Imminent amendments to Cyprus Companies Law for the implementation of the EU Mobility Directive
The Bill is currently before the Parliamentary Committee of Energy, Commerce and Industry for discussion before the final Bill may be presented in Parliament for voting. It is expected that the Bill will be voted into law during early spring of 2024.
The provisions of the Mobility Directive are designed to provide a harmonised legal framework for companies within the European Union to convert, merge, and divide across borders and set the minimum safeguard requirements for, inter alia, members, employees, and creditors of the companies participating in the reorganisation. The new Bill will be introduced and incorporated into the Cyprus Companies Law.
Key provisions of the Mobility Directive include the following:
Scope of the Mobility Directive
The Mobility Directive introduces a harmonised regime for cross-border conversions and divisions of limited liability companies and amends certain of the existing provisions on cross-border mergers within the EU, in respect of which an aligned legal framework was already in place. The rules and conditions applicable to the three types of cross-border reorganisations are now broadly the same, establishing consistency and greater certainty for both practitioners and businesses.
While the Mobility Directive covers a cross-border division in which the recipient entity would be a newly incorporated company, it does not cover a scenario where the recipient entity would be an existing company. When implementing the Mobility Directive, certain jurisdictions, such as Belgium and Germany, have expanded the scope of cross-border divisions to cover existing companies also. The approach to be taken in Cyprus will be confirmed upon adoption of the final Bill.
Protection of shareholders
The Mobility Directive provides for a “cash out right” for dissenting shareholders. In addition, shareholders now have a right to challenge the share exchange ratio in mergers and divisions and claim additional compensation.
Enhanced scrutiny by authorities
The competent authorities which, pursuant to domestic law, are responsible to sanction the reorganisation by delivering a “pre-reorganisation certificate” are now able to prevent the implementation of a reorganisation on the ground that it is abusive or fraudulent, or designed to circumvent applicable laws or for criminal purposes. Therefore, the authorities’ competence, under the Mobility Directive, extends further than checking that all formalities and procedures have been complied with, as is currently the case under the Companies Law. It is possible that this augmented discretion will result in more substantial scrutiny of proposed reorganisations.
Creditor protection
The interests of creditors whose claims predate the publication of the draft terms of reorganisation and whose claims have not yet fallen due, must be taken into account and be safeguarded under the provisions of the Mobility Directive.
Employee participation
Employees must, under the Mobility Directive, be provided with adequate information and are offered consultation rights in respect of the proposed reorganisation.
The above are some of the provisions which are expected to be introduced into the Companies Law along with a new procedural framework for the implementation of the cross-border reorganisations within the EU.
Look out for our further updates on the Companies Law amendments to be released once the Bill has been passed.
