ALG advised Irish non-life insurer Zurich Insurance plc on its ground-breaking Cross-Border Conversion into a BaFin authorised German Stock Corporation.
This transaction was the first outbound Cross-Border Conversion of an Irish company and the first Cross-Border Conversion of a regulated insurance company anywhere in Europe. It was also the first Cross-Border Conversion application to come before the Irish Courts.
2 January 2024 marked the successful completion of the cross-border conversion of Irish non-life insurer Zurich Insurance plc (ZIP) into a German Stock Corporation, which is now known as Zurich Insurance Europe AG (ZIE) (the Zurich Conversion). ZIE is now authorised as a non-life insurance undertaking by the German Federal Financial Supervisory Authority (BaFin) under Solvency II.
The Zurich Conversion was a novel, complex and ground-breaking transaction that was carried out in accordance with Directive (EU) 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (the Mobility Directive), the European Union (Cross-Border Conversions, Mergers and Divisions) Regulations 2023 (the Irish Mobility Regulations) and German legislation implementing the Mobility Directive. It was the first ever outbound cross-border conversion of an Irish company and the first time anywhere in Europe that a regulated insurance undertaking has been migrated across borders by way of cross-border conversion.
The Zurich Conversion involved both the re-domiciliation of ZIP by moving its incorporation from Ireland to Germany and the BaFin authorising the converted company, ZIE, as a non-life insurer. This also resulted in the replacement of the Central Bank of Ireland (CBI) with BaFin as the prudential regulator of the converted company, ZIE.
Zurich were advised on the matter by an ALG team led by James Grennan (Head of Insurance & Reinsurance) and Stephen Quinlivan (Corporate and M&A Partner), which also featured Paul White (Corporate & M&A Partner and independent adviser to the ZIP board), Adam Assahli and Niall Murray (Insurance and Reinsurance) and Jamie Kelly (Corporate and M&A). The ALG team advised Zurich on all Irish legal, regulatory and corporate governance aspects of the transaction, with Freshfields Bruckhaus Deringer advising on German legal aspects.
What is a Cross-Border Conversion?
The Mobility Directive defines a "cross-border conversion" as an operation whereby a limited liability company, without being dissolved or wound up or going into liquidation, converts the legal form under which it is registered in a departure Member State into a limited liability company in the destination Member State, and transfers at least its registered office to the destination Member State, while retaining its legal personality.
In simple terms, a cross-border conversion allows a company with limited liability to move between jurisdictions within the EEA while retaining its corporate history and legal personality. The process does not involve any transfer of assets, liabilities, contracts or employees, which simply move with the company to the destination Member State. Shareholders in the converting company are not generally impacted and will receive an equivalent shareholding in the converted company in the destination Member State. The process is, therefore, far less disruptive to the operations of a company than traditional means of transferring businesses across borders, such as international asset transfers or cross-border mergers.
The ability of EEA limited liability companies to carry out cross-border conversions is founded on the EU’s fundamental freedom of establishment as it has been held to apply to companies by the European Court of Justice, in particular in its landmark judgment in the case of Polbud - Wykonawstwo sp. z o.o. (EU:C:2017:804).
The cross-border conversion process is likely to be a very popular tool for re-domiciliation of limited liability companies (both regulated and unregulated) within the EEA in the coming years. The Zurich Conversion in particular is likely to be a landmark precedent for other (re)insurance companies in Europe who wish to migrate their head office to another EEA jurisdiction by way of cross-border conversion.
The Zurich Conversion and the Cross-Border Conversion Process for Regulated (Re)Insurance Companies
The Zurich Conversion was both novel and very complex. ZIP was one of the largest non-life insurance undertakings in Ireland, being Zurich’s main non-life carrier in the EEA with significant consumer and corporate facing insurance operations in Ireland and eleven other branch jurisdictions (to note that the Zurich Conversion did not impact ZIP’s day-to-day insurance operations in any jurisdiction). Although the extent of ZIP's operations and its status as a regulated non-life insurer undoubtedly added to the challenges of bringing a new and untested process before the Irish High Court, the process was completed within its original timeline and within seven months of the Irish Mobility Regulations becoming law at the end of May 2023.
At a very high level, the principal steps and milestones involved in the Zurich Conversion were as follows:
- Regulatory applications for authorisation of ZIE in Germany by BaFin were made in H1 2023, with this authorisation process being run in tandem with the corporate cross-border conversion process described below.
- The ‘Draft Terms of Conversion’ for the Zurich Conversion were published with the Irish Companies Registration Office (CRO) in early Q3 2023.
- Advertising of the Zurich Conversion in the Irish Times, the Financial Times and the CRO Gazette took place shortly afterwards in Q3 2023.
- The CBI were formally notified in relation to the Zurich Conversion, as is required by Regulation 13 of the Irish Mobility Regulations in Q3 2023.
- An application for entry and directions was made to the Commercial Division of the Irish High Court (the competent authority for cross-border conversions in Ireland) in Q3 2023.
- The ZIP EGM to approve the Draft Terms of Conversion took place in early Q4 2023.
- The Commercial Division of the Irish High Court certified that ZIP had property completed the pre-conversion requirements in relation to the Zurich Conversion in Q4 2023 (the first such order by an Irish court).
- ZIE received formal authorisation as a German non-life insurance undertaking subject to Solvency II from BaFin in December 2023, such authorisation to take effect immediately upon completion of the Zurich Conversion.
- The Zurich Conversion formally completed in Germany on 2 January 2024, upon registration of the Zurich Conversion with the Commercial Registry in Frankfurt au Main (the competent authority in Germany for the Zurich Conversion).
The Mobility Directive generally provides that the departure Member State is responsible for ensuring compliance with pre-conversion requirements, while the destination Member State is responsible for final approval of the conversion process and the registration of the converted company. The Irish Mobility Regulations have entrusted the Irish High Court, as the competent authority in Ireland, with approval of both pre-conversion requirements (for outbound conversions) and final approvals (for inbound conversions). For inbound conversions, converted companies will also need to be registered with the CRO in accordance with the process outlined in the Mobility Directive and normal incorporation requirements. Accordingly, a cross-border conversion involving an Irish company will always require an application to the Irish High Court.
Irish (re)insurance companies and other regulated entities who may be considering a cross-border conversion will need to carefully consider the regulatory implications of the process in both the departure and destination Member States, as well as in other jurisdictions where they may carry on business on a freedom of services or freedom of establishment basis.
At ALG we are uniquely placed to guide regulated businesses on all corporate, regulatory and court aspects of the cross-border conversion process, as well as other processes which can be carried out under the Mobility Directive, namely cross-border mergers and cross-border divisions.
Further Reading
If you would like to read more about the Mobility Directive and the Irish Mobility Regulations, you can read our previous publication.
If you wish to discuss this topic or require any advice, please contact James Grennan or Stephen Quinlivan, or your usual ALG contact.
Date published: 15 January 2024