. Indirect procedures are therefore considered to be more efficient. 55

56 Action 3: Companies transfer the registered office indirectly The Study has found that companies undertake a number of different actions due to the absence of procedures for the direct transfer of registered offices. Firstly, companies in certain instances choose to wind up the company in the home Member State in order to create a new company in the host Member State. The winding up of the company consists of liquidating the company in Member State A and transferring the assets and liabilities to the new company created in Member State B (as presented in the figure below). The winding up of a company leads to the end of legal continuity of the company in question. The winding up of a company can incur additional costs which would not have been incurred if a direct transfer of a registered office had occurred. Based on data available, the following costs can be estimated in order to undertake this alternative solution. Figure 22 Costs of alternative solution winding up Note: The estimates of costs presented above are based on estimates provided in the Impact Assessment Study on policy options for a new initiative on minimum standards in insolvency and restructuring law 16 as well as on estimates provided through Member State fiches 17 relating to the alternative solution of winding up and transferring assets and liabilities to another Member State. The costs associated with this alternative are considered to be substantial for a company. From our assumptions in Section 2 above, and in Annex 5, it is estimated that the average cost of a cross-border transfer is between 20,000 to 40,000 euros which can in some instances represent the average cost of a simple winding up. The box below provides an example of a case where a cross-border transfer was undertaken through the winding up of the company. Home Member State: Bulgaria Host Member State: Hungary Box 2 Example of cross-border transfer indirectly through winding up Case Study Example A company X, present in Bulgaria, transferred its assets and liabilities to a company in Hungary, with the company in Bulgaria liquidating and terminating its presence from the Commercial Register in Bulgaria. The activities in Bulgaria continued through the Hungarian entity. For this Case Study, it is important to note that the reason why the company chose an indirect procedure rather 16 JUST /2015/JCOO/FWCIVI0103 FRAMEWORK CONTRACT ENTR/172/PP/2012FC LOT 2 17 See Hungarian Fiche 56

57 than undertaking a direct cross-border transfer through the interpretation of the CJEU jurisprudence was due to the fact that the Bulgarian national register does not accept the proposal for a transfer of a registered office. The refusal of the national register to recognise such a transfer entails a company appealing the Vale judgment in order for the transfer to be accepted which creates delays (three to five months for appeal). For the reasons above, the common practice for a company wishing to transfer to another Member State is to wind up and transfer all assets and liabilities via contracts to another company in the host Member State. This Case Study created considerable media attention due to the termination of the employment contracts in Bulgaria, with new contracts offered to staff by the subsidiary company in Hungary. The company continues to operate in Bulgaria through its Hungarian entity. While legal uncertainty resulted from this Case Study, it was not possible to estimate the costs associated with this indirect procedure. The Study has also found that a number of alternative solutions exist for the transfer of registered offices indirectly from one Member State to another. Companies bypass the divergences and incompatibilities existing in national legislation by adopting alternative solutions for cross-border transfers. The most prominent alternative solutions identified through the Member State mapping are the following: Use of a Cross-Border Merger (e.g. Greece, Finland, Lithuania, Netherlands, Sweden, Slovak Republic, Slovenia, United Kingdom) Conversion to an SE (e.g. Finland, Lithuania, Latvia, Sweden, Slovak Republic, Slovenia, United Kingdom) These alternative solutions are described in turn below. Alternative Solution Use of a Cross-border merger by acquisition Companies can use the Cross-Border Merger Directive through cross-border merger by acquisition upon a company in the host Member State. In this regard, the original company in the home Member State acquires a company in the host Member State with a transfer of relevant assets and liabilities. Figure 23 Alternative Solutions Cross-border merger With regard to the costs associated with the use of cross-border merger, as outlined in the Study on the Application of Cross-Border Mergers, the costs of a merger are difficult to define due to the following factors: Whether the cross-border merger involves companies operating in the regulated financial market The shareholding structure The participation of an auditor in the review of the merger 57

58 The issue of employee participation Direct costs relating to notary fees, state duties, translation costs etc. Home Member State: Hungary Host Member State: Luxembourg Box 3 Alternative Solution Use of Cross-Border Merger Case Study Example The Case is related to a leading Brazilian company, with a very limited number of employees, wishing to transfer its operations, i.e., its registered office from Hungary to Luxembourg. The operation was undertaken through indirect procedures. It involved the following steps: first the transfer of the place of effective management from the Home to the Host Member State, then the incorporation of a new company in the Host Member State and finally the cross-border merger between the company in the Home Member State and the company in the Host Member State. Rationale: The company operated a cross-border transfer for tax reasons. In the absence of national procedures on cross-border transfers in the Hungarian legislation, the company decided to transfer the place of effective management to Luxembourg in order to benefit from tax advantages without having to wait for the traditional duration of an indirect procedure. With regard to the Case Study relating to an indirect cross-border transfer between Hungary and Luxembourg, an indirect transfer was undertaken through the transfer of the place of effective management and the use of a cross-border merger. The costs estimated for such a procedure were approximately 120,000 euros for the costs of the cross-border merger, with the costs associated with the transfer of effective management estimated to be approximately 500 euros. The costs of this transaction can be compared to the costs associated with the average cost of a cross-border transfer that would be undertaken directly which is estimated to be between 20,000 and 40,000 euros depending on the case and the Member States involved. Through the use of an alternative procedure, it can be estimated that an additional cost of between 80,000 and 100,000 euros was incurred. Alternative Solution - Conversion of the company to an SE In certain instances, a company may convert into an SE or an SCE and then effect a cross-border transfer of seat pursuant to Article 8 of the SE Regulation or Article 7 of the SCE Regulation, as outlined in the figure below. This alternative solution is only open to private companies. 58

59 Figure 24 Alternative Solutions Conversion of the company to an SE The Study identified an example of a conversion by the company to an SE between the Netherlands and France in order to undertake a cross-border transfer. Box 4 Alternative Solution Conversion by the company to an SE between the Netherlands and France Home Member State: The Netherlands Host Member State: France Case Study Example An asset management company based in France, Italy, Luxembourg and outside Europe with approximately 3 billion euros of assets under management and between 10 and 249 employees. The company decided to transfer its registered office (and real seat) from the Netherlands to France for productivity gains and fiscal advantages. In order to undertake this transfer, a Dutch BV was converted into a Dutch NV and then into an SE, with the newly constituted SE undertaking a transfer of the registered office and real seat to France. The cost of the cross-border transfer executed was estimated by the legal practitioner to be under 30,000 euros with the transfer occurring under 4 months. For the alternative solutions available to companies, a number of effects can occur, as detailed in turn below. EFFECTS: Creation of Legal Uncertainty and Unequal protection due to the divergences in procedures The divergences and incompatibilities in national legislation relating to cross-border transfers can lead to legal uncertainty for all parties involved. Legal practitioners and notaries interviewed in the Member States particularly underlined that the lack of a clear and common European framework creates a lack of clarity and transparency. 59

