The European Union (Cross-Border Conversions, Mergers and Divisions) Regulations 2023 (Mobility Regulations) were signed into law on 24 May 2023.

The Mobility Regulations transpose Directive (EU) 2019/2121 on cross-border conversions, mergers and divisions (Mobility Directive) into Irish law.

The Mobility Regulations introduce new procedures when contemplating cross border transactions (both into Ireland and out of Ireland). These procedures, known as cross border divisions and cross border conversions, offer companies a more streamlined and straightforward procedure when considering the movement of businesses and assets from one EEA member state to another. The Mobility Regulations also introduce more simplified rules for cross-border mergers revoking the previous European Communities (Cross Border Mergers) Regulations 2008. William Fry LLP is advising a number of clients in relation to the Mobility Regulations. We anticipate that the new cross-border mechanisms will prove popular for international (re)insurance groups considering restructuring options.

In this article we consider key elements of the new regime and what it means for the (re)insurance industry.

Meaning for (Re)insurance Sector

Transposition of the Mobility Regulations is a positive development for cross-border (re)insurance groups assessing restructuring options within the EEA.

In the past, EEA-based (re)insurers, particularly those involved in cross-border business, when contemplating changing head office location to or from Ireland, would most likely need to engage in a complex and costly cross-border merger transaction.   Given the requirement to merge into an entity in the EEA transferee jurisdiction, it involves the dissolution of the transferring company and is also treated a separate Solvency II (re)insurance transfer.  For Ireland, this means requisite High Court sanction in most contexts.

That is now no longer necessary.  Although the cross-border merger approach remains, the regime introduces the new “conversion” approach.  Notwithstanding many similarities with the cross-border mergers process, the fact now that a transferring company maintains its same legal personality means it is a more straight-forward and cost-effective way for (re)insurers to change jurisdiction.  The continuance of the corporate entity in the new EEA jurisdiction is possible without the requirement to individually transfer the (re)insurance business or other assets, contracts, employees or liabilities.

The process is a corporate one and therefore it does not dispense with applicable (re)insurance regulatory elements.  From a regulatory perspective, a transferring (re)insurer moving EEA jurisdiction will need to apply for authorisation in that ‘receiving’ EEA Member State.  This process should be undertaken in parallel with the re-domiciliation process under the Mobility Regulations.

Typically, from an Irish perspective, a regulatory new authorisation application filed with the Central Bank of Ireland (CBI) may take between 9 and 12 months from date of filing a complete submission (depending on the quality of the application and other variables). Although European (re)insurance regulators would probably not welcome the prospect of “jurisdiction shopping” amplified by the Mobility Regulations, with a good business case and underpinning rationale we can see regulators being open to re-domiciliations.

As with all new regimes there will be a “bedding-in” period as regulators become used to the processes. Some member state regulators may therefore adopt a wait-and-see approach and still favour the well-established cross-border merger process at least in the initial period.

Process

The concept of a cross-border conversion is a novel one for limited liability companies incorporated under Irish domestic company law. While the cross-border merger processes were available under the prior 2008 regime, until now, the only way in which a limited company in Ireland could “move” its jurisdiction within the EEA was through the rather cumbersome procedure available to Societas Europaea (SE) entities. Under the Mobility Regulations, a limited liability company may now re-domicile to another EEA country (and vice versa) while maintaining its existing legal personality. This so-called ‘lift and shift‘ permits it to move into or out of Ireland with relative ease.

The procedure itself is similar to that used for cross-border mergers. Where an Irish limited liability company is converting, a set of draft terms of conversion will be required and an explanatory report may also be required from the directors. This will need to be publicised in the CRO Gazette and in a national newspaper. The terms of conversion must be approved by special resolution of the member(s) at a general meeting. The Irish High Court is responsible for confirming that the Irish converting company has complied with all pre-conversion requirements under the Mobility Regulations.

Transaction Timelines

Many of the new statutory protections (see further below) introduced under the Mobility Regulations will impact timing. Some of these are certain and will have to be included in transaction timetables, such as the six-week inspection period provided to employees and shareholders in advance of the general meeting approving the proposed conversion. Certain other statutory protections will only arise in particular circumstances, such as where a creditor is not satisfied with the safeguards provided in the draft terms or where a shareholder applies to the High Court for additional cash compensation. While these scenarios will not always arise, advisers should ensure that companies are aware of the possibilities and the impact that they may have on timing.

