Cross-border reorganizations
Cross-border mobility of corporations
In implementing the Mobility Directive, the legislator has2 the (company law) EU Restructation Act (EU-UmgrG) passed.3 The Act regulates the cross-border transfer of registered offices of corporations known as”Transformation” , as well as cross-border mergers and cross-border divisions.
The law4 came into force on 1.8.2023. At the same time, the ArbVG was amended, which regulates employee participation in such cross-border restructurings.
The scope of the Mobility Directive and the EU UmgrG relates to corporations based in various member states of the EU or the EEA. GmbH & Co KG and AG & Co KG are not included.
The following are excluded from cross-border restructuring:
According to the case law of the ECJ, the cross-border transfer of registered offices of corporations has already been permitted up to now. In practice, however, there have been implementation difficulties in the commercial register or registry courts on a case-by-case basis. These difficulties should now be a thing of the past due to uniform Europe-wide legal regulations.
The transfer of the registered office of a capital company from one Member State to another — i.e. “Transformation” — means that, following the conversion, the capital company now has the relevant legal form of the new registered office. It is legally identical to the company in the original state of residence. Terminologically, the law of “Member State of departure” and “Member State of arrival” or from “Outward transformation” and “Transformation”. Once the conversion has been completed, the law of the host member state will apply to the corporation, its shareholders/shareholders and to the board members (managing director, board of directors, supervisory board or board of directors).
Surprisingly, it is not required by law that an Austrian GmbH can only be converted into a GmbH, albeit based in another Member State, and an Austrian AG or SE can only be converted into a foreign AG or SE. It would therefore be possible to turn a domestic GmbH into a foreign AG, etc. This can have enormous effects on the legal status of individual shareholders/shareholders.
The legal regulations that have now been created open up scope for restructuring — including for subsequent restructuring, division or liquidation or sale of the company in accordance with the then applicable foreign law. This has potential for disenfranchising minority shareholders who were overruled during the conversion. In addition, following the cross-border transformation, minority shareholders suddenly find themselves as shareholders of a corporation in foreign language countries, where they have language difficulties, where it is more difficult to exercise and enforce rights, involves higher costs, or where the jurisdiction functions more poorly.
The different legal systems of the individual Member States give shareholders/shareholders leeway for corporate governance:
In France, for example, public limited companies have the right to choose between the “single-level” board of directors (One tier system) and the “two-stage” system (Two-tier system), consisting of the Management Board and Supervisory Board. Italian company law actually allows the AG to organize three different forms of management.6 German GmbH law contains far less strict capital maintenance requirements than Austrian GmbH law,7 and a shareholder resolution approving a management measure generally exempts the GmbH managing director from liability under German law, even if the compensation claims would be necessary to satisfy the creditors of the GmbH (unlike under Austrian GmbH law in accordance with Section 25 (5) GmbHG); under German GmbH law, the consent decision would only not relieve liability if there were violations of the prohibition of Deposit refund acts.
In the company laws of other EU countries, there may be a lower or higher level of protection for shareholders. Remember that in the case of Austrian GmbH, the action for minority damages requires a participation of 10% of the share capital or a nominal amount of the share of 700,000 euros, while under German GmbH law, the shareholder action (Actio pro socio) is possible to pursue claims for damages even with a lower participation rate. Conversely, under German GmbH law, claims against co-shareholders arising from “third-party transactions” with Actio pro socio unenforceable,8 According to Austrian GmbH law, however, very well.9 Austria also has the instrument of special audit by expert auditors for the GmbH, but not in Germany.
For example, there are numerous differences between the individual legal forms in the various Member States. Accordingly, a transfer of the registered office abroad can also have enormous effects on the legal status of majority and minority shareholders and on their relationship with the managing body. A majority of shareholders may be tempted to switch to company law that is more favourable to them by moving the registered office (conversion). Vice Versa Depending on the case, the transformation of their rights can reduce the company's rights and come under pressure as a result.
The right of minority shareholders to leave the company as a result of the conversion and to claim cash compensation, which is probably intended as a remedy, will still have to be returned.
For all types of cross-border reorganizations, the EU UmgrG provides for a report from the Executive Board/Management for shareholders and employees. It must explain and justify the legal and economic aspects of the cross-border restructuring measure.
