EU Directive on cross-border conversions

EU Directive on cross-border (partial) divisions


The EU Directive 2019/2121 as regards cross-border conversions, mergers, and divisions (the “Directive”) introduces new rules harmonizing the legal framework for reorganisations involving companies located in different Member States. Currently, only cross-border mergers are regulated while cross-border (partial) de-mergers or conversions of companies were still subject to local law and jurisprudence. The lack of a legal framework for these type of transactions results in legal fragmentation and legal uncertainty, and thus to barriers to the exercise of the freedom of establishment, one of the main principles of the EU. It also leads to the suboptimal protection of employees, creditors, and minority shareholders within the internal market.

The Directive 2019/2121 meets the need for a regulation of cross-border (partial) divisions and conversions and at the same time modernises the procedure for cross-border mergers.

We will hereinafter provide more detail on the new procedure for cross-border (partial) de-mergers. We refer to the other article on our website that specifically discusses cross-border conversions.


The Directive is applicable to limited liability companies that have their registered office, central administration or principal place of business in one of the Member States of the EU. The rationale behind this scope of application is that limited liability companies is widely the most used form for companies.For Belgium, typically all companies having legal personality fall under the scope of the Directive and will thus be able to perform such type of transactions.

Companies in liquidation that have already begun to distribute assets are explicitly excluded by the Directive. Member States may also exclude companies that are subject to insolvency proceedings, other types of liquidations proceedings, or specific crisis prevention measures.

Companies that fall out of the scope of the Directive (i.e. those having no limited liability), could invoke the principle of freedom of establishment to still carry out a cross-border (partial) division. The European Court of Justice has indeed in several cases confirmed that on the basis of this principle companies should be able to participate in such type of cross-border transactions.


The definition of divisions and partial divisions in the Directive is similar to the definitions of the Belgian Code of Companies and Associations (“BCCA”). However, a new definition is introduced for a “division by separation”. This is qualified as a transaction whereby a company that is being divided transfers part of its assets and liabilities to one or more companies, in exchange for the issue to the company being divided of securities or shares. This type of transaction is not yet known under Belgian law but closely relates to a contribution of a branch of activities that is regulated under the BCCA. The main difference is that the Directive does not refer to a branch of activities but only to the transfer of a part of the assets and liabilities of the company.



The procedure for a cross-border (partial) division is similar to the procedure of a cross-border merger as we already know it, including the revisions and updates the Directive made to this procedure. These changes were introduced to make it easier for small and medium sized companies (“SMEs”) to choose their preferred business strategies and to better adapt to changes in market conditions. At the same time the rights of the employees, creditors and other stakeholders of the companies involved in the transaction are better protected. We will indicate below the specific requirements introduced by the Directive while explaining the procedure of a cross-border (partial) division.

Note that for a division by separation simplified formalities applies so that some of the formalities described hereinafter will not apply on this procedure.

Draft terms of cross border (partial) divisions

To take into account the legitimate interest of its stakeholders, the company being divided must prepare and disclose draft terms of the proposed operation. The content is similar to the draft terms for a cross-border merger but then adapted to specific characteristics of a (partial) division. However, some new elements have to be included to protect the rights of the stakeholders of the company.

To protect the rights of the employees, the likely repercussion of the operation on the employment must be added to the draft terms. Where appropriate, information on the procedure by which arrangements for the involvement of employees in the definition of their rights to participate in the recipient companies are to be determined. This refers to the specific regime provided for in the Directive, which contains rules to determine how the employees’ participation rights in the converted company will be guaranteed.

Another important element that is being introduced by the Directive is that shareholders who vote against the proposed operation, will have the right to dispose their shares for an adequate cash compensation. They will thus have the right to leave the company if they do not agree with the proposed transaction. The draft terms have to include the details on the cash compensation they will receive in exchange of their shares.

Finally, to protect the rights of the creditors of the company being divided, any safeguards offered to them must also be mentioned in the draft terms.

The draft terms will have to be filed with the competent authorities at least one month before the extraordinary general meeting that will decide on the proposed cross-border (partial) division. Note that Belgian law typically provides in a stricter timing and requires the filing to be done the latest six weeks before the extraordinary general meeting. It is to be seen whether the Belgian legislation transposing the Directive will stick to this stricter timing.

Report of the administrative or management body for shareholders and employees

The competent administrative body of the company being divided must draw up a report explaining and justifying the legal and economic consequences of the proposed cross-border (partial) division. The report must in particular explain the implications of the cross-border operation for the future business of the companies involved.

The Directive indicates that the report is not only to be drafted to explain the implications of the transaction but should also indicate the consequences for the employees. This stresses the importance the Directive attaches to their rights. The report must even dedicate a separate section to the employees in which it must explain (i) the implications of the proposed cross-border operation on the employment situation, (ii) any material changes to the applicable condition of employment or the location of the company’s places of business, and (iii) how the factors set out in the previous points might affect any subsidiaries of the company.

The report must also include a separate section for the shareholders detailing (i) the implications of the transaction for them, (ii) the exchange ratio and valuation methods used, and (iii) the rights they have to dispose of their shares and the amount of the cash compensation they will receive in exchange.

