EUROPEAN COMMISSION Brussels,25.4.2018 COM(2018) 241 final 2018/0114(COD) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (Text with EEA relevance) {SWD(2018) 141 final}

{SWD(2018) 142 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The EU economy needs healthy and flourishing companies which can easily operate in the Single Market. Such companies play a crucial role in promoting economic growth, creating jobs and attracting investment in the European Union. They help to deliver greater economic as well as social value for society at large. To achieve this end, companies need to operate in a legal and administrative environment which is both conducive to growth and adapted to face the new economic and social challenges of a globalised and digital world, while pursuing also other legitimate public interests such as the protection of employees, creditors and minority shareholders and providing authorities with all necessary safeguards to combat fraud or abuse. It is with this objective that the Commission is putting forward this proposal, together with the proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law - a comprehensive set of measures for fair, enabling and modern company law rules in the EU. The freedom of establishment plays a crucial role in the development of the Single Market as it allows corporate entities to pursue economic activities in other Member States on a stable basis. In order to foster the cross-border mobility of companies in the EU, it is essential to take into account their needs and characteristics. There are around 24 million companies in the EU, out of which approximately 80% are limited liability companies. Around 98-99% of limited liability companies are SMEs. However, in practice the exercise of the freedom of establishment by companies remains difficult. One of the reasons for these difficulties is that company law is not sufficiently adapted to cross-border mobility in the EU: it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity, in particular for SMEs as recognised by the 2015 Single Market Strategy. Corporate restructurings and transformations such as cross-border conversions, mergers and divisions, are part of companies' life-cycle and represent a natural way for companies to grow, adapt to a changing environment and explore opportunities in new markets. At the same time, they also entail consequences for companies' stakeholders, in particular for employees, creditors and shareholders. Therefore, it is essential that the protection of stakeholders keeps pace with the ever-growing trans-nationalisation of the corporate world. However, today the legal uncertainty, partial inadequacy and also the lack of rules governing certain cross-border operations of companies means that there is no clear framework to ensure effective protection of these stakeholders. In this situation, the protection offered to stakeholders may therefore be ineffective or insufficient. The cross-border operations of companies can also be facilitated by a legal environment that creates trust in the Single Market by providing for safeguards against abuse. Therefore, it is important to unleash the potential of the Single Market by breaking down barriers to cross-border trade, facilitating access to markets, increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. The objective of this proposal is two-fold: provide specific and comprehensive procedures for cross-border conversions, divisions and mergers to foster cross-border mobility in the EU while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market. Such action forms part of creating a deeper and fairer Single Market, which is one of the priorities of the current Commission. Cross-border conversions A cross-border conversion offers an efficient solution for companies that wish to move to another Member State without losing their legal personality or having to re-negotiate their business contracts. A conversion is particularly attractive for small companies that do not have enough financial resources to search for expensive legal advice and conduct a cross-border merger. This reasoning applies in particular to cross-border conversions against the background of the recent jurisprudence of the European Court of Justice. The Court of Justice of the European Union (ECJ) has considered that the freedom of establishment enshrined in Article 49 TFEU entails the right, for companies established in a Member State, to transfer their seat to another Member State through a cross-border conversion without losing their legal personality. In particular in its recent judgement Polbud the ECJ confirmed the right of companies to carry out cross-border conversions on the basis of the freedom of establishment. The ECJ held that the freedom of establishment is applicable when the registered office alone, without the real head office, is transferred from one Member State to another if the Member State of new incorporation accepts the registration of a company even without the exercise of an economic activity there: in that case Article 49 TFEU does not require such an economic activity as a precondition for its applicability. The ECJ also recalled that, in the absence of harmonisation, Member States are competent to decide the connecting factor of a company to its national order and thus apply their own incorporation requirements to incoming companies. The ECJ further recalled its previous jurisprudence whereby the fact that either the registered office or real head office of a company was established in accordance with the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. In Polbud, it was ruled that a national rule which imposes the winding-up prerequisite of cross-border transfer of a company is an unjustified and disproportionate restriction and thus unlawful. The Polbud judgement clarified the context for cross-border conversions. But the ECJ, being a judiciary organ, may not create any procedure for making such conversions possible or set out the related substantive conditions. In the absence of EU harmonisation on cross-border conversions, national legislation may still set out rules for the procedure to be followed and for the protection of minority shareholders, creditors or workers or for the fight against tax-related or other abuses in case of cross-border company conversion. However, it is necessary to assess case-by-case whether such rules comply with EU law and, in particular, with the right of establishment. This leads to an unsatisfactory situation in terms of legal certainty, which negatively affects companies, stakeholders and Member States. Currently, companies wishing to move their registered offices cross-border need to rely on Member States' laws. Such laws, where they exist, are often incompatible or difficult to combine with each other. Moreover, more than half of the Member States do not provide any specific rules allowing for cross-border conversions. SMEs are in particular negatively impacted since often they lack resources to perform cross-border procedures through costly and complicated alternative methods. This also means that the protection of stakeholders such as employees, creditors or minority shareholders is often ineffective or insufficient due to the lack of, overlapping or contradictory rules. As regards employee protection, in the absence of harmonised safeguards for employee participation rights, companies might use a cross-border conversion and the lack of relevant safeguards for employee participation rights, when moving to another Member State, to lower the level of participation or abandon it. Furthermore, the absence of harmonised rules may also lead to increased use of letterbox companies for fraudulent purposes, allowing for instance, in most serious cases, organised crime organisations to hide and obscure the beneficial ownership of companies to launder proceeds of crime. Therefore, the EU legislator needs to step in and provide for rules on cross-border conversion with adequate and proportionate safeguards for employees, creditors and shareholders to create a dynamic and fair Single Market. The European Parliament has already made calls for it. In particular, it is important that workers or their representatives are involved in the procedure, in line with the 8th principle of the Pillar of European Social Rights: notably, they should be informed and consulted in good time on matters relevant to them in the context of companies' cross-border conversions. The mobility of companies must go hand in hand with the protection of national social and labour law prerogatives. In light of the foregoing considerations, the main objectives of the harmonised rules for cross-border conversions are two-fold: - enabling companies, particularly micro and small, to convert cross-border in an orderly, efficient and effective manner; - protecting the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner.

