Using a European company to maintain access to the single market

Posted in Corporate, M&A and securities Financial institutions

Whilst remaining optimistic that there will be a political compromise allowing continued access to the Single Market, many groups are considering how they could move their businesses to another Member State should they need to do so. 

Any such plan has numerous factors to consider, with HR, IT and tax often dominating the planning process. However, it is also worth considering whether a corporate process exists which might make a move easier. 

The two key processes available to a UK company wishing to move abroad are cross-border mergers and transfers under the SE (Societas Europaea) Regulation. 

A cross-border merger involves the transfer of all assets and liabilities of a UK company to a company in another Member State, with the UK Company being dissolved without going into liquidation, the shareholders of the UK company usually receiving shares in the surviving company in consideration. The formalities are relatively straightforward, both companies need shareholder approval, the proposed merger is publicised and the company will need to satisfy the Court that the interests of shareholders, creditors and employees will not be prejudiced. If there are sufficient numbers of employees with some form of employee participation rights, it may also be necessary to elect a special negotiating body (SNB) and to agree the new basis of employee participation. 

The other possibility lies in the SE legislation. An SE is a public limited liability company which can move its registered office to another Member State without needing to re-incorporate. One way to form an SE is through the merger of two public companies from different Member States, with the resulting company becoming an SE. This process is very similar to the cross-border merger discussed above. It could be done in one step, i.e. a UK plc could merge into a public company in another Member State, with the surviving company being an SE in that Member State. However, if the group is not yet sure whether it wishes to move, it could merge the other public company into the UK plc, create an SE in the UK and then transfer its registered office at a later date. 

There is a way of converting an existing operational company into an SE without a merger. If the company is a plc and has had a subsidiary in another Member State for at least two years, it can convert into an SE through a simple administrative process. If this option might be attractive, groups should think now about whether they have an existing overseas subsidiary or whether they should incorporate one, as once the Article 50 notice of intention to leave is served, it may be too late to use this option. 

Whichever route is taken, the process for transferring an SE to another Member State involves drawing up a transfer proposal, publicising it and obtaining shareholder approval and making a statement of solvency. The Secretary of State then certifies that the necessary formalities have been completed and the commercial registry in the destination jurisdiction will register the SE. 

For regulated businesses, it is worth noting that the existing authorisation cannot move with the company, so it will be necessary to re-apply for a licence in the destination jurisdiction, a process that can take many months. That is another reason to be thinking about these matters now, even before any clarity over the UK's eventual relationship with the EU emerges. 

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