Mobility Directive to facilitate cross-border transformations

The Mobility Directive has been in force since the end of 2019 and was supposed to be implemented into member states' national laws by the end of January of this year. However, a relatively large portion of member states, including the Czech Republic, have not yet implemented it. This has led to regulatory fragmentation and has complicated the process of cross-border transformations.

The aim of the directive is to facilitate cross-border operations by specifying the rules for their implementation. It provides the uniform regulation of the three types of cross-border transformations of capital companies:

• cross-border conversions (transfers of the registered office)
• cross-border divisions (demergers)
• cross-border mergers.

The most important change is the addition of the regulation of cross-border division (demerger) and cross-border conversion (transfer of the registered office). As for cross-border mergers, the entire process is being finetuned and streamlined in response to current application practice.

A single EU framework for cross-border operations

The directive lays down procedures for verifying the legality of cross-border transformations by national authorities of the originating member state in the form of cross-border operation certificates. If issued by the relevant authority, only a limited review by the national authorities of the destination member state needs to follow.

The directive also introduces new rules to protect the legitimate interests of persons who may be adversely affected by cross-border transformations. These are:

• shareholders/members of participating companies having the right to exit the company,
• creditors entitled to additional safeguards,
• employees of the participating companies having the right to information, the right to consult on the employer’s transformation, and the right to participate in the bodies of the participating companies.

The directive also aims to digitise the entire process of cross-border operations. The Czech draft amendment to the Transformations Act implementing the directive will include, e.g., the fulfilment of the information obligation through the Collection of Deeds of the Commercial Register. The directive also implements into the transformation process the Business Registers Interconnection System (BRIS), where all relevant information should be published.

The directive is certainly a step towards setting a single framework for cross-border company transformations within the EU. However, it still leaves room for local-specific regulation. Therefore, even after the directive is implemented, there will be significant differences between the legal systems of individual member states, which will continue to complicate cross-border company transformations. Implementing these transactions will thus remain legally complex and costly.

In this context, we would like to draw your attention to the Mobility Directive Compass, a tool created by KPMG professionals to make the process of cross-border transformations more transparent. The Mobility Directive Compass provides information on legal (and other) aspects of cross-border transformations in individual countries, as seen by both the law of the country of origin and the law of the country of destination. This can make transformations much simpler and more efficient, especially when several jurisdictions are involved.

The directive has yet to be implemented in the Czech Republic. The respective implementing amendment is currently in the legislative process, with the expected effective date sometime next year. However, the current legislation in the Transformations Act already regulates and allows for cross-border transformations in the form envisaged by the directive (except for divisions (demergers) by spin-off). The implementing amendment thus mostly harmonises the existing legislation in the Transformations Act with the directive.