60 When considering that 99% of limited liability companies are SMEs, it can be considered that the legal uncertainty existing can particularly impact SMEs who, due to this uncertainty, are deterred from undertaking a transfer to another Member State. Box 5 Example of legal uncertainty created Case Study Example Cross-Border transfer between Hungary and Luxembourg Home Member State: Hungary Host Member State: Luxembourg The Case is related to a leading Brazilian meat processing company, with a very limited number of employees, wishing to transfer its operations, i.e., its registered office from Hungary to Luxembourg. A number of issues relating to legal uncertainty existed in this case. Firstly, the effective place of management was firstly transferred between Hungary and Luxembourg. This created an issue of applicable law. Once the company transferred the place of effective management, the company gained dual residency under the Luxembourg legislation and was considered as a Luxembourgian Hungarian legal entity under the Luxembourg perspective. On the other hand for the Hungarian court of registration, the company was a Hungarian entity only and the fact that it was already registered in Luxembourg was null and void. For example, interestingly, the merger procedure was considered as a domestic merger for Luxembourg law purposes. Through the execution of a cross-border merger, lack of communication existed between the registering authorities in both Member States. The authorities did not communicate the merger which led to the transaction not being registered in the national registers. Legal uncertainty for specific groups are presented in further detail below. Legal uncertainty/social impacts for employees The implications for employees with regard to cross-border transfers depend on whether the transfer that is undertaken includes the transfer of economic activity or not. The variation in representation, consultation and information rights throughout the Member States can lead to significant negative impacts on employees. Given the lack of common procedures, employees submitting to the legislation of the new host Member State can encounter stronger or weaker protection depending on the country of destination. A comparison of the divergent board-level participation models in EEA members is provided in the European Participation Index 18. The Study identified three types of countries: Countries with a systems in place of board-level representation (Austria, Czech Republic, Denmark, Finland, Germany, Hungary, Luxembourg, the Netherlands, Norway, Slovak Republic, Slovenia, Sweden); Countries with limited experience of board level representation (France, Greece, Ireland, Poland, Portugal, Spain); Countries with no regulation on board-level representation (Belgium, Bulgaria, Cyprus, Estonia, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Malta, Romania and United Kingdom). 18 The European Participation Index (EPI) : A tool for cross-national quantitative comparison, Background paper Sigurt Vitols 2010, available at 60

61 Despite the divergences existing in relation to employee rights throughout the Member States, the Study has found that in most cases the transfer of registered office does not impact greatly on employees. Some of the companies were holding companies, and some of them only transferred the registered office from one Member State to another 19. This was confirmed by the Expert Panel for the Study. When cross-border transfers of registered offices have impacts on employees, the impacts can be considerable, due to the lack of clarity in the procedures applied. As outlined in Section above, considerable divergences exist with regard to the safeguards for employees where a cross-border transfer occurs. For example, in Cyprus, despite a specific procedure being in place for outbound transfers, the Law only makes express provision to the right of creditors to object a transfer with no particular provision made for employees to oppose the transfer. This is also the case in Malta. This can be compared to the safeguards in place in the Czech Republic where the employees (and their trade union) of the company participating in the outbound transfer have the right to be acquainted with the transfer report and to express their opinion in writing regarding the transfer. Moreover, in addition to the divergences existing between Member States with specific procedures in place, divergences also exist in those Member States who authorise transfers by application of other instruments by analogy. Following the Commission s consultation on the transfer of registered offices in 2013, the European Trade Union Institute highlighted the concerns by stakeholders that companies can avoid social and other regulation by transferring their registered office to countries with lowered standards. In order to ensure the protection of employee rights, a preference is placed on requiring companies to have the registered office in the same Member State as their headquarters (i.e. their real seat). This would ensure more protection of employees when companies choose to move to another Member States due to greater clarity in applicable law. This would also avoid the creation of letterbox companies, which make possible to pretend that workers who are in reality permanently working in one Member State are temporarily posted from a company registered in another Member State where no economic activity is actually taking place.. Article 4 of the Directive 2014/67/EU defines a list of criteria which Member States must take into account when assessing the genuine nature of posting, including "the place where the undertaking performs its substantial business activity". Legal uncertainty for creditors The extent of impact on creditors when a cross-border transfer occurs depends on the rights and rankings of creditors in the Member States. As outlined in Section above, the protection of creditors differs. In Member States where a legal procedure is in place, different safeguards are in place. For example, in Cyprus, any creditor of the company within the three month notification period prior to the validation of the transfer may object to the transfer before the competent court. This is also the case in Malta where creditors have the right to object a transfer within a three month period. In the Czech Republic, the Transformations Act provides a right for the creditors to be informed and to receive additional securities in the case of a cross-border transfer. In Spain, creditors have the right to challenge during a period of one month since the last publication of the notice to transfer, with creditors having the right to ask for a guarantee of their credits. While safeguards are in place in Member States with procedures on crossborder transfers, the divergences in protection and time periods can create legal uncertainty for creditors wishing to safeguard their rights. For example, a considerable distinction can be made in providing three months for creditors to object to a transfer, as is the case in Malta and Cyprus and one month as is the 19 Out of six Case Studies on transfers being analysed, three of them concerned a holding company with zero or one employee. Amongst those, one transferred both the real seat and the registered office and two only transferred the registered office. 61

62 case in Spain. Where a cross-border transfer was to occur between Spain and Malta, for example, creditors in both Member States would be subject to diverging rules as to the time provided to them to object to the transfer. For Member States applying the provisions of the SE Regulation and the Cross Border Merger Directive by analogy, these instruments provide for an adequate protection of creditors which is considered to be a vague and optional provision which leaves the choice to Member States. This protection therefore varies from one Member State to another and can create legal uncertainty. While the legal uncertainty for creditors can be high due to the differences in procedure existing, no specific examples of negative impacts on creditors have been identified, based on the interviews and case studies undertaken. The limited impact identified for creditors can also be linked to the fact that creditors are not directly impacted when the registered office (without the real seat) is moved from one Member State to another. Legal uncertainty for shareholders A wide ranging spectrum of different protection regimes exist for shareholders, as outlined in the Study on Cross-border mergers and divisions, is there a need to legislate? The regimes existing in the Member States range from no special rules (e.g. United Kingdom) to rather elaborate protection systems (e.g. in Germany where minority shareholders have an exit right against cash compensation). According to the interviews undertaken, shareholders face many risks and disadvantages. Amongst the others, the following were identified: Issues in exercising voting rights: A transfer of registered office in another Member State can make the exercise of voting rights more complex for shareholders, as it might imply the transfer of the general meeting location. In this case, shareholders face important costs such as the cost of understanding the issues of the company in another language and the material costs of voting (which can be done physically in another Member State, by proxy or on the internet). Issues related to governance: Other issues are related to the governance requirements and rights existing in divergent legislations. An example concerns the threshold needed to propose a resolution in the general meeting. While in France shareholders need to represent 0, 5% of the capital, the threshold is 3% in the Netherlands and 10% in Luxembourg. Another example concerns the voting thresholds in order to approve a decision during the general meeting. For example, the Czech Republic and Portugal both require a supermajority. However, the quorum varies from to 3/4 of attending shareholders in the Czech Republic to 75% of the share capital in Portugal. Issues related to taxes: In certain cases (for example in the case of a transfer between France and Belgium), shareholders risk to be subject to double taxation on dividends due to the lack of bilateral conventions. Issues related to the shares: The risk mentioned in the Study Cross-border mergers and divisions, is there a need to legislate is that shareholders might be affected an inadequate exchange ratio or might become shareholders of companies they do not wish to be part of. Based on the mapping undertaken by the EY Legal Network, divergences also exist with regard to the protection of shareholders when undertaking cross-border transfers. In Cyprus, the shareholders rights are primarily guaranteed by their vote in the relevant resolution approving the transfer though no particular provision applies for minority shareholders to oppose the transfer. In the Czech Republic, shareholders are provided with the right to cancel its participation in the company should they oppose the transfer of the registered office. 62

