Ireland introduced new regulations in May 2023 amending the existing law on cross-border mergers and providing for cross border conversions and divisions.
The European Union (Cross-Border Conversions, Mergers and Divisions) Regulations 2023 (the Regulations) allow Irish limited liability companies to convert into, divide into and merge with limited liability companies based in other European Economic Area (EEA) countries.
The Regulations implement the cross-border mobility directive and repeal and replace the existing regulations on cross-border mergers.
This article outlines the key steps for each process.
A conversion is a process under which a limited liability company in an EEA country can convert into a limited liability company in another EEA country without being dissolved, wound-up or liquidated.
If an Irish company wishes to convert into a company registered in another EEA country, then the procedure it must follow is:
- Draft terms: Draft terms of the conversion need to be drafted and then adopted by the directors of the company. The draft terms must include the details of the company, the draft constitution of the proposed converted company, the timetable for the conversion, the likely effect of the conversion on employment and safeguards for shareholders and creditors among other matters.
- Directors’ explanatory report: The directors must draft a report for the members and the employees of the company (directors’ explanatory report). This report must explain and justify the legal and economic aspects of the conversion and the implications of the conversion for employees and the future business of the company.
The members section of the directors’ explanatory report is not required where all the members waive the requirement. The employees’ section is not required where the company has no employees other than its directors.
The directors explanatory report (where required) together with the draft terms must be made available electronically to the members and the employees’ representatives at least six weeks before the date of the general meeting referred to below.
- Expert’s report: a statutory auditor appointed by the directors must draw up an expert’s report on the draft terms of the conversion for the members. This report is to be made available at least 30 days before the date of the general meeting referred to below.
An expert’s report is not required where every member of the company waives this requirement.
- Registration of draft terms: The company must register the draft terms, a notice informing the members, creditors and employees of the company that they may submit comments on the draft terms and a notice of the conversion in the Companies Registration Office (CRO) at least 30 days before the date of the general meeting.
A company does not have to register the draft terms and the notice inviting comments if the company publishes this information on its website at least 30 days before and at least 30 days after the general meeting referred to below, although a prescribed notice of the conversion must still be submitted to the CRO at least 30 days before the general meeting.
- Publication: Notice of delivery to the CRO of the draft terms and the notice inviting comments or, in the case of website publication, the delivery of the notice of the conversion, must be published in one national newspaper by the company and in the CRO Gazette by the CRO. This publication must take place at least 30 days before the general meeting referred to below.
- General meeting: Following the publication period, the members of the company in a general meeting must approve the draft terms and the draft constitution of the converted company by special resolution. This may also be done by way of written resolution in accordance with the Companies Act 2014 and the company’s constitution.
- Shareholder protection: A shareholder who votes against the special resolution can request the company in writing to acquire his or her shares for cash compensation. This request must be made within 30 days of the date of the general meeting. If a shareholder is not happy with the cash compensation, which must be set in the draft terms, he, she or it can apply to the High Court for additional cash compensation.
- Creditor protection: A creditor of the company can apply to the High Court if he, she or it is not happy with the safeguards offered to creditors in the draft terms and can demonstrate that the satisfaction of the creditor’s claim against the company is at stake. This application must be made within three months of the date the draft terms were delivered to the CRO.
- Pre-conversion certificate: The company must apply to the High Court for a pre-conversion certificate. The High Court will issue this certificate if it is satisfied that the company complied with the foregoing requirements. The High Court is required to carry out its examination within three months of receipt of the application by the company.
The company must submit a number of documents with its application including the draft terms, the directors’ explanatory report (if required), the expert’s report (where applicable), the approval by the general meeting, the number of employees of the company, any comments on the draft terms received by employees, creditors and members and the existence of any subsidiaries.
The High Court must also be satisfied that the conversion is not being carried out for abusive, fraudulent or criminal purposes. The three-month deadline for the Court to carry out its examination can be extended by a further three months if the Court needs more time to make this determination.
- Examination by relevant authority of converting EEA State: Once the pre-conversion certificate is issued it must be registered with the CRO. The CRO will then transfer the certificate to the relevant authority in the EEA country into which the company will be converting.
The competent authority of the converting EEA state will be required to examine the conversion and issue an order providing for the effective date of the conversion.
- Registration of order: The company must deliver the order issued by the converting EEA state to the CRO for registration within 14 days of the order being issued. Failure to register this order is an offence.
Once the order is registered, the CRO will update the register with the date of the striking off or removal of the company and that this strike-off/removal is because of a conversion.
A similar process to the above applies where a company from another EEA country wishes to convert into an Irish company. The pre-conversion certificate in this case will be issued by the relevant authority of the particular EEA country and the High Court in Ireland will be required to examine the certificate and issue the relevant order. The order is then filed at the CRO and the converted Irish company is registered.