At the same time, Section 5 EU-UmgrG imposes liability on board members (Executive Board, Managing Director, if applicable, the Supervisory Board) for incorrect reports. It is therefore highly necessary to conduct an expert opinion to make a comprehensive legal comparison between the relevant Austrian and the foreign legislation applicable in the future and to have the differences identified. Otherwise, shareholders could later raise allegations and claim damages against the managing directors/board of directors.
The management board/management of the company must prepare a conversion plan for the cross-border transformation. In addition, a final balance sheet must be drawn up for the conversion date, which may not be more than nine months before the notification of the proposed conversion.
The transformation plan for cross-border conversion must include at least the following information:
In addition, the management board/management must prepare a conversion report for the shareholders and employees, which on the one hand explains and justifies the legal and economic aspects of the cross-border transformation and explains its effects on employees and, on the other hand, also explains the effects on the company's future business activities.
The law requires a conversion audit by an independent expert, who is to be appointed by the supervisory board — if there is no such — by the management board/management of the company itself.
However, the conversion audit is not required if all shareholders refrain from doing so in writing or in the minutes of the shareholders' meeting or if it is a company with a single shareholder.
It is also planned to review the intended cross-border transformation by the Supervisory Board (if one has been appointed). For its part, the Supervisory Board must submit a written report.
The audit by the Supervisory Board is also waivable if all shareholders waive this in writing or if it is a company with a single shareholder.
The law regulates in detail the information to be provided to shareholders and the works council.
The shareholders' meeting at which the conversion resolution is to be passed must be convened with a notice period of at least six weeks, and the documents intended for them must be made available to the shareholders/shareholders in good time. The report of the conversion auditor and the report of the supervisory board must be made available at least one month before the general meeting.
In a GmbH, the documents must be sent to the shareholders or made available in electronic form.
At the latest one month before the date of the shareholders' meeting, which is to pass the conversion resolution, the management board must submit to the competent commercial register court both the conversion plan and a notification to the shareholders, to the creditors and to the works council — in the absence of a works council to the employees themselves — that they will give the company no later than five working days before the date of the shareholders' meeting “Remarks” be able to submit to the conversion plan.
In the case of AG and SE, the conversion decision requires a three-quarters capital majority of the share capital represented at the resolution; the articles of association may determine a larger capital majority and further requirements. Whether a simple majority of votes is also required at the same time, as required by Section 121 (2) AktG, is not regulated. If there are several classes of voting shares, the resolution to be effective requires a resolution passed by the shareholders of each class in a separate vote with the above-mentioned majority requirement.
In the case of limited liability companies, the conversion decision requires a three-quarters majority of the votes cast. It may be subject to further requirements in the articles of association. A higher majority requirement or even the provision of unanimity in the company agreement will also be permitted. In addition, Section 99 GmbHG applies mutatis mutandis: In certain cases, the consent of the individually affected shareholders is required, namely
ME must broadly interpret this as meaning that the approval requirement also extends to cases in which, under foreign company law, a lower majority of votes or capital would apply for resolutions to be passed than the qualified majority of votes or capital applicable under Austrian company law.
As a result of the conversion, any partner may resign from the company in return for an appropriate cash settlement if he objects to the conversion decision, remains a shareholder without interruption — until the cash settlement has been asserted — and has not waived the cash settlement.
The option of leaving in return for cash compensation therefore requires that the resigned shareholder or partner actually appears at the general or general meeting or is represented there and declares an objection. The question of whether individual shareholders or shareholders want to leave as a result of the conversion is often clarified in advance of the shareholders' meeting.
The offer to resign shareholders can be accepted either simultaneously with the objection to the minutes at the shareholders' meeting or within one month after the conversion resolution. The beneficiaries must be provided with security for payment of the cash settlement, including transfer costs. The shareholders who wish to leave as a result of the conversion can have the amount of the cash settlement offered to them reviewed by a court within one month of the conversion decision and demand a higher cash settlement. The fact that such review procedures take years, sometimes even decades, should only be mentioned in passing.