63 However, while differences exist, the Study did not identify specific issues arising with regard to shareholders. Nevertheless, in cases where shareholders would be impacted, particularly in a situation where the transfer of the registered office is accompanied by the transfer of the real seat, the differences in protection can create considerable issues for shareholders who can find themselves in unclear water, depending on the Member States concerned, as to what protection will be offered to them. EFFECTS: Reduced attractiveness of the EU Single Market for investment The divergences in legislation throughout the EU can reduce the attractiveness of the Single Market for investment, both from external investment outside the EU and intra-eu investment. The Study on the Application of the Cross-Border Mergers Directive identified the benefits associated with the adoption of this Directive through the opening of the Internal Market. It was found that the creation of an EU instrument can open a bottleneck to access to the Internal Market for companies leading to greater market integration. The opening of the internal market can ensure the greater mobility of companies across borders and allow strategic business decisions. While divergences can reduce attractiveness, a number of triggers currently exist for cross-border mobility. Both EY experience in assisting investors in their location projects and in-depth analysis of the European Investment Monitor provide an insight on investors motivations for cross-border investments. These analyses identified three types of motivations for investors for cross-border movement. Figure 25 Top 3 motivations for investors to exercise cross-border movement Source: EY Global Investment Monitor The EY Attractiveness Survey also identified the following drivers for foreign direct investment in the EU according to international investors. Figure 26 FDI Drivers in the EU Source: EY Global Investment Monitor, 2016 Note: Percentage is weight given by the investors to that particular factor (attractiveness level) 63

64 The results of the Commission s public consultations on cross-border transfer of registered offices (2013) and cross-border mergers and divisions (2015) confirm that the triggers identified by EY for intra- EU cross-border movements apply also, to a large extent for transfers. A number of factors were identified which motivated companies to transfer their registered office abroad including business opportunities (i.e. favourable business climate); productivity gains (i.e. favourable company law) and tax regulation (i.e. favourable tax regime). Table 14 What is the main motivation for companies to transfer their registered office abroad? According to companies Favourable corporate tax regime Favourable company regime benefitting the company wishing to transfer Favourable business climate overall which would have a positive impact on the company and its economic activities Stable legal framework Favourable insolvency law enabling the company to liquidate easily if necessary According to other stakeholders Favourable corporate tax regime Tax mitigation Favourable business climate overall which would have a positive impact on the company and its economic activities Favourable company law Favourable social law for companies and employees Favourable insolvency law enabling the company to liquidate easily if necessary Stable legal framework Source: European Commission Public Consultation 2013 Interviews conducted confirmed that companies willing to operate a cross-border transfer of registered office are mainly motivated by a favourable tax or social regime which they can benefit from when switching jurisdiction. Their motivation can be associated to the country of destination. This might be the case of certain companies reaching the advantageous system of corporate or company law (e.g. BG, EE, LT, LV, NL) or fiscal advantages (BG, CY, LU, MT). However, interviewees did not exclude that genuine business reasons motivate companies to operate cross-border today, to explore and expand through new business opportunities of the internal market. The following factors of attractiveness were also the most commonly shared during the interviews: the internal policy and the political and economic stability, the research for skilled or productive labour force, the research for infrastructures and the research for new products or locations. This is notably the case of SMEs, crossing the border in search for new business opportunities in neighbouring countries (e.g. Sweden, Finland) and companies coming from small (e.g. Malta) or economically weakened (e.g. Greece) Member States. Finally, specific factors of attractiveness seem to belong to single Member States. This is for example the case of Greece, where companies are attracted by the liability of human capital consequent to a high 64

65 level of unemployment. Croatian interviewees also mentioned that the simplicity of the incorporation procedures, internet based, were a factor of attractiveness. Finally, a Spanish company representative association noticed that a new wave of entrepreneurship is looking for internationalisation today. The factors that were identified that motivate a company to execute a cross-border transfer are therefore diverse. Based on desk research and interviews, it cannot be concluded that the divergences in company law relating to cross-border transfers can significantly reduce the attractiveness of Member States for investment. EFFECTS: Differences in competitiveness and economic growth within the Internal Market Due to the differences in regimes in Member States relating to the authorisation of cross-border transfers, some Member States can be considered to be more favourable and attractive than others due to their more accessible procedures in place with regard to company law. The differences in company law regimes can reduce the competitiveness between Member States with some Member States unable to compete with their neighbours to attract companies to their territory. While the reduced competitiveness between Member States can be caused by divergences in company law overall, the Study has not identified particular examples of reduced competitiveness between Member States due to the specific divergences in national legislation existing in relation to cross-border transfers. Though it can be assumed that reduced competitiveness between Member States can arise, the competitiveness of Member States does not simply depend on the company law regime in place but rather other factors existing which attract the company to the Member State concerned, as outlined above. It may be assumed that differences in economic growth could also occur due to the obstacles existing for companies wishing to benefit from the internal market. By not being able to avail of the opportunities of the internal market, this may lead to a lack of optimisation of the benefits the internal market has to offer, with Member State economies not benefitting from the potential economic activity of companies wishing to exercise cross-border movement. However, though this may be the case, the majority of cases identified by the study in relation to cross-border transfers involved holding companies with no or little employees wishing to simply move their registered office, and not their real seat, from one Member State to another. In these situations, the impact the divergences in national procedures can have on economic growth within the internal market remains minimal since companies continue to exercise their activities in the home Member State. EFFECTS: Higher costs and longer durations associated with the cross-border transfer of registered offices due to the lack of procedures A number of costs can be associated with the transfer of registered offices, both directly and indirectly. The costs that can be incurred relate to: Legal costs such as Advisory Fees Registration costs Costs in relation to time The costs associated with transfers of registered offices differ significantly between one Member State and another. Moreover, according to the data collected by the EY legal experts to fulfil the Member State Fiches, undertaking a cross-border transfer is more costly than undertaking a simple national procedure. A full overview of the estimated costs of undertaking cross-border transfers per Member State is presented in Annex 7 to this. 65

66 From a deeper analysis of the Member State Fiches and as confirmed during the interviews with notaries, it was found that the costs of undertaking a cross-border transfer vary depending on the following: The size of the company. According to the interviews to legal practitioners, the cost of the operation might vary depending on the size of the company in some Member States. This is for example the case of Austria, where the costs vary depending on the number of employees. It is also the case of Germany, where notary fees vary depending on the value of the company. However, this is not the case in all Member States. The size of the company does not seem to impact the cost of the procedure in France. Bearing in mind that SMEs represent 99% of limited liability companies within the EU, it can be assumed that the costs associated with the cross-border transfers of registered offices are within the lower threshold of costs in comparison to transfers of larger companies. The type and complexity of the operation. According to the interviewees, the complexity of the operation influences the cost of the procedures. While this is not always the case for notary costs, which are in some Member States (e.g. Germany, France) fixed by the law, it seems that fees for legal advice depend on the type and complexity of the operations. This is the case of Belgium, Portugal and the United Kingdom. Globally it was found that fees vary depending on considerations such as the method by which the transfer is effected, the value of the business, tax considerations, employee considerations and that the transfer is accepted by the receiving country. In some Member States, fees can also vary depending on the procedure and circumstances. As an example in Germany, the costs of procedures range between and euros. In Italy, a transfer within the same municipality requires costs of less than euros, which can increase to almost euros if the transfer is made between different municipalities. What is common amongst Member States is that registration fees represent only a small percentage of the total cost. For example in Portugal, registration costs range between 75 and 200 euros for standard requests and between 150 and 400 euros for urgent requests. However, legal costs associated with a transfer are estimated at approximately euros. A similar proportion is noticed in Hungary, where registration costs are approximately 60 euros while notary fees are estimated at euros. Registration costs can vary: they are estimated in Lithuania at 290 euros and in Portugal at between 200 and 400 euros. Through Member State mapping, the Study found a significant divergence between the costs for national transfers, that require costs inferior to euros in all Member States for which data were collected 20 and the estimated costs for cross-border transfers which require higher costs than undertaking a domestic transfer in the majority of the Member States 21. The figure below provides an example of the divergence in costs that can be incurred for different types of Member States. For Cyprus, where a procedure is in place, the cost difference between a national and cross-border transfer is not significant, with costs estimated below 10,000 euros. For Austria, where cross-border transfers are authorised by applying the SE Regulation by analogy, the cost variation between a national transfer and cross-border transfer changes from below 10,00 euros for a national transfer to between 30,000 euros and 60,000 euros for a cross-border transfer. The most distinguishable difference in costs can be identified in the United Kingdom, where transfers are not authorised, with a jump from a national transfer cost between 10,000 euros to a cost of between 30,000 euros and more than 100,000 euros for an indirect procedure to achieve the same result as a cross-border transfer. 20 At stage, data on the costs of domestic transfers were collected in 20 Member States 21 At stage, data on the costs of cross-border transfers were collected for 17 66

