Company Law加 Europe and European Company Law Eddy Wymeersch Abstract This paper addresses some of the issues underlying the harmonisation of company lany in Europe, especially in its relationship with companmy lany developments in the member states It highlights that until now company law has attempted to engage in substantive harmonisation, and less in solving cross-border issues involving company establishment By doing so, it has led to a pattern of cross border establishment that, being essentially based on the formation of subsidiaries under more or less comparable legal systems, less efficient than if the companies in europe had been allowed to freely and efficientl establish themselves under the form of branches. It also allows to situate the substantive harmonisation activity as a form of restricting the competitive forces in the company law field. By stressing substantive harmonisation, regulatory arbitrage has been stifled leading to less flexibility without reducing the need for rules on the cross-border aspects of the company activity. Some recent developments are analysed, dealing with the SLIM report, the 14th predraft on the cross-border transfer of the seat, and the proposed rules on the european company statute Comments to the author eddy. wymeersch @rug. ac be C Financial law institute. Universiteit Gent. 2001 e Financial Law institute. Universiteit Gent 2001
© Financial Law Institute, Universiteit Gent, 2001 Company Law in Europe and European Company Law Eddy Wymeersch Abstract This paper addresses some of the issues underlying the harmonisation of company law in Europe, especially in its relationship with company law developments in the Member states. It highlights that until now company law has attempted to engage in substantive harmonisation, and less in solving cross-border issues involving company establishment. By doing so, it has led to a pattern of cross border establishment that, being essentially based on the formation of subsidiaries under more or less comparable legal systems, is less efficient than if the companies in Europe had been allowed to freely and efficiently establish themselves under the form of branches. It also allows to situate the substantive harmonisation activity as a form of restricting the competitive forces in the company law field. By stressing substantive harmonisation, regulatory arbitrage has been stifled leading to less flexibility without reducing the need for rules on the cross-border aspects of the company activity. Some recent developments are analysed, dealing with the SLIM report, the 14th predraft on the cross-border transfer of the seat, and the proposed rules on the European company statute. Comments to the Author: eddy.wymeersch@rug.ac.be © Financial Law Institute, Universiteit Gent, 2001
Company Law in Europe and European Company law Eddy Wymeersch Professor at the University of Ghent( Belgium) Introduction I. The Treaty provisions 2. The ambit of the Company law directives 3. The instruments of European Company Law 4. The role of the European directives in the Communitys policies 5. Comparison with the capital market directives 6. The role of competition 7. Recent Trends and Proposals 7.1 The Simpler legislation for the Internal Market initiative (SLIM)(1999) 7.2 The draft proposal for a 14th Directive on the transfer of the seat 7.3 The Societas europeae The story of company law in the European Community has been quite a successful one Starting from the early sixties, the Community started an ambitious programme, in the course of which almost all aspects of company law would be included in the Communitys harmonisation efforts. The subject was sliced in numerous smaller items, each planned to give rise to a directi These company law directives have been known under their numbers: 10 have been adopted, in a series that runs up to fourteen. In addition, numerous directives have been issued in the field of capital market law. Although not directly dealing with company law, in the traditional sense, these directives have a significant impact on the behaviour of the largest companies, those that have their securities traded on the public markets. One should further also refer to specific measures dealin with the regulation of financial markets(banking, insurance, investment funds, investment firms), European enterprise council, colle sing issues of what can be referred to as enterprise law and to the measures that are addres ctive redundancies, transfer of undertakings, employer insolvency) I. The Treaty provisions 1. The Treaty contains three anchor provisions as far as company law is concerned; the first two have been left unchanged in the successive revisions of the treaty See for text collections: LUTTER(ed), Europaisches Unternehmensrecht, ZGR Sonderheft, 4th ed, 1995, also including tax measures; HOPT and WYMEERSCH(eds) European Company and Financial law, de Gruyter, Berlin, 2nd ed, 1994. For comments: EDWARDS, V, EC Company Law, Oxford EC Library, 1999, WERLAUFF, E EC Company Law, The common denominator for business undertakings in 12 states, 1993; also the ntroduction to the first edition of HoPT and WYMEERSCH, European Companmy and Financial la, de Gruyter 1999 e Financial Law institute. Universiteit Gent 2001
