The European Commission has announced that it is proposing new rules to make it easier for companies within the European Union (EU) to merge or divide, or to move from one EU Member State to another. It has also published a draft amending Directive.

The existing cross-border mergers regime allows two or more companies from different EU Member States to merge by following a prescribed process.

However, the regime does not work in the other direction so as to allow a single company to divide or demerge two or more existing businesses. Instead, a company needs to implement one of various structures in order to demerge an existing business into a new company, which will vary by country.

In addition, it is not currently possible for a company to move, or migrate, from one EU Member State to another unless the law of each individual state allows this or the company takes the form of a European company (SE).

It is possible, to some extent, to achieve a migration artificially using the cross-border merger regime, or by inserting a new holding company in the destination country. However, in both cases this involves creating a brand-new company, rather than retaining an existing company and simply shifting its territory of registration.

The Commission’s proposals would create a simple procedure for cross-border divisions and migrations. They would also amend the existing cross-border mergers regime to enhance protections for creditors, employees and existing shareholders. In particular, shareholders who do not agree to a merger, migration or division would be offered the right to exit the company.

As with all new EU legislation in the lead-up to Brexit, it is not yet clear to what extent these proposals would (or could) be implemented into UK law. This will depend on the final agreement between the EU and the UK on the UK’s withdrawal.