The proposal would enable companies to convert cross-border by changing their legal form of one Member State into a similar legal form of another Member State. This should ensure that companies keep their legal personality throughout the process without the need to dissolve or liquidate in the departure Member State, and form a new entity in the destination Member State. The objective is to provide a specific, structured and multi-layered procedure for cross-border conversions which ensures a scrutiny of the legality of the cross-border conversion firstly by the competent authority of the departure Member State and secondly by the destination Member State in the light of all relevant facts and information. A crucial element of the procedure is that it would prevent a cross-border conversion where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. The first step in the procedure would be the preparation of the draft terms of the cross-border conversion and two targeted reports addressed to shareholders and employees on the implications that the cross-border conversion will have. In addition, medium size and large companies would need to apply to the competent authority for the appointment of an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company is to take a decision at the general meeting on whether to pursue the cross-border conversion. That decision, together with the relevant information and documents, would then be submitted to the competent national authority of the Member State of departure which is responsible to decide whether to issue a pre-conversion certificate or not. The scrutiny conducted by that authority would consist of two possible phases: during the first phase, which is limited to one month, the competent authority would examine whether the cross-border conversion is lawful. The authority would determine if all conditions for the cross-border conversion laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the conversion at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. During this phase, the authority would also determine whether there is an artificial arrangement. If at the end of the 1-month period laid down for the first phase of investigation the authority has no objections, it would issue a pre-conversion certificate. If at the end of 1 month it is certain that the cross-border conversion is unlawful, it would refuse to grant a pre-conversion certificate. Alternatively, if at the end of the 1-month period it has serious concerns that the conversion may be unlawful, it would inform the company that it will carry out an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months. If after such scrutiny, the pre-conversion certificate is issued, it would be transmitted without delay to the competent authority of the Member State of destination. Then, the Member State of destination would carry out a scrutiny as regards that part of the procedure which is governed by the law of the destination Member State. The competent authority of the destination Member State shall ensure that the converted company complies with provisions of its national law on the incorporation of companies (for example, whether the company has a real seat in its territory) and, where appropriate, that arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, a company would be registered in the register of a Member State of destination and de-registered in the register of a Member State of departure. The conversion shall then become legally effective. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Cross-border mergers A company may also wish to exercise their freedom of establishment and thereafter benefit from the opportunities offered by the Single Market by carrying out a cross-border merger. Companies may merge cross-border for various reasons including group reorganisations, cutting organisational costs as well as business-oriented considerations in order to enjoy greater returns to scale, consolidated branding, or other synergies between different business activities. The introduction of the Cross-Border Merger Directive laid down a harmonised procedure at EU level for limited liability companies. It led to a substantial increase in cross-border merger activity in the EU and EEA. The number of cross-border mergers rose by 173% between 2008 and 2012, which indicates that the procedure set up by the Directive substantially enhanced cross-border activity. Stakeholders (such as law firms, business registers and trade unions) interviewed for the 2013 study on the application of the Directive welcomed the new procedures, the procedural simplification and reported lower costs and shorter timeframes thanks to the harmonised framework. However, despite the overall positive assessment, the evaluation of the functioning of the Cross-Border Merger Directive identified certain problems which impede the full effectiveness and efficiency of the existing rules. The 2015 Single Market Strategy mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission would "examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". The European Parliament stressed the positive effects of the Directive which has facilitated cross-border mergers between limited liability companies in the European Union and reduced the associated costs and administrative procedures. However, the European Parliament also noted the necessity to revise it in order to improve its functioning. The main identified obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified procedures for less "complex" mergers). In addition, it was observed that the cross-border merger procedure does not sufficiently integrate digital tools and processes (e.g. as regards submitting the documents to public authorities or sharing those between them). It has also been criticised that employees are not sufficiently informed about the details and implications of a cross-border merger. These inefficiencies were confirmed by stakeholders throughout the consultation process. Concerning the protection of creditors and minority shareholders, the existing rules on cross-border mergers lay down minimum, mainly procedural rules and leave the substantive protection to national laws. Therefore, the differences between Member States laws persist. For example, the Directive only lays down that creditors shall be protected subject to national rules, without further specifications. Similarly, the Directive lays down some rules concerning shareholders in general (e.g. information via the draft merger terms, expert reports, voting during the general meetings) but leaves it to Member States to decide whether to introduce further protection for minority shareholders. As to the employee participation on board level, the existing rules set out a comprehensive framework. However, the rules do not require merging companies to provide any specific and comprehensive information about a cross-border merger to the employees. Currently, the situation of employees is only considered in a general manner in the management report addressed predominantly to shareholders. As to simplified procedures, the current rules offer limited possibilities. For example, the rules allow waiving an independent expert report if all shareholders agree and do not require an expert report or the approval by the general meeting in case of a merger between a parent company and its wholly-owned subsidiary. This proposal aims to address these shortcomings. It provides harmonised rules for protection of creditors and shareholders. The company would need to provide the envisaged protection of creditors and shareholders in the draft terms of the cross-border conversion. The creditors who would be dissatisfied with the protection offered, may apply to the appropriate administrative or judicial authority for adequate safeguards. Creditors of the merging companies should be presumed not to be prejudiced by a cross-border merger, if an independent expert assessed their situation and considered no prejudice or creditors were offered a right to payment, either against a third party guarantor, or against the company resulting from the merger. Member States may still apply their laws concerning the protection of payment of taxes or social security contributions, if such rules are different to the protection offered by this proposal. Shareholders who did not vote for the cross-border mergers or have no voting rights would have the right to exit the company (dispose of their shares) and receive the adequate compensation. Moreover, Member States should also ensure that shareholders of the merging companies who did not oppose the cross-border merger, but who considered that the proposed share-exchange ratio was inadequate may challenge that ratio set out in the common draft terms of the cross-border merger before a national court. In addition, the proposed rules ensure that employees will be duly informed about the implications of the planned cross-border merger on employees. The proposal also provides for use of digital tools and procedures throughout the cross-border merger procedure as well as for the exchange of the relevant information through the interconnection of business registers. Finally, where possible, the proposal introduces further possibilities for simplified procedures. Cross-border divisions A company may also wish to exercise their freedom of establishment by carrying out a cross-border division. In a similar manner to cross-border conversions and mergers, cross-border divisions offer a way for companies to change or simplify their organisational structure, adapt to changing market conditions and realise new business opportunities in another Member State. This was confirmed by respondents to the 2015 consultation on cross-border mergers and division. However, the current situation concerning cross-border divisions across the EU Member States also provides a very fragmented picture. There is no harmonised legal framework for cross-border divisions of companies, although divisions also play an important role in the economic environment of Member States.

The current EU legal framework provides rules only for cross-border mergers of companies, while cross-border divisions are subject to national rules if such rules exist. Today only less than half of the Member States have national rules on cross-border divisions of companies. In the absence of a reliable legal framework for cross-border divisions, companies have difficulties to access markets in other Member States and often need to find costly alternatives to direct procedures. Different national requirements make it difficult to structure the cross-border operations and render it more complex and costly. Even when Member States allow companies to divide cross-border, the relevant national provisions are often divergent or even incompatible. In a number of Member States carrying out a direct cross-border division is not possible. The legal uncertainty and lack or complexity of rules for cross-border mobility of companies also means that there is no clear framework to ensure effective protection of stakeholders. This may even lead to a situation whereby the freedom of establishment could be abused by some companies. Thus, it is crucial to create a legal framework that ensures a fair balance between the need to provide companies a favourable business environment in the EU and the need at the same time to protect legitimate interests of stakeholders. The 2015 Single Market Strategy mentioned uncertainties over company law as one of the obstacles that SMEs complain about in the Single Market and announced that the Commission "examine the need to update the existing rules on cross-border mergers and the possibility to complement them with rules as regards cross-border divisions". This part of the proposal aims to introduce a new legal framework regulating cross-border divisions. Its main objective is to address matters related to cross-border mobility by making it easier for any limited liability company to be able to divide cross-border. The provisions relating to cross-border divisions are inspired by the existing framework of the cross-border merger directive as well as the existing rules for domestic divisions. The rules are adapted to cater for a situation where a company is split instead of where one or more companies transfer all their assets and liabilities to another company. At the same time, the objectives of the harmonised rules on cross-border divisions remain similar to cross-border conversions: - enable companies to divide cross-border in an orderly, efficient and effective manner; - protect the most affected stakeholders such as employees, creditors and shareholders in a suitable and proportionate manner. Given the similar risks inherent to cross-border divisions as to cross-border conversions, the structured and multi-layered procedure as proposed for conversions would also be required for divisions. Such procedure would ensure the scrutiny of legality of the cross-border division by the competent authority of the company being divided and by the authorities of the recipient companies in the light of all relevant facts and information. As in conversions, a crucial element of the procedure would be preventing a cross-border division where it is determined that it constitutes an abuse, namely in cases where it constitutes an artificial arrangement aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. Given the complexity of dealing with risks of abuse in a situation where a company being divided transfers assets and liabilities to existing companies in different Member States, it was decided to regulate a situation where new companies are created in a cross-border division and not to regulate at this stage the cross-border division by acquisition, i.e. the situation where a company transfers assets and liabilities to more than one existing company. In a domestic context (where such situations are addressed in the current rules), such a procedure involves the examination of the protection of interests of stakeholders in one Member State, whereas in the cross-border context, it could necessitate the involvement of many authorities from different Member States. Whether to also include cross-border divisions by acquisition into the scope of the directive could be evaluated once first experiences with the new rules on cross-border divisions have been gained. Similarly to cross-border conversions, the first step in the procedure would be the preparation of the draft terms of the cross-border division and two targeted reports addressed to shareholders and employees on the implications that the cross-border division will have for them. In addition, medium size and big companies would need to apply to the competent authority to appoint an independent expert examining the accuracy of the draft terms and reports prepared by the