Ernst and Young Study on the Cross-border Operations

This study assesses and quantifies the drivers and problems caused by the lack of EU rules on cross-border transfers of registered offices and cross-border divisions of companies. In addition, this study proposes potential solutions and assesses their impacts.

KEY FINDINGS

Cross-border transfers and divisions are used to increase productivity gains, adapt to internal market opportunities and simplify corporate structures. However, despite being commercially attractive, the number of transfers and divisions taking place per year is relatively low as there are approximately 600 cross-border transfers and 100 cross-border divisions taking place on an annual basis across the EU.

The study found that the absence of EU common rules and the divergences and incompatibilities in national legislations led to the following consequences:

Cross-border transfers

1. Companies abandon the transfer of their registered offices, remaining in the departure Member State and not exercising the freedom of establishment;
2. Companies transfer registered offices directly through the use of national procedures or through the application of CJEU jurisprudence, but with great difficulty;
3. Companies transfer registered offices indirectly through alternative solutions, the use of a cross-border merger or the conversion of the company into a Societas Europeae (SE).
4. Companies wind-up and start afresh in destination Member State.

Cross-border divisions

1. Abandon the division of their companies, remaining in the departure Member State and not exercising the freedom of establishment;
2. Operate a cross-border division indirectly, through alternative solutions, such as the use of a cross-border merger or the creation of a new company in the destination Member States before the transfer of assets and liabilities to the new company.

These actions have several negative effects. The highly fragmented outlook across the EU can make a cross-border transfer or divisions extremely complex depending on the Member States involved. The existing complexities can not only increase the cost and duration of the procedures for companies, but can also give rise to considerable legal uncertainty for those associated with the company such as creditors, employees, and shareholders.

HOW IS THE STUDY USEFUL?

The study highlights the fragmented approach to cross-border transfers and divisions at Member State level, the inefficiencies and problems such fragmentation creates for companies, their shareholders, their creditors and their employees. In order to alleviate these problems, the study recommends to:

• Introduce a harmonised EU procedure for cross-border transfers which would not only provide greater legal certainty for minority shareholders, creditors and employees but also lead into a reduction in cost of €12 – 19k depending on the size of companies and Member States involved.
• Introduce a harmonised EU procedure for cross-border divisions which would also not only provide greater legal certainty for minority shareholders, creditors and employees but also lead into a greater reduction in cost of €12 – 37k depending on the size of companies and Member States involved.

The findings of the study were used in preparation of the “Company Law Package” initiative.