May 2024

Corina Roman authored an article on the aspects that businesses have to consider with respect to the relocation of the registered officer to another EU Member State.

5 key aspects to consider with respect to the relocation of the registered office of a company to another EU Member State

• Companies enjoy a greater mobility on the EU territory thanks to the freedom of establishment being actually observed.
• The converted company will change its “nationality” (along with the relocation of the registered office) and it will also change its “hat” (the legal form).
• Nothing is lost, everything is being transformed – all assets and liabilities of the company undergoing the conversion will belong to the entity relocated in the destination Member State.
• The company making the object of the conversion will not undergo a liquidation or winding up process, no new entity being created in the process. In the departure Member State, a record will be made in the commercial register with respect to the de-registration of the respective company as a result of the cross-border conversion, and the new identification number of the company assigned by the destination Member State will be indicated in such record.
• In addition to the specific implementation of the conversion process, one must also consider the need to notify the competent Foreign Direct Investment Commission from the destination Member State.

Thanks to the increased mobility brought by the Law no. 222/2023, which amended and supplemented Company Law no. 31/1990, our article approaches the topic of cross-border conversions.

• Enhanced mobility for the most common types of companies

The transposing of the 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 in the national legislation creates the legal framework required to relocate the registered office of a company set up in Romania as a joint stock company, partnership limited by shares, limited liability company. Similarly, companies formed in Member States for which the cross-border conversion is allowed under the laws of the departure Member State, may relocate their operations to Romania if they adopt the legal form of a joint stock company, a limited liability company or a partnership limited by shares.

However, in general, this option is not available to certain entities, such as listed companies, collective investment entities, investment management companies, alternative investment fund managers, companies subject to resolution tools, powers and mechanisms, companies undergoing recovery or crisis prevention proceedings, companies pending liquidation and which started the distribution of assets to shareholders, companies under insolvency proceedings or companies undergoing insolvency prevention proceedings, as well as European Companies (SE), for which there are specific regulations.

The relocation of the registered office may be implemented as a cross-border conversion if certain requirements are being met, the procedure being similar to that in place for cross-border mergers and divisions. The main advantage is that, in order to relocate the registered office, it is not necessary to undergo a liquidation or winding up of the company in the departure Member State or to incorporate a completely new entity in the destination Member State.

In the departure Member State, a record will be made in the commercial register with respect to the de-registration of the respective company following the cross-border conversion, and the new identification number of the company assigned by the destination Member State will be indicated in such record. The itinerary of the company remains thus traceable.

• What are the requirements for implementing a cross-border conversion?

To qualify as a cross-border conversion, and, implicitly, as a relocation of the registered office, the fulfilment of the following critical requirements must be met:

• the company must adopt one of the legal forms available in the destination Member State, from those mentioned in the Annex II to the Directive 1132/2017. More precisely, for example, the company relocating its registered office from another Member State to Romania must become a joint stock company, a limited liability company or a partnership limited by shares, and
• the company must transfer its registered office to the destination Member State, while it preserves its legal entity status. Hence, no new legal entity is being created, as the same legal entity is being kept in new “clothes”, which have been “picked” in accordance with the new legal and economic framework under which such company will conduct its activity.

Such minimum requirements also effectively ensure that the Romanian legislation complies with one of the fundamental principles of the European Union law, namely with the freedom of establishment, as defined in the caselaw of the European Court of Justice.

• Draft terms of the cross-border conversion or the starting point for the relocation of the registered office within the EU

Similar to the approach adopted in the case of cross-border mergers and divisions, the lawmaker decided that the directors or members of the board of management, as the case may be, are required to prepare draft terms for the cross-border conversion.

In addition to the details regarding the legal form to be assumed by the company in the destination Member State, the draft terms should include, among others, a calendar of the entire operation, information on the guarantees provided to creditors, as well as information on State aid received or other types of support received from the departure Member State in the last five years.

On the financial side, the draft terms will be based on audited financial statements drafted for the specific purpose of the conversion in accordance with the law, which cannot be older than 6 months as at the signing date of the draft terms of the cross-border conversion.

As in the case of cross-border mergers and divisions, the draft terms must be communicated to employees, the latter being thus informed about the effect that the cross-border operation will have on the workforce. Employees may submit their comments on the cross-border conversion at least five days before the general meeting of shareholders convened to decide on the entire conversion process.

• What are the effects of a cross-border conversion?

It is essential to be aware that following the relocation:

• all assets and liabilities of the company subject to the conversion are considered as pertaining to the same legal person even after the registration date of the company in the destination Member State. It is important to highlight that, starting with such date, the converted company will have a new “nationality” (i.e. that of the destination Member State) and a new hat” (i.e. a new legal form;
• the shareholders of the company that underwent the conversion will be the shareholders of the converted company from the destination Member State, if they chose/failed to exercise their right of withdrawal;
• the rights and obligations existing before the company is registered in the destination Member State will continue to belong to the company now holding a registered office in the destination Member State.

As such, thanks to a greater flexibility, without going through the procedure of setting up a European Company (SE), which required going through more steps and a more complicated procedure, under the new regulations, a company may choose to relocate more easily, together with its entire activity and patrimony, to other Member States.

The entire process will require careful consideration from a legal, tax and operational perspective, being necessary to hire legal and tax advisors to ensure full compliance with the applicable laws and to avoid potential hurdles to the implementation (including, authorizations/permits required for carrying out the activity in the destination Member State).

• Under the scrutiny of the Foreign Direct Investment Commission or not?

Another aspect to be carefully considered before initiating this type of operation is the potential obligation to notify in advance the Foreign Direct Investment Commission (in Romanian: Comisia pentru examinarea investițiilor străine directe). The authority has powers and duties also over investments made by European investors, as a result of the amendments brought to the Emergency Government Ordinance no. 46/2022 on measures for the implementation of the Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, as well as for the amendment and supplementation of the Competition Law no. 21/1996.

We believe that there are enough arguments for conversions not to make the object of such a review, as these are not investments per se, as also implied by the latest interpretations given by the European Court of Justice in Hungary’s case with respect to the obligation to comply with the freedom of establishment principle. However, in light of the most recent interpretations given by the competent national authorities and considering the significant sanctions imposed by the regulations in force, we consider it recommendable to request clarifications with respect to the applicability of such norms to cross-border conversions.

In our view, Romania continues to be an attractive State for investors, while the regulations concerning cross-border conversions, with the right legal and tax advice for each operational context, may create a good and supporting environment for the relocation of more European companies to the local market.

To raise awareness on corporate and mergers and acquisitions related aspects and to help companies understand the relevant concepts, risks and benefit connected to such, BACIU PARTNERS professional constantly contribute expert views to reputable publications.

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