Transposition of the EU Mobility Directive into Cyprus Companies Law (Cap. 113)
In March 2024, the Cyprus House of Representatives passed the Companies Law (Amending Law) (No. 3) of 2024 (Law 26(I)/2024), a significant update to the Cyprus Companies Law (Cap. 113). Effective March 15, 2024, this amendment transposes Directive (EU) 2019/2121, also known as the Mobility Directive, into Cyprus law. The Mobility Directive, which amends Directive (EU) 2017/1132, facilitates and regulates cross-border conversions, mergers, and divisions of companies across European Union member states.
This transposition introduces comprehensive rules governing cross-border corporate reorganisations, creating a harmonised framework for companies in the EU. The amendment ensures that these reorganisations are conducted with greater legal certainty while enhancing protections for shareholders, creditors, and employees affected by such transactions.
Key Provisions Introduced by the Amendment
- Cross-Border Conversions: The amendment introduces detailed procedures for cross-border conversions, allowing Cyprus-registered companies to relocate their registered offices to other EU member states without losing their legal personality. Importantly, such conversions require approval by the Cyprus courts to ensure that the transaction is carried out in compliance with both domestic and EU laws.
- Enhanced Stakeholder Protections: The new law provides enhanced protections for shareholders, creditors, and employees involved in cross-border reorganisations. Companies must inform stakeholders about the proposed cross-border operations, ensuring transparency and safeguarding their rights during these transactions.
- Shareholders: Those who disagree with the cross-border reorganisation have the right to exit the company and receive cash compensation.
- Creditors: Creditors who feel that the cross-border reorganisation might jeopardise their claims can apply to the Cyprus courts for adequate safeguards. To succeed, creditors must demonstrate that the reorganisation poses a genuine risk to the satisfaction of their claims and that the company has not provided them with sufficient protection.
- Cross-Border Mergers and Divisions: The amendment not only revises the existing rules on cross-border mergers, but it also introduces provisions governing cross-border divisions. These rules establish clear procedures for companies wishing to split into multiple entities across different EU jurisdictions, ensuring legal clarity and protecting the rights of all stakeholders.
Implications of the Amendment
The transposition of the Mobility Directive into the Companies Law of Cyprus modernises the country’s corporate legislation and aligns it with EU-wide standards. These changes are designed to simplify cross-border reorganisations while ensuring that such transactions are conducted transparently and fairly.
For companies operating in Cyprus, the amendment provides a clear legal framework for expanding or restructuring operations within the EU. By enhancing the rights of shareholders and creditors and requiring judicial oversight, Cyprus reinforces its commitment to protecting stakeholder interests during complex cross-border operations.
Conclusion
The Companies Law (Amending Law) (No. 3) of 2024 marks a significant step forward for Cyprus in terms of corporate law. By incorporating the EU Mobility Directive, Cyprus has created a robust legal framework that facilitates cross-border conversions, mergers, and divisions, while ensuring that all stakeholders are adequately protected.
These changes are expected to facilitate corporate mobility, attract international businesses, and enhance Cyprus’ role as a key player in the EU single market.
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