The government's new bill implements the Mobility Directive in the Netherlands. This directive harmonises the legal framework for cross-border conversions, mergers and demergers (cross-border operations) of EU companies and aims to promote freedom of establishment within the EU while also strengthening the position of shareholders, creditors and employees.

Since 2008, statutory Dutch law has allowed for cross-border mergers between Dutch companies (NVs and BVs) and other EU companies. The bill will now codify cross-border demerger and conversion of companies within the EU. Implementation of the Mobility Directive will lead to a harmonised framework and therefore a similar procedure for cross-border mergers, demergers and conversions. This will strengthen the position of shareholders, creditors and employees of the companies involved.

Which entities will benefit

Limited liability companies

Only cross-border operations of limited liability companies – in the Netherlands, NVs and BVs – fall within the scope of the Mobility Directive and the bill. Other types of legal entities may continue to participate in cross-border operations on the basis of freedom of establishment and European Court of Justice case law. However, there will be no legal framework setting out the procedure and requirements for this participation in cross-border operations.

Geographical scope

The scope of the mobility rules is limited to cross-border operations of limited liability companies governed by the laws of an EU member state. Neither the Mobility Directive nor the bill provides for participation by companies governed by the laws of a non-member state in cross-border operations. For example, the conversion of a BV into a Delaware LLC (or vice versa) does not fall within the geographical scope of the bill, the Mobility Directive or the principle of freedom of establishment.

Other EU member states, such as Luxembourg, do allow cross-border operations with non-member states to take place, so a Dutch company can make use of such a route to transform into a company governed by the laws of a country outside the EU. For example, a BV can convert into or merge with a Luxembourg company as a first step and then convert into an entity under the laws of the desired non-member state as a second step. This provides Dutch companies with a viable migration route to non-member states. It also gives companies outside the EU a route into the Netherlands.

Recipient companies in demergers

The Mobility Directive and the bill restrict cross-border demergers to recipient companies that are incorporated at the occasion of the demerger. Cross-border demergers with an existing company that will acquire the assets of another existing company are neither covered by the Mobility Directive nor the bill.

Shareholder, creditor and employee protection

The bill expands protection for shareholders, creditors and employees involved in cross-border mergers. Shareholders will receive more information and at an earlier stage of the merger procedure. Current rules on decision-making will be tightened as a two-thirds majority in a shareholders meeting will be required for cross-border mergers. Creditors who are dissatisfied with the safeguards may apply to the courts for adequate safeguards (such as a bank or other guarantee, or a pledge) until three months after publication of the cross-border operation proposal is announced. Like the shareholders, employees will receive more information and at an earlier stage. Employee participation rights are better protected as negotiations with employees will be required more often and the possibilities to waive negotiations are further restricted.

As implementation of the Mobility Directive will bring a harmonised framework and a similar procedure for cross-border mergers, demergers and conversions, the stakeholders involved in cross-border conversions and demergers will benefit equally from the current legal safeguards and the enhanced safeguards.

New: fraud test

The procedure for a cross-border merger consists of three stages: 1. preparations, 2. decision-making, and 3. execution. The Mobility Directive requires the competent authority in the country of departure of a company involved in a cross-border operation, to issue a pre-operation certificate to the competent authority in the country of destination. This certificate, issued after the second stage, must state, in brief, that the operation was conducted lawfully. Under Dutch law, civil law notaries practising in the Netherlands have been designated as competent authority.

The Mobility Directive requires member states to ensure that the pre-operation certificate is not issued when a cross-border operation is set up for abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of EU or national law, or for criminal purposes. That means that the pre-operation certificate will be extended by a new element: the fraud test.

Neither the Mobility Directive nor the bill includes any tax rules.

What next

The Mobility Directive must be implemented in national legislation by 31 January 2023. The Netherlands will not meet that deadline, but this will not prevent Dutch companies from engaging in cross-border operations within the EU on the basis of existing

legislation and case law in the meantime. Overall, the Mobility Directive and the bill offer a clear and viable path to the various types of cross-border operations, but the enhanced stakeholder protection procedure may prove to be more burdensome on companies entering into such operations than before.