The report must, together with the draft terms, be made available in any case electronically to the shareholders and the representatives of the employees, or where there are no such representatives, to the employees themselves, not less than six weeks before the date of the general meeting approving the cross-border (partial) division.

Independent expert report

The Directive provides that the draft terms must be reviewed by an independent expert. Under Belgian law, this is typically done by the statutory auditor or an auditor appointed by the managing body. Note that the Directive indicates that the draft terms must be reviewed so that the review is not limited to the exchange ratio as is currently provided for national (partial) divisions. The report must also indicate whether the cash compensation that will be paid to shareholders that want to dispose their shares, is adequate. The shareholders will have the right to waive the obligation to draft an independent expert report.


The following document must be disclosed and made publicly available at least one month before the extraordinary general meeting of shareholders that will decide on the division:

–    the draft terms of the cross-border (partial) division

–    a notice informing the creditors and representatives of the employees that they may submit at the latest five working days before the general meeting comments concerning the draft terms.

Creditors and the (representatives of the) employees will thus have a right to comment on the proposed transaction. However, they will not be able to block it.

Approval by the general meeting

The cross-border (partial) division mut be approved by the extraordinary general meeting of shareholders. Opinions that have been made by the representatives of the employees or the creditors, are first to be communicated to the shareholders.

Once the transaction is approved, it can in principle not be challenged except on the following grounds:

–    The share exchange ratio has been inadequately set;

–    The cash compensation for shareholders wanting to dispose their shares has been inadequately set; or

–    The information given with regard to the share exchange ratio, or the cash compensation did not comply with the legal requirements.

Protection of the creditors

Member States must provide for an adequate system to protect the interests of creditors whose claims predate the disclosure of the draft terms of the cross‐border (partial) division and that were not yet due at the time of such disclosure. Creditors who are dissatisfied with the safeguards offered in the draft terms of the cross-border(partial) division can within three months of the disclosure of the draft terms address them to the appropriate administrative or judicial authority for adequate safeguards. These creditors must credibly demonstrate that, due to the cross-border (partial) division, the satisfaction of their claims is at stake and that they have not obtained adequate safeguards from the company.

Member States may require that the administrative or management body of the company being divided provides a declaration that accurately reflects its current financial status at a date no earlier than one month before the disclosure of that declaration. The declaration shall state that it is unaware of any reason why any recipient company and, in the case of a partial division, the company being divided, would, after the division takes effect, be unable to meet the liabilities allocated to them when those liabilities fall due. The declaration shall be disclosed together with the draft terms of the cross-border (partial) division.

Pre-division certificate

Once the procedure has been completed, the competent authority has to scrutinise the legality of the cross-border (partial) division and issue a pre-division certificate attesting the compliance with all conditions, and proper completion of all procedures and formalities under local law. Such pre-division certificate is similar to the one we already know for cross-border mergers. For the latter, this certificate is, in Belgium, being issued by the notary public. It is to be seen if the notary public will maintain this role once the Directive is transposed into Belgian law.

The competent authority has three months to issue the certificate. This period can only be extended if the authority has serious doubts about the legality of the transaction. Note that the competent authority can refuse to issue the pre-division certificate if it has serious doubts indicating that the transaction 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.

The pre-(partial) division certificate is to be shared with the competent authority of the receiving Member State.

3.8. Scrutiny of the legality of the cross-border (partial) division

The Member States must indicate the authority competent to scrutinise the legality of the cross-border (partial) division as regards that part of the procedure which concerns the completion of the transaction. It must confirm the realisation of the cross-border (partial) division as soon as it has determined that all relevant conditions have been properly fulfilled and all formalities have been properly completed. In Belgium, this is typically done by the notary public. It is to be seen whether the notary public will remain the competent authority once the Directive is transposed into Belgian law.

Electronic communication

Consideration is also given by the Directive to the costs of the procedure. To reduce these, it is provided that all request for information and documentation must be processed digitally as much as possible. It is also stipulated that the filing of the documents should be done online without the necessity to appear in person. Currently, physical filing is still required in Belgium so it is to be seen how this will be implemented.

The Directive requires that the documents that have to be made public, are published on a central electronic platform and should thus be freely accessible. Such is the case in Belgium, but the majority of the other Member States still charge a certain fee to make the documents accessible.


Member States must have transposed the Directive the latest by 31 January 2023. The Belgian council of ministers of 23 December 2022 has approved a draft law to transpose the new rules of the Directive into Belgian corporate law. The draft law has now been submitted for review to the Council of State for advice. This means that the transposition of these new rules into Belgian law will not be done in time. However, according to EU legislation, a Directive that has not been transposed in due time has direct effect when its provisions are unconditional and sufficiently clear and precise. This means that persons who can derive rights from the Directive will be able to invoke it to have these protected. Employee representatives, for example, could refer to the Directive to claim specific rights provided in the Directive (i.e. rights of advice, right to information and consultation, etc.). Shareholders wanting to dispose their shares following a cross-border (partial) division could also invoke it after 31 January 2023.