company. The written report of the independent expert would also provide the factual basis for the assessment to be carried out by the competent authority as regards inter alia the risk of an abuse as referred to above. The report of the expert which will be disclosed cannot contain any confidential information provided by the company. The draft terms and reports would be made publicly available and could be commented upon by the affected stakeholders. Thereafter, the company being divided is to take a decision at the general meeting on whether to pursue the cross-border division. This decision, together with the relevant information and documents, would then be submitted to the competent authority of the Member State of the dividing company which is responsible to decide whether to issue a pre-division certificate or not. The scrutiny conducted by that authority would be divided into two phases: one being mandatory and the other one being optional. In the first phase, which is limited to one month, the competent authority would examine whether the cross-border division is lawful. The authority would determine if all conditions for the cross-border division laid down in the Directive and in national law are fulfilled, including whether the company is solvent, the requisite majority of shareholders has approved the cross-border division at a general meeting and employees, minority shareholders and creditors are protected within the remit prescribed by the Directive. It would also determine whether there is an artificial arrangement being created which is aimed at obtaining undue tax advantages or at unduly prejudicing the legal or contractual rights of employees, creditors or minority members. If at the end of a 1-month period, the authority has no objections, it would issue a pre-division certificate; if it is certain that the cross-border division is unlawful, it would adopt a decision refusing to grant a pre-division certificate; or if it has serious concerns that the division may be unlawful, it would inform the company being divided that it will carry out an in-depth investigation with a view to performing an in-depth examination as regards the existence of abuse as referred to above. The in-depth examination must be concluded and a final decision must be taken within two months from the start of the in-depth investigation. If after such scrutiny, the pre-division certificate is issued, it would be transmitted without delay to the competent authorities of the Member States of the recipient companies. Then, the competent authorities would carry out a scrutiny as regards that part of the procedure which is governed by their respective laws. The competent authorities of the Member States of the recipient companies must ensure that the companies comply with provisions of their national laws on the incorporation of companies where appropriate (for example, whether the company has a real seat in its territory). They should also check whether the arrangements for employee participation have been determined lawfully. Once the legality check has been carried out, the division would be registered and recorded in all relevant business registers. All contacts between the registers should be done via the system of interconnection of business registers (BRIS). Consistency with existing policy provisions in the policy area This proposal will complement and amend the existing rules on EU company law that are now codified in Directive (EU) 2017/1132. It aims to revise the existing rules on cross-border mergers and to provide a suitable and clear legal framework for companies to divide or to transfer their registered office cross-border. From a procedural perspective, the proposed rules are fully coherent with the existing rules aiming at facilitating cross-border activity by companies through cross-border mergers; from a substantive perspective the proposed rules are fully in line with the principle of freedom of establishment enshrined under Articles 49 – 55 TFEU as well as with the need for protection of employees, minority shareholders and creditors. Furthermore, the proposal is coherent with rules relating to cross-border mobility that are laid down in Council Regulation (EC) No 2157/2001. In addition, the proposed rules are consistent with the approach taken in EU rules on shareholders' rights laid down in Directive 2007/36/ECand in applicable law rules in Regulation 2015/848 on insolvency proceedings. The use of digital tools, and, in particular, the exchange of company information concerning cross-border conversions, mergers and divisions between business registers through the system of interconnection of business registers (BRIS) is fully in line with the objective of digitalising the company law procedures within the framework of the Digital Single Market and complementary with the digitalisation elements included in the proposal on digitalisation aimed at the promotion of digital tools and processes throughout a company's lifecycle. The proposed rules are in line with and intended to be complementary to Directive 2009/38/EC of the European Parliament and of the Council of 6 May 2009 on the establishment of a European Works Council or a procedure in Community scale undertakings and Community scale groups of undertakings for the purposes of informing and consulting employees (Recast), Council Directive 98/59/EC of 20 July 1998 on the approximation of the laws of the Member States relating to collective redundancies, Council Directive 2001/23/EC of 12 March 2001 on the safeguarding of employees' rights in the event of transfers of undertakings, and Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002 establishing a general framework for informing and consulting employees in the European Community. In particular, the rights of employees of the companies involved in a cross-border merger or division may also be protected in accordance with Directive 2001/23/EC. The proposed rules are intended to provide additional protection to employees, by proving more transparency and enhanced information to employees about the planned cross-border conversion, merger or division. The proposal will further contribute to the cross-border mobility of companies by harmonising substantive and procedural aspects of creditor and minority shareholder protection and in turn further enhance cross-border activity by increasing legal certainty and thus reducing cost for companies due to expensive legal advice and the need to comply with unharmonised Member States' rules. Consistency with other Union policies This initiative will contribute to the success of many Commission initiatives which aim to improve the functioning of the Single Market by making it deeper and fairer and to build a digital Europe. This initiative will also contribute to the Investment Plan for Europe, in particular the third pillar thereof which focusses on improving the business environment in Europe by removing regulatory barriers to investment both nationally and at EU level; it additionally contributes to the Capital Markets Union by making the legal framework for companies clearer, more suitable and effective in order to incentivise investments in Europe.

At the same time, this initiative is also coherent with the objective of creating a deeper and fairer economic union and its European Pillar of Social Rights, in particular the 8th Principle, which sets out a number of key principles and rights to support fair and well-functioning labour markets and welfare systems.In particular, by enhancing the transparency for relevant stakeholders including employees, the initiative will directly contribute to the principle stipulating that employees or their representatives have the right to be informed and consulted in good time on matters relevant to them, in particular on the transfer, restructuring and merger of undertakings and on collective redundancies. This initiative is in line with the objective of creating a fair and efficient corporate tax system in the European Union.The Council has adopted a number of measures to counteract corporate tax avoidance in recent years. Council Directive 2015/2376 provides for mandatory automatic exchange of information on advance tax rulings and advance pricing arrangements between Member States. Furthermore, Council Directive 2016/881 provides for mandatory automatic exchange of information of country-by-country reporting by multinational enterprises. Council Directive (EU) 2016/1164 lays down rules against tax avoidance practices that directly affect the functioning of the internal market , including provisions on exit tax to prevent companies from avoiding tax when re-locating assets. Political agreement within the Council was reached on 13 March 2018 on the Commission proposal for a Directive on mandatory disclosure by intermediaries for tax planning schemes, which should be adopted shortly. In particular increased cross-border accessibility to company related information will contribute to ensuring fair taxation where profits are generated. The safeguards against abuse of the conversion and division procedures to create artificial arrangements aimed at obtaining undue tax advantages will contribute to EU efforts to fight tax evasion and avoidance. Through the inclusion of clearer and more harmonised rules aiming at protecting companies’ shareholders and at enhancing the scrutiny of the legality of the cross-border conversion, this initiative also brings an additional step in the mitigating measures against the risks posed by organised crime organisations in the creation and business activities of legal entities, such as companies. These risks have been highlighted by the Commission in its Report on the assessment of the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border activities, adopted on 26 June 2017. In this report, the Commission has underlined the vulnerability of corporate structures, such as companies, to the risk of infiltration by organised crime organisations and terrorist groups. This initiative will complement the ambitious rules that are already in place under Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and under which corporate structures should disclose their beneficial owners to entities in charge of applying anti-money laundering and terrorist financing requirements. 2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY Legal basis The proposal is based on Article 50 of the Treaty on the Functioning of the European Union (TFEU) which is the legal basis for the EU competence to act in the area of company law. In particular, Article 50(2) (f) provides for progressive abolition of restrictions on freedom of establishment and Article 50(2) (g) provides for coordination measures concerning the protection of interests of companies’ members and other stakeholders. Subsidiarity (for non-exclusive competence) There is clear added value to address the problems at EU level rather than through individual action by Member States. The main difficulties in carrying out cross-border conversions and divisions are due to divergent, conflicting or overlapping national procedural rules, and also on rules related to creditor, employee (including employee participation) and minority shareholders protection, lack of use of the interconnection of business registers. The main inefficiencies in the functioning of the existing rules on cross-border mergers are mainly caused by divergent, conflicting or overlapping national rules on creditor and minority shareholders protection, lack of use of the interconnection of business registers or other incoherencies or legal uncertainty caused by different Member States rules such as accounting rules. These challenges by their very nature require action at EU level. Member States acting individually could not satisfactorily remove the difficulties with respect to creating a more efficient functioning of the cross-border operations because national rules and procedures would need to be compatible in order to work in a cross-border situation and to enhance cross-border operations. Those barriers cannot be removed solely by relying on direct application of Article 49 TFEU, given that this would entail addressing them on a case-by-case basis through infringement procedures against the Member States concerned, and, since the lifting of many barriers requires prior coordination of national legal schemes, including the setting up of administrative cooperation. It appears, therefore, that without any action at EU level only non-harmonised national solutions would be available so that companies, in particular SMEs, would continue to face divergent national regimes making the effective exercise of the freedom of establishment more difficult without ensuring adequate protection of stakeholders and the resulting costs would in particular affect the companies but also the stakeholders, be it employees, creditors or minority shareholders. Whereas the substantive levels of protection of employees, minority shareholders and creditors would still be set at national level, a procedural framework for their pursuit in case of cross-border operations would need to be set at EU level for the sake of legal certainty and the effectiveness of such protection. In light of the above, the targeted EU intervention complies with the principle of subsidiarity. Proportionality As regards the principle of proportionality, the proposed rules seem suitable to achieve the objectives of clear and suitable rules for companies and also providing protection to stakeholders as set out in the impact assessment. The impact assessment explains the cost and benefits of the options considered therein for companies, stakeholders and Member States by taking into account all necessary elements including societal benefits and political feasibility. For example, the proposed cross-border conversion procedure is estimated to result in a cost saving of EUR 12 000 – 19 000 per operation and companies operating in the internal market could in total save EUR 176 – 280 million over 5 years. It appears that the proposed actions do not go beyond what is necessary to achieve the objectives and that the positive impacts of the proposed measures exceed the possible negative impacts (Section 6.3 of the impact assessment). Choice of the instrument The legal basis for company law operations is Article 50 TFEU which requires the European Parliament and the Council to act by means of directives. Directive (EU) 2017/1132 governs company law at EU level. For reasons of cohesion and consistency of EU company law, the present proposal will amend and add to that Directive. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS Ex-post evaluations/fitness checks of existing legislation The proposal introduces a new legal framework for a procedure of cross-border conversions and divisions of limited liabilities companies.