© Financial Law Institute, Universiteit Gent, 2001 1 Company Law in Europe and European Company Law Eddy Wymeersch Professor at the University of Ghent (Belgium) Introduction 1. The Treaty provisions 2. The ambit of the Company law directives 3. The instruments of European Company Law 4. The role of the European directives in the Community’s policies 5. Comparison with the capital market directives 6. The role of competition 7. Recent Trends and Proposals 7.1 The Simpler legislation for the Internal Market initiative (SLIM) (1999) 7.2 The draft proposal for a 14th Directive on the Transfer of the Seat 7.3 The"Societas Europeae" Introduction The story of company law in the European Community has been quite a successful one. Starting from the early sixties, the Community started an ambitious programme, in the course of which almost all aspects of company law would be included in the Community’s harmonisation efforts. The subject was sliced in numerous smaller items, each planned to give rise to a directive. These company law directives have been known under their numbers: 10 have been adopted, in a series that runs up to fourteen. In addition, numerous directives have been issued in the field of capital market law. Although not directly dealing with company law, in the traditional sense, these directives have a significant impact on the behaviour of the largest companies, those that have their securities traded on the public markets. One should further also refer to specific measures dealing with the regulation of financial markets (banking, insurance, investment funds, investment firms), and to the measures that are addressing issues of what can be referred to as enterprise law (European enterprise council, collective redundancies, transfer of undertakings, employer’s insolvency)1 . 1. The Treaty provisions 1. The Treaty contains three anchor provisions as far as company law is concerned; the first two have been left unchanged in the successive revisions of the treaty. 1 See for text collections: LUTTER (ed), Europäisches Unternehmensrecht, ZGR Sonderheft, 4th ed., 1995, also including tax measures; HOPT and WYMEERSCH (eds) European Company and Financial law, de Gruyter, Berlin, 2nd.ed., 1994. For comments: EDWARDS, V., EC Company Law, Oxford EC Library, 1999; WERLAUFF, E., EC Company Law, The common denominator for business undertakings in 12 states, 1993; also the Introduction to the first edition of HOPT and WYMEERSCH, European Company and Financial law, de Gruyter, 1999
services and capital", under its chapter 2. This article, renumbered 44(3)(g)prove Om of persons First and foremost, art. 54(3)(g), which is part of the Title Ill on the"freedo 44.2 The Council and the Commission shall carry out the duties devolving upon them under the preceding provisions-ie. the abolition of restrictions on the freed establishment of nationals of a member state in the territory of other members states, [nt (g) by co-ordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 48 with a view of making Ich safeguards equivalent throughout the Community On the basis of this provision, the council could approve directives with a qualified majority In the same chapter, the Treaty identifies the entities that it considers beneficiaries of the freedom of establishment Paragraph 1 of art. 48(ex 58) provides Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States Article 220-now 293- puts forward a number of domains in which the member states were invited to negotiate separate treaties. These fields were, at that time, considered outside the scope of the harmonisation provision of the then article 54(3)(g). Among the subjects mentioned in art. 220 one should recall the mutual recognition of companies, along with the cross border transfer of the seat and the cross border merger of the companies belonging to different jurisdictions. As, according to the draftsmen of the Treaty, the implementation of this provision would have required an international treaty, unanimous consent of the member states and of their parliaments would have been necessary A third provision calls our attention: article 100 and later 100A-now 94 and 95-establish procedures, originally in article 100 with unanimity of the Member states, later at a qualified majority in article 100A, that aim at the approximation of such legislative and administrative provisions that"directly affect the establishment or functioning of the common market". Other procedures were introduced in art. 100A relating to provisions affecting the internal market 2. There has been ample discussion, especially in the early years of the Community, about the meaning of the powers thus conferred to the Council,. The exact meaning of art. 54(3)(g)was Paragraph 2 adds: Companies or firms'means companies or firms constituted under civil or commercial lav including cooperative societies, and other legal persons governed by public or private law, save for those which are non-I 3 See RENAULD, J. ' Aspects de la coordination et du rapprochement des dispositions relatives aux societes'in Europees vennootschapsrecht 1968, 49 e.s. with further references to the sources at that time. For a more recent e Financial Law institute. Universiteit Gent 2001