The main effects of a conversion include:
- All the assets and liabilities of the company become those of the converted company
- All of the members of the company become members of the converted company unless they voted against the conversion and made a request for cash compensation
- The converted company is substituted as a party in all proceedings in the company’s name
- All contracts in the company’s name are to be read as being in the name of the converted company and the converted company becomes a party to the contracts, and
- All money due and owing to the company will become due and owing to the converted company.
It is important to note that a conversion is not reversible.
A cross-border merger is a process by which two or more companies combine into a single company. At least one company must be an Irish company and one must be another EEA country company. There are three different types of cross-border merger:
- A merger by acquisition is an operation whereby a company acquires all the assets and liabilities of one or more other companies that is or are dissolved without going into liquidation. In exchange for this acquisition, the members of the companies being acquired are issued with shares in the acquiring company. Shares do not need to be issued where all the shares in the merging companies are directly or indirectly held by one person or the members of the merging companies hold their shares in the same proportion in all the merging companies.
- A merger by absorption is an operation whereby a company on being dissolved and without going into liquidation, transfers all of its assets and liabilities to a company that is the holder of all the shares in that company.
- A merger by formation of a new company is an operation in which two or more companies, on being dissolved and without going into liquidation, transfer all their assets and liabilities to a newly formed company. In exchange, the members of the merging companies are issued with shares in the new company.
The procedure for a cross-border merger is similar to that of a conversion:
- Common draft terms: common draft terms need to be drawn up by all the merging companies and adopted by the board of directors of each merging company.
Similar terms as are required for conversion are required for mergers along with certain information which would not apply in the case of a conversion. This includes information on the share exchange ratio and the terms for the allotment of shares, the date from which the transactions of the transferor companies are to be treated for accounting purposes as being those of the company into which assets and liabilities are transferred by the merger (the successor company), information on the evaluation of the assets and liabilities to be transferred to the successor company and the dates of the accounts of each merging company which were used to prepare the common draft terms.
- Directors’ explanatory report: a directors’ explanatory report is also required for a cross-border merger unless all the members waive their entitlement to the report and the merging companies have no employees other than their directors. A directors’ explanatory report is also not required where no shares are being issued in the successor company.
The directors’ explanatory report must be made available electronically six weeks before the general meeting in the same way as for a conversion.
- Expert’s report: This requirement also applies to cross-border mergers in a similar way as to conversions. Again, the expert’s report can be waived if all the members of the merging companies agree to this.
- Registration of common draft terms: an Irish merging company must register the common draft terms, a notice informing the members, creditors and employees of the company that they may submit comments on the draft terms and a notice of the merger in the CRO at least 30 days before the date of the general meeting. As with conversions, if the draft common terms and notice inviting comments are published on the Irish merging company’s website for 30 days before and at least 30 days after the general meeting then they need not be registered. However, as with a conversion, a prescribed notice must still be delivered to the CRO 30 days prior to the general meeting.
- Publication: As with a conversion, notice of delivery of the draft common terms and other notices to the CRO must be published in one national newspaper by the company and in the CRO Gazette by the CRO. This publication must take place at least 30 days before the general meeting.
- General meeting: The members of each Irish merging company in a general meeting need to approve the draft common terms and any proposed constitutional amendments by special resolution. This can also be done by way of written resolution in accordance with the Companies Act 2014 and the company’s constitution. This approval may be subject to merger control approval having been obtained from the Competition and Consumer Protection Commission and any other relevant authorities.
A general meeting is not required for an acquiring company in a merger by acquisition where the notice has been published as above and all members of the company have been given the chance to inspect certain documents at least 30 days before the date stated in the notice for the general meeting at the registered office of the company. These documents are the common draft terms, audited accounts of the merging companies from the last three years, an accounting statement in relation to each merging company (where required) and where applicable, the directors explanatory report and expert’s report. In addition, one or more members of the acquiring company holding together at least 5 per cent of the shares in the company must be entitled to require that a general meeting be called to decide whether to approve the merger.
- Protection of shareholders: As with a conversion, a shareholder who voted against the special resolution and who would acquire shares in the successor company as a result of the merger can request the company to buy his or her shares for cash compensation and apply to the High Court if they are not satisfied with this cash compensation.
Any shareholder, other than a shareholder who made a request for the company to buy his or her shares, who is not happy with the share exchange ratio as set out in the common draft terms can also apply to the High Court to dispute the ratio within 30 days of the general meeting.
- Protection of creditors: A creditor of the company who is not happy with the safeguards offered to creditors in the draft common terms and can demonstrate the satisfaction of his or her claim is at stake can apply to the High Court as with conversions.
- Pre-merger certificate: As with a conversion, each Irish merging company is required to apply to the High Court for a pre-merger certificate. The documents to be submitted and the procedure are the same as that for a pre-conversion certificate.
