M&A and Corporate Restructuring
Introductory remarks: Pending EU legislative amendments
Intra-union cross border mobility of companies has been regulated, to a certain extent, since 2005. In practice, however, the exercise of the freedom of establishment by companies remains difficult. Allegedly, the procedural uncertainty due to the lack of a clear and unified EU legal framework for the cross-border merger of legal entities other than limited liability companies together with the lack of a specific process for cross-border divisions as well as for companies to convert from being a company in a different Member State (re-domicile), means that in practice, the freedom of establishment for EU companies is largely illusory. More specifically, EU company law has been criticized as not being sufficiently adapted to cross-border mobility in the EU, meaning that it does not offer companies optimal conditions in terms of a clear, predictable and suitable legal framework which could lead to enhanced economic activity. In light of those difficulties, there were, during the past few years, a series of discussions and negotiations to amend the current legal framework governing the mobility of companies within the Union.
After years of consultation, the European Commission presented on the 25th of April 2018, its proposal for a Directive amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions in an effort to unleash the potential of the Single Market by breaking down barriers to cross-border trade; facilitating access to markets; increasing confidence and stimulating competition while offering effective and proportionate protection to stakeholders. As the former President of the Commission, Mr Jean Claude Juncker, eloquently put it, “the objective of this proposal is two-fold i.e. to provide specific and comprehensive procedures for cross-border conversions, divisions and mergers while, at the same time, offering company stakeholders adequate protection in order to safeguard the fairness of the Single Market”.
The aforementioned proposal, which once adopted will clearly transform the relevant EU regulatory regime, is currently under negotiations in the European Parliament. What follows is a brief analysis of the legal framework currently covering the re-domiciliation of companies to Cyprus.
Cyprus legislation on re-domiciliation
The current EU regulatory position regarding re-domiciliations is that an EU company may re-domicile in another Member State provided that the local legislations of the involved Member States allow such procedures.
The relevant provisions of Cyprus legislation governing both inbound and outbound re-domiciliations are sections 354A to 354R of the Companies Law, Cap.113 (hereinafter the “Companies Law”). In particular, back in 2006, the Cyprus legislature voted for an amendment in the Companies Law, the purpose of which was to provide for the re-domiciliation of corporations – paving as such the way both for local (private and public) companies to re-domicile abroad as well as for foreign (eligible private and public) companies to re-domicile in the Republic of Cyprus and enjoy the favourable Cyprus companies law regime.
Hence, apart from outbound re-domiciliations, foreign companies that are established and operating abroad and which consider changing their seat, have the choice to re-domicile to Cyprus and continue their operations uninterrupted as a Cyprus registered company (provided that their country of residence allow such procedure to be made).
There is no doubt that there are numerous advantages of re-domiciliation process of foreign companies to Cyprus one of which is of course the acquisition of Cyprus tax residency. Companies are able to obtain the benefits of the domestic tax system, as Cyprus has one of the lowest corporate tax rates and it is part of an extensive double tax treaties circle. For a summary of the benefits of the jurisdiction of Cyprus and on the numerous incentives for businesses offered by the Cyprus Government please click here.
Procedure for re-domiciliation of foreign companies to Cyprus
As mentioned above, the current general principle is that the transfer of the registered office of a non-Cyprus company to the Republic of Cyprus may take place provided that the foreign company is registered in a country which allows re-domiciliation and the articles of association of that company provide for the possibility of the said reorganisation.
i. Application for re-domiciliation to Cyprus
The first step is for the Company to apply to the Registrar of Companies in Cyprus in accordance with and subject to the provisions of sections 354B – 354I of the Companies Law to be registered as a continuing company in Cyprus.
ii. Necessary documents to be filed with the Cyprus Registrar
The Companies Law further provides that the said application must also be accompanied by the following supporting documentation:
- A resolution or equivalent documentation issued by the appropriate body according to the laws of the foreign country, authorising the foreign company to be registered in Cyprus as a continued legal body.
- A copy of the constituent documents of incorporation (as amended, if necessary, to comply with the provisions of the Cyprus Companies Law and its [overseas] jurisdiction of incorporation).
- A certificate of good standing duly made apostil issued by the appropriate foreign authority;
- An affidavit (ME A form issued by the Registrar of Companies) made by the foreign company’s representative (who should be a practicing lawyer), dully confirming the following:
- The name of the overseas company and the name under which it will continue to exist. For these purposes an application must be filed with the Cyprus Registrar of Companies to receive approval of the desired name. The application can be for the same company name as the foreign company was initially registered;
- The jurisdiction under which the said company has been incorporated as well as the date of incorporation;
- That an official notice (certificate of departure or equivalent documentation) has been given to the relevant authority of the country of incorporation of the company notifying its intention to re-domicile in Cyprus; and
- That no past and/or present criminal and/or administrative procedures are pending against the company.
