European Company Law

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'XUF:XQGHUNUD`HUHLQWD?KLHU]XU6FDX0DV#YJHQXJHLQDOWHU7HPSHOEDX'HP$WODJOHLFGHUHLQGHQ+LPPHOWUXJ6WHKQUHLKHQZHLGHU6XOHQKLHUJHQXJ6LHPJHQZRKOGHU)HOVHQODJHQJHQ'D]ZHLHRQHLQJUR*HEXGHWUJHQ

By magic might before us doth appear,

Massive enough, an ancient temple here.

Like Atlas who upheld the sky of old,

Columns enough, in rows, you can behold.

Well for the weight of stone may they suffice,

Since two could bear a mighty edifice.

(J. W. Goethe, Faust II, lines 6403 et seq.)

iii

Contents

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I. The Two Aspects of European Company Law . . . . . . . . . . 1

II. The Analysis Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter One. The First Aspect: Coordination of National

Company Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

I. Legislative Coordination . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Formation, Capital, and Shareholder Rights . . . . . . . . . . 7

2. Accounting and Auditors . . . . . . . . . . . . . . . . . . . . . . 11

3. Mergers and Divisions . . . . . . . . . . . . . . . . . . . . . . . . 14

4. Takeover Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

5. Publicity and Disclosure . . . . . . . . . . . . . . . . . . . . . . . 23

6. Legal Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

a) Validity of Defective Obligations . . . . . . . . . . . . . . 28

b) Limitation of Nullity. . . . . . . . . . . . . . . . . . . . . . . . 29

7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

II. Judiciary Coordination . . . . . . . . . . . . . . . . . . . . . . . . . 33

1. Centros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

a) Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

b) Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

c) Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

d) Reasoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

e) Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

2. berseering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

a) Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

b) Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

c) Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

iv

d) Reasoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

e) Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3. Inspire Art. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

a) Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

b) Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

c) Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

d) Reasoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

e) Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

4. SEVIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

a) Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

b) Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

c) Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

d) Reasoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

e) Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

III. The Two Powers Relationship . . . . . . . . . . . . . . . . . . . . 56

IV. Conclusion on the First Aspect. . . . . . . . . . . . . . . . . . . . 58

Chapter Two. The Second Aspect: Creation of Proper European

Company Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

I. The EEIG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

1. Legal Regime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

2. Relevance in Practice . . . . . . . . . . . . . . . . . . . . . . . . . 65

II. The SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

1. Legal Regime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69


III. The SCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

1. Legal Regime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77


v

IV. The Plans for a European Private Company (SPE) . . . . . . 82

V. Conclusion on the Second Aspect . . . . . . . . . . . . . . . . . . 84

General Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xcix

vii

Foreword

This work has been written as a dissertation submitted in partial ful-

filment of the requirements of the University of the West of England

Bristol (UWE) for the degree of Master of Laws in European Business

Law in 2007/2008. Although it is more than two years old now, its topic

is far from being outdated. According to the original plans of the Com-

mission, the Council Regulation on the Statute for a European private

company should apply from 1 July 2010. This aim has not been achieved,

but new legislatory initiative is due.

Thanks go to all the staff members of the UWE and the Mnster Uni-

versity Foreign Language and Law (FFA) Programme who helped me,

and to the Friedrich-Ebert-Stiftung e. V., especially Dr. Martin Grfe and

Elena Espinosa, for the generous support I received during my post-

graduate studies in Bristol.

Concerning the Treaty of Lisbon renumbering of the Treaty provi-

sionsthis work, submitted in April 2008, is based on the pre-Lisbon

numbering, reference is made to the tables of equivalences at OJ C 115,

9.5.2008, p. 361 et seq.

