In previous Brexit articles written by our fellow colleagues, the loss of freedom of establishment has already been discussed. The loss of freedom of establishment between the Netherlands and the United Kingdom might also have adverse consequences in the area of company law, for example with regard to mergers and (re)structuring.
Cross-border merger, demerger and conversion
Within the European Union, companies of different Member States may merge with each other on the basis of European rules and national rules based on these, and a company governed by the law of one member state can be converted into a company governed by the law of the other member state because of the freedom of establishment specified in Article 49 in conjunction with Article 54 of the Treaty on the Functioning of the European Union, and, inter alia, the judgments of the European Court of Justice in the Sevic, Cartesio, Vale and Polbud cases. It is also assumed that a cross-border demerger within the European Union is possible on the same basis.
As already explained in the previous articles, the freedom of establishment as well as the national regulations based on it will no longer apply between the Netherlands and the United Kingdom as a result of a hard Brexit. In the case of a cross-border conversion or merger of or with a UK company, the freedom of establishment or the national regulations based thereon can no longer be invoked. So after a hard Brexit it will only be possible to invoke international private law.
A major drawback here is that Dutch legislation currently does not provide any possibility to convert/merge/demerge a company on the basis of private international law. A cross-border conversion, merger or demerger involving a UK company and a Dutch company will therefore be (almost) impossible after a hard Brexit, unless new legislation is implemented.
UK Limited established in the Netherlands
There are numerous undertakings that trade from the United Kingdom with the Netherlands, or from the Netherlands with the United Kingdom. In these situations, undertakings will be faced with, among other things, border controls and the accompanying customs formalities and charges, as also explained in the articles written by my fellow colleagues.
It is quite conceivable that, if you are trading intensively with the United Kingdom, you use a UK Limited, established in the United Kingdom, or with a branch in the Netherlands. Several UK limited companies are registered in the Dutch trade register.
Legal entities established within the European Union may, on the basis of the freedom of establishment and the regulations and judgments of the European Court of Justice based on this, carry out their activities entirely within another member state. The member state may not impose additional obligations on this company on the grounds that it is a foreign company.
The UK Limited can no longer rely on the freedom of establishment after a hard Brexit, and will have to comply with the additional requirements imposed by the Dutch legislature on foreign companies in the Act on Formally Foreign Companies. These additional requirements include, inter alia, providing certain information to the trade register and complying with certain provisions set out in the Dutch Civil Code, including those regarding directors’ liability.
Group with top holding or sub holding in the United Kingdom
If you currently have a top holding or sub holding in the United Kingdom, which includes a number of European operating companies, it may be worth moving this top holding or sub holding to the Netherlands (or another European member state) after a hard Brexit, so that this part of your undertaking can continue to enjoy the benefits of the European internal market. The additional advantages of establishment in the Netherlands are that the Netherlands: (i) has flexible company law legislation, (ii) offers the possibility to use a one-tier board according to the Anglo-Saxon model and (iii) has a favourable tax system for establishment of businesses.
If you are involved with UK companies in the United Kingdom or in the Netherlands, we advise you to let yourself be well informed about the optimal legal and tax structure for you and the obligations to be observed by your undertaking. Did you know, for example, that non-compliance with regulations can lead to joint and several liability on the part of directors and even result in an economic offence? Our specialists are happy to provide you with customised advice.