67 Figure 27 Outline of cost divergences for cross-border transfers Additional costs incurred for indirect cross-border transfers According to interviewees and the information provided in the Member States fiches, the costs of undertaking a cross-border transfer are higher than for traditional operations for different reasons. First, the complexity of the procedure impacts the advisory costs. According to the interviewees, the legal costs represent a high percentage of the operations and vary depending on the complexity of the operation. Second, the procedural steps impact the costs of the procedures. Examples of those additional costs can be: ; The preparation of additional documents and the translation of documents for all procedures related to a cross-border transfer (the preparation of a management report or a general report, estimated in Italy at between 5,000 to 8,000 euros depending on the complexity of the operation, the drawing up of an independent expert report, estimated in Italy at between and euros for medium or big companies having businesses of medium or high complexity) The organisation of a stakeholders meeting, estimated in Italy at between 3,000 euros and 5,000 euros for legal advice and between 2,500 euros and 4,500 euros for notarial fees assuming it is a notarial shareholders meeting (as required in Italy for cross-border transactions) and estimated in Ireland at between 2,000 euros and 5,000 euros for organisation of the meeting; The preparation of a transfer report, estimated in Italy at between 15,000 euros and 20,000 euros for a demerger plan and in Belgium at between 6,000 to 8,000 euros for drafting of a division report. As outlined in the Sections above presenting the alternative solutions to a direct cross-border transfer, the need for additional steps to achieve the same result as a direct transfer can lead to additional costs. The table below provides estimates of the variation in costs for different approaches to undertake a cross-border transfer. Table 15 Estimations of costs for different approaches to undertake a cross-border transfer Type of transaction Estimated Cost 67

68 Type of transaction Application of Explicit Procedure for Transfers 22 Estimated Cost Legal and Advisory Costs: 5,000-10,000 euros Notary and registration fees: 150 euros Application of CJEU jurisprudence 23 Legal and Advisory Costs: 8,000-9,000 euros Notary and registration fees: 2,500 3,500 euros Cross-Border Merger Directive by analogy 24 Legal and Advisory Costs: 30,000-50,000 euros Notary and registration fees: 10,000 euros Application of SE provisions by analogy 25 Legal and Advisory Costs: 15,000-20,000 euros Notary and registration fees: 2,000-3,000 euros Business and asset transfer 26 Cross-border merger 27 Scheme of arrangement 28 Establishment of an SE and transfer of registered office 29 Legal and Advisory Costs: 30,000-60,000 euros Legal and Advisory Costs: 30,000-60,000 euros Legal and Advisory Costs: Above 100,000 euros Legal and Advisory Costs: Above 100,000 euros As indicated in the Table above, the transactions undertaken directly through the application of an explicit procedure for the cross-border transfer of the interpretation of CJEU jurisprudence represents less costs than transactions undertaken indirectly or through alternative solutions. As was already outlined in Section above when examining concrete cases, additional costs are currently incurred due to the lack of procedure in place at EU level, with a reduction in costs envisaged. Indeed, as outlined in the assessment of impacts of policy options below, it is estimated that a cost saving of between 5,000 to 15,000 euros on average could be incurred should an EU instrument be adopted. These cost savings represent primarily a reduction in man days and advisory fees. Duration of domestic and cross-border transfers in the EU According to the Member State fiches, the duration of undertaking a domestic transfers ranges from one day to up to three months in all Member States for which data is collected 30. On the basis of the same sources, it is assessed that undertaking a cross-border transfer overall takes longer than undertaking a domestic transfer in the majority of the cases. As with the costs for a cross-border transfer, a distinction can be made in the duration of cross-border transfers depending on the procedure applied in the Member State. The figure below presents the differences in duration for Cyprus, Austria and the United Kingdom. 22 Source : MS Fiche for Cyprus 23 Source : MS Fiche for Belgium 24 Source : MS Fiche for Austria 25 Source : MS Fiche for Finland 26 Source: MS Fiche for the United Kingdom 27 Source : MS Fiche for the United Kingdom 28 Source : MS Fiche for the United Kingdom 29 Source : MS Fiche for the United Kingdom 30 Data on the duration of domestic transfers is collected for 18 Member States, at this stage 68

69 Figure 28 Outline of divergences for the duration of cross-border transfers According to the interviews, it was confirmed that the duration of the procedures varies depending on the following: The extent to which the transfer occur to Member State where the same (real seat/incorporation) principle applies. According to an interview with a notary, the duration varies depending on the dynamics applied to the implicated Member States. For example, a cross-border transfer could take approximatively 24 hours if it occurred between Belgium and Luxembourg, because in both Member States the real seat principle applies. Unlikely, for a cross-border transfer between Belgium, where the real seat theory applies, and the Netherlands, where the incorporation theory applies, the timed needed would definitely increase. The extent to which the procedure is direct. According to the interviews and as estimated by the EY legal experts, indirect alternatives take longer than direct procedures. According to an interviewed notary, operating a cross-border transfer in a direct way could take around 24 hours while operating a cross-border transfer in an indirect way could take between 8 and 15 weeks. The extent to which the indirect procedure is complex. According to the same data, not all indirect procedures require the same time. For example in the United Kingdom, the procedure duration depends on the complexity of the operation: operating a cross-border transfer through the establishment of a European Company can take twice longer (between 3 and 6 months instead of between 0 and 3 months) than obtaining the same results through a scheme of arrangement, through a cross-border merger or through a business and asset transfer. As with the costs incurred, the duration of the cross-border transactions is associated with the legal complexity and lack of common rules and procedures in place with regard to cross-border transfers. A reduction in man days (and therefore duration) could be envisaged should an EU instrument be proposed, as outlined in Section 5 below. 3.2Cross-Border Divisions of Companies The problem tree below presents a visual representation of the drivers, effects and problems existing in relation to the cross-border division of companies. 69