In the case of the conversion, creditors of the company can demand security from the company. If this request is not met within three months of the announcement of the conversion plan, creditors can claim the security deposit by bringing an action against the company. In doing so, the creditor must make it credible that his claim exists rightly and is not enforceable and that the settlement of his claim is jeopardized as a result of the conversion.
The board of director/management must finally register the conversion to the commercial register.
Upon registration of the intended conversion with the commercial register, the following evidence must be provided:
The Austrian Commercial Register Court must review the documents specified in detail in the Act, the shareholder resolution and the reports — for abuse control, see Section 5 — and, if it considers that the agreed conversion is justified, this as “intended transformation” enter it in the commercial register and a “Advance certificate” to issue.
As soon as the register of the host member state notifies via the system of interconnection of registers that the cross-border conversion has taken effect — i.e. has been registered in the receiving Member State — the Austrian commercial register court must delete the company immediately.
During the conversion process, the conversion process takes place Vice Versa. First, the foreign corporation must comply with the existing regulations for conversion (transfer of registered office) abroad and register abroad.
The Austrian commercial register must then subject the converted company in its new legal form (e.g. GmbH, AG, SE) to an audit in accordance with the founding examination provisions under stock corporation law.10
The converted company must also check whether the actual value of its net assets is at least equal to the amount of its nominal capital plus fixed reserves after the conversion has been carried out.
In addition, the Austrian Commercial Register Court must check whether any necessary negotiations with employee representatives on the participation of employees in society (employee participation) have been properly conducted and concluded.
The Austrian Commercial Register Court may assume the regularity of the conversion process if there is a valid advance certificate from the competent authority of the departure member state.
As legal effects of the conversion, the Act mandates the continued existence of the converted company, including its assets and contractual relationships. The Act also mentions loans, employment contracts and employment contracts as such. The capital company therefore continues to exist identically in the acceding Member State. There is no transfer of assets.
The shareholders of the converted company remain shareholders unless they sell their shares after cash settlement.
Furthermore, the Act provides for the healing of a cross-border conversion once it has become effective (see in more detail Section 6 EU-UmgrG). The comparable domestic legislation11 However, the case law — correctly — limited to the fact that this cannot apply if the reorganization was brought about by conduct relevant to criminal law.12
The cross-border merger was previously regulated by the EU Merger Act and is modified by the EU UmgrG. Unfortunately, the Act does not contain any transitional provisions as to whether cross-border mergers initiated before its entry into force must still be negotiated under old law or must already comply with the EU environment. In my opinion, the latter is the case.
A cross-border merger is defined as a merger of limited liability companies which are established under the law of a Member State and have their registered office, head office or head office in a Member State, provided that at least two of the companies involved in the merger are subject to the laws of different Member States.
The merger can be between one or more “transferor” companies on a “existing acquirers” Society takes place. Just as under Austrian law, the merger may “for recording” or “to found a new company” , and also as a merger of the subsidiary with its sole shareholder (group merger). Mergers can also occur without “Share guarantee” take place.
In turn, the law distinguishes between “Outward merger” and “Herein merger”.
As before, the merger begins with the preparation of a merger plan by the Executive Board/Management. Here, too, there is a nine-month period for the final balance sheet, which must be drawn up as of the date of the merger and, if necessary, audited. The corporations that are being merged must conclude a merger agreement.
The Act also requires a merger report, a merger review by an independent merger auditor and an audit by the Supervisory Board (if a supervisory board has been appointed for the domestic company).
As with the transformation, the shareholders and the works council must also be informed of the merger.
The draft merger and the notification to the shareholders, creditors and the works council — analogous to the conversion — must be disclosed and filed with the commercial register no later than one month before the shareholders' meeting which passes the merger resolution.
The merger resolution of an AG, SE or GmbH is subject to the same majority requirements as described above (point 2.12.) in connection with the cross-border transformation.
The exchange ratio is at the heart of the conversion plan. Shareholders who do not agree with the agreed exchange relationship or any cash co-payments may apply for a judicial review of the exchange ratio and any cash co-payments in accordance with Austrian stock corporation law provisions (§ 225c to § 225m AktG).
Holders of debt provisions and profit-sharing rights must be granted equivalent rights.13 If this is not possible, the change in rights or the right itself must be adequately repaid at the discretion of the right holder.
