After long negotiations, the time had finally come at the end of last year: the European Union and the United Kingdom concluded an agreement regarding the Brexit. This agreement contains rules that have applied between the European Union and the United Kingdom as of the first of January 2021. What are the consequences of this agreement for the company law between the Netherlands and the United Kingdom?
Crossborder constructions within the EU
Between member states of the European Union, the provisions of the Treaty on the Functioning of the European Union (TFEU) apply. Article 49 in combination with article 54 of the TFEU shows that there is freedom of establishment between companies of different member states. Several times the European Court of Justice has dealt with cross-border mergers and the freedom of establishment. This shows that a company under the law of one member state can merge with a company under the law of another member state. The national regulations of member states concerning cross-border merger are based on these regulations. It is assumed that a cross-border division or conversion should be possible in the same way.
The consequences of Brexit for crossborder constuctions
As a result of the Brexit, the United Kingdom is no longer a member state of the TFEU and there is no longer freedom of establishment between the Netherlands and the United Kingdom or the national regulations based thereon. As of the first of January 2021, a cross-border merger, conversion or demerger between legal entities from the United Kingdom and the Netherland will have to take place according to the rules of private international law.
The problem, however, is that Dutch law does not permit a cross-border merger, conversion or demerger under private international law. Implementing new legislation is the only way to make a cross-border merger, conversion, or demerger possible, but this does not seem to be the case at the moment. Therefore, the conclusion is that at the present time no merger, conversion or demerger can take place involving a company from the Netherlands and a company from the United Kingdom.
Additional requirements
What if, after the Brexit, a company from the United Kingdom uses an already existing UK limited with a branch in the Netherlands? Because the company from the United Kingdom can no longer rely on the freedom of establishment, the requirements of the Formal Foreign Companies Act will have to be met. The Formal Foreign Companies Act imposes additional requirements on the registration of foreign companies that do not fall under the European Union law. These include, for example, filing various documents with the Trade Register and complying with provisions of the Dutch Civil Code relating to directors’ liability. The consequences of not complying with the Formal Foreign Companies Act can lead to joint and several liability of the directors or even constitute an economic offence, so it if of great importance to comply with the additional requirements.
Therefore, the Brexit has also led to significant consequences within corporate law.