Transposition of the EU Mobility Directive into Cyprus Law: An Overview

EU Directive 2019/2121 was introduced to address the legal and procedural barriers that businesses often face during cross-border reorganizations. The directive enhances the framework for cross-border conversions, mergers, and divisions by establishing clear and streamlined procedures, providing robust protection for employees, creditors, and minority shareholders, and ensuring that such transactions are not used for abusive purposes, such as circumventing legal, social, and fiscal obligations.

This directive, known as the EU Mobility Directive, aims to facilitate the seamless operation of cross-border business activities within the EU. Cyprus has proceeded with amending its existing Companies Law, by passing the Companies (Amending) Law of 2024 (Law 26(I)/2024), thus transposing this directive into its national law, and aligning its corporate regulatory environment with EU standards.

The procedures applicable for the implementation of cross-border conversions and demergers involve almost identical steps and information requirements as is the case for cross-border mergers including, in particular: (i) the publication of the draft terms of the operation; (ii) issuance of a report for the shareholders and employees; (iii) issuance of an independent expert report; (iv) approval by the general meeting and (v) obtaining of a certificate from a competent authority confirming compliance with legal obligations.

New Provisions

Unlike the previous rules for cross-border mergers, the new legislation requires additional information in the common draft terms for the cross-border operation and in the management body’s report to shareholders and employees regarding the operation’s impact on them. This enables shareholders and employees to present their observations at the general meeting deciding on the operation.

Shareholders must be informed of their new rights, including the right to sell their shares for adequate cash compensation if they vote against the approval of the common draft terms of the cross-border operation, and the right to challenge the share-exchange ratio in court.

The common draft terms must also disclose the safeguards provided to creditors, such as guarantees or pledges. If creditors consider these safeguards insufficient, the Directive allows them to apply for more adequate safeguards before the competent administrative or judicial authority within three months of the publication of the draft terms. Additionally, member states may require that financial statements reflecting the current financial state of the companies be published alongside the draft terms of the operation.

Member states are obligated to ensure that their competent authorities do not issue a confirmatory certificate of compliance if it is determined that the operation has been arranged for abusive or fraudulent purposes to evade European or national law or for criminal purposes.

In summary the key provisions of the amendments are the following:

  1. Simplified Procedures for Cross-Border Conversions, Mergers, and Divisions: The new provisions streamline the procedural steps required for companies to undergo cross-border transformations. This includes clear timelines, documentation requirements, and the involvement of relevant authorities.
  2. Enhanced Protection for Employees: Cyprus law now mandates that employees must be informed and consulted during cross-border reorganizations. Specific measures ensure that their rights and conditions of employment are safeguarded in accordance with the Cyprus Law Establishing a General Framework for Informing and Consulting Employees During the Transfer of Undertakings or Establishments or Departments of Undertakings or Establishments,
  3. Creditors’ Rights: The amended law includes provisions to protect creditors by ensuring they have adequate safeguards and the ability to raise objections if their interests are at risk during cross-border transactions.
  4. Minority Shareholders’ Protections: Minority shareholders are granted specific rights to ensure their interests are not unfairly prejudiced in the course of cross-border mergers, conversions, or divisions.
  5. Anti-Abuse Measures: The law incorporates stringent measures to prevent the misuse of cross-border reorganization processes. This includes thorough scrutiny and potential intervention by regulatory authorities if abusive practices are detected.


Practical Implications for Businesses

The transposition of the directive into Cyprus law provides businesses with a more predictable and streamlined framework for engaging in cross-border activities. Companies can now plan and execute cross-border conversions, mergers, and divisions with greater confidence, knowing that there are clear procedures and protections in place.

Additionally, the enhanced protections for stakeholders foster a more equitable and secure environment for employees, creditors, and minority shareholders, which can contribute to overall business stability and investor confidence.