Implementation of the Mobility Directive by Cyprus
Definition
A cross-border conversion is defined as a process through which a Limited Liability Company transfers its registered office to another EU Member State, while retaining its legal personality.
Process
The process of the conversion entails that the Cyprus Department of Registrar of Companies and Intellectual Property (RoC) must be notified of the intention to transfer and a court order must be issued by a Cyprus Court thereby approving the proposed transfer on the basis of the documents that will be filed by the company. These requirements ensure that adequate safeguards are in place in respect of the interests of the Company’s employees and members.
The procedure entails the folloiwng steps:
- The directors of the converting company must prepare a legal document outling, among others, the legal form, name, and location of its registered office, the instrument of constitution of the company in the destination Member State as well as the proposed indicative timetable for the cross-border conversion.
- The directors must also prepare reports explaining the legal and financial implications that the conversion will have for employees and members.
The legal documents drafted by the directors must be examined by an independment expert who will confirm, inter alia, the adequacy of the cash compensations for concerned stakeholders.
Shareholder Protection
Where shareholders object to the approval of the proposed transfer terms, they must be adequadely informed of their rights, which include the right to sell their shares for sufficient cash compensation as well as the right to challenge the share-exchange ratio in court. Creditors who are dissatisfied with the safeguards offered by the company may apply to the Cyprus courts seeking an order for the protection of their interests, provided that such creditors can demonstrate that their rights are being prejudiced as a result of the cross-border transfer.
Independent Expert's Review
The company must submit the draft terms of the transfer and the independent expert’s review to the RoC at least one month prior the shareholders’ general meeting that will approve the conversion by special resolution. The terms of the transfer as well as the independent expert’s review must be dispatched to the members, creditors, and employees inviting them to comment on the provisions therein.
Court Procedure
Following the above steps and provided that the company has obtained the approval of its shareholders, the company will file an application with the Court in Cyprus seeking to obtain a pre-conversion certificate, which includes the draft terms, the experts report and an affidavit confirming the truth of the statements. This court certificate shall be transmitted to the destination Member State.
Ensuring Compliance
It is to be noted that the competent authorities of the destination Member State are obliged to ensure that they issue a confirmatory certificate of compliance if it is determined that the pre-conversion certificate was obtained for fraudulent purposes or with the view to evading European or national law or for criminal purposes.
Existing Company Law Provisions
Note: the foregoing provisions apply for transfers of the seat of companies within Member States. The existing provisions for the transfer of a company’s legal seat, known as redomiciliation, in cases of the redomiciliation of a Cyprus company to a jurisdiction outside the EU and the opposite remain valid.
Challenges
Companies may face challenges in fully adhering to the provisions of the Directive and the Companies law, Cap 113, due to implementations particularly with respect to the protection of employees and other stakeholders.