The ex-post evaluation of the existing Cross Border Mergers Directive was carried out against the evaluation criteria in line with 'Better regulation' requirements. Main inputs to the evaluation were the study on "The Application of the Cross-Border Mergers Directive" carried out by an external contractor for the Commission, additional studies and two public consultations (2015 and 2017) which collected the views of stakeholders about the functioning of the cross-border mergers. The analysis resulted in an overall positive evaluation of the Cross-Border Merger Directive in terms of effectiveness, efficiency, relevance, coherence and EU added value. Overall, the Cross-Border Merger Directive has led to a significant increase in the cross-border merger activity, in line with its objective to facilitate cross-border mergers and increase the opportunities offered by the Internal Market. However, despite the overall positive assessment, the evaluation identified certain problems which impede the full effectiveness and efficiency of the Directive. The main obstacles concern the lack of harmonisation of substantive rules in particular for creditor protection and minority shareholder protection as well as the lack of fast track (i.e. simplified) procedures in the Directive. Making more use of the interconnection of business registers could increase synergies and thus coherence with other company law legislation. This proposal is coherent with the evaluation and aims to address the main shortcomings to the existing cross-border merger rules identified in it. Stakeholder consultations The Commission has actively engaged with stakeholders and conducted comprehensive consultations throughout the impact assessment process. The consultation process consisted of online public consultation, stakeholder meetings including discussions with Member State experts, several studies. The information gathered through all these means fed into the proposal. In 2012, the Commission carried out a public consultation in order to assess the key interests of stakeholders in regard to European company law and determine where the future priorities of EU company law should lie. 496 responses were received from a wide range of stakeholders, such as public authorities, trade unions, civil society, business federations, liberal professions, investors, universities, think tanks, consultants and individuals. The vast majority of the stakeholders focussed on improving the business environment and fostering cross-border mobility. Furthermore, emphasis was also put on enhancing the protection of creditors, shareholders and employees in cross-border situations as well as facilitating the creation of companies and fostering regulatory competition. A more detailed online public consultation was launched in 2013 on the cross-border transfers of registered offices of companies aiming to acquire more in-depth information on the costs faced by companies transferring their registered offices abroad and on the range of benefits that could be brought by an EU action in this respect. In total 86 responses were received from public authorities, trade unions, civil society, companies, business organisations, individuals and universities, allowing for a broad representation of society. Replies have come from 20 EU Member States and also from outside the EU. It was found that the majority of respondents, who would consider the possibility of moving their company cross-border, would broadly welcome the introduction of a conversion procedure. They cited economic benefits, cost savings for the internal market and the broader possibilities for SMEs to transfer cross-border as reasons for answering in the affirmative. Moreover, it was a majority of 43% of respondents who considered that the CJEU jurisprudence did not provide enough clarity on the issue. A further public consultation was launched in 2015 which focussed on cross-border mergers and cross-border divisions where 151 responses were received. As regards cross-border divisions, the introduction of a new procedure was broadly welcomed by the respondents as the majority of the participants identified the protection of creditors, the protection of minority shareholders and the protection of employee rights as the main issues to be treated. Approximately 72% of respondents who expressed an opinion thought that harmonisation of legal requirements concerning cross-border divisions would help enterprises and facilitate cross-border activities by reducing the costs directly related with the cross-border division. Procedural issues as well as stakeholder protection were identified as key issues to address. Moreover, 68% of the respondents cited legal uncertainty due to the lack of EU rules as the main obstacle to completing a cross-border division and 51% of the respondents cited the duration and complexity of the current procedures as being highly problematic. Concerning cross-border mergers, 88% of the respondents were in favour of harmonisation of creditor protection – 75% of which favoured a full harmonisation approach. The vast majority of those felt that a guarantee was the best form of protection and that the date determining the beginning of the creditor protection period should be harmonised. Furthermore, in regards to minority shareholder protection, a majority of 66% were in favour of harmonisation with 71% of which in favour of harmonisation on a maximum basis. 70% of those in favour of full harmonisation felt that minority shareholders should be given an exit right against adequate cash compensation. Moreover, 62% of the respondents welcomed the introduction of a fast-track procedure. The latest public consultation on company law was launched in 2017. It ran from 10th May 2017 to the 6th August 2017. There were 207 responses received. In the light of the upcoming initiative the Commission sought for answers for detailed questions about the shortcomings of the EU legal framework and areas which are considered a priority for the respondents. The outcome of the consultation showed a broad support for cross-border conversions from Member States and stakeholders alike as approximately 85% of all respondents were of the opinion that there should be an EU instrument on this matter. In terms of stakeholder breakdowns, all of the public authorities agreed that the lack of procedural rules for conversions do indeed constitute obstacles to the internal market and that the EU should be addressing this issue. Several authorities submitted that they were more concerned with the issue of seat than they were with stakeholder protection mechanisms and said that they would support a conversion initiative to the extent that companies can only move their real seat for genuine business purposes rather than conclude transfers of letterbox companies for fraudulent purposes. The business groups supported the introduction of a conversion procedure with similar percentage approvals as the public authorities. Approximately 44% of business groups considered this to be a top EU priority, 22% a priority and 22% a low priority. Trade unions and notaries were both moderately supportive of new procedural rules concerning conversions (74% and 79% deeming this a low EU priority respectively). Both the trade unions and the CNUE (representative body of notaries) were keen to stress that companies should only be allowed to transfer their registered office if it is accompanied by the transfer of their real seat with Trade Unions further stressing the need for a horizontal instrument for employee information, consultation and participation rights. Academics were also broadly in favour of the introduction of a conversion procedure. Some academics submitted that Member States should be able to determine their own requirements to be recognised under their law and indeed whether they require that the real seat be transferred. It was further submitted that digitalisation should be used as much as possible (i.e. for publication of information and for the company registries to communicate). Others suggested that a Member State should only be able to block a conversion in very exceptional circumstances on grounds of public interest. As regards cross-border mergers, similarly to the 2015 public consultation, most stakeholders who replied to the 2017 consultation identified the same issues as problematic: the protection of creditors, the protection of minority shareholders and the protection of employee rights. The majority of the national public authorities that responded to the 2017 consultation were of the opinion that there are problems with the existing cross-border merger rules and that those problems constitute obstacles to the Internal Market but to a varying degree. There was a mixed response as to the degree of priority to be given to an EU action to amend the existing rules. In respect of safeguards, all national public authorities which replied were of the opinion that creditor protection measures should be addressed, while 70% were of the opinion that minority shareholder protection measures should also be addressed. There were 80% that found it important to harmonise procedural as well material aspects of creditor protection and 50% that found it important for minority shareholders to be able to block the merger and oppose the share exchange. Business organisations which replied to the 2017 consultation also broadly welcomed the need to amend the directive for cross-border mergers. Points raised by business organisations concerned simplification of rules (fast-track procedure), harmonised rules for creditor and minority shareholder protection, simplified employee protection rules and removing the requirement for merger procedures to be signed before public notaries as is the case in certain Member States. Similarly, trade unions were also receptive to modification of the cross-border merger rules. However, they were primarily concerned with strengthening the employee protection by way of stronger information, consultation and participation rights. Conversely, notaries were overwhelmingly of the opinion that the existing directive functions very well and they do not see the need for any new EU measures in this area. Concerning cross-border divisions, all of public authorities who responded to the consultation were in favour of new rules for cross-border divisions while 40% considered an initiative in this area to be top EU priority. The business organisations were strongly in favour of new rules as 44% considered this to be a top priority and 26% viewed this as a priority. Notaries expressed moderate support for a new initiative. Trade unions were extremely sceptical regarding divisions due to risks for employees but submitted that should Member States decide favourably for divisions, the rules concerning information and consultation for employees would have to be strengthened. As a general comment, it was submitted by the vast majority of the respondents who were in favour of a new procedure for cross-border divisions that the procedure should follow closely what is laid out in the existing Cross-border Mergers Directive. Furthermore, the views of stakeholders were also collected during numerous meetings. The process of the consultation on the company law package within the Company Law Expert Group (CLEG) began in 2012. From 2012 – 2014, the CLEG meetings focussed on the 2012 Action Plan of Company Law and Corporate Governance while in 2015 and 2016 the meetings centred on elements of digitalisation. In 2017, three CLEG meetings took place where the relevant issues for the company law package (namely digitalisation, cross-border mergers, divisions and conversions) were concretely discussed. In these meetings the Commission called on the Member States’ experts for their opinions on specific questions.

