The Cross-Border Conversions of Limited Liability Companies Regulations (S.L. 386.27) (hereinafter, the "CBC Regulations") were published on 7 February 2023 to transpose the European Union (hereinafter, the "EU") Directive No. 2019/2121/EU of the European Parliament and of the Council of 27 November 2019 amending EU Directive No. 2017/1132 as regards cross-border conversions, mergers and divisions (hereinafter, the "Mobility Directive") into Maltese law with effect from 31 January 2023. The CBC Regulations essentially govern the re-domiciliation (which is referred to as a cross-border conversion) of companies into and outside of Malta.
The primary motivation for the Mobility Directive was to standardise the cross-border movement of corporate entities within the EU, ensuring the protection of employees, shareholders, and creditors. It also aimed to provide national authorities with the required tools and safeguards to prevent fraud and abuse. As a result, companies within the EU can now relocate across member states' borders without facing uncertainties due to varying legislative frameworks and implementation procedures for cross-border operations in different member states.
The Continuation of Companies Regulations
Prior to the coming into force of the CBC Regulations, the process of company re-domiciliation into and outside of Malta was governed exclusively by the Continuation of Companies Regulations (S.L. 386.05) (hereinafter, the "Continuation Regulations"). Even though the Continuation Regulations remain in force, their application is now somewhat limited since they are now effectively applicable to company re-domiciliation that involve an approved country or jurisdiction that is outside the EU or the European Economic Area (hereinafter, the "EEA"). Therefore, upon the transposition of the Mobility Directive by all EU /EEA member states, company re-domiciliation involving any such jurisdictions would necessarily require to be governed by the CBC Regulations.
With this being said, in the case of re-domiciliation from or to an approved country or jurisdiction outside the EU or the EEA, there is also the possibility for the parties involved to choose whether to regulate the re-domiciliation under the Continuation Regulations or under the CBC Regulations. Should the latter be the preferred way forward, a legal opinion issued by legal advisors in the third country approved jurisdiction would need to be submitted to the Malta Business Registry (hereinafter, the "MBR"), confirming that the cross-border conversion is permitted under the laws of the relevant third country approved jurisdiction.
Nonetheless, in terms of Regulation 4(4) of the CBC Regulations, these Regulations shall not apply to:
- continuations into or out of Malta in terms of the Continuation Regulations;
- cross-border conversions involving a company, the object of which is the collective investment of capital provided by the public, which operates on the principle of risk-spreading and the units of which are, at the holders' request, repurchased or redeemed, directly or indirectly, out of the assets of that company;
- a company which is subject to resolution tools, powers and mechanisms under Title IV of Directive 2014/59/EU;
- a company which is the subject of insolvency proceedings; or
- a company which is the subject of liquidation proceedings.
What is a Cross-Border Conversion?
A cross-border conversion is defined in the CBC Regulations as"an operation whereby a company, without being dissolved or wound up or going into liquidation, converts the legal form under which it is registered in a departure jurisdiction, into a legal form of the destination jurisdiction,...and transfers at least its registered office to the destination jurisdiction, while retaining its legal personality".
In light of the above, the consequences of a cross-border conversion are such that:
- all the company's assets and liabilities become those of the converted company;
- the company's members shall continue to be members of the converted company, unless they have disposed of their shares; and
- the company's rights and obligations arising from employment contracts and relationships existing at the time the cross-border conversion takes effect, become those of the converted company.
Procedure When Malta is the Departure Jurisdiction
Part I of the CBC Regulations regulate the procedure and formalities to be applied when Malta is the departure jurisdiction, i.e. the jurisdiction in which a company is registered prior to a cross-border conversion.
Essentially, the Board of Directors (hereinafter, the "Board") shall draw up a draft terms of the cross-border conversion, which shall include, as a minimum, certain particulars as specified in Regulation 6 of the CBC Regulations, such as the legal form and name of the company and the location of its registered office in Malta, the legal form and name proposed for the converted company in the destination jurisdiction and the proposed location of its registered office in the said jurisdiction, and the proposed indicative timetable for the cross-border conversion, amongst others.