In contrast to domestic mergers, shareholders/shareholders of the (Austrian) acquiring company may resign in return for cash compensation if they object to the minutes of the merger resolution. The statements made above (point 2.13.) regarding the cash settlement of departing shareholders on the occasion of a conversion, including the possibility of a court review of the cash settlement offer, apply mutatis mutandis.
For creditor protection, what was said above (point 2.14.) about the conversion applies mutatis mutandis.
The managing director/managing director of the transferring (Austrian) company must file the intended merger for registration with the commercial register court; the declarations and documents to be submitted by him are regulated in detail by law.
The notification must be accompanied by proof that any necessary negotiations with employee representatives on employee participation have been duly conducted and concluded, where applicable the agreement on employee participation, or that the management board has informed the employee representatives or the employees that it has been decided to apply the participation requirement without negotiation with the employee representatives (§ 44 EU-UmgrG).14
The commercial register court must review the notified merger in detail — including with regard to possible misuse (see point 5.) — and, in the case of the merger, the “Advance certificate” to issue. This may only be issued when the creditors of the company who are at risk of their satisfaction as a result of the merger and the shareholders' cash settlement claims are sufficiently secured or it is proven that they have waived cash settlement.
In the case of the merger, Austrian stock corporation and GmbH law regulations for “acquiring company” apply mutatis mutandis. In turn, a foundation audit based on the incorporation regulations under stock corporation law must be carried out by a court-appointed auditor.
In turn, in the area of civil and corporate law with regard to the transferring companies, the merger is linked to general succession of company law, without the term “Universal succession” used.
As a result of the merger, shareholders of the acquiring company (s) become shareholders of “acquirer” Company in accordance with the exchange ratio set out in the merger agreement.
For the healing of deficiencies, see point 2.17 above.
The EU environment regulates cross-border division in a similar way to Austrian division law, but not identically. It knows the term of “Spin-off”, in this case, the split corporation remains in existence, and the “Splitting up”. In the latter case, the split capital company goes under and the division process creates two or more new companies. In all cases of spin-off or division, the share rights in the new companies created as a result of the division are received by the shareholders of “transferor” (divided) society. In the event of a split by “Outsourcing” On the other hand, receives the share rights to the new (“beneficiaries”) Company is the acquiring (split) company itself. Instead of “new society” According to the diction of domestic divisions, the EU UmgrG also speaks of “beneficiary company”.
A division for recording — i.e. the combination of a division and merger process in one — is not intended for cross-border transactions, unlike domestic divisions.
Furthermore, the law distinguishes between “Outward division”, as a result of which the Austrian corporation transfers part or all of its assets to one or more companies in other member states, and “Herein Splitting”, as a result of which a foreign corporation subject to the law of a Member State other than Austria transfers part or all of its assets to one or more companies subject to Austrian company law.
In the case of the spin-off, the management board/management of the acquired company must in turn draw up a plan (division plan). The minimum information is similar to the minimum content of the draft merger. The division plan must also provide detailed information on the distribution of assets as a result of the division and on the allocation of company shares to the shareholders, their valuation and the allocation of liabilities.
The division plan must include a division date. A final balance sheet must be drawn up on these, which must be ready no more than nine months before notification of the proposed division. The provisions of the UGB on the annual financial statements and, where applicable, their audit apply mutatis mutandis.
Unlike under domestic division law, the EU environment knows the “Cumulative principle” (see Section 3 (1) SpalTG) not. In the case of spin-off to form a new company and when it is spun off, the nominal capital of the acquired company may only be reduced if the rules on the ordinary capital reduction are met. Tied reserves may not be transferred to beneficiary companies. In the case of the merging company, the actual value of the net assets after the division has been carried out must be at least equal to the amount of its nominal capital plus fixed reserves;15 This must be examined as part of the division review by an auditor appointed by a court (Section 50 (2) EU-UmgrG). This auditor may also be a division auditor appointed by the company.
The management board/management of the acquired company must submit a division report. In addition, a division test must be carried out by an independent division inspector. The division auditor is appointed by the supervisory board of the acquired company — if no supervisory board has been appointed, by the management board/management itself.