In 2017, the Commission invited to the CLEG meetings not only Member States’ experts but also the stakeholders' representatives that emerged in the 2013, 2015 and 2017 public consultations. Stakeholders represented businesses, employees, legal professions. The stakeholders highlighted the need to facilitate cross-border operations, however, interests of companies' members, employees and creditors should be protected through adequate safeguards. Generally there is broad support for the initiative for cross-border conversions provided there are sufficient safeguards in place. As regards mergers, generally the Member State representatives showed support for the initiative, although they indicated that concrete solution required deeper discussions. While no stakeholder group was against the revision of the cross-border merger rules, the opinions differed as to the degree of priority of it. Concerning cross-border divisions, generally the Member States' representatives showed support for the initiative, although the particular solutions, especially originating from the different legal traditions, appeared to remain to be discussed. There was a general sentiment amongst all stakeholders with the exception of Trade Unions that a new procedure for cross-border divisions would be highly useful and should follow closely what is laid down in the existing Cross-border Mergers Directive. In addition to the CLEG meetings, information from stakeholders were also gathered though bilateral meetings. In these meetings, the representatives of trade unions emphasised the importance of preservation of employee participation rights and that companies should only move for real purposes, thus avoiding that letterbox companies are created through cross-border operations. The representatives of business organisations showed a great support for the initiative on facilitating mobility of companies. The proposal addresses the most important issues identified by stakeholders. However, given that stakeholders have different views as to the detail approach how the issues should be addressed, the proposal aims to strike a fair balance between these views. Collection and use of expertise In order to assist to the work of the Commission, the Informal Company Law Expert Group (ICLEG) was established in May 2014 on issues of company law. The members of the expert Group were highly qualified and experienced academics and legal practitioners of company law from several Member States. The Commission has also used the results of a study conducted in 2017 analysing specific questions on cross-border transfers of registered offices and cross-border divisions of companies. Furthermore, the Commission collected expert feedback at several conferences including a conference held in September 2017 in Tallinn, Estonia on 21st European Company Law and Corporate Governance Conference: Crossing Borders, Digitally and the Annual Conference on European Company Law and Corporate Governance that took place in Trier, Germany, in October 2017. Impact assessment The Impact Assessment Report covering digitalisation, cross-border operations and conflict of law rules in company law, was examined by the Regulatory Scrutiny Board on 11 October 2017. A negative opinion of the RSB was issued on 13 October 2017. The recommendations put forward were addressed in a revised version of the Impact Assessment submitted to the Board on 20 October 2017. The Board gave a positive opinion with reservations on 7 November 2017. Concerning the scope of application which would determine which types of companies could benefit from the harmonised rules and procedures for cross-border conversions and divisions and modified rules on cross-border mergers, the Impact Assessment explained why the existing scope of application of the cross-border merger rules (i.e. limited liability companies) provides the most effective solution for all cross-border operations despite some calls to broaden it to cover partnerships and cooperatives. This is because the existing data shows a very limited use of the cross-border merger rules by entities other than limited liability companies. 66% of the acquiring companies and 70% of the merging companies involved in cross-border mergers were private limited liability companies, whereas 32% of acquiring companies and 28% of the merging companies involved in cross-border mergers were public limited liability companies In addition, extension of the scope would lead to potential practical difficulties related to EU company law and accounting rules which only apply to limited liability companies. As to the introduction of new procedural rules for cross-border conversions and divisions, the Impact Assessment examined the option 0 (baseline scenario) of having no procedural rules for cross-border conversions and divisions against the option 1 which would introduce harmonised EU procedures to enable companies to carry-out direct cross-border conversions and divisions. The lack of procedural rules makes cross-border conversions and divisions extremely difficult, if not impossible. National cross-border conversion and division procedures exist only in a limited number of Member States and they are often not align with each other. Companies must therefore rely on costly indirect procedures, the analogous application of the Cross-border Merger Directive and the CJEU jurisprudence where legal practitioners and business registers are aware of the case-law. By introducing new procedural rules for cross-border conversions and divisions, companies would be provided significant clarity and significantly reduce the costs for companies wishing to convert or divide cross-border. Moreover, it would provide clarity to national business registers to clearly distinguish the point in time to which a company can enter the business register in the destination Member State and be struck off the business register in the departure Member State which would avoid situations such as Polbud arising. As to the protection of minority shareholders, the Impact Assessment assessed the option 0 (baseline scenario) consisting of the existing rules on minority shareholders' protection against the options 1 and 2. Option 1 would provide harmonised rules across the Single Market. It would build on the rules for cross-border mergers, but in addition it would provide for harmonised rules. The preferred option 2 would provide for the same harmonised rules as option 1 but Member States would be able to provide for additional safeguards. This option would provide the most adapted protection of minority shareholders. While option 2 could potentially cause some compliance costs for companies, it would significantly reduce cost and burdens on companies in comparison to the baseline scenario and would provide for more legal certainty, less need for legal advice and thus offer cost savings for companies compared to the baseline scenario. The preferred option 2 provides the best balance between cost reduction, the high level of protection and the flexibility to Member States. As to the protection of creditors, the Impact Assessment examined the option 0 (baseline scenario) of keeping the existing the cross-border mergers rules unchanged and no EU rules on creditor protection in cross-border conversions and divisions against the option 1 of providing harmonised rules to protect creditors and against option 2 that would provide for the same harmonised rules as option 1, but Member States would be able to provide for additional safeguards. The preferred option 2 would provide the best balance between cost reduction, a high level of protection and flexibility to Member States. Both options 1 and 2 would significantly reduce cost and burdens on companies in comparison to the baseline scenario, as the harmonised rules on creditor protection would provide for more legal certainty and less need for legal advice for any cross-border operation. Option 1 would offer the biggest savings for companies, while savings in option 2 might be smaller, since Member States could provide for additional safeguards which could be costly or burdensome for some companies (e.g. need to provide guarantees for all creditors). In terms of protection offered to creditors, option 2 would provide for more complete and targeted protection than option 1 due to the possibility granted to MS to assess the national specificities of creditor protection and to introduce more safeguards. As to the employee information, consultation and participation, the Impact Assessment compared the option (base-line scenario) of applying the existing rules on the employee participation in the Cross-border Merger Directive against the option 1 that would apply the existing rules on the employee participation in boards from cross-border mergers to cross-border divisions and conversions and against option 2 that would consist of targeted amendments to existing cross-border mergers rules, while at the same time providing specific measures for the perceived higher risks for employees in cross-border divisions and conversions. The preferred option 2 is composed of several elements which as a combined effect aim to provide the necessary protection for employees. Safeguards would include for all cross-border operations a new special report prepared by the company's management to describe the impact of the cross-border merger on jobs and the situation of employees and a so called "anti-abuse" rule providing that during 3 years following the cross-border operation, if performing a subsequent cross-border or domestic operation, the