4 The possibility of cross-border division

The law of the EU, as it stands, does not explicitly provide for written legislation on cross-border division: Directive 2011/35/EU only concerns national legal mergers, the Tenth directive only concerns cross-border legal mergers and the Sixth directive only concerns national divisions and not cross-border divisions. Also, neither the SE Regulation, nor the SCE Regulation provides for the possibility of cross-border division. However, in the framework of the transposition of the Tenth directive on cross-border mergers in national legislation, a few Member States also drew up legislation on cross-border divisions on their own initiative. These Member States are: Denmark, Finland, Iceland, Luxembourg, Spain and the Czech Republic. From the perspective of the laws of those Member States, the answer to the question whether cross-border division is possible can be found in such legislation. From the perspective of other Member States that have not chosen to draw up legislation on cross-border division, the question whether cross-border division is possible can be found in the ffeedom of establishment (sections 49 and 54 TFEU), as EU secondary legislation on this subject is lacking.

In the Sevic case, the Court of Justice of the EC considered that “cross-border merger operations, like other company transformation operations, respond to the needs for coopération and consolidation between Companies established in different Member States” and that “they constitute particular methods of exercise of the lreedom of establishment”.1

In the Sevic case, a provision of German law was under discussion (§ 1 of the German Act on corporate restructurings (“Umwandlungsgesetz”)), in which different forms of corporate restructurings are described: (inter alia) merger, conversion (change of corporate legal form) and division. It is therefore clear that the Court of Justice of the EC also had in its mind the possibility of cross-border division, when it referred to “other company transformation operations”. Furthermore, cross-border division also responds to the need for coopération and consolidation between Companies governed by the laws of different Member States.

In the Vale case, the previously mentioned considérations of the Sevic case were confirmed.2 The answer to the question whether cross-border division is possible, can be found in the freedom of establishment. Member States may not treat cross-border divisions differently from national divisions. A différence in treatment constitutes a restriction within the meaning of section 49 TFEU and section 54 TFEU, which is contrary to the right of establishment and can be permitted only if it (i) pursues a legitimate objective compatible with the TFEU and (ii) is justified by imperative reasons of public interest. Member States may, in certain cases, restrict the freedom of establishment, where it concerns imperative reasons of public interest, such as protection of the interests of creditors, minority shareholders and employees and the préservation of the effectiveness of fiscal supervision and the faimess of commercial transactions. It is also necessary, in such a case, that its application must be appropriate to ensuring the attainment of the objective thus pursued and must not go beyond what is necessary to attain it.

It has to be pointed out that the freedom of establishment is only applicable in cases of majority shareholdings.3 In the case of a cross-border division, it is possible that (i) minority shareholders of the dividing company become minority shareholders of the acquiring company or acquiring Companies or (ii) a majority shareholder of the dividing company becomes a minority shareholder of the acquiring company or acquiring Companies. If and when the freedom of establishment is not applicable because of the absence of a majority shareholding, the freedom of capital applies (section 63 TFEU).