Austria Publishes Draft Law for Implementation of EU Mobility Directive
The Directive (EU) 2019/2121 marks a significant milestone in the development of EU corporate law as it establishes a reliable legal framework for cross-border reorganizations within the EU. Shortly prior to the end of the implementation period, also the Austrian Ministry of Justice published the long-awaited draft law for implementation of the Directive. We have taken a first look at the draft.
- Cross-Border Reorganizations – Status Quo
Cross-border reorganizations are of enormous importance for economic, administrative, tax or legal reasons, especially for international corporations. The Court of Justice of the European Union has promoted the mobility of EU companies in several landmark decisions in recent years. However, except for the Directive on Cross-Border Mergers (EU) 2005/56/EC, which Austria has implemented in the EU Merger Act (EU-Verschmelzungsgesetz), an EU-wide legal framework for other cross-border reorganizations has been missing so far. Therefore, in the absence of a uniform set of rules and procedures, EU corporations seeking to move across borders other than by way of a merger have been forced to rely on the goodwill of the competent authorities or forego their plans.
The Directive (EU) 2019/2121 aims to remedy such shortfall. Pursuant to the Austrian draft law implementing such directive, cross-border conversions (Umwandlungen), divisions (Spaltungen) and mergers (Verschmelzungen) will be regulated in a new law called “EU Reorganization Act” (EU-Umgründungsgesetz).
- The Draft EU Reorganization Act – A Brief Overview
The EU Reorganization Act sets forth the requirements and procedures for the implementation of cross-border conversions, divisions and mergers of corporations from and into Austria. While the EU Reorganization Act contains separate regimes for each type of reorganization which deviate from each other in details, the corresponding rules are largely based on the same key principles:
- Documentation and procedure: A reorganization plan and report are to be drawn up and – except in certain circumstances – examined by an independent expert. Further, the draft prescribes a uniform review and implementation procedure before the competent authority (in Austria: Firmenbuchgericht).
- Minority shareholder protection: Minority shareholders are granted an “exit right”: Shareholders may elect to exit the corporation affected by the reorganization in return for a cash compensation. The appropriateness of such compensation is verified by an independent expert and may be challenged in court.
- Extended creditor protection: Creditors are entitled to a security deposit under certain conditions. To the extent that the creditors’ claims are endangered by the reorganization but not sufficiently secured, the reorganization may not be carried out.
- Protection of employees: Employees of the reorganizing corporation are entitled to receive comprehensive and timely information about the envisaged measures. In addition, the EU Reorganization Act considers the employees’ interests by providing an opportunity to comment on the reorganization.
- Conclusion and Outlook
By providing a legal framework for cross-border divisions and conversions, the long-awaited EU Reorganization Act will close a gap in the corporate landscape and result in increased mobility for (Austrian) corporations. In addition, the EU Reorganization Act will replace the EU Merger Act and, thus, result in a new regulatory regime for cross-border mergers involving Austrian corporations. Given that the review period for the draft law already expires on 24 February 2023, it is expected that the EU Reorganization Act will enter into force quite soon.