The CBC Regulations also offer safeguards for the company's members and employees since the Board is required to draw up a report for the company's members and employees, justifying the legal and economic aspects of the cross-border conversion, together with a written declaration of solvency confirming that it is unaware of any reason why the company may, after the cross-border conversion takes effect, not be in a position to meet its liabilities when they fall due. Moreover, the CBC Regulations also provide for the requirement of having an independent expert draw up a report for the company's members not less than one (1) month before the date of the general meeting. Nonetheless, the CBC Regulations also provides certain caveats where the requirement of these reports and declaration may be waived. The Board shall also prepare a notice to its members, creditors and employees stating that they may submit to the company, at least five (5) working days before the date of the general meeting, comments concerning the draft terms of the cross-border conversion.
The draft terms of the cross-border conversion, the declaration of solvency (as applicable) and the notice shall be filed with the MBR, who shall thereafter register the documents and publish a statement in respect of the cross-border conversion. At least one (1) month after such registration, the general meeting of the company shall approve the cross-border conversion by means of an extraordinary resolution, which shall be submitted to the MBR which shall thereafter register the resolution and publish a statement to this effect. No later than one (1) month from the general meeting, any member who is opposed to the draft terms of the cross-border conversion, may, upon written request, dispose of his shares in return for monetary compensation, which shall be paid no later than two (2) months after the cross-border conversion becomes effective. Moreover, within three (3) months from the said publication by the MBR, any creditor of the company who feels that the safeguards stipulated in the draft terms of cross-border conversion are not adequate, may lodge an application in court requesting adequate safeguards.
Upon the lapse of one (1) month from the last publication by the MBR concerning the extraordinary resolution, the company shall apply to the MBR to obtain a pre-conversion certificate, which application shall be accompanied by the submission of all documents mentioned above, together with any other ancillary documents if the company is licensed or quoted on a recognised stock exchange or where there are pledged shares. Essentially, the MBR has three (3) months from receipt of such application within which to review the application and the supporting documents thereto.
Upon being satisfied that all necessary procedures have been completed, the MBR shall issue the pre-conversion certificate, which certificate would then need to be provided to the registrar of the destination jurisdiction, i.e. the jurisdiction in which a converted company is registered as a result of the cross-border conversion. Lastly, once the MBR has been notified of the effective date of the cross-border conversion by the registrar of the destination jurisdiction, the MBR shall publish a notice indicating that the cross-border conversion is complete and shall strike the name of the company off its register.
Procedure When Malta is the Destination Jurisdiction
Part II of the CBC Regulations regulate the procedure and formalities to be applied when Malta is the destination jurisdiction as defined above.
Essentially, in terms of Regulation 21 of the CBC Regulations, the foreign converting company shall submit to the MBR:
- the draft terms of the cross-border conversion approved by the company's general meeting which shall include the specific particulars contained within Regulation 21(2)(a) of the CBC Regulations;
- the pre-conversion certificate issued by the departure jurisdiction;
- the memorandum and articles of association of the foreign converting company drawn up in accordance with the Companies Act (Cap. 386 of the Laws of Malta);
- if the departure jurisdiction is not an EU/EEA state, a legal opinion by a legal advisor in the departure jurisdiction confirming that the proposed cross-border conversion is permitted by the laws of the departure jurisdiction;
- a copy of the extraordinary resolution approving the cross-border conversion;
- a declaration of solvency drawn up in the same manner as mentioned above; and
- any other document and information required to register the foreign converting company as a Maltese company.
The CBC Regulations also lay down further requirements should the foreign converting company be a licenced company, a public company, or a company wherein the shares are pledged.
Once the MBR has verified that the provisions of the CBC Regulations and the Companies Act have been complied with, it shall, not later than ten (10) working days from the submission of documents, approve the cross-border conversion and proceed to register the foreign converting company as a Maltese company in terms of the Companies Act.
The MBR shall thereafter issue a Certificate of Cross-Border Conversion, which shall include the name, legal form and registration number of the converted company, a reference to the fact that the converted company has completed a cross-border conversion and the date on which the cross-border conversion becomes effective. This certificate shall be considered as evidence that the requirements of the CBC Regulations and the Companies Act have been complied with.
The Registrar shall furthermore publish a statement confirming the completion of the cross-border conversion on the online portal of the Malta Business Registry, and shall notify, without delay, the registry of the departure jurisdiction that the cross-border conversion has taken effect, indicating the effective date of same.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.