EU Cross-Border Mobility: Mergers, Divisions, Conversions, and Transfers

Introduction

EU cross-border mobility law enables companies to restructure, relocate, and reorganise across Member State borders while preserving legal continuity. Grounded in the fundamental freedoms of establishment (Articles 49 and 54 TFEU), the framework has expanded from the early case law of the Court of Justice — Centros (1999), Überseering (2002), and Inspire Art (2003) — to a comprehensive legislative regime governing cross-border mergers, divisions, conversions, and transfers of registered office. The Cross-Border Mobility Directive, adopted in 2019 as part of the EU Company Law Package, codifies and streamlines these procedures.

The Freedom of Establishment and the Case Law Foundation

Before legislative harmonisation, the CJEU established the constitutional framework for cross-border corporate mobility. In Centros (Case C-212/97), the Court held that a company formed in one Member State may establish a branch in another, rejecting the host state’s refusal on grounds that the company sought to evade less favourable incorporation requirements. Überseering (Case C-208/00) confirmed that a company validly incorporated in one Member State must be recognised as a legal person in any other Member State — the host state cannot require re-incorporation under its own law.

The Polbud case (Case C-106/16) marked a decisive expansion. The Court held that Polish law requiring the dissolution and liquidation of a company converting into a Luxembourg company was incompatible with freedom of establishment. Conversion into a foreign corporate form without winding up is a protected right, and the departure Member State may impose conditions — particularly creditor protection — only to the extent they are proportionate and non-discriminatory.

Cross-Border Mergers Directive

Directive 2005/56/EC (codified as Directive (EU) 2017/1132, Part III) established the regime for cross-border mergers of limited liability companies. A cross-border merger occurs where one or more companies from at least two Member States merge into an existing or new company. The procedure requires: (a) a common draft terms of merger approved by the management bodies; (b) an independent expert report on the share exchange ratio (unless all shareholders waive); (c) shareholder approval by a qualified majority (usually 75% of voting rights); (d) a pre-merger certificate from the departure Member State attesting legal compliance; and (e) the completion of the merger in the resulting company’s Member State.

The 2019 revision (Directive 2019/2121) introduced significant enhancements: a mandatory creditor protection framework enabling creditors to apply for adequate safeguards or security where their claims are jeopardised; employee information and consultation rights before the merger decision; and a simplified procedure for wholly owned subsidiaries. The pre-merger certificate — now a standardised form issued within three months — provides legal certainty on the cross-border element.

Cross-Border Divisions

Cross-border divisions — where a company’s assets, liabilities, and operations are split among two or more successor companies located in different Member States — were harmonised for the first time by Directive 2019/2121. The division procedure mirrors the merger framework: draft terms of division, management report, independent expert report, shareholder approval, creditor safeguards, and a pre-division certificate.

Three types of division are recognised: full division (the dividing company transfers all assets and liabilities to two or more new companies and ceases to exist); partial division (the dividing company transfers part of its assets and liabilities to one or more existing or new companies while continuing in existence); and spin-off by formation of new companies (which creates new companies without the dividing company ceasing to exist). The framework addresses the particular risks of divisions — creditors may find their claims allocated to less solvent successor entities — through joint liability of successor companies for obligations allocated to another company.

Cross-Border Conversions

The conversion procedure (Chapter III of Directive 2019/2121) allows a company to change the legal form applicable to it by re-registering under the law of another Member State without dissolution, winding up, or creation of a new legal person. The procedure requires: (a) a conversion plan explaining the legal and economic implications; (b) a management report addressing the impact on shareholders, creditors, and employees; (c) an independent expert report confirming that the conversion does not result in unfair share exchange ratios; (d) shareholder approval by a qualified majority; and (e) a pre-conversion certificate from the departure authority.

The conversion plan must include proposed articles of association, the proposed registered office, a timetable for the conversion, and details of employee involvement arrangements. Where the destination Member State’s employee participation rules differ from those of the departure state, negotiations may be triggered under the SE-style “before and after” principle.

Cross-Border Transfers of Registered Office

While the SE Regulation provides a bespoke registered office transfer regime for European Companies, the Cross-Border Mobility Directive extends this right to national public limited-liability companies. The transfer procedure — governed by the same conversion framework — preserves the company’s legal personality throughout the relocation. Creditors have the right to apply to court or administrative authority for adequate safeguards where their claims predate the transfer. The registered office transfer is distinct from mere administrative relocation: it entails a change of lex societatis — the law governing the company’s internal affairs — and must therefore satisfy substantive tests of economic activity in the destination state.

Creditor and Shareholder Protection

The 2019 Directive introduced robust protection mechanisms. Creditors whose claims predate the publication of the draft terms may apply to a competent authority for adequate safeguards, including security or guarantees. Shareholders who vote against the transaction enjoy an exit right (appraisal right): the right to dispose of their shares for fair cash consideration determined by an independent expert.

The abuse test in Article 86a requires competent authorities to verify that the cross-border operation is not “artificially” structured to obtain “undue tax advantages” or “unduly prejudice” the legal or contractual rights of stakeholders. This test, while designed to prevent abusive forum shopping, creates legal uncertainty and risks disproportionate administrative burdens.

Future Directions

The 2023 Company Law Package proposes further harmonisation: a digitalisation of company law registers (system interconnection of business registers through the Business Registers Interconnection System), use of EU Company Certificates and EU Digital Powers of Attorney, and simplified disclosure requirements for cross-border operations. The Package also addresses the tax treatment of cross-border conversions, proposing a directive on transfer of assets and residence to prevent double taxation on conversion.