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It is now undisputedly permitted to transfer the registered office of a German GmbH to another EU member state while simultaneously changing into a legal form under the law of the country of relocation (known in German as "Herausformwechsel") ("Company Conversion").
In practice, the possibility of Company Conversion is used more and more often. Unlike other forms of transformation (e.g. cross-border mergers), the Company Conversion has the advantage that it preserves identity and does not involve a transfer of assets. Consequently, as a rule, no real estate transfer tax becomes payable, no hidden reserves must be disclosed, there is no violation of holding periods, and public law approvals remain valid for the company.
Reasons for a Company Conversion are usually a better market environment and more favourable legal circumstances in the country of conversion, sometimes even a more attractive tax environment, more favourable regulations for employee participation and sometimes a simplified handling of insolvencies and liquidations.
Despite the undisputed admissibility of the Company Conversion, its practical implementation is currently still difficult due to the lack of a legally regulated procedure.
With the Company Law Package (EU Directive) which came into force on 1 January 2020, uniform EU regulations had been created for the first time, including a procedure for the Company Conversion. However, as these provisions of the Company Law Package do not have to be transposed into national law by the German legislator until 31 January 2023, the question arises as to whether these EU requirements must nevertheless already be observed now due to a so-called "pre-effect" when advising on and structuring Company Conversions.
This question was first addressed (as far as apparent) by the Higher Regional Court of Saarbruecken in its decision of 7 January 2020.
The Higher Regional Court (OLG) of Saarbruecken had to decide on a company conversion of a German GmbH into the legal form of a French corporation. The application for this Company Conversion had been rejected by the Local Court of Saarbruecken on the grounds that the preparation of a transformation report and the announcement of the draft transformation resolution could not be waived in view of the protection of creditors and employees.
In its decision, the Higher Regional Court of Saarbruecken confirmed the opinion of the Local Court of Saarbruecken and decided that ‑ due to the lack of national regulations on Company Conversions ‑ in addition to the regulations on the domestic change of legal form (§§ 190 et seq. of the German Reorganisation Act, UmwG), the regulations on cross-border mergers (§§ 122 (a) et seq. UmwG) and not, as had been discussed for a long time, the regulations on the cross-border transfer of the registered office of a European Corporation (so-called SE-Regulation) are applicable.
In its reasoning, the Higher Regional Court of Saarbruecken considers this result to be appropriate in anticipation of the new regulations on Company Conversion under the Company Law Package, and thus assigns a pre-effect to the Company Law Package even before its transposition into national law.
In both consulting practice and in literature, the decision of the Higher Regional Court of Saarbruecken has often been criticised. According to the prevailing opinion, there is no obligation to consider the EU Directive before the deadline for an implementation into national law as determined in the Company Law Package expires.
Critics claim that rather than contributing to legal certainty, the Higher Regional Court of Saarbruecken has, by its decision, further increased the already existing legal uncertainty with regard to the procedure for Company Conversions.
For the consulting practice this means that it is still indispensable to coordinate the procedural steps necessary for Company Conversions early on with the competent registry court.
As an alternative, it should be considered to observe the additional procedural requirements under the Company Law Package ‑ as a precautionary measure ‑ until the highest German court clarifies the matter, or the EU Directive has been implemented in national law.
In addition to a legal implementation of a Company Conversion, we are also pleased to support you in determining whether a Company Conversion is a viable option for your company and what tax consequences would arise.
Legal status: 21 September 2020