© Financial Law Institute, Universiteit Gent, 2001 2 First and foremost, art. 54 (3) (g), which is part of the Title III on the "freedom of persons, services and capital", under its chapter 2. This article, renumbered 44 (3)(g) provides: 44.2 The Council and the Commission shall carry out the duties devolving upon them under the preceding provisions - i.e. the abolition of restrictions on the freedom of establishment of nationals of a member state in the territory of other members states, [nt ew ] - .... (g) by co-ordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 48 with a view of making such safeguards equivalent throughout the Community” On the basis of this provision, the council could approve directives with a qualified majority. In the same chapter, the Treaty identifies the entities that it considers beneficiaries of the freedom of establishment: Paragraph 1 of art. 48 (ex 58) provides: "Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States.”2 Article 220 - now 293 - puts forward a number of domains in which the member states were invited to negotiate separate treaties. These fields were, at that time, considered outside the scope of the harmonisation provision of the then article 54 (3)(g). Among the subjects mentioned in art. 220 one should recall the mutual recognition of companies, along with the cross border transfer of the seat and the cross border merger of the companies belonging to different jurisdictions. As, according to the draftsmen of the Treaty, the implementation of this provision would have required an international treaty, unanimous consent of the member states and of their parliaments would have been necessary. A third provision calls our attention: article 100 and later 100A - now 94 and 95 - establish procedures, originally in article 100 with unanimity of the Member states, later at a qualified majority in article 100A, that aim at the approximation of such legislative and administrative provisions that “directly affect the establishment or functioning of the common market”. Other procedures were introduced in art. 100A relating to provisions affecting the “internal market”. 2. There has been ample discussion, especially in the early years of the Community, about the meaning of the powers thus conferred to the Council3 . The exact meaning of art. 54(3)(g) was 2 Paragraph 2 adds: ‘Companies or firms’ means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making. 3 See RENAULD, J. ‘Aspects de la coordination et du rapprochement des dispositions relatives aux sociétés’ in Europees vennootschapsrecht 1968, 49 e.s. with further references to the sources at that time. For a more recent
discussed at great length, especially as overlapping powers seemed to have been conferred in article 100. The discussion was exacerbated by the fact that two different directorates general n charge of the implementation of each of the said articles. The discussion seems to have subsided mainly after the merger of the directorates According to one school, the Community had only limited powers to engage in co- ordinating company law, the remainder being left to action under article 100. Action under article 54 3)(g)would only be possible where existing regulations or practices would hamper companies to establish themselves in other states, provided also that the Community's intervention would lead to granting equivalent safeguards for the interests of members of these companies, and other parties affected The other tendency considered that all aspects of company law could come under the harmonisation powers the purpose was to ensure that companies could function in all states under equivalent conditions and that they would offer equivalent safeguards to shareholders, creditors, and Article 100 has never been invoked in company law directives, which were all based on art 54( 3(g). In the securities fields one can encounter various situations: art 100 A constitutes an often-invoked legal basis, along with art. 543 (g). But other articles have also been invoked:art 57(2)for the Ucits directive, art. 54(2)for the directive on mutual recognition of listing particulars, and so on Today, forty years later, very much of this debate has been superseded, also because under the broad harmonisation powers granted under article 100 A, all company law directives could be dopted with a qualified majority. Harmonisation would therefore be considered an instrument for the realisation of the general objectives of the treaty, more specifically the establishment of an internal market (art. 3, c and h). That means that all measures that can contribute to facilitating companies to establish themselves, but also to facilitate trade in the markets of other member states could be considered as coming under the harmonisation provisions. Even directives that would essentially affect domestic company life, might be warranted as useful in protecting creditors-eg in the case of the directive on the single member company -or facilitating later cross border ansactions-eg the third and sixth directives as a step-up for a later cross border merger directive 3. The issue of recognition of companies originating from other member states deserves some further development. On the basis of art. 220 of the treaty, the original six members states had reached an agreement in 1968 on the mutual recognition of companies and legal persons. This treaty which has been ratified by five out of the then six member states has never entered into force: the Netherlands refused to ratify largely because in the meantime it had changed its legislation from the seat theory to the incorporation technique. anyhow, the treaty built further on the already widely analysis: BUXBAUM, R.M. and HOPT, K., Legal harmonization and the Business Enterprise, de gruyter, l988.at204e.s. See for details, EDWARDS, V, EC Company law, at 5; referring to STEIN, E. Harmonization of Europ (1971) The terminology was rather confusing: AS LUTTER, nt. 1, p. 8 remarked, the use of the German word Angleichung", although equally opaque, sufficed to obtain the approval of the German legal writers to start working on the actual co-ordination or approximation Possibly referring to stakeholder e Financial Law institute. Universiteit Gent 2001
