EU cross-border conversion of the target before share acquisition

Under section 8 no. 1 EU-UmgrG, a cross-border conversion is a conversion of a capital company into a capital company subject to the law of another Member State, while retaining legal personality and moving its registered office to that state. The company is therefore not liquidated and its assets are not transferred to a newly formed legal entity.

That distinguishes a conversion from a merger. In a conversion, the legal person remains economically the same. Section 25 EU-UmgrG expressly provides for an inbound conversion that assets and liabilities, contracts, loans, rights and duties remain with the converted company. For the buyer, this means that the acquisition remains a share purchase, but after effectiveness the shares relate to the new legal form and the company is governed by the destination state's company law.

The board prepares a conversion plan under section 10 EU-UmgrG. It includes the existing and intended legal form, name and seat, the timetable, rights of specially protected shareholders, possible security and the effects on employment and employee participation. These details are not administrative decoration. They are the basis for testing whether the conversion fits the later purchase agreement.

No later than one month before the shareholders' meeting, the plan and a notice about comments must be filed with the competent registry court under section 15 EU-UmgrG. Creditors, shareholders and the employee representatives may submit comments no later than five working days before the meeting. The data room should therefore contain not only the signed plan but also the filing evidence, comments received and the responses to them.

For an Austrian GmbH, section 16(3) EU-UmgrG generally requires a majority of three quarters of the votes cast and notarisation of the resolution. The articles and the law of the destination state may add requirements. These points should be separate steps in the SPA timetable.

A conversion must not be used to defeat claims. Under section 20 EU-UmgrG, creditors may request additional security if their claim arose before disclosure of the conversion plan, payment cannot yet be demanded and the conversion puts performance at risk. If security is not provided, the creditor must bring an action within three months after disclosure where the statutory conditions are met.

The pre-conversion certificate may be issued only after the relevant creditor claims have been secured. Section 21(6) EU-UmgrG also requires the court to review the preceding acts and formalities, the rights of other contractual participants and the compensation of dissenting shareholders. The court must further review whether the conversion serves abusive, fraudulent or criminal purposes under section 21(7) EU-UmgrG.

The entry should be made within three months after filing. If additional investigations are necessary, the review may be extended by no more than another three months under section 21(9) EU-UmgrG. This statutory timetable is more important for the SPA long-stop date than an optimistic calendar.

If the conversion is not complete at signing, the SPA should list each step. This includes shareholder resolutions, filing with the Austrian registry court, disclosure, the comment and protection periods, the pre-conversion certificate and entry in the destination state. A general promise that the seller has completed all conversion steps leaves too many questions open.

Useful clauses cover price payment conditions, a long-stop date, cooperation duties, information rights and the consequences of delay. The buyer should also check whether the new legal form supports the intended warranties, consent rights and enforcement options. Our article on regulatory approvals in a business acquisition adds public-law completion questions, which are not examined here.

After effectiveness, the share purchase is not automatically complete. The transaction documents must fit the new legal form, seat and destination-state requirements. For a GmbH, the transfer form, consent reservations and updated articles require particular attention. The company remains the holder of its contracts and obligations, but the buyer assumes them indirectly through the acquired shares.

First, the conversion is confused with a simple change of seat. The key is the change of the applicable company law while legal personality is retained. Second, the share purchase is signed before the parties know which legal form and transfer requirements apply at closing.

Third, creditor protection and cash compensation are treated as formalities. They can directly affect the timetable and issue of the certificate. Fourth, the possible extension of the court review is not reflected in the long-stop date. Fifth, the data room lacks evidence of employee information, public liabilities or foreign registry requirements.

A listed company may require additional capital-market steps. A company with a supervisory board, employee representatives or subsidiaries needs a more detailed information and documentation plan. Regulatory approvals or sector rules can also affect the conversion and the later acquisition.

For an inbound conversion to Austria, the registry court reviews the formation rules of the new legal form under section 24 EU-UmgrG. A valid certificate from the departure state confirms that the earlier acts and formalities were properly completed. The buyer should nevertheless check the certificate's substance and form for use in the Austrian registry procedure.