Cross-border merger, demerger and conversion – New legislation
In February 2022, a draft bill was introduced to implement the EU directive on cross-border conversions, mergers, and divisions of companies. The final bill was submitted to the Dutch Parliament in December of last year. The new legislation proposes several updates and introduces new regulations to the current laws and case law governing the cross-border merger, demerger and conversion.
The existing regulation of cross-border mergers has been in place since 2008 and will undergo some changes in the new bill, including the following:
- Shareholders, employees, and creditors will have up to five working days to submit their comments on the proposed merger to the company before the final resolution to merger is taken.
- The creditor’s opposition period will be extended from one month to three months, although the cross-border merger may still take place after one month.
- Shareholders will be able to have the compensation for exit and the share exchange ratio assessed by the chairman of the Enterprise Division of the Dutch Court.
- The introduction of a Special Negotiation Group or employee representation may be required for a merging company with 80 or more employees, compared to the current requirement of 500 or more employees.
- The notary will conduct a fraud check in addition to a formal check to verify if the merger is set up for unlawful or fraudulent purposes that aim to avoid or bypass EU or national law or for criminal purposes.
Cross-border demerger or division
The draft bill introduces the concept of cross-border legal demerger or division into Dutch law. This allows for example, a Dutch NV or BV, to transfer a portion of its assets under general title to one or more foreign companies. A demerger or division in which a Dutch NV or BV acts as the acquiring company is also possible. Some key aspects of the proposed regulation include:
- The regulation is limited to legal demergers within the EU/EEA to a new company (or companies) created as part of the demerger (it cannot be an existing company).
- The regulation covers (i) a demerger pursuant whereto the existing company will be terminated, (ii) the transfer of a portion of assets to a new company established as part of the demerger, and (iii) the transfer of assets to a new wholly-owned subsidiary established as part of the demerger.
- Cross-border demergers where shareholders are separated among different acquiring companies and cross-border triangular divisions are not allowed.
- Shareholders of the Dutch NV or BV who vote against the cross-border demerger will have a right to exit (with compensation).
- The provisions for cross-border merger generally also apply to a cross-border demerger.
The cross-border conversion of companies is currently not legally regulated in the Netherlands. The new bill provides a regulation for this type of transaction, where a Dutch NV or BV converts into a company governed by the law of another EU/EEA country. A conversion of a foreign company into a Dutch NV or BV is also possible. Key aspects of the proposed regulation include:
- The regulation is limited to conversions within the EU/EEA.
- The conversion is subject to the approval of the shareholders, who have the right to vote on the conversion.
- The assets and liabilities of the converted company will be automatically transferred to the “new” company.
- The converted company will be dissolved after the conversion, and its shareholders will receive shares in the “new” company.
- The provisions for cross-border merger generally also apply to a cross-border conversion.
In conclusion, the proposed bill seeks to modernize and streamline the current regulations for a cross-border merger, demerger and conversion of companies. The regulation is important for the international corporate reorganisations practice. It is expected that the new bill will enter into force in the course of 2023 or early 2024.