In the previous Legal Alert, we briefly presented the new amendments to the Companies Act, however, some amendments deserve more detailed elaboration, such as cross-border mergers and acquisitions, cross-border division and cross-border restructuring. The amendments introduce solutions of Directive (EU) 2019/2121 of the European Parliament and Council of November 27, 2019 on the amendment of Directive (EU) 2017/1132 in order to harmonize our legislation with the EU acquis communautaire.

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Cross-border M&As

A cross-border M&A is considered a merger in which at least one of the participating companies is validly established under the law of the Republic of Croatia, and the other company is a joint-stock company or limited liability company validly established under the law of one of the EU/EEA member states.

When sending notice for the (general) assembly where the decision on the M&A should be adopted, and the latest one month before the assembly is held, the companies which participate in cross-border M&A are obliged to submit an application to the registry court for registration of the intention to undertake cross-border M&A. The management bodies of the companies that participate in this process have the obligation to prepare a report explaining the impact of the merger on the business, members, employees and creditors of the company. 

Audit of cross-border M&A is not required if all members of all companies give express consent to waive the audit.

The (general) assembly of each of the companies must adopt a decision approving the M&A by the majority that is foreseen for that company. However, if the acquiring company holds all voting shares in the merged company, the approval of the (general) assembly of the merged company is required. Approval is also not required if the acquiring company based in the Republic of Croatia is the holder of shares that represent up 90% of the share capital, unless the shareholders that hold 20% of the share capital request it.

The legal consequences of the M&A take effect from the moment when M&A is registered in the court registry, and in the event that the registered office of the acquiring company is outside the Republic of Croatia, the legal consequences occur according to the law of the country where the company has its registered office.

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Cross-border division

A cross-border division is division of a company in which the company being divided or at least one new company participating in the division have their registered offices in different EU/EEA member states, one of them having its registered office in the Republic of Croatia. In this procedure, one or more companies can be established in the Republic of Croatia if the company being divided is a joint-stock company or limited liability company, while the company being founded can only be established as a joint-stock company or limited liability company.

The division cannot be carried out if the company registered in the Republic of Croatia is:

• a company in liquidation proceeding;
• a company against which bankruptcy or pre-bankruptcy proceedings have been opened, or a company against which appropriate proceedings have been opened in other member states;
• a company to which recovery instruments, recovery powers or recovery mechanisms are applied, i.e. a company to which corresponding instruments, powers or mechanisms of other member states are applied;
• a company whose goal is the joint investment of capital collected from the public, which operates according to the principle of risk sharing and whose shares are, directly or indirectly, bought or paid from the assets of that company.

Also, it is important to note that a cross-border division cannot be carried out as a division by acquisition.

The application for registration of the intention to carry out a cross-border division must be submitted at least six weeks before the company’s (general) assembly takes place. 

A decision on the division of the company is considered to have been adopted if the (general) assembly adopts a decision approving the division plan by votes representing at least three quarters of the share capital represented at the (general) assembly. However, it can be determined that it is necessary to fulfil additional assumptions or that the decision is passed by a higher majority, but which is not greater than 90% of the share capital represented at the (general) assembly. The decision in question must be in the form of a notarial document.

After the company fulfils its obligations towards the members of the company who voted against the decision on division and requested the payment of appropriate severance pay, and to the creditors who require to be provided with adequate security for their claims, the company submits an application for registration to the registry court competent for the company being divided, taking into account that the application must not be submitted before the expiration of two months from the decision on division. The application is submitted by all members of the Management board or executive directors and the chairman of the supervisory/management board.

The registration court is obliged to, within three months from application, examine whether all prerequisites and all actions under the Companies Act have been performed. For example, the application can be rejected if the division is carried out with the aim of committing a criminal offence, abuse and fraud in order to circumvent EU or national law.

After registration with the court register, the registry court issues a certificate of division, which confirms that the company being divided has fulfilled all the requirements and performed all prescribed actions for cross-border division.

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Cross-border conversion

Cross-border conversion means transformation by which a company registered in the Republic of Croatia changes its form and headquarters and continues to operate as a company registered in another EU/EEA member state. This type of transformation also includes the reverse situation, specifically when a company registered in another EU/EEA member state changes its form and headquarters and continues operations in the Republic of Croatia, and a change of form is also considered the case when one of the companies changes its form to a functionally and linguistically identical form in another Member States.

The documents that need to be prepared for the purpose of cross-border restructuring are restructuring plan, management board, auditor and supervisory board reports on restructuring (which do not need to be prepared if conditions from by law are met – for example, if the company has only one shareholder or if all shareholder of the company agree on this, and if the company has no employees).

Not later than six weeks before the (general) assembly, the company is obliged to apply to the registration court for the purpose of registering the intention to carry out the cross-border conversion.

 After all necessary prerequisites determined by the Companies Act have been met, an application for registration is submitted to the registry court, and the registry court is obliged to check within three months whether all prerequisites have been met and all actions required under the Companies Act have been taken. 

If a company registered in another EU/EEA member state that continues to operate in the Republic of Croatia is being restructured, then all actions described above are undertaken in the EU/EEA member state, and the Croatian court register should be delivered with a certificate on restructuring from the foreign register, and the Croatian court register essentially only examines whether the company fulfils conditions of form according to Croatian law and whether an agreement has been concluded in the company on participation of employees in determining their right to co-decision