Cross-Border Conversion of a Company in the European Union
Traditionally, a cross-border “migration” of a company from one European Union (EU) Member State to another EU Member State, while technically possible, has been cumbersome and costly. Such a migration would involve either a wholesale move of the subject company’s business seat (i.e., the location of its chief executive office) or a cross-border merger of national companies could be considered. But that has now changed.
Recently, however, the VALE judgment of the European Court of Justice issued on July 12, 2012 has opened the door for EU companies to take advantage of a cross-border “conversion” (i.e. , the transfer of the registered office from one jurisdiction to another, including a change of applicable law, without the requirement of winding up, liquidating the company ). Even though the VALE judgment was handed down in 2012, the precise procedural rules, in particular how local commercial registers would apply the rulings of the VALE judgment, remained unclear until recently.
In a recent judgment, the High Court of Nuremberg has become the first German High Court to apply the rulings of the VALE judgment. The case concerned a conversion of a private limited liability company organized under the laws of Luxemburg into a private limited liability company organized under the laws of Germany. Upon application, the company was deregistered from the Luxemburg register. Subsequently, the subject company applied for registration with the German commercial register and for conversion into a German limited liability company. The registration was rejected by the German Regional Court. This decision was recently overruled by the High Court of Nuremberg citing the VALE judgment and its authorization of cross-border conversions.
The case is of key importance for companies that plan a corporate migration within the EU and, in particular, the relocation of their business to Germany. Such a migration might be necessary in course of an international restructuring, a post-acquisition integration or after a change of market conditions. The key aspect of a conversion is that the company maintains its legal identity, which means that no transfer of company contracts and assets occurs. In practice, the cross-border conversion is one of the simplest ways to move business activities from one EU Member State to another EU Member State and should be taken into account in the future by companies considering international reorganization or restructuring.