The Mobility Directive and Freedom of Movement of EU Limited Companies

The Mobility Directive[1] enables certain limited liability companies to effectively relocate from one EU Member State to another, by way of a:

• Conversion
• Division, or
• Merger

which together are known as ‘cross-border operations’.

The Mobility Directive's specific measures relating to each of these cross-border operations aim to ensure that the relevant transaction is not artificial or abusive. The measures also ensure that the interests of employees, members and creditors are protected.

This article is focused on conversions. If you would like to find out more on the other ‘cross-border operations’, please see our article here.

Conversions – what are they?

A cross-border conversion is, essentially, the relocation and re-registration of a limited liability company in the EU to another jurisdiction in the EU by operation of law.

It is defined under the Mobility Directive as “…an operation whereby a company, without being dissolved or wound up or going into liquidation, converts the legal form under which it is registered in a departure Member State into a legal form of the destination Member State, as listed in Annex II, and transfers at least its registered office to the destination Member State, while retaining its legal personality.” Annex II of the Mobility Directive defines “company” as an EU limited liability company.

This means that a limited liability company will no longer need to be dissolved or wound up or to go into liquidation if it is restructuring. Similarly, there will no longer be a need to incorporate a new company where an established company is seeking to register in another Member State. Instead, it can convert into a limited liability company in another Member State.

For instance, a limited liability company registered in France could, subject to the rules on conversion in the Mobility Directive and the national legislation implementing this Directive, convert into an Irish limited liability company.

Benefits

A key benefit of this is that, following completion of a cross-border conversion, all the assets and liabilities of the converting company, including all contracts, credits, rights and obligations, shall be those of the converted company by operation of law, and the members of the company will continue to be members of the converted company. The rights of employees of the company also continue in the converted company, and there are rights of information and consultation given to employees by the Mobility Directive.

The procedure to be required to avail of this conversion scheme is expected to be largely similar to the process currently involved for a cross-border merger, which includes in Ireland:

• The preparation and publication of the terms of the conversion
• The right of members and employees of the company to inspect those terms
• The approval of the conversion by the members of the company, and
• An application to court and issue by the court of a certificate confirming that the formalities of the conversion have been satisfied

The actual process will become clear when the Irish domestic legislation implementing the Mobility Directive comes into effect. Implementation is overdue and we therefore expect that it will happen early in 2023, although there is as yet no official confirmation of a date.

Conclusion

The introduction of a harmonised framework for cross-border conversions will afford new opportunities for non-Irish EU registered companies to relocate to Ireland in a more streamlined and efficient manner than is currently available.

For further updates on the implementation of the Mobility Directive and expert guidance on relocating to Ireland, contact a member of our Corporate Governance team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] Directive (EU) 2019/2121