- A second affidavit by a director of the company, confirming the company’s financial good standing and solvency with a declaration that there is nothing to indicate that such solvency may be adversely affected during the 12-month period following the aforementioned application;
- A list of directors and secretary and/or the managers of the foreign company as the case may be;
- A list of the shareholders / members of the foreign company;
- A legal opinion or equivalent documentation issued by a lawyer / notary in the country of incorporation confirming among others that:
- The country of foreign jurisdiction allows such an application for re – domiciliation.
- The proper number of shareholders or other necessary persons as defined by the foreign law have given their consent for this application.
iii. Officers’ liabilities
A director or the management body of a company wishing to re-domicile in Cyprus who has provided false declaration or made a false declaration as to the solvency of the company, are liable to a criminal offence, and in case of conviction are liable to both imprisonment and/or a fine.
iv. Licensed activities
Companies which offer licensed activities under certain provisions of the law in their jurisdiction and for which similar licenses are required in Cyprus (e.g. Financial Services Companies / Insurance Companies / Banking Institutions), must produce relevant consent for their re-domiciliation by the proper authorities of their country and must obtain such a license by the corresponding Cyprus authority.
v. Additional documentation for public companies
The requirements and procedures for the re-domiciliation of a public company to Cyprus are the same as described above for private companies , with the exemption that a public company should also produce the following documentation:
- If the foreign company has offered its shares or debentures for sale to the public, the most recent offer for subscription or equivalent documentation (eg a prospectus) that fulfils the requirements of the laws of the Republic of Cyprus.
- Evidence of consent of the Foreign Stock Exchange allowing re-domiciliation in Cyprus (in case it is listed in any Stock Exchange).
- List of present shareholders duly certified.
vi. Registration in the Republic
Once the Registrar is satisfied that the documents submitted are in accordance with the law, temporarily deposits the relevant documents and certifies that the foreign company is temporarily registered as a continued entity in the Republic as from the date of such registration. In such a case, it will issue the Temporary Certificate of Continuation of the Company in Cyprus.
viii. Legal consequences of temporary registration
Once the Temporary Certificate is issued, the following apply in relation to the foreign company:-
- It is considered as a legal person duly incorporated according to the Laws of Cyprus and that it is temporarily registered in the Republic for the purpose of the Companies Law;
- Has the same liabilities and it is eligible to exercise all powers that registered companies have according to the laws of Cyprus;
- The constituent document of amendment is considered as the Memorandum of the company and where applicable as its the Articles of Association.
- On the other hand, the (temporary) registration of the foreign company shall be regarded as void is cases where it is established that its registration has been made with the underlying purpose of:-
- creating a new legal entity;
- causing loss or affecting the continuation of the company as a body corporate;
- rendering ineffective any legal or other proceedings instituted against it; or
- acquitting or preventing any conviction, decision, opinion, order, debt or other obligation which is or may be pending against the overseas company or shareholder, director, office or other person to whom the management or representation of the company has been designated.
ix. Time Limit – Evidence of removal from the register of the country of origin
Within a 6 months period following the issuance of the temporary registration certificate (and not before), the foreign company must present to the Cyprus Registrar of Companies evidence that it has been stopped from being a company registered in the country of initial incorporation and that its registration in the foreign country has been cancelled.
In case the company fails to submit the above evidence within the aforesaid timeframe, then the Cyprus Registrar may: –
- Delete the name of the foreign company from the registry and advise the country of relevant jurisdiction accordingly; or
- Give three months extension to present the necessary documents to his satisfaction.
xi. Final certificate of continuation
Once the aforementioned evidences are submitted and approved, the Cyprus Registrar issues the final certificate of continuation, which certifies that the foreign company has been registered in the Republic as a continuing entity.
xii. Cases where applications by foreign companies to be re-domiciled to Cyprus are rejected
- When dissolution proceedings have been started against the foreign company.
- A liquidator or receiver or special administrator of its property has been appointed.
- An order or judgment exists limiting the rights of its creditors.
- Procedures have been started for infringement of the law of its jurisdiction.
Our firm has a wealth of experience in this area and has already provided related legal services to companies within the European Union. Our collaborations with top tier financial consulting firms enable us to provide unique holistic advice in such cases. Please do not hesitate to contact us should you require our assistance and/or any clarifications regarding the above.