Cross-border company migration is becoming safer

08.12.2022 | 15:48

At the third reading, the Riigikogu adopted the act on the cross-border merger, division and conversion of companies registered in the European Union. If up until now only the cross-border merger of companies was possible, new possibilities are added in the form of cross-border division and conversion.  At the same time, control over cross-border company migration will become stricter and the conditions more specific.
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‘According to the freedom of establishment – a fundamental principle of the European Union –, every citizen of a Member State is entitled to set up a business in another Member State. However, there may arise a need to transfer an existing company from one Member State to another. Regulations on cross-border movement have been established to ensure that there would be no need to close down a company in one Member State and establish a new one in another Member State, and with this amendment, we are supplementing these regulations,’ the Minister of Justice Lea Danilson-Järg said and added: ‘These amendments open up new opportunities for companies in the EU internal market and foster economic growth as well as competition.’

At the same time, control over cross-border company migration will be tightened and the conditions specified. For instance, cross-border migration is not allowed if reorganisation or bankruptcy proceedings or criminal proceedings are commenced with regard to the company. In addition, the registrar’s obligations of control in the issuing of cross-border movement certificates will be supplemented.
‘The registrar will have to check the motives for cross-border movement in more depth. This is an important step to ensure that companies will not be able use cross-border movement for illegal purposes or for purposes which may constitute a threat to the security of Estonia. In order to ensure that the registrar has sufficient information and data to assess the motives and lawfulness of cross-border movement, they will have the opportunity to involve different agencies in the procedure, such as the Financial Intelligence Unit,’ the Minister of Justice explained.                    

The amendment also provides for improved involvement and participation of employees in the cross-border company migration. ‘In addition to the company’s right to carry out cross-border merger, division or conversion, it is also important to consider the protection of employees, creditors, and shareholders. For this purpose, the law will lay down any necessary guarantees and an obligation to inform,’ the Minister of Justice said.         
The amendments are in line with Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 on cross-border conversions, mergers and divisions, which must be transposed in the Member States by 31 January 2023. 
The adopted amendments will enter into force on 01.02.2023

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