By way of recap, in May 2023 the Mobility Regulations transposed EU Directive (EU) 2019/2121 (Mobility Directive) into Irish law with significant enhancement of the mechanisms available for corporate migrations across the Irish and EEA legal landscape. Despite their recent transposition, there has been a notable uptick in the use of the Mobility Regulations, which enable limited liability companies to effectively relocate from one EEA state to another, by way of cross-border conversions, divisions or mergers.

Why the need for change

While a broad framework for cross-border mergers was in place prior to the Mobility Directive, transactions were impeded by a lack of harmonisation and administrative burden, and limited liability companies seeking to re-domicile to another EEA state by way of conversion or division relied on the laws of the individual EEA member state. The Mobility Directive, as transposed by the Mobility Regulations, implemented a harmonised system for improved cross-border mobility without the requirement for companies to understand divergent legislation in other EEA states, while reducing their administrative costs and strengthening the interests of shareholders, creditors and employees.

What is involved in a Conversion, Division or Merger?

Conversion	A conversion enables a limited liability company in one EEA country to convert its existing legal form into the equivalent legal form under the laws of another EEA country without dissolution. The main effects of the cross-border conversion include: • the converted company transfers its registered office to the destination EEA state while retaining its legal personality. • the assets and liabilities, including all contracts, credits, rights and obligations, become those of the converted company. • the members of the converting company become the members of the converted company (unless they request that the company buys back their shares). • the rights and obligations arising from contracts of employment shall be those of the converted company.
Division	A division enables a company in one EEA country to transfer or divide its assets and liabilities between two or more companies within the EEA. Cross-border divisions can take three forms: full division, partial division or division by separation. • Full division: the main effects of a full division include that a dividing company ceases (without going into liquidation) and transfers all its assets and liabilities to two or more recipient companies, in exchange for cash or the issue of shares in the recipient company to the members of the dividing company. • Partial division or spin off: in a partial division, a dividing company will remain in existence and transfers part of its assets and liabilities to one or more recipient companies, in exchange for cash or the issue of shares in the recipient company to the members of the dividing company. • Division by separation or hive down: a partial division can also be completed by a "division by separation", the distinction being that the company being divided (rather than its members) obtains shares in the recipient company or companies.
Merger	The Mobility Directive amended the existing merger framework, providing enhanced protections for employees, shareholders and creditors, and varying the merger by acquisition procedure to no longer require the issuance of new shares. A cross-border merger enables two or more companies to combine into a single company, at least one of which must be an Irish company, and one must be another EEA company. As with domestic (Irish) mergers, three types of cross-border mergers continue to exist: • Merger by formation of a new company: occurs where two (or more) companies, upon being dissolved without going into liquidation, transfer all of their assets and liabilities to a newly formed company, in exchange for the issue of shares in the new company to the members of the merging company (with or without cash payment). • Merger by absorption: occurs where a company, on being dissolved without going into liquidation, transfers all of its assets and liabilities to a company that holds all of the shares in that company. • Merger by acquisition: whereby a company acquires all of the assets and liabilities of one or more other companies that are dissolved without going into liquidation and in exchange, the members of the acquired company or companies are issued shares in the acquiring company. It should be noted that no shares need to be issued where one person holds all the shares in the merging companies directly/ indirectly or the members hold their shares in the same proportion in all the merging companies. The main effects of the cross-border merger include: • all assets and liabilities, including rights and obligations, of the transferor company become those of the successor company and the transferor company is dissolved. • members of the transferor company become members of the successor company (save for members who have made a request to be bought out by the company). • the rights and obligations arising from contracts of employment of the transferring company are taken to be in the name of the successor company. • every contract, agreement or instrument to which the transferring company is a party becomes a contract, agreement or instrument between the successor company and the counterparty with the same rights, and subject to the same obligations, liabilities and incidents (including rights of set-off). • all money due and owing to the transferor company will become due and owing to the successor company.

Key steps in cross-border merger process

While cross-border conversions and divisions are new mechanisms in Ireland under the Mobility Regulations, the procedures for their implementation are broadly similar to the existing cross-border merger procedure. As such, and given cross-border mergers are more commonly used in group reorganisations, we set out below the key steps in the cross-border merger process:

1. Common draft terms: Common draft terms (CDT) are drawn up by the merging companies and adopted by the board of directors of each merging company. The CDT set out the particulars of the merger, including information regarding the transferor and successor companies, the share exchange ratio and the terms relating to the allotment of shares, valuation of assets and liabilities to be transferred to the successor company and the dates of accounts used by each merging company to prepare the CDT.

