Implementation of EU-Mobility Directive in Austria – Draft Bill on the Table
Unlike mergers, divisions or transfers of the registered office across the border are not regulated yet by statute in Austria. The Federal Ministry of Justice (BMJ) has now presented a draft law (EU-Umgründungsgesetz (EU Reorganization Act), in short EU-UmgrG) which intends to change this for reorganizations with EU/EEA member states. It is expected that the law will enter into force soon, but the exact date is currently still open.
The impetus comes from Brussels
The EU-UmgrG aims to transpose Directive (EU) 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions, OJ No. L 321 of 12 December 2019 (the “Directive”); the Directive provides that the Members States have to transpose the Directive into their national laws by 31 January 2023.
Draft published
The Austrian legislator has not enacted a law yet to transpose the Directive, but at least a draft of the new law was now published and is currently in the review process. The review period ends on 24 February 2023. Since the review process was not yet completed on 31 January 2023 the law will enter into force at a later point in time than provided for by the Directive.
What does the new law regulate?
In summary, the EU-UmgrG regulates:
- Cross-border transfers of the registered office of limited liability companies
The law, in line with the Directive, does not speak of a “transfer of the registered office”, but of a conversion, because the “legal form” also changes in the course of such operation. A cross-border conversion is actually a conversion of a limited liability company formed in accordance with or governed by the laws of a member state (departure member state) (and having its registered office, central administration or principal place of business in such member state), while retaining its legal personality, into a limited liability company governed by the laws of another member state (destination member state), thereby transferring its registered office to that member state.
To give an example, an Austrian GmbH that would within the meaning of the EU-UmgrG move its registered office to let’s say the Netherlands would continue to exist as one and the same legal entity, but as a Dutch BV (and no longer as an Austrian GmbH).
- Cross-border mergers of limited liability companies
Cross-border mergers are already possible and regulated, as regards Austria, in the so called EU Merger Act. Its provisions – with a few adjustments – will be transferred to the EU-UmgrG. The EU Merger Act will subsequently cease to apply.
- Cross-border divisions of limited liability companies
In line with the Directive, the new law provides rules for divisions for new formation (including division by separation) into another member state, but not for divisions for absorption (which means divisions where the recipient company is already existing and which are by far more common in the Austrian domestic context than divisions for new formation).
The EU-UmgrG does not regulate:
- Cross-border divisions for absorption (see before);
- Reorganizations involving third countries;
- Reorganizations of companies other than limited liability companies (GmbH, AG, SE), for example of partnerships or cooperatives.
What stands out?
- Procedure: Unsurprisingly, the basic procedure for reorganizations follows the procedures known from domestic reorganizations and the cross-border reorganizations already possible (mergers or in the case of the SE, for instance), in particular: preparatory phase (preparation of documents, reviews, information/disclosure), adoption of resolutions by the shareholders and execution phase (in particular registration in the companies’ registers of the respective member states).
The draft law also largely follows the previous system in Austrian reorganization law so that the case law of the Supreme Court, the extensive literature and practical experiences can also be made fruitful for the operations falling under the EU-UmgrG.
- Simplifications for intra-group transactions: As is the case with national reorganizations or cross-border mergers already possible until now, simplifications are provided for intra-group reorganizations; for example, in the case of reorganizations with a sole shareholder, the management board report, certain shareholder information, the reorganization audit and the review by the supervisory board can be omitted or, also in the case of several shareholders, these and other requirements can be waived.
- Skepticism towards entities leaving the country? Reorganizations whereby the limited liability company aims to depart from Austria appear to be seen with a fair amount of skepticism. On the one hand, it must be declared to the companies’ register whether there are liabilities to the public sector existing; in the case of “export” conversions (from the Austrian view), information must also be provided on subsidies and grants received. On the other hand, the companies’ register court must in the context of an abuse control test examine whether the cross-border reorganization is set up for abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of EU or national law, or for criminal purposes. Such a test was not previously required for reorganizations, whether domestic or cross-border. Although the law attempts to provide the courts with indications in this regard (for example information notice pursuant to section 118 of the Federal Tax Code), it remains to be seen what this examination will bring in practice.
- Information to the works council or the employees: As has already been the case in cross-border mergers, the works council (and if there is no such council, all employees) must be informed about the reorganization; they are entitled to submit a statement, which must be brought to the attention of the shareholders and attached to the management board report and, as a result, is publicly accessible via the collection of documents of the companies’ register. A clarification would be welcome as to whether this right to information/statement concerns (only) employees in Austria of the (Austrian) company concerned, or possibly all employees worldwide?
- Creditors may provide statements: A novelty is that creditors of the company also have the right to submit comments on the respective reorganization plan; such comments must also be attached to the filing with the companies’ register and become accessible to the public domain via the collection of documents of the companies’ register. Apart from this, the general creditor protection concept largely follows familiar models of comparable reorganizations in Austria, with certain modifications in the case of the division.
- Longer duration: Cross-border reorganizations under the EU-UmgrG will take longer than comparable reorganizations in a domestic setting: Shareholders' meetings must be convened with a notice period of six weeks and a large part of the documentation (e.g. conversion, merger or division plan, annual financial statements for the last three years, interim balance sheet if applicable, management reports) must also be made available to the shareholders and the works council or employees at the time of convening. In the case of export reorganizations the creditor protection period is three months; this means a period of three months must be observed between the publication of the reorganization and the filing of the intended reorganization with the companies’ register (previously this was two months in the case of cross-border mergers).
Conclusion
The Directive and the EU-UmgrG are important milestones for the practice of cross-border reorganizations; in areas not yet regulated by law (transfer of registered office, division) they give the legal certainty to put such reorganizations in practice which so far was missing. Unfortunately, some practice-relevant areas, in particular cross-border reorganizations with third countries or the cross-border division for absorption, are not covered. It remains to be seen what effects the planned abuse control by the courts will have on the timing and cost of cross-border reorganizations.
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.