© Financial Law Institute, Universiteit Gent, 2001 3 discussed at great length, especially as overlapping powers seemed to have been conferred in article 100. The discussion was exacerbated by the fact that two different directorates general were in charge of the implementation of each of the said articles. The discussion seems to have subsided mainly after the merger of the directorates4 According to one school, the Community had only limited powers to engage in coordinating5 company law, the remainder being left to action under article 100. Action under article 54 (3) (g) would only be possible where existing regulations or practices would hamper companies to establish themselves in other states, provided also that the Community’s intervention would lead to granting equivalent safeguards for the interests of members of these companies, and other parties affected. The other tendency considered that all aspects of company law could come under the harmonisation powers: the purpose was to ensure that companies could function in all states under equivalent conditions and that they would offer equivalent safeguards to shareholders, creditors, and other parties alike6 . Article 100 has never been invoked in company law directives, which were all based on art. 54 (3) (g). In the securities fields one can encounter various situations: art 100 A constitutes an often-invoked legal basis, along with art. 54(3)(g). But other articles have also been invoked: art. 57(2) for the Ucits directive, art. 54(2) for the directive on mutual recognition of listing particulars, and so on. Today, forty years later, very much of this debate has been superseded, also because under the broad harmonisation powers granted under article 100 A, all company law directives could be adopted with a qualified majority. Harmonisation would therefore be considered an instrument for the realisation of the general objectives of the treaty, more specifically the establishment of an internal market (art. 3, c and h). That means that all measures that can contribute to facilitating companies to establish themselves, but also to facilitate trade in the markets of other member states could be considered as coming under the harmonisation provisions. Even directives that would essentially affect domestic company life, might be warranted as useful in protecting creditors - e.g. in the case of the directive on the single member company - or facilitating later cross border transactions - e.g. the third and sixth directives as a step-up for a later cross border merger directive. 3. The issue of recognition of companies originating from other member states deserves some further development. On the basis of art. 220 of the treaty, the original six members states had reached an agreement in 1968 on the mutual recognition of companies and legal persons. This treaty which has been ratified by five out of the then six member states has never entered into force: the Netherlands refused to ratify largely because in the meantime it had changed its legislation from the seat theory to the incorporation technique. Anyhow, the treaty built further on the already widely analysis: BUXBAUM, R.M. and HOPT, K.J., Legal harmonization and the Business Enterprise, de Gruyter, 1988, at 204 e.s.. 4 See for details, EDWARDS, V., EC Company law, at 5; referring to STEIN, E. Harmonization of European company law, (1971). 5 The terminology was rather confusing: As LUTTER, nt. 1, p. 8 remarked, the use of the German word “Angleichung”, although equally opaque, sufficed to obtain the approval of the German legal writers to start working on the actual co-ordination or approximation 6 Possibly referring to stakeholders
acknowledged recognition of foreign companies in the original six member states. It extended recognition to non-commercial companies, and to public entities with economic activity This 1968 treaty has been considered as adhering to the seat theory. After the accession of the three further member states in 1971, the discussion was not taken up again. Today, it is generally considered abandoned The reason for mentioning this treaty here is double. Although it never entered into force has not remained without effect: in states which have ratified the treaty, national case law has drawn arguments from the treaty and from its national ratification act, to give effect to certain of its rules in national law. So has the Belgian Cour de cassation allowed a foreign one man company-in fact a Liechtenstein Anstalt- to appear before the Belgian court, although being a one man company, its existence was considered contrary to Belgian public order as the latter was then conceived. Indeed until a change of the law in 1978, Belgian law, like that of several other systems in the Latin tradition, analysed a company as a"contract"and therefore refused to recognize the validity of one-man company. The Court admitted this plaintiff on the basis that the belgian legislator by ratifying the Treaty, had admitted that foreign one-man companies should not be barred access on the sole reason that they had only one shareholder More striking however is the factual finding that over the last thirty years no difficulties have been encountered in any of the now fifteen member states with respect to the recognition of legal entities originating from other member states, provided that according to their applicable law, they were beneficiaries of rights and duties, and have legal personality. The question of recognition of foreign companies was therefore widely considered as obsolete. And with this goes the justification for the 1968 treaty