Cross-border conversion of limited liability companies

On 31 January 2014, the Dutch government released a draft legislative proposal setting out the procedure and conditions to be met in order to validly effect a cross-border conversion of a Dutch public company ("NV") or a Dutch private limited liability company ("BV") into a non-Dutch limited liability company and vice versa (the "Proposal").

The Proposal has been submitted because although from case law of the European Court of Justice it follows that as a main rule the effecting of cross-border conversions of companies within Member States of the European Union or the European Economic Area must be allowed, this is not provided for yet in specific European rules (other than in respect of the European company ("SE")) or Dutch rules (other than in extraordinary circumstances as prescribed by Dutch law). The main purposes of the Proposal are to create certainty as to which rules should be applied in order to validly effect a cross-border conversion and to protect the interests of creditors, (minority) shareholders and employees.

The Proposal provides a legislative basis for the cross-border conversion of:

  • an NV or a BV into a non-Dutch limited liability company governed by the laws of a Member State of the European Union or the European Economic Area and vice versa;
  • an NV or a BV into a public limited liability company or a private limited liability company governed by the laws of the Public Bodies of Bonaire, Sint Eustatius or Saba and vice versa.
  • The explanatory notes to the Proposal indicate that, based on future experience as to how the new rules work out in practice, an extension of their scope (to include cross-border conversions into or from other types of legal entities and entities governed by the laws of other countries than those listed above) may be considered.
  • A cross-border conversion is not allowed in certain specified situations, such as pending insolvency proceedings (for an NV or a BV: bankruptcy or suspension of payments), or if an NV or a BV has been dissolved and liquidation payments have already been made.

In the Proposal, the procedure to effect a cross-border conversion is based not only on the existing statutory rules on a transfer of the seat of an SE, but also on the existing statutory rules on cross-border mergers. A cross-border conversion shall not result in the winding-up of the company to be converted or in the creation of a new company. For reasons of legal certainty, a cross-border conversion can no longer be declared void once entered into force.

Further information

The Proposal was subject to public consultation until 18 April 2014. Most of the many respondents raised concerns about the limited scope of the Proposal, both geographically and in terms of types of legal entities that may be converted (as further set out above). Others focused on how the Dutch formalities should be applied in view of rules on cross-border conversion that may be applicable in other jurisdictions. Yet others highlighted the importance of clarity on the tax treatment of conversions, a concern which the Proposal currently does not address.

At this point we do not know to what extent the responses will result in amendments to the Proposal or when a legislative proposal will actually be submitted to the Dutch Parliament. We will however continue to closely monitor the progress of this Proposal and keep you abreast of relevant developments.

To read more click here, or, if you wish to discuss any aspects of this alert in the meantime, please speak to one of the contacts listed within the PDF or your usual contact at Linklaters.