70 Figure 29 Problem Tree relating to the cross-border division of companies 70

71 3.2.1 Scale of the Problem Based on interviews and data collected, it is estimated that approximately 100 direct cross-border divisions occur annually throughout the EU. The direct cross-border division of companies is considered to be a rare phenomenon, with data on indirect cross-border divisions difficult to obtain. For the Member States where a direct cross-border division can occur through the application of explicit national procedures, only 4 direct divisions were undertaken in The different sources used during the data collection phase confirm the following: Interviewed stakeholders, such as notaries, legal advisers, business associations and SMEs representatives confirmed to have never or rarely dealt with cross-border divisions in their professional experience. It was difficult for the EY legal network to identify significant cases of cross-border divisions occurring with other means, although public authorities were questioned on the matter. As presented in the Annex, no national statistics were available on indirect operations, and it is found difficult from public authorities to distinguish which amongst the indirect procedures actually aimed at undertaking a cross-border division. The low number of cross-border divisions occurring can be explained by the problems existing at EU level due to the absence of an instrument for cross-border divisions as well as the use of alternative solutions. The sections below present an overview of the Study s findings concerning the problems existing with regard to cross-border divisions Drivers A number of drivers have been identified that lead to problems in relation to the cross-border division of companies. Lack of common procedures for the cross-border division of companies; Divergences and incompatibilities in national legislation relating to cross-border division of companies. The first driver relates to the absence of a common procedure at EU level for the cross-border division of companies. Due to the absence of a common procedure, the latter driver arises with divergences and incompatibilities existing in national legislation relating to the cross-border division of companies. These drivers are discussed in turn below Lack of common procedures for the cross-border division of companies As underlined in relevant literature 32, companies are today limited in the choice of available restructuring options. At EU level, there is currently no EU legal framework in place on the regulation of cross-border divisions of companies. The existing legislation is partial and only ensures cross-border divisions in specific situations. The CJEU Jurisprudence regulates cross-border divisions through the freedom of establishment (Article 54 TFUE). Companies are allowed to enjoy a right to participate in cross-border divisions within a Member State to the same extent that divisions are accepted by that Member State in its national law 31 1 division identified in Denmark and 3 divisions in Finland 32 Source: Cross-border mergers and divisions, transfers of seat: Is there a need to legislate? Prof. Dr Jessica Schmidt,

72 (e.g. Sevic, Cartesio and Vale judgments). However at present, divisions are regulated at national or European level in only a few Member States, as outlined in Section below. At national level, the 1982 Divisions Directive allows divisions in the form of a split up that can evolve either in acquisition or in a formation of new companies. However, it only covers limited liability companies and applies for national divisions. The Division Directive regulates national divisions in the form of a split up. This means that, after being wound up without going into liquidation, a company transfers to more than one company all its assets and liabilities in exchange for the allocation of shares of the receiving companies to the shareholders of the company being divided. Split ups can evolve in two forms and lead to a division by acquisition or a division by the formation of a new company. However in both cases, the first company ceases to exist to let one or more new companies do so. This restraints the possibilities for a company to reorganise in comparison to options available at national level, for example, in Germany, which allows the company to undertake the division by acquisition or by the formation of a new company: Divergences and incompatibilities in national legislation in relation to cross-border divisions As with cross-border transfers of registered offices, a number of divergences and incompatibilities exist in national legislation amongst Member States relating to the cross-border division of companies. These relate to the following: National rules which make it impossible to perform a direct cross-border division of a company No compatible rules laying down the procedural requirements for the cross-border division of a company No compatible rules relating to communication by electronic means No compatible rules concerning the designation/nomination of a competent authority scrutinising the cross-border division No compatible rules concerning the safeguards for stakeholders involved and the legal effects of the division. These divergences are discussed in turn below. DRIVER: Existence of national rules in some Member States in relation to cross-border divisions Member States differ within the EU in relation to the existence of national rules relating to cross-border divisions. Based on the mapping undertaken by the EY Legal Network, an explicit procedure at national level for cross-border divisions was identified in three Member States: Czech Republic, Denmark and Finland. 33 In the Czech Republic, the Transformations Act of 2008 indicates specific provisions dealing with crossborder divisions which permits either the division of a foreign company provided that the internal relationships of at least one successor company are governed or are to be governed by the national law or the division of a Czech company provided that the internal arrangements of at least one successor company are governed or are to be governed by the laws of another Member State. In Denmark, 33 The Lexidale Study provides that some Member States also include cross-border divisions: Belgium, Czech Republic, Finland, France, Luxembourg, Romania, Spain. It is indicated that there are some Member States where specific legislation is in place: Czech Republic, Finland, Luxembourg, Spain. From the review of the Member State mapping undertaken by EY, it is provided that specific procedures exist in Czech Republic, Finland and Denmark with Luxembourg and Spain permitting cross-border divisions based on their national legislation relating to national divisions. 72

73 divisions can occur for limited liability companies. However, in Denmark, the cross-border division can only be implemented if the laws governing the other participating limited liability companies permit a cross-border division. For Finland, the Limited Liability Companies Act provides for cross-border divisions. The procedure for most parts is identical to the procedure for national divisions. The procedure includes registration of the draft terms of merger, public notice and written notification to creditors, management report, statement of an independent expert, notification of execution of the demerger or applying for permit for the execution (in cases of a foreign receiving company). While cross-border divisions are not regulated in the majority of Member States, the Member State mapping has found that cross-border divisions are authorised through the application of other national procedures by analogy. The table below presents an overview of the Member States authorising cross-border divisions through the application of the procedure for national divisions and/or cross-border mergers by analogy. Table 16 Member States authorising cross-border divisions by analogy Member State National Divisions Cross-Border Mergers Austria X X Belgium X X Croatia X 34 Bulgaria France X X Italy X Lithuania 35 X X Netherlands X Portugal X X Spain X X Sweden X X In addition to the Member States who permit cross-border divisions through direct procedures by analogy, the Study identified a number of alternative procedures. In fact, other Member States use indirect procedures to achieve the same result for cross-border divisions. Table 17 Use of indirect solutions for cross-border divisions in Member States Member State Indirect Procedure Austria A new company could be set up in the Host Member State and subsequently a going 34 Not possible to determine since it was found that a cross-border division has not yet been undertaken in Croatia though expected that a national procedure could be applied by analogy 35 Based on the general principles of law in Lithuania, actions that are not prohibited shall be permissible. However, there is no evidence of any practical cases when a cross-border division was carried out applying by analogy the provisions on domestic divisions and/or the provisions on cross-border mergers 73

74 Member State Indirect Procedure business or assets and liabilities could be transferred via sales agreement or contribution in kind Bulgaria Incorporating a new company in the Host Member State and transferring to it a going business or assets and liabilities pertaining to the company based in the original Member State by way of a cross-border sale agreement or contribution in kind. Croatia Establishing a new company in the Host Member State and transferring the Croatian company s assets or businesses to that new company by way of a cross-border contribution in kind, cross-border merger or a sale agreement Cyprus Cross-border divisions are not permitted in Cyprus. Three alternatives exist: Local division of a private company; Local division of a public company; Transfer all or part of its assets and liabilities to one or more existing company; These alternatives are followed by the subsequent use of a cross-border merger. Estonia Cross-border divisions are not allowed in Estonia. The following alternatives could be used: Incorporation of a new company in the Host Member State and transfer the assets of going concern to the company by way of sale or contribution in kind; Alternatively, a national division could be undertaken followed by a cross-border merger France The alternative route may consist in contributing a branch of activity to a new company in the Home Member State which will then merger with a company in the host Member State Germany Greece Hungary Ireland Cross-border divisions are not permitted. The following alternatives can be used: Execution of a domestic division followed by a cross-border merger; Execution of a domestic division by way of a spin-off for absorption with a European Company (SE) with registered seat in Germany as the acquiring entity followed by a cross-border transfer of the registered seat of the SE; Incorporation of a new foreign legal entity followed by a subsequent transfer of assets by way of singular succession (no universal succession feasible) Although allowed according to the competent Greek authorities, cross-border divisions have not yet been subject to their assessment and review. In the absence of specific procedures, the following alternative exist: National division of a company and transfer of the sector/part to an existing or newly established company in the Home Member State then acquisition of that company or of a newly established company in the Host Member State Cross-border divisions are not allowed. The following alternatives can be used: National division, establishment of a new company in the Host Member State, then cross-border merger; Establishment of a new company and transfer of assets and liabilities by way of business transfer agreement There are not specific procedures in Ireland with regards to cross-border divisions. Although according to existing literature, cross-border divisions shall be allowed as national divisions are, this could not be confirmed with certitude by the EY lawyer in the Member State fiche. However, the following alternatives exist: Companies in the Host Member State can create a new company in Ireland, then transfer all assets and liabilities; Companies can operate a national division in the Member State A, create a new company in Ireland and then operate a cross-border merger; Companies can create a new company in their Home Member State A, transfer all assets and liabilities and then merge with a new company created in Ireland 74

