The Cross-Border Harmonisation of European Companies

By Prof Raffaele Torino, Bussoletti Nuzzo & Associati Avvocati

One of the main problems that has always affected companies in European Union (EU) countries has been the impossibility of moving from one country to another, with the change of the applicable law (lex societatis), without being placed into liquidation.

Over the last few decades there have been several attempts by companies in some Member States to move to other member countries with a change in the lex societatis, but without success.

Only thanks to the case law of the Court of Justice (judgments dated to the end of the 1990s such as Daily Mail and General Trust, Cartesio, and VALE) progress has been made in the application of the right of establishment and the free movement of legal entities.

Recently, the last confirmation of similar orientation can be found in the Polbud case.

The Polbud ruling of 25 October 2017 (C106/16) constitutes, indeed, the final end point of this evolution. Analysing briefly the facts of the Polbud ruling, we see that the Polish company wants to transfer its registered offce to Luxembourg in order to be ruled by Luxembourg’s law (the so-called lex shopping), while maintaining Poland as the seat of its economic activity. According to a peaceful approach in European case law, companies are ‘creatures of law’ and, as such, the countries in which they are incorporated hold the ius vitae ac necis of the companies themselves, and, consequently, they have the power to determine which lex societatis is applicable to them.

The revolutionary case law referred to here has nevertheless led the Court of Justice to affrm the principle by which articles 49 and 54 TFEU must be interpreted as meaning that: national provisions which prevent a company from freely choosing what is the law to apply to itself are contrary to European law, since the choice of applicable law is possible not only when the company is established, but it is also possible to change the law applicable after its constitution, choosing the law of another EU country, as it could happen for a job or a product circulating within the Union (conditio sine qua non is the recognition, by the receiving state, of the existing company for its purposes and its effects).

Therefore, in the Polbud case, the Polish rules that prevented the Polbud from becoming a Luxembourg company were held to be contrary to EU law.

Once the principle for which it is allowed to move freely with the change of the lex societatis has been clarified, the problem remains that cross-border transfer procedures are not harmonised. In this sense, the European Commission, in the context of a broader initiative, has issued the proposal for Directive 0114COD/2018, which also covers mergers and divisions, and has decided to introduce a uniform homework of rules for cross-border transformations.

The future Directive, indeed, will establish very strict procedures as a response to the Member States' concerns about the flight of companies from their own legal systems. This procedure, on the one hand, was aimed at creating a harmonised status of cross-border transformation and, on the other hand, it was aimed at ensuring proceduralisation in order to avoid the risk of abuse.

The directive proposal (which we imagine will be quickly approved, probably in the autumn session) defines cross-border transformation as the operation by which a company, without being dissolved or subjected to liquidation, transforms, while retaining its legal personality, the legal form in which it is registered in the Member State of departure in one of the legal forms established for the companies existing in the Member State of destination, in which it transfers at least its registered offce.

This definition confirms what was said by the Court of Justice in the Polbud ruling: that any company of an EU Member State, can transform its corporate type into a legal form of another Member State, provided that the Member State of destination approves the procedure, recognising the necessary requirements for the transformation. Therefore, it is suffcient to transfer the registered offce of the company, and it is not necessary to transfer the main center of its own interests, or the actual seat.

As regards to the technical profile, the procedure is structured on several phases.

At first, a cross-border transformation project is elaborated, in which the various reasons for the transformation must be pointed out (how, when, why is it transformed, etc.); two very important reports are then added to the project: the first addressed to the shareholders, the second to the workers. For mediumlarge companies a third report is added, made by an independent third party, which must examine the adequacy of the transformation project and of the other two reports.

The project and the three reports, once become public, are then submitted to the general meeting of the company.

The screening of the general meeting is followed by a public control (on the legality and merit) of a national authority that, in case of positive outcome, or if no objections are raised within a month, issues a preliminary certificate of transformation, otherwise it may refuse to issue the certificate or request an additional period to integrate the investigation.

If the authority issues the preliminary certificate, the certificate is transmitted to the national authority responsible for the transformation in the country of destination in order to assess its feasibility. If the country of destination also positively assesses the possibility of carrying out the transformation, the company is automatically registered in the Member State of destination, without interruption, and with the automatic cancellation from the register of companies of the member state of departure.

In this way, the described procedure will increase the transparency in transformation procedures.

Prof Raffaele Torino

Prof Raffaele Torino

Bussoletti Nuzzo & Associati Avvocati, Rome, Rimini, Italy
T: +39 06 478 250 44
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Published: November 2018 l Photo: ©Robert Herhold -

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