Conversions under the Mobility Regulations, Registration of Charges and the 21 day rule

The cross border conversions were completed pursuant to Regulation 20(1)(a) of the European Union (Cross Border Conversions, Mergers and Divisions) Regulations 2023 (S.I. No. 233 of 2023) (the “Mobility Regulations”), which transposed Directive (EU) 2019/2121) (the “Mobility Directive”) into Irish law. This matter involved a novel and technically sophisticated cross border conversion, requiring coordination with overseas counsel to navigate the regulatory and procedural requirements across both jurisdictions.

As ‘inbound’ cross border conversions under the Mobility Directive remain relatively uncommon in Ireland, the successful conversion and registration of our client’s group companies in Ireland is a noteworthy development.

Two-Stage Process:

Effecting an ‘inbound’ cross-border conversion into Ireland is a two stage process.

• The first stage of the process is completed in the EEA member state where the applicant converting company is registered (the ‘departure’ EEA member state). At a very high level, this involves the preparation of draft terms of conversion, reports to shareholders, expert reports, prescribed notices, corporate resolutions and a review by the competent authority in that EEA member state. If successful, the first stage of the process culminates in a ‘Pre-Conversion Certificate’ being issued by the competent authority of the ‘departure’ member state signifying that it is satisfied that the converting company has complied with the pre-conversion requirements.
• The second stage involves submitting applications to the High Court to approve the inbound conversion and subsequently making the necessary filings for registration at the Companies Registration Office (“CRO”).  Given the nature of the applications, our applications were moved in the Commercial Division of the High Court so as to ensure that the applications could be dealt with in an efficient and timely manner. Under Regulation 20(1) of the Mobility Regulations, the High Court is required to examine the legality of the cross border conversion, including compliance with all procedural requirements necessary to complete the transaction and the proposed formation of the Irish converted company. Regulation 20(4) of the Mobility Regulations states that the High Court is required to accept the ‘Pre-Conversion Certificate’ (issued by the competent authority of the ‘departure’ member state) as conclusively attesting to the proper completion of the applicable requirements for the issuing of a Pre-Conversion Certificate in the ‘departure’ EEA member state.

Registration | Practical points to note on an ‘inbound’ cross-border conversion into Ireland:

• Proposed name: It is prudent to check that the name of the converting company is acceptable to the CRO. It may be the case that the name needs to be changed prior to stage 2 in accordance with the legal requirements of the ‘departure’ EEA member state or that the name needs to be changed following registration in accordance with the Companies Act 2014 (the “2014 Act”) e.g. if the CRO deems the name of the converting company to be too similar to the name of an existing Irish company.
• Certificate of Conversion and Effective Date: Once the necessary documentation has been filed to the satisfaction of the CRO, it will issue a certificate of conversion (a “Certificate of Conversion”) for the converting company to denote its entry onto the Register of Companies. The Certificate of Conversion is issued in place of a certificate of incorporation given the converting company retains its legal personality throughout the process. The High Court order will specify the effective date for the conversion. The Certificate of Conversion will specify that the converting company was converted into an Irish company on the effective date specified by the High Court as opposed to the date that the Certificate of Conversion was issued. This is an important distinction.
• Annual return date: The first annual return date (“ARD”) of the converting company will be the six month ‘anniversary’ of the date that the Certificate of Conversion was issued (as distinct from the effective date). CORE, the CRO’s filing system, does not currently facilitate the filing of financial statements with the converting company’s first annual return.  Thereafter the ARD of the converting company will be the anniversary of the first ARD (unless it is altered in accordance with the 2014 Act) and financial statements of the converting company must accompany each subsequent annual return. It may be the case that the ARD must be altered after the first annual return has been submitted so as to maximise or keep within the timeframe in which statutory financial statements can be prepared and filed.  For all intents and purposes, the converting company is regarded as a newly incorporated company for the purpose of its ARD. The reason for this is simple: there is no other way in the 2014 Act for the CRO to approach the determination of the ARD of the converting company.

Registration of Charges and the 21 day rule:

• Perfection of charge is not automatic: Although Regulation 23 of the Mobility Regulations makes clear that the underlying debt and charge instrument continue to apply to the converted company by operation of law, practical "perfection" steps with the CRO are required to maintain the priority and effectiveness of security interests against third parties. The key point to note is that the High Court order will not result in the charge being registered against the converting company with the CRO.  Specifically, a form C1 (registration of charge) will need to be filed with the CRO. Absent a filing of the form C1, the CRO will not have the requisite particulars to register the charge.
• Potential problem: The need to file a form C1 creates a potential problem. Section 409 of the 2014 Act requires that a form C1 be filed with the CRO within 21 days of the date of creation of the charge (where the one-stage procedure is used, or within 21 days of the date the Registrar of Companies receives the section 409(4) notice where the two-stage procedure involving a form C1A is used), failing which the charge will be void as against the liquidator and any creditor of the company.  The problem that arises is that the charge which needs to be registered against the converted company may have been created long before the conversion making compliance with the 21-day rule next to impossible. Unfortunately, neither the 2014 Act nor the Mobility Regulations take cognisance of this issue. There is no allowance to file a form C1 (with the original charge creation date) within 21 days of the date of conversion for example. This is problematic as the Registrar has no discretion (absent a court order) to register a charge ‘late’ in such circumstances.
• Potential solution: Section 417 of the 2014 Act contains a court procedure permitting late registration of charges. If a converting company has charges registered against it (or local equivalent) then it may be prudent to seek section 417 relief from the High Court in the same notice of motion regarding the conversion. This will avoid the need for a second and separate notice of motion to seek section 417 relief for additional time to register the charge(s). If the High Court order grants an extension of time to register the charge(s) pursuant to section 417 of the 2014 Act, it will then be permissible to register the charge(s) with the CRO using either the one-stage or two-stage procedure referenced above. It should also be remembered that the form C1 will need to be filed on CORE. The converting company will not have a company number on the date of the High Court order, meaning an immediate filing of the form C1 will not be possible. The company number will only be available once the converting company has been registered by the CRO following receipt of the duly signed and dated registration documents. That registration process will reduce the time frame for filing the C1 form. Therefore, it is prudent to ensure that the formation documents are ready to be filed promptly. An alternative solution would be a refinance of the security which coincides with the conversion, but that is likely to increase cost and complexity with no real tangible benefit.

This was a coordinated process requiring both litigation focused and corporate expertise. These successful cross border conversions illustrate the growing practical significance of the Mobility Directive and the enhanced flexibility it offers to companies operating within the EEA.

Furthermore, it highlights our firm’s ability to deliver seamless, end to end support on complex restructuring mandates on cross-border transactions.

Please contact us should you require any guidance on cross border conversions, mergers and/or divisions.

Whether ‘inbound’ or ‘outbound’, the team in Eversheds Sutherland (Ireland) LLP stands ready to assist. With more than 40 offices in over 20 European countries, Eversheds Sutherland is uniquely positioned to provide comprehensive cross border support.