CROSS BORDER CONVERSION AND MERGER (part 4)

From Bonaire to the Netherlands?

In 2011 attempts were made to transfer a BV with its registered seat in Bonaire to Rotterdam by means of an amendment to the articles of association whereby the old registered seat was replaced by the new one and the articles of association of the BV were organized according to the Dutch Book 2 of the Civil Code. The Chamber of Commerce in Rotterdam refused the registration of that BV. The Chamber of Commerce held the view that this course of events contravened the Act of the Kingdom on the Voluntary Transfer of Seat and Book 2 of the BES Civil Code. A lawsuit is still pending in this respect.

This first argument does not appear to me very convincing because the Kingdom Act provides for the transfer of the seat of a legal entity to another country within the Kingdom, and since 10-10-10 the Kingdom consists of four countries: the Netherlands (including the BES Islands), Aruba, Curacao and St. Maarten. From the point of view of the Kingdom Act a transfer of seat from Amsterdam to Rotterdam is no different from one from Bonaire to Rotterdam.

But what appears to me convincing is, if I understand this properly, the Netherlands and Bonaire each have their own Book 2 of the Civil Code and therefore both have their own legal domain, the incorporation doctrine in both Codes being the starting point. A Bonairean BV is therefore governed by a different legal system from a Dutch BV. Book 2 of the Dutch Civil Code allows a formal transfer of seat within the applicable territory, therefore within the European part of the Kingdom, by simply registering a different city or municipality as the registered seat according to the articles of association situated in that territory, but no more than this either.

In Bonaire a legal entity can only be incorporated there by a civil-law notary practicing there and in the European part of the Netherlands an NV or BV can only be incorporated by a civil-law notary practicing in that part of the Netherlands. These standards laid down by law cannot be breached by incorporating for instance Rotterdam as the company’s seat into a notarial deed of incorporation of a BV (or by a later amendment to the articles of association) to be executed in Bonaire. Put another way: it is contrary to Book 2 of the BES Civil Code to incorporate Rotterdam as a registered seat into the articles of association of a BV established in Bonaire. Therefore in my opinion it is not possible to encroach upon the Netherlands legal system from that of Bonaire.

In addition, according to Section 1 subsection 1 of the (Dutch) Companies Formally Registered Abroad Act (Wet op de formeel buitenlandse vennootschappen) the countries of the Kingdom of the Netherlands and the public bodies of Bonaire, Sint Eustatius and Saba are regarded as a State. In this Act the company formally registered abroad means a company with share capital with corporate capacity incorporated under a legal system differing from Dutch law carrying out its operations wholly or practically wholly in the Netherlands and moreover not having an actual connection with the State in which the law applies under which it has been incorporated. In other words: a BV established in Bonaire operating only in the Netherlands is – with regard to the legal effect of that Act – considered to be a company formally registered abroad.

In any case Article 40 of the Charter of the Kingdom of the Netherlands does not appear to me to be applicable here either. That Article provides that the legal effect of judgments and officially certified deeds originating from one part of the Kingdom, must be recognized in the other parts of the Kingdom. The Kingdom consists of four parts: the Netherlands (including the BES Islands), Aruba, Curacao and St. Maarten. So in my opinion we do not get to consider Article 40 of the Charter because with respect to the Charter Bonaire forms part of the Netherlands and therefore there is in this regard no question of inter-regional private law. But if this would be different, the acknowledgement of an officially certified deed executed elsewhere in the Kingdom does not in itself say anything about the question of whether what has been laid down in that certified deed is (under substantive law) right or not and what legal consequences must be connected to this. The notarial deed executed in Bonaire can (and should) in my opinion be acknowledged, but the (intended) legal effect (the transfer of seat) does not have to be accepted in the Netherlands and will not be accepted either.

In short, the BV in Bonaire is a legal entity incorporated under the law of Bonaire and not incorporated under the law of the Netherlands. What I think they tried to do was to convert a Bonairean BV into a Dutch BV. However, a cross-border conversion is not possible according to current Dutch law (neither inbound, nor outbound).

The Dutch Corporate Law Committee has made a draft bill for a legislative proposal to amend Book 2 of the Dutch Civil Code which includes provisions for cross-border conversion (within the sense of a change in legal form retaining corporate capacity). I will return to this later. But until that time it is not possible to move a BV with its registered seat in Bonaire (directly) to the Netherlands.

However, what is currently possible is that the Bonairean company is converted into a legal form of an EU member State which does have the cross-border conversion in place (for instance Spain, Luxemburg), and then incorporates a subsidiary in the Netherlands after which the parent and subsidiary merge downstream with a Dutch company being the result. By doing this the required result has been achieved, but in quite a laborious way. This is the reason the legislative proposal has been made.

Some discussion of this process is probably still possible because the European directive with regard to cross-border mergers (2005/56; PbEU L 310) has been implemented in Dutch law such that a Dutch BV or NV can only merge with companies with share capital which have been incorporated under the law of a member State of the European Union or the European Economic Area (Section 2:333c subsection 1 of the Dutch Civil Code). Strictly speaking the Luxembourg or Spanish company created after the conversion, has not been incorporated in that country but in Bonaire. The term ‘incorporated’ must in my view be understood to mean here as (on the occasion of the merger) ‘being controlled by or existing according to the law of a different member State of the EU or the EEA‘. The (previous) history is not relevant in this connection.

Say that a BV in Bonaire (only) transfers its actual seat to Belgium and has this laid down in its articles of association in Belgium by a civil-law notary. Because Belgium applies the “siège réel” system (the doctrine of the actual seat) a Belgian ‘BVBA’ is created. However, according to Dutch international private law the BV remains a Bonairean company because it has only transferred its actual place of business. From that point of view it continues to be controlled by BES law despite the adjustment of the articles of association to Belgian law. That is why the legal relationship remains not very appropriate. A cross-border merger with a company in the Netherlands is in such a case therefore not possible. (To be continued)

Karel Frielink
Attorney (Lawyer) / Partner

(1 March 2013)

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