On 25 April 2018, the European Commission launched proposals to amend Directive (EU) 2017/1132 on certain aspects of company law in two regards; the use of digital tools and processes in company law and cross-border conversions, mergers and divisions. These proposals are aimed at further harmonising EU company law within the internal market, making it easier for companies to merge, divide or move around the European Union and preventing abuses such as tax evasion and profit shifting.

Changes proposed by the Commission

The amendments proposed by the European Commission include:

·         the introduction of a fully digitalised company registration and filing procedure across the single market;

·         harmonising the existing rules around cross-border mergers, divisions and relocations and preventing companies from undermining the rights of workers or creditors;

·         the exchange of information between Member States about disqualified directors; and

·         the departure Member State having the ability to block a relocation to another Member State should the intended transfer constitute an ‘artificial arrangement aimed at obtaining undue tax advantages or unduly prejudicing the legal or contractual rights of employees, creditors or minority members.’

The Commission believes that the above measures will modernise the company law rules, ensuring freedom of establishment within the internal market while at the same time protecting the rights of creditor and workers. Under the proposals, companies would be able to be fully created online and then move, merge or divide across EU Member States more easily and cost efficiently. They would also have to provide their employees with a report setting out the impact the plan would have on them.

The Commission’s proposals are also concerned with legal personality. As well as being aimed at tax authorities against abuses of legal personality, the proposals will help companies through harmonising the rules around cross-border mergers. This will allow companies to relocate without first having to go through liquidation and thereby losing their legal personality.

Reaction to the proposals

From within the Parliament, the Party of European Socialists have reacted, welcoming the proposals as they will close what the Party saw as loopholes in the law allowing companies to create letterbox companies. They say that companies must prove genuine economic activity in the country in which their office is based and that workers’ rights, information and participation must be secured.

The European Trade Union Confederation have also commented on the proposals as being a good way to stop the creation of letterbox companies who, as they see it, cherry pick the jurisdictions which suit them most and create an unfair labour market for workers.

The proposals are now with the European Council and Parliament for their consideration and adoption, so there is sure to be more reaction in the near future.