company would not be able to undermine the system of employee participation. The rule is based on the existing cross-border mergers rules but would be adapted to cover not only subsequent domestic conversions, mergers or divisions but also other cross-border and domestic operations. This option would, in addition introduce specific rules as regards negotiations in case of cross-border divisions and conversions. The Impact Assessment analysed the costs and benefits of these targeted changes and concluded that the limited additional compliance costs for companies due to the possible preparation of the report would be outweighed by the increased protection of employees and the resulting societal benefits. Finally, the Impact Assessment also examined the question of how to tackle risks of abuse, including a proliferation of "letter-box" companies for abusive purposes such as for avoiding labour standards or social security payments as well as aggressive tax planning. During the public consultations, certain stakeholders, in particular trade unions, called for a solution whereby the company carrying out cross-border conversion would need to transfer the registered office together with the head office to the destination Member State. However, the very recent Court decision in the Polbud case, which was delivered after the public consultations were closed, stipulates that the freedom of establishment applies to cases where only the registered office is moved cross-border. Therefore, such a solution could not be envisaged. The Impact Assessment thus examined the option 0 (baseline scenario) of having no harmonised rules against the option 1 which would introduce rules and procedures according to which Member States would need to assess on a case-by-case basis whether the cross-border conversion in question constitutes an artificial arrangement which aims at obtaining undue tax advantages or unduly prejudicing the rights of employees, minority shareholders or creditors. The preferred option 1 would directly contribute to the fight against circumvention of rules and thus against abusive or fraudulent use of letterbox companies. When compared to the baseline scenario, the option 1 would be a part of the procedure allowing companies to convert cross-border and therefore the additional compliance costs would not be specific to the assessment of the possible artificial arrangement. As to the Member States, they would need to transpose and implement those rules which incur some administrative and organisational costs. Option 1 would lead into enhanced stakeholder protection. Stakeholders would be able to provide their views throughout the procedure and ultimately be protected against circumvention of rules by fraudulent companies. The Impact Assessment also analysed options related to conflict of laws rules. The preferred option in this respect was an instrument harmonising relevant rules, in particular as regards the connecting factor, on the basis of the place of incorporation of the company with further specific rules pointing to the law of the real seat and covering only companies established in the EU. However, given that the instances in which clarity is most needed, namely specific issues related to the law applicable to limited liability companies in cross-border situations, will be addressed in the proposed legislation on cross-border conversions, mergers and divisions, it was decided not to propose a specific legislative act on conflict-of-laws at this point in time. Regulatory fitness and simplification The proposal is expected to deliver considerable simplification benefits to business in the Single Market by facilitating cross-border mobility of companies. The creation of a comprehensive set of common rules regulating cross-border conversions and divisions will streamline and simplify procedures and reduce costs for business as regards the type and content of documents to be prepared, the different procedures and the related deadlines or other additional requirements. The proposed rules on employee participation and members’ and creditors’ protection rules will enhance legal certainty and predictability to these operations. The new common rules on cross-border divisions and conversions can be expected to bring savings of EUR 12 000 - EUR 37 000 (divisions) and EUR 12 000 – 19 000 (conversions) depending on the size of companies and Member States involved. The proposed amendments to the existing EU legal framework on cross-border mergers will simplify the rules for cross-border mergers of companies and reduce costs and administrative burdens through new common and streamlined procedure. The proposed rules on members’ and creditors’ protection and disclosure rules will enhance legal certainty and predictability. The cost reduction and simplifications will have a particularly positive impact on micro and small enterprises.

The information exchange foreseen in this proposal will be implemented through the existing system of the interconnection of central, commercial and companies registers (BRIS). Therefore, no specific IT developments are anticipated. Fundamental rights The proposed rules of this initiative ensure the full respect of the rights and principles set out in the Charter of Fundamental Rights of the European Union and contribute to implementation of several of those rights. In particular, the main objective of this initiative is to facilitate the rights of establishment in any Member State, as prescribed by Article 15(2) of the Charter and ensuring the principle of non-discrimination on grounds of nationality (Article 21(2)). The initiative aims to reinforce the freedom to conduct a business in accordance with Union law and national laws and practices (Article 16). The right to property set out in Article 17 of the Charter is also strengthened by the initiative through the safeguards that are provided for shareholders. Although the initiative will provide rules for companies in the framework of company law, it will also contribute to the workers' right to information and consultation within the undertaking (Article 27 of the Charter) by providing more transparency for employees in case of cross-border operations of companies. The protection of personal data shall also be ensured in line with Article 8 of the Charter. 4.BUDGETARY IMPLICATIONS No major costs have been identified. The proposal would cause primarily costs for national administrations associated with the introduction of legislative rules at national level (preparation, consultation, adoption, adaptation of existing ones) as well as with the introduction of scrutiny procedures. As regards cross-border conversions and divisions, in Member States where there are no cross-border procedures, the impact would be bigger than in other Member States where such procedures exist and they would only need to be adapted. There is no impact on the EU budget. 5.OTHER ELEMENTS Implementation plans and monitoring, evaluation and reporting arrangements The Commission will assist the Member States to transpose the proposed rules and will monitor their implementation. In this context, the Commission will cooperate closely with national authorities e.g. the national company law experts in the Company Law Expert Group (CLEG). In that context, the Commission may provide assistance and guidance (e.g. by organising implementation workshops or providing advice on bilateral basis). The monitoring would consist of analysing trends in cross-border operations activities of companies through the notifications of cross-border conversions, mergers and divisions via the system of interconnection of business registers (BRIS), through collection of costs for cross-border conversions as far as possible, and whether and to what extent stakeholders and stakeholder organisations indicate satisfaction with the protection of their rights in the relevant cross-border operations. The development of the case-law of the Court of Justice of the European Union in the area will also be monitored. With a view to gathering the required stakeholder input, the Commission could send questionnaires to stakeholders or organise specific surveys. An evaluation should be carried out in order to assess the impact of the proposed measures and verify if the objectives have been achieved. It would be carried out by the Commission on the basis of the information gathered during the monitoring exercise and additional input collected from the relevant stakeholders, as necessary. An evaluation report should be issued after enough experience is gained from the application of proposed. The provision of information for monitoring and evaluation should not impose any unnecessary administrative burden on the stakeholders concerned. Explanatory documents (for directives) The proposal is amendment to the Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law. To ensure the proper implementation of this complex directive, the explanatory document, e.g. in the form of correlation tables would be necessary. Detailed explanation of the specific provisions of the proposal Cross-border conversions Article 86a: this article describes the scope of the proposal which sets up an EU legal framework regulating the cross-border conversions of private and public limited liability companies. Article 86b: this article contains definitions. The definition of the cross-border conversion is based on the jurisprudence of the Court of Justice and entails the change of a legal form of the company from the departure Member State into the legal form of the destination Member State.

Article 86c: this provision sets out the conditions under which cross-order conversions can be carried out, the verification of them and applicable law. In particular, it lays down the requirement that companies that are subject to insolvency or similar proceedings cannot carry out the cross-border conversion as regulated in this Directive. In addition, pursuant to the general principle that EU law cannot be invoked to justify abuse of rights as established in the ECJ's case law, a conversion cannot be authorised when it is determined, after examination of the individual case and having regard to all relevant facts and circumstances, that it constitutes an artificial arrangement aimed at obtaining undue tax advantages or unlawfully prejudicing the legal or contractual rights of employees, creditors or members. Article 86d: the provision sets the minimum scope of information to be provided in the draft terms of the cross-border conversion which will be made publically available for every person interested for this operation. The draft terms will have to provide information regarding the change of company form, and regarding the company resulting from the conversion as well as the protection offered for the relevant stakeholders: in particular shareholders, creditors and employees. This article stresses the importance of draft terms but also increases as much as possible the ease in their compilation in that it offers companies a possibility to draft them, in addition to the official language or languages of the Member States concerned, also in the language most commonly used in business transactions; thereby the Member State may determine which language version is the decisive one in case of discrepancies. Article 86e: this article sets out the requirement for preparing a report for shareholders explaining in detail the aim of the cross-border conversion, the company's plans and the safeguards for shareholders. The report shall in particular include the impact of the conversion on the activity of the company and its interests, on the interests of shareholders and the measures to protect them. The report should be also available to the employees. In line with the principle of proportionality, the report may be waived if all members of the company so agreed. Article 86f: this article requires a report to be drawn by the company addressing issues essential for the employees of the company carrying out a cross-border conversion. This report shall explain the implications of the cross-border conversion for employees. It shall be made available to the representatives of the employees or to the employees themselves in case there are no such representatives. The provision further clarifies that the provision of the report is without prejudice to the applicable information and consultation proceeding already provided for in the acquis. Article 86g: this article concerns the examination by an independent expert. The accuracy of the information provided in the draft terms of the cross-border conversion and in the reports of the management or administrative organ shall be subject to the assessment by an independent expert appointed by the competent authority. The report shall also include all relevant information about the company and intended cross-border conversion allowing the competent authority to assess inter alia whether the operation constitutes an artificial arrangement. The article further sets out the procedure, timeline and the competences of the independent expert, including the protection of confidential information. In line with the principle of proportionality, micro and small enterprises are exempted from the requirement of an independent expert report. Article 86h: this article lays down for the rules for the disclosure of the draft terms of the cross-border conversion and the independent expert report which should be publicly available free of charge. At the same time, the disclosure will include a notice inviting members, creditors and employees of the company to submit comments. The disclosure requirements shall guarantee an immediate access to the draft terms for the protection of the relevant stakeholders. This article sets out the principle that the draft terms shall be disclosed in the business register as the most common point of reference for stakeholders. Member States may allow a company to disclose the draft terms on its website, but in that case the most important information will still be required to be disclosed in the business register. The article provides for a possibility for Member States to preserve additional publication in the national gazette and charge fees for it. In order to facilitate the access to the disclosed information, the disclosed draft terms of cross-border conversion, the notice and the independent expert report must be accessible to the public free of charge. Fees charged for the disclosure may not go beyond the administrative cost of the service. Article 86i: this article lays down the requirement of approval of the draft terms of cross-border conversion by the general meeting. A similar requirement exists in the case of cross-border mergers. Member States may set out the requirements for the qualified majority of the votes cast for the approval of the draft terms; however, the required majority requirements may not exceed the requirements applicable for cross-border mergers. Article 86j: this article provides for safeguards for shareholders and establishes an exit right for those shareholders that oppose the cross-border conversions. This applies for either those who did not vote for the cross-border conversion or those that do not agree with the conversion but do not have voting rights. The company, remaining shareholders or third parties, upon the request of the members concerned, should acquire their shares in exchange for an adequate compensation. In case the shareholders consider that the cash compensation offered has been inadequately set, they are entitled to challenge its amount before the courts of the departure Member State. Article 86k: this article provides for various safeguards for creditors. Member States may provide that the converting company should make a declaration as part of the draft terms of the cross-border conversion stating that the conversion will not affect the ability to satisfy the obligations towards third parties and that creditors will not be prejudiced. Creditors will also have the right to apply to the competent administrative or judicial authority to grant them adequate protection. The authorities will apply the rebuttable presumption that the creditors are not prejudiced if an independent expert report concluded that there was no reasonable likelihood that the rights of creditors would be prejudiced or if the company offered a right to payment either against a third party guarantor or against the converted company for the original value of the claim in question on condition that it may be brought before the same jurisdiction as the original claim. The article also clarifies that the provisions on creditor protection shall be without prejudice to the application of national laws concerning the satisfaction or securing of payments owed to public bodies.

Article 86l: this article deals with the participation of employees in the company carrying out a conversion, where the protection of the rights of participation is put at risk by the operation. In principle, the company will have to follow the respective rules of the destination Member State, unless the national law of that Member State does not provide for the same level of the employees' participation in the company's management or supervisory organs. This article will also apply if the number of the employees exceeds four fifths of the threshold set out in the national law of the departure Member State triggering the employee participation right pursuant to Article 2 of Directive 2001/86/EC, or irrespective of the number of the employees the rules of employees' participation in the destination Member State do not provide for the same level of the participation. If this is the case, the company will have to enter into negotiations with the employees to determine their participation. The negotiations will be obligatory, and will have to result either in a bespoke arrangement regulating the involvement of employees or, in case no agreement is reached within 6 months, the standard rules of employees' participation as laid down in the Annex (in particular point (a) of Part 3) of Directive 2001/86/EC will apply. In accordance with Directive 2001/86/EC, the negotiations have to start as soon as possible after the draft terms of the conversion are made publically available. The company will have to preserve at least for three years in substance the employees' participation rights in case of subsequent operations like mergers, divisions or conversion. The company will be obliged to communicate the outcome of the negotiations to its employees. Articles 86m and 86n: these articles govern the assessment of the legality of cross-border conversions by the competent authority of a departure Member State. This Member State shall assess the completion of the cross-border conversion in respect to the procedure governed by the respective national law. The rules are based on the corresponding principles provided for in Regulation (EC) No 2157/2001 for the SE and in the rules related to cross-border mergers. The competent authority of the departure Member State shall conduct an assessment of the formal completion of the procedure by the company and additionally shall determine whether the intended conversion does not constitute an artificial arrangement as referred to above. In case the authority has serious concerns that the cross-border conversion may constitute an artificial arrangement, it may perform an in-depth assessment. Article 86o lays down provisions related to review of the decisions taken by the national competent authority as regards the issuance or refusal to issue the pre-conversion certificate. It also deals with the availability of such decision through the interconnection system and the transmission of the pre-conversion certificate to the destination Member State by digital means of communication. Article 86p governs the scrutiny of legality of the cross-border conversion by the destination Member State. The authority of that Member State checks in particular the incorporation requirements and the results of the negotiations on employee participation, where applicable. Article 86q governs the arrangements to disclose the completion of the registration and the information which must be entered into the registers. The information on the registration should be exchanged between the registers automatically, so that the departure Member State would immediately be able to take actions for the striking off the company from its business register. Article 86r stipulates that the cross-border conversion takes effect from the day of registration of the converted company in the destination Member State. Article 86s: this provision describes the consequences of the cross-border conversion. Article 86t: the provision stipulates that Member States should lay down rules on the liability of the independent expert. Article 86u: the validity of the cross-border conversion cannot be challenged if the procedure for the cross-border conversion was respected. Cross-border mergers

Article 119 is amended to include into a definition of a cross-border merger as an operation between companies in which a company being acquired transfers all its assets and liabilities into the acquiring company without issuing new shares. Such an operation will fall under the scope of this Article, if the merging companies are owned by the same person or the ownership structure in all merging companies remains identical after the completion of the operation. Article 120 is extended to cover more situations where companies shall be excluded from the scope of application, for example where proceedings of winding-up, liquidation or insolvency have been instituted or suspension of payments is on-going. Article 121 is amended by deleting references to protection of creditors and protection for minority shareholders because these will be harmonised under Articles 126a and 126b. Article 122 is amended to specify that the common draft terms of cross-border merger shall also include the offer of cash compensation for members who did not vote for the merger as well as safeguards offered to creditors. Additionally, it provides for a language regime of the common draft terms of cross-border mergers A new Article 122a is added which introduces rules on determination of the date from which the transactions of the merging companies will be treated for accounting purposes The amended Article 123 provides, as a default rule, for the disclosure of the common draft terms in the business registers of the merging companies. Alternatively, Member States have a possibility to exempt companies from the disclosure obligation in the business registers, in case companies make the draft terms available on their websites and fulfil specific conditions in this regard. In the latter case, companies must disclose certain specific information in the business registers. Companies must, in principle, be able to submit the necessary information fully on-line without the need for physical presence before any national authority, unless there is a genuine suspicion of fraud. The access to such information must be free of charge. In addition, Member States may publish the common draft terms in the national gazette, in this case the national