There are additional timeline concerns in the case of companies regulated by the Central Bank of Ireland (CBI). Where this is the case, the CBI must be notified of the intention to carry out a cross-border procedure at least 90 days before the date of the relevant general meeting. In practice, regulated entities will be engaging with their CBI desk officer well in advance of this timeline.

Finally, in the case of cross-border conversions, on application to it by an Irish converting company, the High Court will examine the proposed conversion within three months of the receipt by it of the grounding documents. Where it is necessary for the High Court to take additional information into account or carry out further enquiries, this period may be extended.

Given the number of both certain and potential timing issues that may impact on a cross-border transaction under the Mobility Regulations, it is advisable to carefully consider the implications of all eventualities before finalising a timetable. This would include due diligence on all creditors, careful consideration of the safeguards to be offered in the draft terms and any additional regulatory requirements (e.g., new authorisation process in the new EEA jurisdiction the Irish converting company plans to relocate to).

Statutory Protections

A criticism of the previous cross-border merger regime was that there were little to no protections offered to creditors, employees or shareholders of merging companies. The Mobility Regulations have sought to rectify this. Any company contemplating using the regulations should be aware that the protections will have timing implications for their transaction (see below for further discussion on this point). The protections set out below are in the context of conversions but are also available to creditors, employees and shareholders of companies availing of the new cross-border merger and division regimes.  This will include insurance policyholders and reinsurance counterparties.

Where the creditor of an Irish converting company (1) is not satisfied with the safeguards offered to it in the draft conversion terms or (2) can credibly demonstrate that due to the cross-border conversion, the satisfaction of the creditor’s claim is at stake, that creditor may apply to the High Court for adequate safeguards within three months.

Employees have also been afforded further protections. The Mobility Regulations provides that the directors’ explanatory report must contain a standalone section informing employees of the implications of the conversion for employment, and any material changes to employee conditions and locations. Employees are entitled to inspect the draft terms of conversion and the directors’ explanatory report for a period of at least six weeks prior to the general meeting to approve the conversion.

Shareholders who vote against the special resolution approving the draft terms and constitution of the converted company may, not later than 30 days after the general meeting, request that the company acquire their shares for an amount of consideration as set out in the draft terms. This request can be made electronically. Where a shareholder is of the view that the consideration is inadequate, they may apply to the High Court for additional cash consideration within a 30 days’ timeframe.

Competent Authority and Regulatory Involvements

The Irish High Court has been designated as the competent authority for the purpose of the Mobility Regulations. This is consistent with the approach under the previous cross-border regime but at odds with the position in other EEA countries, where the national corporate registries seem to be the preferred entity designated as competent authority.  Given it is a corporate law change, there is still then the same remit of the CBI and other EEA financial services regulatory authorities under Solvency II and related local requirements.

The role of the High Court is to examine both in-bound and out-bound procedures to ensure that they comply with the Mobility Regulations. The Mobility Directive permits applications made to the competent authority to be carried out online and without the need for applicants to necessarily appear in person before the High Court. At the time of writing, the Rules of the Superior Court have not yet been updated to reflect this new regime. It remains to be seen how this will operate in practice.

The examination by the High Court of the proposed terms and deciding whether to grant a pre-conversion/merger/division certificate is a critical one. The Mobility Regulations provide that the High Court must now consider and satisfy themselves that the purpose of the relevant cross-border procedure is not abusive, fraudulent or being carried out to evade or circumvent EU law or domestic law and is not for criminal purposes. As noted above, if there is any suspicion of this type of abuse and further information is required, an extra period of review may be imposed.

Other Considerations

Tax considerations will be key determinants in how a cross-border merger, conversion or division is executed. For instance, it may include the continuance of a branch in the transferor jurisdiction rather than an outright move to the new EEA state (so-called ” branching back”).

(Re)insurers should be mindful that the Mobility Directive provides individual Member States with a wide range of options for transposing many key aspects into local law. It will require analysis on both “sides”, e.g.  the Irish implementation but also that of the other EEA jurisdiction into or out of which the changes are taking place.  It will be critical for cross-border (re)insurance groups considering their options to examine in detail how the various requirements have been implemented in the relevant jurisdictions and how they operate in practice.

Overall, the implementation of the Mobility Directive provides a welcome harmonisation of the legal framework governing cross-border restructurings.  The early signs indicate that some (re)insurance groups are already taking steps to consider the potential advantages.

If you wish to discuss this topic, please contact Eoin Caulfield, Ian Murray or any member of the Insurance Team.

Contributed By: Catherine Carrigy & Julie Murray