75 Member State Indirect Procedure Italy Incorporating a new company in the Host Member State then transferring to it a going business or assets and liabilities pertaining to the company based in the original Member State, by way of cross-border sale agreement or contribution in kind Performing a domestic division then a cross-border merger Latvia Lithuania Cross-border divisions are not permitted. The following alternatives can be used: Execution of a national division of a company and a cross-border merger of the spinoff company to the target Member State; Transfer of assets or businesses by means of a cross-border sales agreement or contribution in kind to the target Member State The following alternatives exist: Execution of a national division then cross-border merger; Incorporation of a new company in the Host Member State then transfer of assets; Transfer of business or part of business by way of sale purchase agreement or contribution in kind to a company established in the Host Member State (if allowed by the applicable law of that particular Member State) Luxembourg Although no specific procedures exist in Luxembourg with regards to cross-border divisions, cross-border divisions can occur between a Luxembourgian and a foreign company if the foreign company s national law does not prohibit such a transaction. In the absence of national provisions, the following alternative is used: National division and cross-border merger Malta Cross-border divisions are not permitted. The company may go through a national division with the resulting companies being either continued in the Host Member State or merged with a company in the Host Member State through a cross-border merger. Alternatively, they may be an incorporation of a new company abroad with a subsequent transfer of assets and liabilities to the newly incorporated company Netherlands The alternative way to perform a cross-border division is to perform a national division and after the division to perform a cross-border merger with the divided Dutch company. Poland Cross-border divisions are not permitted. The following alternatives can be used: Incorporation then transfer of assets; National division then cross-border merger; National division then cross-border transfer of registered office Romania Incorporation of a new company in the Host Member State, then transfer of assets and liabilities; National division then cross-border merger; Incorporation of a new company in the Home Member State, then transfer of assets and liabilities to it, then merger of the former created company with another company incorporated in the Host Member State Slovak Republic Cross-border divisions are not permitted. Alternatives are: Incorporation of a new company in the Host Member State then transfer of enterprise or assets or contribution in kind; National division then cross-border merger Slovenia Cross-border divisions are not permitted. Alternatives are: National division then cross-border merger; Incorporation of a new company in the Host Member State then transfer of assets Spain A national division followed by a transfer of the registered office; 75

76 Member State Indirect Procedure Incorporation of a new company abroad and a subsequent transfer of assets Sweden Incorporation of a new company in the Host Member State and transfer of business, assets and/or liabilities to the new company from the original company; Performance of a national division and then cross-border merger with a company in the Host Member State. United Kingdom A direct cross-border division is not specifically legislated under UK law. Alternatives are: Creation of a new English (or overseas) company, transfer of assets and liabilities to that company, then cross-border merger; Transfer of business and assets from the UK company to the European company or vice-versa As outlined in the table above, a number of Member States do not authorise direct cross-border divisions, as explicitly noted in the Member State fiches. This is the case for Cyprus, Estonia, Germany, Hungary, Latvia, Malta, Poland, Slovak Republic and Slovenia. Some legal uncertainty exist with regards to the possibility of undertaking a direct cross-border division in certain Member States, such as Ireland, Greece, Romania and the United Kingdom 36. These alternative solutions are presented below in Section DRIVER: Incompatible national rules relating to procedural requirements for cross-border divisions The Study has found that for the Member States where cross-border divisions are regulated through national law, the procedural requirements for the cross-border divisions vary. The figures below present the differences in procedural requirements for undertaking a cross-border division. 36 According to existing literature, cross-border divisions are allowed in Ireland because national divisions are. However in the lack of detected cases, as well in the lack of specific legislation regarding cross-border divisions, it was not possible to certify it with certitude in the Member State fiche. In Greece, there is no procedure with regards to cross-border divisions. Although they are allowed according to the competent Greek authorities, they have not been subject to assessment and review yet. Finally in Romania and the United Kingdom, direct cross-border divisions are not specifically legislated. Therefore, it was not possible to deduce whether those operations are allowed or not allowed. 76

77 Figure 30 Procedural Requirements for undertaking a cross-border division in Denmark Figure 31 Procedural Requirements for undertaking a cross-border division in Finland 77

78 Figure 32 Procedural requirements for undertaking a cross-border division in the Czech Republic From the figures presented above, it is clear that different procedural requirements apply for the Member States where cross-border divisions are regulated by national law. While all three Member States provide for specific steps to be taken to ensure information is provided to stakeholders and that time for reflection and objective is provided, the steps to be undertaken in these Member States differ, with the time periods for registration also differing. With regard to the information requirements, these also differ in the three Member States where national procedures exist. In Finland, the same information obligations mainly apply to the cross-border divisions as to domestic divisions. These include the obligation to draw up and register draft terms of demerger, obligation to apply for public notice and send a written notification to creditors, obligation to keep available and deliver documents and delivery of new information to shareholders. Apart from the duty to draw up draft terms of demerger, the obligations are applicable only to a Finnish company involved in the cross-border demerger. In Denmark, the companies must make several documents public to the shareholders on the companies website, with a publication also necessary for at least four weeks on the Business Authority s IT system. Moreover, the division statement must also be made available at the limited liability company's office for inspection by the employee representatives or, in the absence of such employee representatives in the relevant limited liability company, by the employees in general no later than four weeks before the date on which the division resolution is to be passed. In the Czech Republic, the announcement of the filing of the division must be published in the Czech Commercial Bulletin with a notification of creditors rights also to be published in this bulletin and for one month on the company s webpage. 78

79 Concerning the information requirements in place in Member States using indirect procedures, these also differ. For example, in Austria, if a cross-border division is undertaken by applying the regulations regarding the national divisions and cross-border mergers by analogy, the national procedure obliges the publication of the division plan in the Official Gazette or electronically at least one month prior to the shareholders meeting. The division report must also be provided to the Work Council at least one month prior to the shareholders meeting. Finally, claims can be made for the safekeeping of creditors rights within 6 months following the announcement of the division. In contrast, in Belgium, the procedure for internal divisions would be applied as described in the Belgian Companies Code. In this case, the following procedures would need to be applied: (i) Publication of the division proposal in the Belgian Official Gazette with a waiting period of 6 weeks applied; (ii) Following the 6 week period, adoption of Notary Deed to execute the division and publication by the Notary Public of the extract of the Notary Deed in the Annexes of the Official Gazette; (iii) Information of employees prior to the adoption of Notary Deed; (iv) Publication by Board of Directors explaining the status of the equity of the company and explaining the legal and economic reasoning behind the division. With regard to obligations to analyse the economic, social and legal implications of the crossborder division, these exist in the three Member States where cross-border divisions are possible. In Denmark, the joint division plan must include information on the likely impact of the cross-border division on the number of employees with a written statement also to be published which must include a description of the consequences of the cross-border division for shareholders, creditors and employees. In Finland, a statement of employment implications of the cross-border division must be drawn up. The draft terms of the division must also include a balance sheet which includes the economic impacts of the division. Moreover, the Board of Directors are obliged to prepare a statement of the probably impacts of the division to the shareholders, creditors and employees. DRIVER: Incompatible national rules concerning communication to exchange notifications on cross-border divisions In the Czech Republic, the company participating in the cross-border division shall file the Project with the Collection of Deeds of the Czech Commercial Register at least one month prior to the date when the cross-border division should be approved. Within three working days after the registration of the crossborder division, the Czech Court maintaining the Commercial Register shall send the notification about the registration and the information about its content to the foreign public register in which a foreign company participating in a cross-border division is registered. In Finland, the company register has to be notified of the execution of the cross-border division within a time limit of six months as of the division decision of the Finnish companies participating in the division and of the receipt by the other companies participating in the division of a certificate issued by the registration authority or other competent authority of the state whose legislation applies. When the receiving company is Finnish, the Finnish registration authority is obliged to notify the foreign registration authority of the registration of the division in Finland. In Denmark, the Business Authority must be notified about a cross-border division of companies with a copy of the division plan to be received by the Business Authority no later than four weeks after it is signed. Concerning the rules in place in relation to the exchange of notifications and documentation between the companies registers in the Member States involved, the Member State mapping demonstrates that the rules relating to the Cross-Border Merger Directive seem to be applied by analogy in those Member States where cross-border divisions are not explicitly regulated. DRIVER: Incompatible national rules concerning the designation/nomination of a competent authority scrutinising the legality of cross-border division 79

