EU Directive on cross-border conversions

EU Directive on cross-border conversions


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. Note that the new Code of Companies and Associations (“BCCA”) introduced rules for cross-border conversion of companies. These will have to be amended to be put in line with the provisions of the Directive.

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


The cross-border conversion as regulated by the Directive applies 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 and can thus not do a cross-border conversion. 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 conversion. The European Court of Justice has indeed in several cases confirmed that based on this principal companies should be able to participate in such type of cross-border transactions.


The Directive defines a cross-border conversion 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 (that lists the limited liability companies of the different the Member States), and transfers at least its registered office to the destination Member State, while retaining its legal personality”.

A major advantage of the regulation on cross-border conversions is that the company while migrating to another Member State maintains its legal personality. All assets and liabilities of the company, including all contracts, credits, rights, and obligations, shall thus be those of the converted company. The shareholders shall continue to be shareholders of the latter company and the rights and obligations of the employees shall be those of the converted company.


The procedure for a cross-border conversion is like 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 conversion.

Draft terms of cross border conversions

To consider the interests of all its stakeholders, the company has to draw up and publish draft terms of the cross-border conversion. The content is like what is provided under the BCCA but adds some specific elements to safeguard the stakeholders’ rights.

To protect the rights of the employees, the likely repercussions of the cross-border conversion on employment must be included. 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.

Furthermore, the Directive provides that shareholders who vote against the proposed conversion, 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 conversion. The draft terms must 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 general meeting that will decide on the proposed cross-border conversion. 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 that decides on the cross-border conversion. 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 the shareholders and employees

The competent managing body of the company to be converted must draw up a special report for the shareholders and the employees explaining and justifying the legal and economic aspects of the proposed cross-border conversion. Furthermore, it must explain the implications for the future business of the company.

Contrary to what is currently provided in the BCCA, the Directive requires to explicitly explain in the report the consequences of the proposed cross-border conversion on the employees. The report must even include a separate section for the employees This section should explain (i) the implications of cross-border conversion for the employment relationships, as well as any measures for safeguarding those relationships, (ii) any material changes to the applicable conditions of employment or to the location of the company’s places of business, and (iii) how these factors will affect any subsidiaries of the company.

The report must also contain a separate section for the shareholders explaining (i) the implications of the cross-border conversion for the shareholders, (ii) the right they must dispose of their shares and (iii) the amount of the cash compensation they will receive in return.

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 conversion.

Independent expert report

An independent expert must examine the draft terms of the cross-border conversion. Under Belgian law, this is typically done by the statutory auditor, or an auditor appointed by the managing body. The report must also include the expert’s opinion as to whether the cash compensation for shareholders wanting to dispose their shares, is adequate. Note that the Directive requires the expert to examine the draft terms of the cross-border conversion which is more extensive that what is currently provided in the BCCA. The shareholders will have the right to waive the obligation to draft an independent expert report.

Disclosure of documents

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 conversion:

–    the draft terms of the cross-border conversion.

–    a notice informing the creditors and representatives of the employees that they may submit at the latest five working days before the general meeting that will decide on the proposed cross-border conversions, comments concerning the draft terms.

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

Approval by the general meeting

The cross-border conversion must 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 cash compensation for shareholders wanting to dispose their shares has been inadequately set; or

–    The information given about 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 conversion 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 conversion 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 conversion, 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 provide a declaration that accurately reflects its current financial situation 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 the company would, after the conversion takes effect, be unable to meet its liabilities when those fall due. The declaration shall be disclosed together with the draft terms of the cross-border conversion

Member States shall also ensure that creditors whose claims antedate the disclosure of the draft terms of the cross-border conversion are able to institute proceedings against the company within two years of the date the conversion has taken effect. This must also be possible in the departure Member State.

Pre-conversion certificate

Once the procedure has been completed, the competent authority must scrutinise the legality of the cross-border conversion and issue a pre-conversion certificate attesting the compliance with all conditions, and proper completion of all procedures and formalities under local law. Such pre-conversion certificate is like the one we already know for cross-border mergers. For the latter, the certificate is, in Belgium, being issued by the notary public. It is to be seen if the notary 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-conversion 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-conversion certificate is to be shared with the competent authority of the receiving Member State.

Scrutiny of the legality of the cross-border conversion

The Member States must indicate the authority competent to scrutinise the legality of the cross-border conversion as regards that part of the procedure which concerns the completion of the transaction. It must confirm the realisation of the cross-border conversion 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 are to be made public, are published on a central electronic platform and should thus be freely accessible. Such is the case in Belgium, but most 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 conversion could also invoke it after 31 January 2023.