European Union Member States faced a 31st January 2023 deadline by when they needed to transpose the provisions of Directive (EU) 2017/1132 (the “Mobility Directive”) within their respective national law. Malta has transposed the provisions of the Mobility Directive through the publication of three legal notices by virtue of the Cross-Border Divisions of Limited Liability Companies Regulations, 2023 (L.N. 26 of 2023), Cross-Border Conversions of Limited Liability Companies Regulations, 2023 (L.N. 27 of 2023), and Cross-Border Mergers of Limited Liability Companies Regulations, 2023 (L.N. 28 of 2023) (collectively referred to as the “Regulations”). A brief understanding of every possible cross-border operation is outlined below.
Cross-Border Divisions
By means of a cross-border division, a limited liability company formed in accordance with the law of a Member State can transfer its assets and liabilities to companies already incorporated in any other Member State without being dissolved or wound up. This law caters for full cross-border division, partial cross-border division, and division by separation of companies formed. In any case, the recipient company/ies resulting from the division must necessarily be a newly formed company incorporated in a Member State.
Cross-Border Conversions
A cross-border conversion allows a company to convert the legal form under which it is registered in the departing jurisdiction into a legal form of the destination jurisdiction without going into liquidation, provided that this company transfers at least its registered office to the destination jurisdiction.
Despite the 31st January 2023 deadline, as of now, several European countries have not fully transposed the EU Mobility Directive into their national laws. This does not however hinder the ability to undertake a cross-border continuation/conversion. On the contrary, the Maltese authorities have taken the stance that if the foreign jurisdiction has not transposed the Cross-border Conversion Regulations, companies are being granted the opportunity to move into/out of Malta under the Continuation of Companies Regulations (S.L. 386.05 of the Laws of Malta), which remain in force until today.
Cross-Border Mergers
The Regulations contemplate four types of cross-border mergers:
(1) merger by acquisition
(2) merger by formation
(3) merger between a parent company and its subsidiaries and
(4) merger between companies having the same ownership.
The latter type introduces the notion of a cross-border merger where one or more companies merge with an acquiring company and where the shareholding of all companies partaking in the cross-border merger is the same. Given that the ownership structure of the merging companies will remain the same upon completion of the process, simplified procedures are made to apply to this new type of cross-border merger.
The Process
The Regulations detail the necessary procedures and documentation required to implement cross-border mergers, conversions, or divisions. They require the preparation of draft terms for the cross-border operation, together with a declaration of solvency and a directors’ report that explains and justifies the legal and economic aspects of the operation, along with its impact on the Maltese company’s shareholders and employees. Employees are allowed to provide feedback on the operation, which is then subject to a shareholder vote. If approved, dissenting shareholders can opt to sell their shares in exchange for fair compensation. The Regulations also mandate input from independent experts on the operation.
Additionally, the Regulations require the Malta Business Registry to publish certain documents related to the operation and allow a 3-month notification period for creditors to contest the operation. The process is considered complete once all timeframes and formalities have been met and the Maltese Registrar of Companies issues the relevant certificate.
A Year On
One year later, we are seeing that the Regulations continue to be refined by the Maltese legislator by enhancing and providing further legal certainty throughout the process. This demonstrates that the Malta Business Registry has successfully participated in several cross-border operations under the Mobility Directive during the past year, and the legislator aims to further improve the process for all stakeholders involved.
Contact our team HERE for any further information or queries on the Regulations or the implementation of cross-border mergers, conversions or divisions in and out of Malta. We will arrange a consultation to discuss your cross-border operation plans in detail as well as answer any further questions you may have.