80 The competent authorities scrutinising the legality of the cross-border division also differ in the Member States. For those Member States where cross-border divisions are regulated, the following competent authorities are in place: Czech Republic: The Notary Public is competent to confirm the issuance of the respective certificate for the division with the Register Courts also deciding on the registration of the crossborder division with the Czech Commercial Register Denmark: The Business Authority is the competent authority to ensure that all actions and formalities have been met upon receipt of an application for registration of a cross-border division. Finland: The Patent and Registration Office is responsible for the registration of the division, the publication of public notices to all creditors as well as the granting of permits and certificates required for the cross-border division. With regard to those Member States who authorise divisions, the competent authorities also differ. These include the following: Notary Public (e.g. Belgium, Bulgaria, Italy) Commercial Registry Office (e.g. Portugal, Sweden) The divergences in competent authorities for cross-border divisions can create complexity for the companies wishing to execute such a transaction with a clear difference in the type of competent authority responsible for divisions in each Member State. While these divergences can create a level of complexity, divergences indeed exist currently with regard to the competent authorities in place in the Member States for the Cross-Border Mergers Directive, with each Member State responsible for assigning a competent authority. DRIVER: Incompatible national rules concerning safeguards for stakeholders Due to the absence of national regulations in the majority of Member States relating to cross-border divisions, incompatibilities exist relating to the safeguards for stakeholders involved in the division. As elaborated in the figures above relating to the procedures in place in the Czech Republic, Denmark and Finland, safeguards are in place for cross-border divisions in relation to creditors, employees and shareholders. However, divergences exist with regard to the national rules concerning these safeguards. With regard to creditors, creditors of a Finnish company have the right to object the division if their receivables have arisen before the registration of the draft terms of the division. In the Czech Republic, each company participating in the cross-border division is obliged to provide to each creditor of any company participating in the cross-border division complete information about all the rights of creditors of the Czech company. In Denmark, the division plan must include information and provisions on an accurate description and distribution of the assets and liabilities that are to be transferred or to remain in each limited liability company participating in the division. Concerning employees, the Division Project in the Czech Republic shall contain supposed impacts of the cross-border division on employees particularly in relation to the provision of information of planned termination of employment contracts with employees. In Denmark, several provisions are also in place in order to ensure the employees influence and members of the board of directors of a company. It is a requirement for the Division Plan to describe the procedures on how the employees are to be included in the process on determining their rights regarding influence in the continuing companies. Finally, regarding shareholders, each Czech company participating in a cross-border division is obliged to provide to each shareholder of any legal company participating in the cross-border division complete information about all rights of stakeholders of the Czech company. In Denmark, the shareholders in the transferor limited liability company may claim compensation from the company if the consideration 80

81 offered for the shares in the transferor limited liability company is not fair and reasonable and if they have made a reservation to this effect at the general meeting at which the division resolution was passed. In the Czech Republic and Denmark, safeguards (and divergences existing) are in place in relation to cross-border divisions in relation to creditors, employees and shareholders. In Member States where no national legislation exist, divergences also exist with regard to protection of stakeholders. In Austria, for example, national rules relating to national divisions would apply. Creditors may demand the safekeeping of their claims if they come forward within 6 months after the announcement of the national division and show that their claims may be endangered due to the transaction. In Croatia, if a cross-border division were to occur, through the use of domestic divisions and cross-border mergers, the main protections for shareholders are the right to exit the company and receive remuneration, with employees having the right to state their opinion on the transaction. In Belgium, in order to protect stakeholders, a waiting period of 6 weeks is applied prior to the adoption of the notary deed. No later than 2 months following the publication of the extract of the notary deed concerning the division, the creditors of the companies involved whose claim originated prior to the disclosure and whose claim has not expired can claim a security. In case of a division, the receiving company remains liable to pay all certain and payable debts existing on the day that the notary deeds including the decision on the divisions are being published. Concerning competence to block a division, in Finland, the Registration Authority has the competence to block the division by refraining from registration of the division or by not granting the permit for demerger when conditions stipulated in the law are not met. In the Czech Republic, the Notary is entitled to refuse issuance of both the Certificate and the Certificate for the Commercial Register should the Czech company participating in the cross-border division not submit all the documents required. The notary is also entitled to refuse issuance of the Certificate for the Commercial Register provided that any of the documents stated in Section 336h letter a) of the Transformations Act is older than 6 months at the time of filing application on issuance of the certificate Effects The divergences and incompatibilities in national legislation relating to cross-border divisions lead to obstacles to performing a direct cross-border division. These obstacles can lead to the following two actions: Action 1: Companies abandon the division of their companies, remaining in the home Member State and not exercising the freedom of establishment; Action 2: Companies operate a cross-border division indirectly through alternative solutions 37. Action 1: Companies abandon the division of their companies, remaining in the home Member State and not exercising the freedom of establishment Due to divergences existing in national legislation and procedures relating to the division of companies, a likelihood exists that companies choose to abandon the division of their companies remaining in the home Member State and not exercising the freedom of establishment. The benefits that can be obtained through a cross-border division are commonly shared. It was found that cross-border divisions give companies the possibility to change and simplify the organisational structure, as well as adapt their structure to the changing market conditions. Without this flexibility, companies lose the possibility to 37 Source: Cross-border mergers and divisions, transfers of seat: Is there a need to legislate? Prof. Dr. Jessica SCHMIDT,

82 undertake existing and new internal market opportunities. For example, it was mentioned by respondents to the 2015 Public Consultation that cross-border divisions allow companies to explore economic opportunities in more than one Member States. According to the European Parliament Study, divisions could be used to create smaller independent units in order to isolate liability risks. Moreover, it was found that divisions could be used to further develop activities that are not the core ones, by the exploitation of resources available in the new markets. Figure 33: Question 1 of the Public Consultation on cross-border mergers and divisions (section divisions): Why would a company want to carry out a cross-border division? 26% Changing/ simplifying it s organisat ional st ruct ure 72% 82% Adapt ing t o changing market condit ions Realising new Int ernal Market opport unit ies 80% Ot her reasons Source: Public consultation on cross-border mergers and divisions; Answers: 136/ 151 (More than one answer possible) EFFECTS: Missed opportunity for the company to access markets within the EU and benefit from additional business opportunities Where companies are therefore deterred from exercising a cross-border division, it is therefore assumed that this option could lead to the missed opportunity for companies to benefit from the internal market through benefitting from markets in other Member States. Although it was not possible to quantify the number of companies that might be potentially deterred from undertaking a cross-border division due to the lack of national statistics, some cases were raised during interviews with the experts. Home Member State: Italy Host Member State: Germany Case Study Example In 2015, a small enterprise based in Germany and with a branch located in Italy, wanted to simplify its structure. It decided to operate a cross-border division, with the final aim to divide the Italian branch between Italy and Germany. Amongst the options, the legal advisers suggested to operate a cross-border division and then a merger with the existing German entity. However, this option involved the payment of an extra tax (3% of the activity) and was judged very complicated by the legal adviser, according to which cross-border divisions were not commonly known in Italy at that time and no previous studies had been elaborated on that issue. The company finally abandoned the operation following the legal uncertainty existing around the procedure to adopt and because of the costs of the operation, requiring an extra payment. Moreover, this can be explained from the fact that cross-border divisions are currently undertaken indirectly through the use of alternative solutions and therefore the end result is the same, despite 82

