On 12 July 2012, the Court of Justice of the European Union (the “ECJ”) handed down a judgment regarding the interpretation of Articles 49 and 54 of the Treaty on the Functioning of the European Union (“TFEU”) in proceedings concerning a cross-border conversion of a company governed by Italian law into a company governed by Hungarian law (ECJ, case C-378/10, VALE Építési kft).
The dispute in the main proceedings concerned the rejection by the Hungarian courts of the application for registration of an Italian company which intended to transfer its seat to Hungary and to operate there in accordance with Hungarian law. To this purpose, the Italian company had amended its articles of association in order to satisfy the requirements of a limited liability company governed by Hungarian law. The share capital had also been paid up to the extent required under Hungarian law. The Hungarian commercial court, however, rejected the application for registration. The refusal was confirmed by the Regional Appeal Court of Budapest as, under Hungarian law, a company which is not Hungarian (i.e. the Italian legal entity) cannot be listed as the legal predecessor for obtaining the registration. Finally, the dispute was brought before the Hungarian Supreme Court.
The Hungarian Supreme Court stated that the transfer of the seat of a company governed by the law of another Member State, entailing the reincorporation of the company in accordance with Hungarian law and a reference to the original Italian company, cannot be regarded as a conversion under Hungarian law, since national law on conversions applies only to domestic situations. However, it harboured doubts as to the compatibility of such a rule with the freedom of establishment under the TFEU, and referred the case to the ECJ.
The ECJ held that Articles 49 and 54 TFEU must be interpreted as precluding national legislation which enables companies established under national law to convert, but does not allow companies governed by the law of another Member State to convert to companies governed by national law. The ECJ added that if Member States make provisions for the conversion of companies governed by national law, Articles 49 and 54 TFEU require that they grant that same possibility to companies governed by the law of another Member State that are seeking to convert to companies governed by the law of the host Member State.
In other words, national legislation cannot discriminate between companies established under national law and companies governed by the law of another Member State when it comes to the right of conversion.
Furthermore, the ECJ had to examine the conformity of national law with the EU principles of equivalence and effectiveness. The ECJ stated that, according to settled case law, companies only exist by virtue of national law. This implies that cross-border conversions, leading to the incorporation of a company, are governed by the national law of the host Member State, provided the principles of equivalence and effectiveness are respected.
As regards the principle of equivalence, the ECJ found that, although it might be useful to inform the creditors of the converted company, the refusal by the Hungarian courts to record the company of the Member State of origin as legal predecessor is not compatible with this principle.
As regards the principle of effectiveness, the ECJ found that the practice on the part of the authorities of the host Member State to refuse to take into account documents obtained from the authorities of the Member State of origin, which must be furnished in order to certify that the conditions required by the Member State of origin have been satisfied, jeopardises the implementation of the cross-border conversion.
Therefore, the ECJ held that the principles of equivalence and effectiveness preclude the host Member State from refusing, with regard to cross-border conversions, (i) to record the company governed by the law of the Member State of origin that has applied to convert as the legal predecessor, if such a record is made for domestic conversions; and (ii) to take due account of documents obtained from the authorities of the Member State of origin when examining a company’s application for registration.