If the acquiring company has a supervisory board, the supervisory board must also review the intended division.
In addition, the shareholders and employee representatives must be informed of the intended division.
The division plan and notification to the shareholders, creditors and employee representatives must be filed with the competent court no later than one month before the date of the shareholders' meeting at which the division resolution is to be passed and must therefore be disclosed.
Is there a “proportionate division”, the same decision-making requirements apply as for the conversion (see already point 2.12.).
On the other hand, should a non-proportionate division — in which the shares in the acquired company on the one hand and in the acquiring company on the one hand and in the acquiring company “beneficiaries” Company, on the other hand, are changed by the division — if decided, the higher resolution requirements apply, namely a 9/10 capital majority or possibly even unanimity, as regulated for domestic non-proportionate divisions.16
Every partner of the acquiring (split) company who, as a result of the cross-border division, would acquire shares in one or more companies subject to the law of another Member State, is entitled to appropriate cash compensation in exchange for surrender of his shares. The prerequisite is that he has filed an objection to the minutes of the division resolution, was a shareholder from the time the resolution of the shareholders' meeting was enforced and did not waive the right in writing or in the minutes of the shareholders' meeting.
In the case of a non-proportionate division, the shareholders are entitled to appropriate cash compensation under these conditions even if no shares in a foreign company are allocated to them.
The amount of cash compensation may be reviewed by a court.
Even shareholders who do not demand an appropriate cash settlement in the event of a non-proportionate division can review the distribution of shares in court and pay out “cash co-payments” require, provided that the share distribution, including any cash co-payments, was not adequately determined.
Section 2.14 applies to the protection of creditors of the acquiring company. Said accordingly.
For liabilities of a corporation, the division rules not only impose the liability of the company to which the relevant liability was assigned in accordance with the division plan, but also unlimited liability of the remaining companies participating in the division up to the amount of the net assets assigned to them as joint and severally debtors on the date on which the division takes effect.
The provision is similar to Section 15 (1) SpalTG, but is not literally identical.
Holders of debt obligations and profit participation certificates must be granted equivalent rights (see point 3.6.).
The management board of the acquiring company must file the intended division for registration with the competent commercial register court.
The documents and declarations to be submitted by the Executive Board/Managing Director are regulated in detail. The court must also carry out an abuse check (see point 5.).
The court may issue the advance certificate only after all creditors who have sought and, where appropriate, filed an action, have been provided with appropriate security and it is ensured that the holders of debt orders and profit participation rights have been granted equivalent rights or that the change of rights or the right itself has been adequately compensated.18
As soon as the register of the Member State has notified the beneficiary company — in the case of several beneficiary companies, all registers of these Member States concerned — through the system of interconnection of registers that the beneficiary companies have been registered, the court must immediately register the implementation of the division.
When the implementation of the division is registered with the acquired company, the division becomes effective. The assets and liabilities of the acquired company are transferred to the new companies (resulting from the division) in accordance with the allocation set out in the division plan. This is a partial succession of universal civil law.
In the area of civil law, however, this may well raise questions of doubt, such as whether divisions of contracts are possible. There are also questions of doubt in the area of public law.19
When it comes to legal effects, the law makes a precise distinction between “Splitting into a new business”, “Spin-off to found a new company” and “Outsourcing”.
In the case of a merger, the incorporation rules applicable to the respective legal form must apply mutatis mutandis to the newly formed companies, but in any case the stock corporation law and provisions on the audit of the company; the court-appointed auditor may at the same time be a division auditor. There is no need for a founding report, as required by Section 24 AktG.
For all three types of cross-border reorganizations, it is provided by law that the court should also examine “has whether the reorganization is for abusive or fraudulent purposes which lead or are intended to result in evading Union or national law or circumventing it or is intended to be carried out for criminal purposes. If there are such purposes, it must refuse to register the intended restructuring. ”
In doing so, the Act makes the following further clarification in the sense of a legal presumption: In accordance with Section 8 Social Fraud Prevention Act (SBBG), is it entered in the commercial register that the company as “dummy company” applies, it is to be assumed that the conversion is to be carried out for improper purposes.
