Major changes for mergers, divisions and conversions

The Luxembourg legislator has on 23 January 2025 adopted the bill of law implementing the so-called EU Company Mobility Directive which establishes a harmonised set of rules for cross-border restructurings.

Implementation of the EU Company Mobility Directive

The new law provides for two separate regimes: a European special regime applicable to cross-border operations involving companies established in at least two Member States¹ and a general regime, which governs domestic transactions and cross-border transactions that do not fall under the European regime.

For the European special regime, Luxembourg has chosen to activate all available options provided for by the Mobility Directive where they allow for lesser formalities and requirements. While the Mobility Directive introduces additional requirements, certain already existing European cross-border merger rules have been clarified and simplified. For example, mergers between sister companies now benefit from a simplified regime. In addition, for the first time, a common European framework for cross-border divisions² and conversions (commonly referred to as “migrations”³) is available.

European mergers, divisions and conversions now follow similar procedures, ensuring consistency and clarity in cross-border operations. The key novelties of the European regime are:

1. Minority shareholders rights: shareholders who have voted against the European cross-border transaction now benefit from an exit right with a cash compensation. In addition, shareholders who have not exercised this exit right now have a statutory right to challenge the share exchange ratio and request an additional cash payment.
2. Information of shareholders: the management body must draw up an expanded report to shareholders which needs to inter alia explain the exchange ratio and the amount of the cash-out payment and the respective methods of their determination as well as the implications of the transaction for the shareholders.
3. Information of employees: the management body shall in a report to the employees provide information about the envisaged restructuring. Such report will need to explain the implications of the transaction on employment relationships and measures taken to preserve them, material changes to the conditions of employment or the location of the company’s business and how the foregoing will affect the subsidiaries of the company.
4. Expert report: a report will need to be prepared by an independent expert who must qualify as a réviseur d’entreprises. The report will need to include the expert’s opinion as to whether the cash compensation and the exchange ratio are adequate.
5. Scrutiny of the legality of European cross border transactions: In Luxembourg, the notary plays a key role. The notary will need to verify that all relevant conditions have been met and that all formalities and procedures have been correctly completed by the concerned Luxembourg companies. This scrutiny and the interaction with the notary’s counterparts in the other concerned jurisdictions may cause completion of transactions taking longer than previously.

The non-European cross-border general regime is based on the current existing framework, but includes welcome tweaks which simplify matters, including the following:

• mergers between sister companies  now benefit from a simplified regime,
• the independent expert’s report is no longer mandatory for single-shareholder companies in case of mergers and divisions, and
• less information needs to be provided in the draft terms and in the board report in case of mergers and divisions. 

There is in particular no cash-option exit in the non-European regime.

When?

The new law is expected to enter into force shortly.

Following its entry into force, the new provisions will apply to all new transactions. However, the new restructuring rules will not apply to ongoing projects for which the draft terms will have been published before the first day of the month following the entry into force of the law.