Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (the “Mobility Directive”) aims to ensure the right of freedom of establishment of companies incorporated within the Union by harmonising the provisions applicable to cross border operations with a view to strengthening the single market, whilst protecting the rights of all stakeholders involved. As outlined in our previous publication (available here), European Union Member States faced a 31st January 2023 deadline by when they needed to transpose the provisions of the Mobility Directive within their respective national law. Malta has now transposed the provisions of the Mobility Directive through the publication of three legal notices by virtue of the Cross-Border Divisions of Limited Liability Companies Regulations, 2023 (L.N. 26 of 2023), Cross-Border Conversions of Limited Liability Companies Regulations, 2023 (L.N. 27 of 2023), and Cross-Border Mergers of Limited Liability Companies Regulations, 2023 (L.N. 28 of 2023) (collectively referred to as the “Regulations”).
A fourth legal notice has also been published for the purpose of repealing the previous rules regulating cross-border mergers – the Cross-Border Mergers of Limited Liability Companies (Repeal) Regulations, 2023 (L.N. 25 of 2023). All legal notices are deemed to have come into force as from 31st January 2023.
Cross-Border Mergers
As mentioned above, prior to the publication of the Regulations, Maltese law contemplated and regulated cross-border mergers of limited liability companies by virtue of subsidiary legislation enacted in terms of the Companies Act (Chapter 386 of the laws of Malta) (the “Companies Act”) - the Cross-Border Mergers of Limited Liability Companies Regulations (S.L. 386.12). These pre-existing rules concerning cross-border mergers of limited liability companies have now been repealed by virtue of L.N. 25 of 2023, and subsequently replaced by the provisions of L.N. 28 of 2023. In transposing the relevant provisions of the Mobility Directive, L.N. 28 of 2023 has streamlined the procedure for the implementation of a cross-border merger and has also expressly introduced the notion of a cross-border merger where one or more companies merges with an acquiring company and where the shareholding of all companies partaking in the cross-border merger is the same.
In terms of L.N. 25 of 2023, and by way of a grandfathering provision, any action, decision, or proceeding taken or commencing before the coming into force of such legal notice shall remain to be regulated by the provisions of S.L. 386.12 (being the previous regulations regulating cross-border mergers).
Cross-Border Divisions
As part of the package of new laws introduced in order to transpose the provisions of the Mobility Directive, the Maltese legislator has now regulated cross-border divisions through the publication of L.N. 26 of 2023. Accordingly, a limited liability company formed in accordance with the law of a Member State can transfer its assets and liabilities to companies already incorporated in any other Member State without being dissolved or wound up. L.N. 26 of 2023 caters for full cross-border division, partial cross-border division, and division by separation of companies formed. In any case, the recipient company/ies resulting from the division must necessarily be a newly formed company incorporated in a Member State.
Cross-Border Conversions
Completing the transposition of the Mobility Directive, L.N. 27 of 2023 regulates the cross-border conversion of companies by allowing a company to convert the legal form under which it is registered in the departing jurisdiction into a legal form of the destination jurisdiction as listed in Annex II of the Mobility Directive without going into liquidation, provided that this company transfers at least its registered office to the destination jurisdiction.
Procedure for the implementation of the cross-border merger, conversion or division
All of the Regulations outline the procedure and documentary formalities required in order to implement and give effect to the cross-border merger, conversion or division, as applicable. Briefly, each of the Regulations contemplate the drawing up of draft terms of the cross-border operation and a directors’ report explaining and justifying the legal and economic aspects of the operation, as well as its implications to the Maltese company’s shareholders and employees. The Regulations also provide for the possibility of the employees of the Maltese company to provide their feedback on the operation in question, following which the operation will be put to a vote of the company’s shareholders. In the case of approval of the operation, any dissenting shareholders are given the opportunity to dispose of their shares in the Maltese entity in return for adequate compensation. The need for input from independent experts on the operation in question is also included within the Regulations.
The Regulations also necessitate the publication by the Malta Business Registry of certain documentation prepared and drawn up in order to implement the operation in question, as well as a creditor contestation period for any creditors of the Maltese company to oppose to the implementation of the operation in question. The operation will be deemed complete following the lapse of all timeframes and other formalities and the issuance by the Maltese Registrar of Companies of the relevant certificate.
Conclusion
Whilst Maltese law already catered for the implementation of certain cross-border operations, the publication of the Regulations introduces the notion of additional cross-border operations within Maltese law, such as cross-border divisions and conversions, as well as overhauling and streamlining current regulations on certain cross-border operations, in particular cross-border mergers. Having said that, how the implementation of the Regulations fares in practice as well as their interaction with other legislation which is already in force will be put to the test in the coming months.
For further information or queries on the Regulations or the implementation of cross-border mergers, conversions or divisions in and out of Malta, please get in touch with Kirsten Debono Huskinson (kirsten.debonohuskinson@camilleripreziosi.com), Nicola Jaccarini (nicola.jaccarini@camilleripreziosi.com) or Vanessa da Costa Palmer (vanessa.palmer@camilleripreziosi.com).
