On Wednesday 25 April, the European Commission presented its legislative package to bring European company law up to date. The package includes a directive setting harmonised procedures for cross-border divisions and transfers and a targeted revision on mergers.
What the Commission wants to do is to make the internal market fairer so that, on the one hand, companies can make free use of their right of establishment and, on the other, account is taken of those who might be affected by it: employees, creditors and shareholders, said Justice Commissioner Věra Jourová and Commission First Vice-President Frans Timmermans.
While its stated goal is to tackle the creation of “letter-box companies”, the Commission starts from the principle that the transfer of a company head office is not automatically suspicious and should be given the “benefit of the doubt”. A company may, for example, wish to make such a move if most of its customer base is to be found in another member state or if it wants to move towards another activity that is more developed elsewhere.
The proposal sets common simplified EU-wide procedures on the way in which a company can transfer its head office from one member state to another or divide into two or more entities in other countries. Some preparatory action is required: - drafting and publication of the terms of the envisaged cross-border operation; - drafting of explanatory reports for shareholders and employees; - checks conducted by both the member state that is being left and the one to which the company is moving in order to ensure that all the conditions are met for the establishment of the company and that worker rights have been respected.
With close to 100 cross-border divisions and 600 cross-border transfers in the EU every year, the Commission believes that the new procedures could result in savings for companies of between €12,000 and €19,000 per operation and between €176 million and €280 million in total over five years.
Preventing letter-box companies being set up. As announced (see EUROPE 12007), the text also contains specific measures to help national authorities tackle the setting up of “letter-box companies”.
A key point of the proposal is that the member state from which the company is departing will be required to block the operation if it believes that this constitutes “an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members”.
For medium-sized and large companies, an independent expert will be responsible for providing the factual information needed for the evaluation by the authorities of the member state being left, for example, employees’ normal place of work or where the company’s assets are located.
In view of Brexit, these measures would seem to be well timed. Depending on how quickly the co-legislators adopt it, the directive could apply to British companies seeking to transfer to the EU27, said a source close to the matter.
Safeguarding information, consultation and participation rights. The proposal also sets out a range of provisions to safeguard employees’ and shareholders’ information, consultation and participation rights in cross-border operations.
With regard to employees’ profit-sharing rights, the text says that, in principle, the company should abide by the rules of the country of destination. However, if the national legislation does not provide for the same level of participation as enjoyed by workers in the member state being left, the company must open negotiations with employees to decide on participation arrangements. In the event of successive restructuring, the company will also be required to maintain the participation regime introduced for at least three years.
The proposal also provides for an “exit right” for creditors and shareholders opposed to a merger, division or transfer, that would deliver adequate financial compensation, under the supervision of an independent expert.
BusinessEurope welcomed this legislative step. The European Trade Union Confederation, on the other hand, felt that the “protection” chapter needed “serious improvement”. The draft directive can be found at: https://bit.ly/2JsZHsN (Original version in French by Marion Fontana)