CROSS BORDER CONVERSION AND MERGER (part 6)

The conversion under the law of Curacao

Back to Curacao and the doctrine of conversion. I only intend to discuss several aspects of this. The conversion has been provided for in Sections 2:300 et seq. of the Civil Code. The conversion of a foreign legal entity into a Curacao entity has been provided for in Section 2:303 of the Civil Code (immigration).

The cross-border conversion of the NV and the BV into a foreign legal entity has been provided for in Sections 2:304 and 2:305 of the Civil Code, and the provisions for a foundation which wants to be converted into a foreign legal entity can be found in Section 2:306 of the Civil Code (emigration).

Here the term ‘foreign legal entity‘ means a legal entity controlled by the law of a country not belonging to the Kingdom of the Netherlands.

With regard to a conversion let’s start with the foreign legal entity, in particular the company with share capital which wants to be converted into a Curacao equivalent (Section 2:303 of the Civil Code). Insofar as I was able to gather, it seldom or never happens that a foreign company with share capital is converted into a Curacao foundation or the other way around. But it is allowed by law.

The law requires that provisions with regard to domestic conversion (thus from the one Curacao legal entity into the other) are applicable as much as possible. In this connection the provisions of Sections 2:301 and 2:302 of the Civil Code apply. Obviously Section 2:300 of the Civil Code also applies as much as possible: after all, Section 2:303 of the Civil Code mentions the application of Section 2:300 of the Civil Code in the event of immigration.

This means for instance that a (Curacao) notarial deed of conversion is required. A conversion also requires a resolution for the conversion and amendment of the articles of association, adopted with due observance of at least the requirements for a resolution to amend the articles of association. If the foreign legal entity is converted into a Curacao NV or BV a conversion balance sheet will be attached to the deed and in addition, the equity capital shown should not be negative; if the NV or the BV into which the foreign legal entity is converted has a nominal capital then the equity capital should not be less than this nominal capital.

In the event of immigration on the application of Section 2:300 subsection 2 of the Civil Code (the requirements for passing resolutions) and before the moment the conversion is effected the respective relevant foreign rules must also be taken into account. Requiring a condition that the foreign rules must also be taken into account, is an attempt to minimize the chances of defects in the process of passing resolutions on which the conversion is based. In addition the country of emigration could for instance prescribe as a condition for (effecting) the conversion the de-registration from a register so that this de-registration is a determining factor for the moment in time at which the conversion is effected. That a legal entity is floating (is in a legal vacuum) must be avoided as much as possible but also that it exists in two jurisdictions at the same time.

Moreover, the law provides that the law governing the foreign legal entity should not be incompatible with the conversion and its modalities. A statement of that purport issued by an expert in this area of law, must be attached to the deed of conversion. The law requires an expert but does not give any details of this concept. It is left to the civil-law notary in Curacao who has to execute the deed to assess whether the respective person can be considered as having sufficient expertise. If this is an advocate in that other country or a lawyer who can be compared with our civil-law notary or a corporate law professor, that expertise could soon be established. It is obviously recommended to ask the person whose statement is requested, also to indicate in that statement the grounds on which the respective person is an expert (or considers himself to be an expert). A substantive examination into the accuracy of such a statement cannot be required of the civil-law notary. (To be continued)

Karel Frielink
Attorney (Lawyer) / Partner

(15 March 2013)

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