83 potential additional costs and time duration. The difficulties in identifying additional concrete cases where companies simply abandoned their choice to divide rather than using an alternative route was confirmed through stakeholder interviews. Option 2: Alternative solutions for cross-border divisions Given the disparities at national level in the Member State relating to divisions, alternative solutions exist for cross-border divisions to be undertaken. As outlined above, Member States use a number of different indirect routes to achieve the same result as a division (i.e. use of national division and cross-border merger). However, these solutions have drawbacks in comparison to a cross-border division, as they are indirect and therefore costly and more time consuming. Two prominent alternative solutions are available, as presented in detail below. Alternative Solution: Creating a new company in the host Member State and transferring the relevant assets and liabilities to that new company. This solution consists of creating a new company in the host Member State and transferring the relevant assets and liabilities to that company. This would enable a reorganisation of the Company in the home Member State through different means. Figure 34 Alternative Solution A for cross-border division Source: Cross-border mergers and divisions, transfers of seat: Is there a need to legislate? Prof. Dr. Jessica SCHMIDT, 2016 The box below presents a Case Study example of the use of this alternative solution to achieve the same result as a cross-border division. Box 6 Alternative solution: Example of creation of a new company in the host Member State Home Member State: United Kingdom Host Member State: Germany Case Study Example A company with 5,000 employees with activities in the United Kingdom, Germany and Portugal aimed to restructure in order to consolidate the European sales and R&D functions. In order to undertake this restructuring, the company considered a number of different solutions including the creation of a new company in the host Member State and the transfer of the relevant assets and liabilities to that company. In order to undertake the division, a transfer of business assets was undertaken from the United Kingdom to Germany. In relation to the Case Study between the United Kingdom and Germany, the following procedure was used. Figure 35 Alternative Solution for a Cross-Border Division Transfer of Business Assets 83

84 Due to the United Kingdom not having any specific legislation permitting a direct cross-border division, an indirect transfer was undertaken by way of a transfer of the business and assets to the German company. This alternative solution is considered quicker and cheaper than the use of a cross-border merger, which is described in further detail below. In Germany, cross-border divisions are also not permitted with an alternative solution also being the incorporation of a new foreign legal entity followed by a transfer of assets. The use of this alternative solution can lead to a number of issues arising. These issues include restrictions on transfer contained within customer or supplier contracts, employment issues and issues regarding the transfer of a lease from a UK company to a non-uk incorporated company. While these issues did not arise in this specific Case Study, they can create considerable legal uncertainty, as discussed in further detail further in this Section below. With regard to the costs associated with this alternative solution, typical costs for only the legal fees for a business and asset transfer in the United Kingdom are estimated to be between 25,000 and 100,000, depending on the size and complexity of the company. When considering the average estimated costs of a cross-border division, between 55,000 and 70,000 euros, as outlined in Section 2 above, the cost of this alternative solution may be cheaper, where a small company is involved but increases costs considerably when dealing with a larger company. Alternative Solution: Use of a cross-border merger The second alternative solution is to set up a new company in the home Member State and transfer all the relevant assets and liabilities from the original company to it. A cross-border merger would then occur with a new company established in the host Member State. Figure 36 Alternative Solution for a Cross-Border Division Use of a cross-border merger 84

85 While no concrete case studies were identified for the use of a cross-border merger, interviews with legal practitioners in the United Kingdom confirmed that the alternative solution through the use of a crossborder merger is indeed possible. However, it was indicated that a number of clients have been deterred from undertaking such a transaction by way of a cross-border merger since the United Kingdom process is lengthy and time consuming and considered to be quite costly in comparison with other alternative solutions. Concerning the costs of a cross-border merger, as outlined in the Section above relating to cross-border transfers of registered offices, the average cost of a simple cross-border merger in Austria has been estimated at 30,000 euros. The legal practitioner interviewed for the United Kingdom indicated that in the case of using a cross-border merger as an alternative solution for a cross-border division, typical legal costs are between 40,000 and 50,000 with an additional 10,000 for the cost of a UK barrister required to present the UK entity in front of the UK Court. Despite no case studies being identified with the use of a cross-border merger, a Case Study was identified through the use of the Cross-Border Mergers Directive by analogy to undertake the same result as a cross-border division between Italy and the United Kingdom. The box below provides a Case Study example of the use of a cross-border merger as an alternative solution for a cross-border division. Home Member State: Italy Box 7 Example of use of alternative solution cross-border merger Host Member State: United Kingdom Case Study Example The Divided Company was a joint stock company duly incorporated under the laws of the Republic of Italy, having its registered office in Milan (Italy), an issued and fully subscribed share capital equal to 12,500, euros, and acting, among others, directly or indirectly, for the supply, production, transport, transformation, distribution and sale of any form of energy, pursuant to the applicable law provisions, arising from any source of energy. The transaction described in the analysed Division Plan is the direct partial and proportional Division of a business of the Divided Company in favour of the Beneficiary Company and it was executed by means of the transfer from the Divided Company of a specific going concern. The operation was performed applying, by analogy, the provisions of the Cross-Border Mergers Directive. The cross-border Division had a prominent business purpose and was aimed at reorganising the going business of the Divided Company into the Beneficiary Company, in order to create the related synergies and a uniform management at European level for the activities relating to the Gas business of the group involved. As a consequence of the cross-border Division, all the assets and liabilities included in the going business owned by the Divided Company including the employees of the Divided Company in the going business, together with the related severance payment accrued - have been transferred to the Beneficiary Company and, more in particular, to its newly established Italian branch. 85

86 The figure below presents the procedure applied for the alternative solution using a cross-border merger between Italy and the United Kingdom. Figure 37 Alternative Solution for a Cross-Border Division Use of a Cross-Border Merger With regard to this Case Study, the lack of specific rules at EU level implied that the companies had to bear, in addition to the ordinary fixed costs (i.e. stamp duty, Register of Companies duties etc.) and to the ordinary notarial costs, high costs for specialised international professional legal advice and assistance for the steps of the operation. A cross-border division using this approach was estimated to cost between 30,000 and 100,000 euros. EFFECTS: Creation of Legal Uncertainty The existing divergences in relation to cross-border divisions can lead to legal uncertainty. Since only three Member States have specific procedures in place for cross-border divisions, with the majority using their national legislation relation to national divisions or cross-border mergers by analogy, significant legal uncertainty can exist for all actors involved since the procedure for achieving the result of a crossborder division shall differ significantly depending on the two Member States involved. 82% of respondents to the 2015 Public consultation mentioned legal uncertainty existing due to the lack of European rules. This was confirmed through interviews as well as through the Member State mapping at national level, with it confirmed that legal uncertainty represents a challenge for all types of 86