- Court examination: The High Court is required to examine the legality of the cross-border merger where the successor company is an Irish company. The Court must be satisfied that certain requirements are met particularly that a pre-merger certificate has been issued in relation to each Irish merging company by the High Court and in relation to each other merging company by the relevant authority of the particular EEA state.
The application must also contain the effective date of the merger. The Court can set a different effective date if this date is not suitable having regard to the need to coordinate various transactions. If the Court is satisfied that the requirements have been met it will issue an order approving the cross-border merger.
- Registration of order: The Court must deliver a copy of the order to the CRO for registration. Where the successor company is not an Irish company, a copy of the order made by the relevant authority of the EEA state of the successor company must be registered by the Irish transferor companies within 14 days of the order being made. Failure by the transferor companies to do this is an offence.
Once the order is registered, the CRO will update the register with the date of the dissolution of any Irish transferor company and that this dissolution is because of a cross-border merger. The register must also be updated with the details of the Irish successor company where applicable.
- Consequences: The main effect of a cross-border merger is:
- All the assets and liabilities of the transferor company become those of the successor company
- The transferor companies are dissolved
- All of the members of the transferor company become members of the successor company
- The successor company is substituted as a party in all proceedings in the transferor company’s name
- All contracts in the transferor company’s name are to be read as being in the name of the successor company and the successor company becomes a party to the contracts, and
- All money due and owing to the transferor company will become due and owing to the successor company.
As with a conversion, a cross-border merger is not reversible.
A cross-border division is a process whereby a company based in the European Union transfers all or part of its assets and liabilities to one or more companies. At least one of the companies newly formed in the course of a division (recipient company) must be an Irish company and at least one must be an EEA company. There are three different types of divisions:
- A full division is where a company on being dissolved without going into liquidation, transfers all its assets and liabilities to two or more recipient companies. In exchange, the members of the dividing company are issued shares in the recipient companies.
- A partial division is an operation where a dividing company transfers part of its assets and liabilities to one or more recipient companies. In exchange, the members of the dividing company receive shares in the recipient company or companies and/or the dividing company.
- A division by separation is an operation whereby a dividing company transfers part of its assets and liabilities to one or more recipient companies, in exchange for the issue of shares in the recipient company or companies to the dividing company.
The process that an Irish dividing company must follow is similar in most material respects to that which applies to cross-border mergers.
The process again begins with the drafting and approval by the directors of the dividing company of draft terms. This is followed by a directors’ explanatory report and expert’s report which again may not be required under the same conditions as for cross-border mergers and conversions. The same requirements also apply in relation to registration, publication, approval by general meeting and protections for shareholders and creditors.
An Irish dividing company must then apply for a pre-division certificate which follows the same process as for the other cross-border operations. Where a recipient company is an Irish company, an application must also be made to the High Court for approval of the division in the same way as for a cross-border merger application in the case of an Irish successor company. The same registration requirements in relation to the High Court order or an order made by another EEA authority also apply to divisions.
The effect of a divisions is also similar to that of other cross-border operations with some adjustments depending on the type of division:
- All assets and liabilities, contracts, proceedings of the dividing company transfer to or are taken over by the recipient companies as allocated in the draft terms
- In a full division all the remaining members of the dividing company become members of the recipient company or companies in accordance with the allocation specified in the draft terms
- In a partial division, some of the members will become members of the recipient companies and some will remain members of the dividing company, and
- In a full division, the dividing company is dissolved.
As with the other cross-border operations, divisions are irreversible.
Participation of employees
The Regulations also provide for the participation of employees in circumstances where employees are involved in the management of the converting, merging or dividing companies which will require careful case-by-case analysis and advice. For more information and advice on this aspect of the Regulations, contact a member of our Corporate Governance or Employment team.
The Regulations provide increased flexibility for Irish companies seeking to restructure on a cross-border basis with the option now available to convert and divide into companies based in other EEA countries. In addition, the processes around cross-border mergers have been simplified in some significant ways, for example, shares are no longer required to be issued in mergers by acquisition in certain circumstances.
Care will need to be taken with planning these transactions and ensuring the timelines are followed. Extensive due diligence by any company looking to convert, merge or divide cross-border will also be needed to optimize the cross-border operation for the company and/or its group. It will also be important to consider the tax implications of any cross-border operations.
The Regulations also provide for online court applications which, if enabled by updated court rules, may help to accelerate processes in the future. It should be noted that while the online court applications envisaged in the Regulations are not possible in Ireland yet, the prevalence of online hearings continues to grow following their widespread introduction during the COVID-19 pandemic which offers greater flexibility for hearings to take place in-person, via online video link or a hybrid of both which is particularly useful if an applicant wishes to attend an in-person hearing remotely from another jurisdiction.
For more information and expert advice on cross-border operations, contact a member of our Corporate Governance team.
 European Union (Cross-Border Conversions, Mergers and Divisions) Regulations 2023, SI No. 233 of 2023.
 Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions.