Cross-border demerger

Based on case law of the European Court of Justice, a cross-border demerger was already considered possible, but due to uncertainty on the applicable regulations and conditions not widely implemented in legal practice. With the introduction of new legislation in 2023, this will likely change.

In early 2022, a legislative proposal was published by the Dutch legislator  aiming to implement the most recent European directive on cross-border restructuring. This legislative proposal aims to:

1. amend a number of provisions on the cross-border merger, which already has a legal basis in the Dutch Civil Code;
2. implement a legal framework for the cross-border conversion. In practice, cross-border conversions are already implemented on a regular basis by applying  various (related) regulations. The introduction of the new legislation will lead to (a more) uniform application and is therefore welcome;   
3. implement a legal framework for cross-border demergers (discussed in this article).

Limited to a demerger to a new company
Unlike a domestic demerger, it will only be possible to demerge assets and/or liabilities to a new company, and not to an already existing company. According to the (European) legislator, this would be too complex.

Procedure
The procedures for a cross-border merger, cross-border conversion and cross-border division will be unified to a high extent. Key document is a proposal drawn up by the board(s) of the company or companies concerned. Creditors can exercise their rights during a three-month opposition period (previously one month). The notary has an important role as he or she has to certify that all procedures have been complied with regarding the Dutch company/companies involved. There is an ongoing debate and uncertainty on the application by the notary of a so-called “fraud test”. Under the current draft legislation, the notary should refrain from issuing the certificate if he or she has serious doubts indicating that the cross-border operation is set up for abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of Union or national law, or for criminal purposes.

Final remarks
The deadline for implementing the European directive into Dutch law is 31 January 2023 and will likely not be met by the Dutch legislator. An updated legislative proposal is expected to be published in the course of this year.

This article was published earlier in the GCN's General Counsel NL Newsletter