register shall submit the relevant information to the national gazette (once-only principle). The amended Article 124 specifies that the report addressed to the members of the merging company shall explain the implications of the cross-border merger on the future business and the management's strategic plan as well as the implications of the cross-border merger for members. In addition, the report shall explain the share exchange ratio and describe any special valuation difficulties as well as remedies available to certain members. The report must also be available to the employees. The report may be waived if all members of the merging companies agree. The new Article 124a sets out that each of the merging companies shall provide employees with a report that addresses the important issues for the employees in the context of the cross-border merger. The representatives of the employees or the employees themselves in cases where there are no representatives will have the right to express their opinion. The opinion must be submitted to shareholders and appended to the report. The new Article 126a provides for safeguards for members. It establishes an exit right for those members that oppose the merger. This applies for either those who did not vote for the approval of the cross-border merger or those that do not agree with the merger but do not have voting rights. The company, remaining members, or third parties in agreement with the company must acquire the shares of the members exercising the exit right in exchange for adequate cash compensation. Since the existing rules on cross-border mergers already provide for the appointment of an independent expert (Article 125), this expert shall also review the adequacy of the cash compensation. If the members consider that the offered cash compensation has been inadequately set, they are entitled to demand for its recalculation by the national court. Members wishing to remain in the company have also right to challenge the share-exchange ratio which shall be explained and justified in the report referred to in Article 124. The new Article 126b provides for safeguards for creditors. First, Member States may require management or administrative organ of the merging company to make a declaration stating that they are not aware of any reason why the company resulting from the merger should not be able to meet its liabilities. Secondly, creditors who are dissatisfied with the protection offered to them in the draft terms of merger shall have the right to apply to the competent authority for adequate safeguards. However, the competent authority shall apply a rebuttable presumption that the creditors are not prejudiced by the cross-border merger if the company has offered a right to payment (against a third party guarantor or the company resulting from the merger) of the equivalent value to their original claim which may be brought before the same jurisdiction as the original claim, or if the independent expert report, which was disclosed to creditors, confirmed that the company would be able satisfy its creditors. The provisions on creditor protection shall be without prejudice to the application of national laws concerning the satisfaction or securing of payments owed to public bodies. The modified Articles 127 and 128 stipulate that for the purposes of the pre-merger certificate and scrutiny of legality of the cross-border merger, companies shall be able to file any information and documents fully on-line. In addition, the Articles set out that the pre-merger certificates must be transmitted through the system of interconnection of registers (BRIS) to the Member State authority which will scrutinise the legality of the cross-border merger. It is further stipulated that the pre-merger certificate(s) must be accepted as a conclusive evidence of the proper completion of pre-merger acts and formalities. Member States, in case of genuine suspicion of fraud, shall be able to require physical presence before a competent authority. Article 131 is amended by explaining that all the assets and liabilities of the company being acquired or of the merging companies include all their contracts, credits, rights and obligations. Article 132 is amended by extending the simplified formalities to the situation in which the cross-border merger is carried out by companies where one person holds all shares. In addition, in cases where no general meeting is required in any of the merging companies, Article 132 lays down a specific reference date for the disclosure of the common draft terms of cross border merger and the reports of the management or administrative organ of the merging companies. Article 133 paragraph 7 which stipulates that during 3 years following the cross-border merger, the company would not be able to perform a subsequent domestic merger which would result in undermining the system of employee participation is amended to cover all possible subsequent domestic operations (i.e. mergers, divisions and conversions) and not only domestic mergers. In addition, Article 133 is amended by adding an obligation for companies to communicate to their employees whether the company decides to apply standard rules or whether it decides to enter into negotiations with employees. In the latter case, the company shall inform the employees of the results of the negotiations. A new Article 133a is added addressing Member States' rules on the civil liability of the independent expert. Cross-border divisions Article 160a sets out the scope of the proposal which regulates the cross-border divisions of private and public limited liability companies.

Article 160b contains definitions. To ensure the consistency with the existing EU acquis in the company law area, the provisions of the cross-border divisions legal framework apply to the same companies as the provisions on cross-border conversions. Article 160c sets further limitations for the application of this Chapter. Article 160d sets out the conditions under which cross-order divisions can be carried out, the verification of them and applicable law. In particular, it lays down the requirement that companies that are subject to insolvency or similar proceedings cannot be the object of division as regulated in this Directive. In addition, pursuant to the general principle that EU law cannot be invoked to justify abuse of rights as established in the ECJ's case law, a cross-border division cannot be authorised when it is determined, after examination of each individual case and having regard to all relevant facts and circumstances, that it constitutes an artificial arrangement aimed at obtaining undue tax advantages or unlawfully prejudicing the legal or contractual rights of employees, creditors or members. Article 160e: the provision sets the minimum scope of information to be provided in the draft terms of the cross-border division which will be made publically available for every person interested in operation. The draft terns will have to provide information regarding the company being divided, the registered office, the allotment of shares in the recipient companies, share exchange ratio, allotment of assets and liabilities between recipient companies as well as and the protection offered for the relevant stakeholders: shareholders, creditors and employees. This article stresses the importance of draft terms but also increases as much as possible the ease in their compilation in that it offers companies a possibility to draft them, in addition to the official language or languages of the Member States concerned, also in the language most commonly used in business transactions; in such case, the Member State may determine which language version is the decisive one in case of discrepancies. Article 160f sets out rules to determine the date from which the transactions of the company being divided will be treated for accounting purposes as being those of the recipient companies. Article 160g: this article sets out the requirement for preparing a report for shareholders explaining in detail the aim of the division, the company's plans and the safeguards for shareholders. The report shall in particular include the impact of the division on the activity of the company and its interests, on the interests of shareholders and the measures to protect them. The report should be also available to the employees. In line with the principle of proportionality, the report may be waived if all members of the company so agreed. Article 160h: this article requires a report to be drawn by the company addressing issues essential for the employees of the company carrying out a cross-border division. This report shall describe and assess the impact of the division for the terms of the employment agreements of the employees. It shall be made available to the representatives of the employees or to the employees themselves in case there are no such representatives. The provision further clarifies that the provision of the report is without prejudice to the applicable information and consultation proceeding already provided for in the acquis. Article 160i concerns the examination by an independent expert. The accuracy of the information provided in the draft terms of the cross-border division and in the reports of the management or administrative organ shall be subject to the assessment by an independent expert report appointed by the competent authority. The report shall also include all relevant information about the company and intended division allowing the competent authority to assess inter alia whether the operation constitutes an artificial arrangement. The article further sets out the procedure, timeline and the competences of the independent expert, including the protection of confidential information. In line with the principle of proportionality, micro and small enterprises are exempted from the requirement of an independent expert report. Article 160j: this article lays down for the rules for the disclosure of the draft terms of the cross-border division and the independent expert report which should be publicly available free of charge. At the same time, the disclosure will include a notice inviting members, creditors and employees of the company to submit comments. The disclosure requirements shall guarantee an immediate access to the draft terms for the protection of the relevant stakeholders. This Article sets out the principle that the draft terms shall be disclosed in the business register as the most common point of reference for stakeholders. Member States may allow a company to disclose the draft terms on its website, but in that case the most important information will still be required to be disclosed in the business register. The Article provides for a possibility for Member States to preserve additional publication in the national gazette and charge fees for it.

In order to facilitate the access to the disclosed information, the disclosed draft terms of cross-border division, the notice and the expert report must be accessible to the public free of charge. Fees charged for the disclosure may not go beyond the administrative cost of the service. Article 160k: this article lays down the requirement of approval of the draft terms of cross-border division by the general meeting of a company being divided. A similar requirement exists in the case of cross-border mergers. Member States may set out the requirements for the qualified majority of the votes cast for the approval of the draft terms; however, the required majority requirements may not exceed the requirements applicable for cross-border mergers. Article 160l provides for safeguards for shareholders and establishes an exit right for those shareholders that oppose the cross-border divisions. This applies for either those who did not vote for the cross-border division or those that do not agree with the division but do not have voting rights. The company, remaining shareholders or third parties must acquire the shares of the members exercising the exit right in exchange for adequate cash compensation. The independent expert shall review the adequacy of the cash compensation. If the shareholders consider that the offered cash compensation has been inadequately set, they are entitled to challenge its amount before the courts of the departure Member State. Members wishing to remain in the company have also right to challenge the share-exchange ratio which shall be explained and justified in the report referred to in Article 160g. Article 160m provides for safeguards for creditors. Member States may provide that the company being divided should make a declaration as part of the draft terms of the cross-border division stating that the division will not affect the ability to satisfy the obligations towards third parties and that the creditors will not be prejudiced. Creditors will also have the right to apply to the competent administrative or judicial authority to grant them adequate protection. The authorities will apply the rebuttable presumption that the creditors are not prejudiced if an independent expert report concluded that there was no reasonable likelihood that the rights of creditors would be prejudiced or if the company being divided offered a right to payment either against a third party guarantor or against the converted company for the original value of the claim in question on condition that it may be brought before the same jurisdiction as the original claim. The provisions on creditor protection shall be without prejudice to the application of national laws concerning the satisfaction or securing of payments owed to public bodies. Article 160n deals with t