2. Directors' Explanatory Report: A directors' explanatory report is required which explains and justifies the legal and economic aspects of the conversion, the implications for employees, and the implications for the future business of the company. The requirement to report can be waived by agreement of all members. The report must be made available electronically to members or employees for a period of six weeks (increased from one month under the previous regime) before the general meeting of each merging company.

3. Expert's Report: Where required, an expert’s report will be drawn up by a statutory auditor appointed by the directors regarding the proposed cash compensation to members and, in the case of mergers, the proposed share exchange ratio. This report is to be made available at least 30 days before the date of the general meeting. The requirements relating to an expert’s report can be waived by agreement of all members.

4. Registration of the CDT: The Irish merging company must register the following in the Companies Registration Office (CRO) at least 30 days before the general meeting: (a) the CDT, (b) a notice informing the members, creditors and employees (or their representative) of the company that they may submit comments on the CDT no later than five working days before the date of the general meeting to approve the cross-border merger; and (c) a prescribed notice of the merger (CBM1 notice).

If the CDT and notice inviting comments are published on the Irish merging company’s website for 30 days before and at least 30 days after the general meeting, the above documents are not required to be registered in the CRO. However, the CBM1 notice must still be delivered to the CRO 30 days before the general meeting.

5. Publication: A notice of registration of the CDT and other notices to the CRO must be published in one national newspaper (reduced from publication in two national daily newspapers per the previous regime) by the company and in the CRO Gazette by the CRO. This publication must take place at least 30 days before the general meeting.

6. General meeting: The members of each Irish merging company in a general meeting need to approve the CDT and any proposed constitutional amendments by special resolution. This approval may be subject to merger control approval having been obtained from the Irish Competition and Consumer Protection Commission and any other relevant authorities. In a merger by acquisition scenario, certain exemptions from the requirement to hold a general meeting may apply, including in the case of a wholly owned subsidiary being acquired by its parent.

7. Safeguards: Shareholders, creditors and employees enjoy increased statutory protection under the Mobility Regulations, including: (a) minority shareholders opposing the resolution can request cash compensation from the company in accordance with the CDT and can apply to the court within 30 days if they consider the compensation to be inadequate; (b) creditors can apply to the court for adequate safeguards within three months if they can demonstrate that they are inadequately safeguarded by the CDT; and (c) the Mobility Regulations contain various rules to ensure that the interests of employees are considered and protected during the process, in addition to the information, consultation and participation rights of employee representatives. Of note, the directors’ explanatory report must contain a separate section informing employees of the implications of the merger for employment, and any material changes to employee conditions and locations of any place of business.

8. Pre-merger certificate: A pre-merger certificate must be obtained by each merging company from the competent authority in the EEA state relevant to the cross-border merger. The Irish merging company must apply to the Irish High Court for a pre-merger certificate. If the court is satisfied that there has been full compliance and no abusive, fraudulent, or criminal purpose, it will issue the certificate which is conclusive evidence throughout the EEA that the company has complied with the pre-merger requirements. The requirement in Ireland to obtain court approval of the pre-merger /pre division/ pre-conversion certificate is at odds with other EEA jurisdictions which can gain approval via a notary.

9. High Court Examination: Full examination of the legality of the cross-border transaction is carried out in the destination jurisdiction i.e. the jurisdiction of the successor company. As such, the Irish High Court will be responsible for examining all inbound conversions, divisions and mergers. Once the pre-merger certificate has been granted by the High Court, the merging companies jointly apply for examination by the High Court of the legality of the merger.

10. Effectuation: If the High Court is satisfied, it will order the completion and effective date of the cross-border merger. The order of the High Court must be registered in the CRO and relevant register of the other relevant EEA state.

Other considerations

Timing of the cross-border merger process from an Irish perspective may be impacted where any of the merging parties are: (a) an Irish company regulated by the Central Bank of Ireland (CBI) (which must notify the CBI of its intention to complete a cross-border transaction at least 90 days before the date of the relevant general meeting approving same); (b) a listed entity subject to disclosure obligations and/or listing rules; or (c) entities subject to additional merger controls or notification requirements. Merging entities should also be mindful of the additional safeguards now afforded to shareholders, creditors and employees in the Mobility Regulations and the potential for delays resulting from challenge by those parties.

Conclusion

Overall, the Mobility Directive continues to offer expanded opportunities for cross-border restructuring across the EEA. It is a welcome development which will encourage non-EEA companies to relocate to Ireland and offers flexibility for Irish companies to restructure within the EEA.

Navigation however of these time critical processes requires careful planning and advice from legal, tax, accounting and financial advisors, including having regard to the courts and regulators in each EEA jurisdiction. For further guidance or advice, please contact the Beauchamps LLP team.

GGI INSIDER No 125 May 2023

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