Mobility Directive: The Grand Duchy of Luxembourg on the road to implement the directive

General purpose

The main purpose of the Mobility Directive is to harmonize the legal framework between EU member states with respect to cross-border mobility and enhance the companies’ freedom of establishment by strengthening the protection of shareholders, creditors and employees in the context of such transactions.

The New Law introduces a special legal regime applying exclusively to cross-border conversions, divisions and mergers within the EU (each a Cross-border Transaction). It provides a specific legal framework for conversions and divisions, although cross-border divisions by absorption are excluded from this new regime. A cross-border conversion is an operation whereby a company, without being dissolved, wound up or going into liquidation, converts the legal form under which it is registered in a departure Member State into the legal form of the destination Member State, as listed in Annex II, and transfers at least its registered office to the destination Member State, while retaining its legal personality.

The Luxembourg companies falling under the New Law are public limited liability companies (société anonyme, SA), private limited liability companies (société à responsabilité limitée, SARL) or partnerships limited by shares (société en commandite par actions, SCA). The Grand Duchy of Luxembourg decided to not extend this specific regime to other legal forms of companies.

The current applicable Luxembourg general regime will continue to apply to Cross-border Transactions:

• between a Luxembourg company and other companies located outside the EU and Luxembourg companies; and / or
• with a Luxembourg company which is not a SA, a SARL or a SCA.

Exit rights of shareholders

Minority shareholders opposed to the Cross-border Transaction benefit from an exit right allowing them to sell their shares in consideration for adequate cash compensation. The cash compensation specified in the draft terms of the Cross-border Transaction must be paid no later than two months after the Cross-border Conversion takes effect.

Specifically for mergers and divisions, minority shareholders may challenge the share exchange ratio provided in the draft terms of merger or division, as the case may be, and may request additional cash payment.

Protection of creditors

Creditors whose claims (a) arose prior to the publication of the draft terms of the Cross-border Transaction, (b) have not yet expired at the time of the publication of the draft terms and who are dissatisfied with the safeguards offered in the draft terms of the Cross-border Transaction, may apply, within three months of the publication in the Luxembourg Official Gazette of the draft terms, to the magistrate presiding over the district court sitting in commercial matters and in summary proceedings in the jurisdiction in which the debtor company has its registered office, for the provision of adequate safeguards. Such creditors need to credibly demonstrate that the Cross-border Transaction may jeopardise the enforcement of their claims. In accordance with the New Law, the creditors are required to be informed of the right to submit comments on the draft terms.

Information provided to employees

The New Law contains a requirement for a detailed description of the consequences of the Cross-border Transaction on employment to be provided in the draft terms. A report to employees will also be required to set out (i) the implications of the Cross-border Transaction for employment relations, (ii) the measures to be taken to preserve these relations, (iii) significant changes in employment conditions or in the location of the business, and (iv) how these factors will affect the company's subsidiaries.

Increased controls of the legality of the transactions

If the Luxembourg company involved in the Cross-border Transaction is the departing company, the Luxembourg notary will scrutinize the legality of such Cross-border Transaction and issue a pre-transaction certificate within three months from the date he or she received all documents and information needed in connection with the approval of the Cross-border Transaction, attesting to compliance with all relevant conditions and to the proper completion of all procedures and formalities in the departure member state. The Luxembourg notary will not issue the pre-transaction certificate if he or she determines that the Cross-border Transaction is designed for abusive, fraudulent or criminal purposes.

If the Luxembourg company is the receiving entity or if a foreign company converts into a Luxembourg company, the Luxembourg notary will also scrutinize the legality of the Cross-border Transaction as regards that part of the procedure governed by the law of the destination member state and approve the Cross-border Transaction.

Effectiveness

The effective date vis-à-vis third parties of a Cross-border Transaction is determined by the legislation of the member state of destination.

Between parties, the Cross-border Transaction is carried out as soon as the foreign notary records the transaction following the control of legality operated by the Luxembourg notary.

Transitional period

The provisions of the New Law aim at creating a more predictable and secure environment for Cross-border Transactions, while providing adequate protection for the key parties involved. However, this new regime will be more time consuming and complex in terms of implementation than the current applicable regime thus creating more administrative work for the Luxembourg notaries.

These provisions will be applied to any cross-border conversions, mergers and divisions for which the draft terms are published on the first day of the month following the entry into force of the New Law, which is not yet known at this stage.

By conserving its general regime with respect to Cross-border Transactions with companies located outside the EU, Luxembourg as a jurisdiction remains a very attractive point of entry into the EU market.