Conversely, the company may submit to the court an information notice from the tax office in accordance with Section 118 BAO denying the existence of tax abuse (Section 118 (2) Z 5 BAO). In this respect, no misuse is to be assumed.
In order to verify whether the restructuring is fraudulent, the court may request information and documents from both the company and from domestic authorities or bodies or request information and documents from authorities or bodies of other Member States. The court may also appoint an expert (Section 21 (7) EU-UmgrG).
The cross-border merger, which is intended to merge a listed company based in Austria abroad, triggers a mandatory offer in accordance with Section 27f Takeover Act, as has already been the case with comparable mergers under the EU Act.
The cross-border transformation, merger or division can have massive tax consequences; these should be considered in advance20.
When considering whether or not a cross-border restructuring (transformation, merger, division) makes sense overall, one should take into account not only aspects of company law, but also the tax consequences and labor constitutional aspects of employee participation. It can be assumed that the tax legislator will follow suit shortly and cover cross-border reorganizations through accompanying tax arrangements.
The EU UmgrG, which came into force on 1.8.2023, regulates the cross-border transfer of registered offices of corporations (transformation) as well as cross-border mergers and cross-border divisions.
1 * RA Univ.-Prof. Dr. Johannes Reich-Rohrwig is a lawyer and teaches at the Department of Economic and Business Law at the University of Vienna. I first published this article in Steuer & Wirtschaftskartei, SWK 2023, issue 20/21, 847ff.
2 Directive (EU) 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border transformations, mergers and divisions, OJ L 321, 12.12.2019, p. 1 (“Mobility Directive”).
3 Federal Law Gazette I 78/2023.
4 The EU UmgrG is part of the Corporate Mobility Act — GesMoBG. In its Articles 2 to 5, the latter also contains amendments to the Commercial Register Act, the Lawyer Act, the Takeover Act and the Court Fees Act.
5 In accordance with Title IV Directive 2014/59/EU of the European Parliament and of the Council of 15.5.2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU and Regulations (EU) 1093/2010 and (EU) 1093/2010 and (EU) 1093/2010 and () 648/2012 of the European Parliament and of the Council, OJ L 173, 12.6.2014, p 190.
6 Cavasola/Call, Board Liability in Italy, ecolex 2018, 598 (599 f).
7 J. Reich-Rohrwig, Fundamental Issues of Capital Preservation (2004) 98.
8 Ebbing in Michalski/Heidinger/Leible/J. Schmidt, GmbHG4 (2023) § 14 Rz 99 and 101.
9 § 48 GmbHG; OGH 22.7.2009, 3 Ob 72/09y, GesRZ 2010, 49 (Enzinger); approving Schröckenfuchs in Foglar-Deinhardstein/Aburumieh/Hoffenscher-Summer, GmbHG (2017) § 48 Rz 8; rejecting Harrer in Gruber/Harrer, GmbHG2 (2018) § 48 paragraph 7.
10 Section 24 (4) EU UmgrG.
11 Section 32 (2) AktG; Section 14 (3) SpalTG.
12 Supreme Court 19.12.2019, 6 Ob 210/19d, Ecolex 2020, 414; 14.9.2022, 6 Ob 220/21b, Ecolex 2023, 56 (Aschl/J. Reich-Rohrwig).
13 See also J. Reich-Rohrwig, Participation Rights and Debt Provisions in Merger and Division, ecolex 2013, 133 (140 ff).
14 Section 261 ArbVG.
15 Unless it is reduced through an ordinary capital reduction with an appeal from creditors.
16 Section 6 (3) SpalTG.
17 See also J. Reich-Rohrwig, Participation Rights and Bonds in Merger and Division (II), ecolex 2013, 243 (245 ff).
18 See J. Reich-Rohrwig, Participation Rights and Bonds in Merger and Division (I), ecolex 2013, 133 (140); see also OGH 20.7.2016, 6 Ob 80/16g.
19 Larcher/Kirnbauer, On decision in rem and partial transfers, RdW 2023/283.
20 Titz/Wild, news on reorganizations in the AugÄG 2023 (part 1), SWK 19/2023, 809; Titz/Wild, news on reorganizations in the AugÄG 2023 (part 2), SWK 20/21/2023.
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