Facilitating cross-border company conversions in the light of Directive (EU) 2019/2121 : a novelty or an illusion?

Abstract

That companies are a cornerstone in fostering economic growth, attract investment and aid in job creation in the internal market, is undisputed. In an ever-growing business environment, company restructurings, inter alia, cross-border conversions, represent an effective mechanism for companies to adapt and explore new business ventures. To this end, the creation of a legal framework in the corporate acquis aimed specifically towards cross-border company conversions has long constituted a substantial part of ‘the European Dream’. After a circuitous cycle, the EU legislator finally breaks ground with the adoption of Directive (EU) 2019/2121 ipso jure enabling a company legally registered in the Member State of origin to convert into the legal form of the destination Member State, by transferring at least its registered office, while simultaneously retaining its legal personality. Against this backdrop, the scope of this thesis is to assess whether the novel rules, are, prima facie, sufficient to ‘facilitate’ cross-border conversions. In setting the scene, the first Chapter critically assesses the legal definition of crossborder conversions provided in the Directive, while also delving into the stumbling blocks faced by companies prior to the introduction of the EU legal framework, with a particular focus on the conflict of law rules conundrum. The second Chapter highlights the seminal decisions issued by the Court of Justice of the European Union with a special focus on Cartesio, Vale and Polbud and how this trilogy of case law, not only shaped the ‘freedom to convert’ in the Union, but it also served as a steppingstone towards adopting secondary EU law to ‘close’ the legal gap. Fundamentally, the third Chapter delves into the comprehensive cross-border conversion procedure embedded in the Directive. Accordingly, in exploring the salient Directive provisions, considerable attention is paid to the anti-abuse provision inserted by the EU legislator in the rubric of the procedure, in a bid to curb front or shell companies set up to circumvent domestic or Union law. Subsequently, the conclusion navigates the prima facie highs and lows of the novel rules, hinting at underlying weaknesses, which could potentially render cross-border conversions rather ‘illusory’. In the interest of EU corporate mobility, it is suggested that further harmonization is required to resolve the conflict of law rules stumbling block. It is argued that the Directive potentially benefits from certain modifications to facilitate cross-border conversions, namely, widening the scope of the Directive to cover ‘all legal entities’ within the meaning of Article 54 (TFEU), the introduction of a language rule and establishing a standard form for the pre-conversion certificate. Following a critical assessment of the anti-abuse provision, it is suggested that the Directive shall be supplemented by clearer guidelines that can aid competent authorities to issue a sound decision, so that the objective of the novel rules is not hampered.