Short answer
A Member State may refuse the pre-operation certificate for a cross-border conversion, merger or division where its competent authority determines, under national procedure, that the operation is set up for abusive or fraudulent purposes aimed at evading or circumventing EU or national law, or for criminal purposes. The authority can investigate serious doubts, consult other authorities and use an independent expert.
Refusal cannot rest merely on the company choosing a more favourable legal system, moving its registered office without moving all economic activity, reducing future regulatory burdens or operating mainly in another Member State. Court of Justice case law treats those choices as part of freedom of establishment unless concrete facts establish abuse or fraud.
The assessment must be case-specific. Indicators can be considered together but not in isolation. The authority must distinguish lawful planning from concealment or circumvention of actual obligations, identify the law and protected interest at risk, respect procedural deadlines and give reasons. National implementing law determines the designated court, notary or authority, evidence process and review route.
Freedom of establishment includes regulatory choice
Articles 49 and 54 TFEU protect establishment by qualifying companies across Member States. That freedom would be hollow if a State could label every move to more favourable company law “abusive”.
In Case C-212/97, Centros, founders incorporated in the United Kingdom and sought to operate through a Danish branch, avoiding Danish minimum-capital rules. The Court rejected a general refusal to register:
Choosing the Member State “whose rules of company law seem to him the least restrictive and to set up branches in other Member States cannot, in itself, constitute an abuse of the right of establishment.” —
Case C-167/01, Inspire Art, confirmed that a company does not lose establishment rights merely because it conducts all or almost all activity outside its incorporation State or lacks a strong economic connection there. National authorities retain power to address fraud, but they need evidence and proportionate measures.
Case C-276/22, Edil Work 2, applied that logic in 2024. A Member State could not generally subject every management act of a company incorporated elsewhere to its own law merely because the company conducted most activity there. Protecting creditors, staff and minority shareholders can justify targeted measures, and wholly artificial arrangements can be addressed, but automatic application of host-state law created a disproportionate abuse presumption.
A move for more favourable law is not a fraud presumption
Case C-106/16, Polbud, concerned a company seeking conversion into a company governed by another Member State's law. Its departure State required liquidation before removal from the register. The Court accepted that protecting creditors, minority shareholders and employees can be an overriding public-interest objective, but found automatic liquidation excessive.
The measure operated without examining actual risk or allowing targeted safeguards such as guarantees:
Establishing a registered office in another Member State to enjoy more favourable legislation “does not, in itself, constitute abuse” and cannot provide “a general presumption of fraud”. —
That principle does not immunise a sham. It requires the authority to identify what makes the particular operation abusive, fraudulent or criminal rather than treating corporate mobility itself as suspect.
The Mobility Directive created a certificate checkpoint
Directive (EU) 2019/2121 amended Directive (EU) 2017/1132 to harmonise cross-border conversions, mergers and divisions. The departure Member State designates a court, notary or other authority to scrutinise compliance and issue a pre-conversion, pre-merger or pre-division certificate. The destination authority relies on that certificate for the departure-law part of the procedure.
The departure authority checks documents, approval, employee-participation procedure and satisfaction or securing of relevant obligations under national law. If ordinary conditions or formalities are incomplete, it refuses with reasons and may give the company time to cure them.
Abuse, fraud and criminal purpose are a separate mandatory refusal ground:
The authority must not issue the certificate where the operation is set up for “abusive or fraudulent purposes leading to or aimed at the evasion or circumvention of Union or national law, or for criminal purposes”. —
Equivalent provisions apply to mergers and divisions. The language reaches both a completed evasion and an operation aimed at producing it. It is not limited to one field: employee participation, social-security contributions, tax, creditor rights, sanctions, licensing or ongoing public obligations could be relevant where the governing law and evidence support the concern.
“Serious doubts” permit investigation, not automatic refusal
Where serious doubts indicate a prohibited purpose, the authority considers relevant facts and circumstances case by case. The Directive expressly says indicative factors are not considered in isolation.
Recitals describe potentially relevant features of the destination establishment and the operation's economic purpose, including sector, investment, turnover, employees, customers, assets, tax residence and place of management. Those facts are clues, not statutory presumptions. A holding company, new entity, low headcount or different management location may be commercially ordinary.
The authority can obtain information from the company and public bodies, consult authorities in the destination State or other fields, and use an independent expert. Confidentiality, data protection, professional secrecy and defence rights still apply. The company should be able to understand and answer the concern.
What separates lawful planning from prohibited circumvention?
A disciplined analysis asks five questions.
Which rule or obligation is engaged? “Regulatory avoidance” is too vague. The authority should identify the EU or national provision, existing liability or protected procedure said to be evaded.
What is the operation's legal effect? A change in applicable company law may be the permitted object of a conversion. Abuse requires more than that intended legal effect; it involves improper use of the procedure to defeat a rule whose purpose applies to the facts.
What objective evidence supports the inference? False documents, concealed liabilities, circular transfers, fictitious participants, inconsistent commercial records or steps timed to frustrate an enforcement action carry different weight from a genuine group simplification or market move.
Is there an intentional or criminal element? Fraud and criminal-purpose findings require evidence appropriate to their seriousness. The certificate process is not a substitute for assumptions about motive.
Would a targeted safeguard address the risk? Where creditors, employees or public bodies can be protected by disclosure, security, participation procedures or enforcement cooperation, outright refusal may be disproportionate unless the statutory abuse ground is actually established.
Timing, reasons and review
The ordinary scrutiny period is three months from receipt of the approved operation documents. It can be extended by up to three months for additional information or investigation. If complexity prevents completion within those periods, the applicant must be notified of the reasons for delay before expiry.
Refusal must be reasoned. That allows the company to correct an ordinary compliance failure, contest factual mistakes and seek effective judicial or administrative review under national law. A conclusory statement that the company has few destination-State employees would not demonstrate how the operation evades a particular obligation.
The company should submit a coherent record: business rationale, destination activity and governance, employee and creditor mapping, tax and public obligations, funding, assets, group structure, approvals and protective arrangements. Consistency across draft terms, board reports, filings and regulator communications matters.
A pre-certificate risk checklist
- Identify the departure and destination laws and designated authorities.
- Map all creditor, employee-participation, tax, social-security, licensing and pending-proceeding obligations.
- Explain the commercial and governance rationale with contemporaneous evidence.
- Verify that destination establishment facts are accurate and not overstated.
- Disclose required subsidiaries, employees and public obligations completely.
- Test whether the operation changes enforcement access or strips assets from liabilities.
- Record safeguards for creditors, minority members and employees.
- Check for inconsistent valuations, circular steps, nominees or undisclosed related parties.
- Prepare to answer serious doubts without waiving protected information unnecessarily.
- Preserve time for investigation, remediation and review before commercial deadlines.
Conclusion
EU law permits authorities to stop a cross-border conversion, merger or division that is actually structured to evade or circumvent law, commit fraud or serve a criminal purpose. The harmonised pre-operation certificate gives the departure authority a real investigative checkpoint.
But freedom of establishment protects genuine regulatory choice. A company may select more favourable company law or operate mainly outside its incorporation State without that fact alone proving abuse. Lawful refusal requires a reasoned, case-specific assessment of the relevant obligation, the operation's effects and the combined evidence—not a presumption against mobility.
Sources
This article provides general legal information, not advice for a specific matter. Laws, facts and procedural deadlines may change the result. Follow the linked primary sources and obtain local advice before acting.