In 1999, the matter came up again with the Centros case, which is not directly a case of recognition, but of freedom of establishment: as far as freedom of establishment is concerned member states would have to recognise each others companies, provided they meet the criteria of art 48(ex 58). The rule only extends to said freedom: it is open to debate whether it includes the right to move across the border without adapting to the entrys state regulations, or even without seeing the company dissolved by the exit state, at least in the hypothesis that both jurisdictions adhere to the siege reel doctrine This observation leads to a more general insight, that is that company law in Europe develops not only along the lines of EU guided harmonisation, but also under the factual pressures of developments in the Union and its internal market, including the competitive pressures to which companies and jurisdictions are increasingly exposed. The law in action, although an ancillary force in the overall economic developments that it sustains, is often stronger than the law in the books 7 See art. I and 2of the Treaty of 29 February 1968, the text of which is printed in LUTTER, fn. 1, at 69 The UK and Ireland adopt the incorporation doctrine The same applies to Finland and Sweden, while situation in Denmark is not very clear: see ANDERSEN, P. K. and SORENSEN, K.E., 'Free movement of companies from a Nordic perspective(1999)6 Maastricht ournal of European and Comparative lawv, at p 58 See Cour de Cassation, " Del Sol"case, 13 January 1978, R w, 1977-1978, 1942, nt. VAN BRUYSTEGEM; A.C., 1978, 568; R CJB, 1979, 41, note L. F. GANSHOF See lutter, nt. 1, at 43 and at 696 I1 ECJ. 9 March 1999. C-212/97 ECR 1999.1 -1459 for comments see fn. 105 e Financial Law institute. Universiteit Gent 2001
© Financial Law Institute, Universiteit Gent, 2001 4 acknowledged recognition of foreign companies in the original six member states. It extended recognition to non-commercial companies, and to public entities with economic activity7 . This 1968 treaty has been considered as adhering to the seat theory. After the accession of the three further member states in 1971, the discussion was not taken up again8 . Today, it is generally considered abandoned. The reason for mentioning this treaty here is double. Although it never entered into force, it has not remained without effect: in states which have ratified the treaty, national case law has drawn arguments from the treaty and from its national ratification act, to give effect to certain of its rules in national law. So has the Belgian Cour de cassation allowed a foreign one man company - in fact a Liechtenstein Anstalt - to appear before the Belgian court, although being a one man company, its existence was considered contrary to Belgian public order as the latter was then conceived. Indeed, until a change of the law in 1978, Belgian law, like that of several other systems in the Latin tradition, analysed a company as a “contract” and therefore refused to recognize the validity of a one-man company. The Court admitted this plaintiff on the basis that the Belgian legislator by ratifying the Treaty, had admitted that foreign one-man companies should not be barred access on the sole reason that they had only one shareholder 9 . More striking however is the factual finding that over the last thirty years no difficulties have been encountered in any of the now fifteen member states with respect to the recognition of legal entities originating from other member states, provided that according to their applicable law, they were beneficiaries of rights and duties, and have legal personality. The question of recognition of foreign companies was therefore widely considered as obsolete10. And with this goes the justification for the 1968 treaty. In 1999, the matter came up again with the Centros case11, which is not directly a case of recognition, but of freedom of establishment: as far as freedom of establishment is concerned, member states would have to recognise each others companies, provided they meet the criteria of art. 48 (ex 58). The rule only extends to said freedom: it is open to debate whether it includes the right to move across the border without adapting to the entry’s state regulations, or even without seeing the company dissolved by the exit state, at least in the hypothesis that both jurisdictions adhere to the siège réel doctrine. This observation leads to a more general insight, that is that company law in Europe develops not only along the lines of EU guided harmonisation, but also under the factual pressures of developments in the Union and its internal market, including the competitive pressures to which companies and jurisdictions are increasingly exposed. The law in action, although an ancillary force in the overall economic developments that it sustains, is often stronger than the law in the books. 7 See art. 1 and 2of the Treaty of 29 February 1968, the text of which is printed in LUTTER, fn.1, at 69. 8 The UK and Ireland adopt the incorporation doctrine The same applies to Finland and Sweden, while the situation in Denmark is not very clear: see ANDERSEN, P. K. and SÖRENSEN, K.E., ‘Free movement of companies from a Nordic perspective’ (1999) 6 Maastricht Journal of European and Comparative law, at p. 58. 9 See Cour de Cassation, "Del Sol" case, 13 January 1978, R.W., 1977-1978, 1942, nt. VAN BRUYSTEGEM; A.C., 1978, 568; R.C.J.B., 1979, 41, note L. F. GANSHOF. 10 See LUTTER, nt. 1, at 43 and at 696. 11 ECJ, 9 March 1999, C-212/97, ECR 1999, I-1459, for comments see fn. 105