Effective as of 15 March 2024, new legal provisions apply to Cyprus companies converting to companies in other EU Member States and vice versa.

These changes result from the Companies Law (No.3) of 2024 (Law 26(I)/2024), known as the Amendment Law. This amendment integrates the provisions of Directive (EU) 2019/2121 (the Mobility Directive), which updates Directive (EU) 2017/1132 concerning cross-border conversions.

Definition of cross-border conversion

Under the Mobility Directive and the Amendment Law, a “cross-border conversion” allows a Limited Liability Company to change its legal form and relocate its registered office to another EU Member State without dissolving, winding up, or entering liquidation, while maintaining its legal identity. The departure Member State governs the initial procedures to obtain the pre-conversion certificate, while the destination Member State governs subsequent formalities. Notably, cross-border conversions do not apply to companies undergoing liquidation, insolvency, or similar proceedings (Section 201ΗΑ of the Amendment Law).

Involvement of authorities and protection of stakeholders

The Amendment Law mandates the involvement of both the Cyprus Department of Registrar of Companies and Intellectual Property (the RoC) and the Cyprus Court. It ensures the protection of employees' and members' interests during the conversion process. Directors of the converting company must draft detailed terms of the cross-border conversion, including the new legal form, name, registered office location, and a proposed timeline. These terms also address rights and protections for members with special rights, securities holders, creditors, and employees, along with any special benefits for company officials and compensation details (Section 201ΗΔ of the Amendment Law).

Additionally, directors must prepare a report explaining the legal and financial implications of the conversion for employees and members. An independent expert must review the draft terms and provide a report on the adequacy of cash compensation for members (Section 201ΗΣΤ of the Amendment Law).

Notification and approval process

The company must submit the following documents to the RoC at least one month before the general meeting that will approve the conversion by special resolution (Section 201ΗΗ of the Amendment Law):

These documents are made publicly accessible by the RoC and through the interconnection of EU Member States' registers.

Creditor protections

Creditors dissatisfied with the safeguards provided in the draft terms can apply to the Court within three months of the disclosure, provided they demonstrate credible concerns about their claims' satisfaction due to the conversion (Section 201H1 of the Amendment Law).

Court application for pre-conversion certificate

The converting company must file an application with the Cyprus Court to obtain a pre-conversion certificate. The application includes the draft terms, directors’ and independent expert’s reports, and general meeting approval details. The Court may request additional information and, if all conditions are met, issue the pre-conversion certificate. This certificate is then transmitted to the destination Member State through the interconnection system.

Legal scrutiny and completion

The Cyprus Court scrutinises the legality of the cross-border conversion based on Cyprus law and approves or rejects the conversion. The converting company submits the Court’s approval to the RoC, which handles the registration and publication, marking the completion of the conversion. The laws of the destination Member State determine the final registration date.

Upon completion, all assets, liabilities, contracts, credits, rights, and obligations transfer to the converted company, and members retain their status unless they have sold their shares. Employment contracts and relationships existing at the conversion date also transfer to the new entity.

Conclusion

The new procedures for cross-border conversions under the Amendment Law are expected to enhance the internal market's functionality and the freedom of establishment for companies within a harmonised legal framework. This will foster better cooperation between Member States concerning cross-border conversions, making the process more efficient and business-friendly.