Mnster, Oct. 2010

S. K.

1

Introduction

ifty years after the signing of the Treaty of Rome1, the European

influence on many areas of law is vast.2 In particular, the area of

company law3 has changed considerably.4 The importance of Euro-

pean influence upon company law5 is illustrated by the fact that

there is now a subdivision which is referred to as European Com-

pany Law6. However, European influence is diverse. Based on the

observation that European Company Law is not a monolithic entity,

this work distinguishes between two aspects.

I. The Two Aspects of European Company Law

On the one hand, the objective of European company law is not

to be autonomous in itself but to influence the domestic company

laws of the Member States. This coordination process will be re-

ferred to as The First Aspect of European Company Law through-

out this work.

1 Cf. European Communities, The history of the European Union,

http://europa.eu/abc/history/index_en.htm (online, 5/12/2007). 2 Villiers, C., European Company LawTowards Democracy? (1998, Ashgate Dart-

mouth), p. 2. 3 The terminology is discussed in the chapter Company Law, Corporate Law or

Corporations Law? of Pettet, B., Company Law, 2nd ed. (2005, Pearson), pp. 14 et

seq. 4 Schwappach, J. (ed.), EG-Rechtshandbuch fr die Wirtschaft (1991, C. H. Beck), p.

3; Edwards, V., EC Company Law (1999, Clarendon Press), p. 1. 5 The European framework is outlined at Hannigan, B., Company Law (2003, Lex-

isNexis UK), pp. 38 et seq. The UK registered company history is summarised at

Griffin, S., Company Law, Fundamental Principles, 3rd ed. (2000, Pearson), pp. 3 et

seq. 6 Cf. Habersack, M., Europisches Gesellschaftsrecht, 3rd ed. (2006, C. H. Beck), p. 1;

Kbler, F., Assmann, H.-D., Gesellschaftsrecht. Die privatrechtlichen Ordnungss-

trukturen und Regelungsprobleme von Verbnden und Unternehmen, 6th ed. (2006,

C. F. Mller), pp. 562 et seq.

F

2

On the other hand, European law has as its objective to be directly

applicable company law. This creation will be referred to as The

Second Aspect7 of European Company Law throughout this disser-

tation.

With regard to the First Aspect, the company laws of the Member

States shall be brought closer together and coordinated. This coor-

dination is caused by acts of the European legislative as well as judi-

ciary power. Firstly, the European legislature has adopted several

company law directives8, which, according to Art. 249(3) EC Treaty,

have to be transposed by the Member States9, adjusting their domes-

tic laws. Secondly, the European Court of Justice (ECJ) has made

several decisions holding certain provisions of Member State com-

pany laws incompatible with European law. Hence, the company

law directives and the respective ECJ decisions form a body of law

which coordinates Member State company laws.

With regard to the Second Aspect of European company law,

European legislature has adopted three regulations, each establish-

ing a completely new legal form of undertakings. Council Regula-

7 In order to be able to use the word aspect for other purposes, too, without caus-

ing confusion, the word is capitalised (Aspect) throughout this work whenever it

refers to the here established two categories. 8 Cf. the listings at Halsburys Laws of England/companies (volume 7(1) (2004 reis-

sue) paras 201-1000; volume 7(2) (2004 reissue) paras 1001-2008)/1. introduc-

tion/(3) European requirements and initiatives/(ii) EC Directives relating to

Company Law/217. EC Directives; and Commission of the European Communi-

ties, Directives and other official acts,

http://ec.europa.eu/internal_market/company/official/index_en.htm (online,

4/12/2007). 9 Implementation of directives is dealt with in detail at Prechal, S., Directives in EC

Law, 2nd ed. (2005, Oxford University Press), pp. 73 et seq.

3

tion (EEC) 2137/8510 introduced the European Economic Interest

Grouping (EEIG), Council Regulation (EC) 2157/200111 established

the European Company, or Societas Europaea (SE), and Council

Regulation (EC) 1435/200312 adopted the European Cooperative So-

ciety, or Societas Cooperativa Europaea (SCE). Furthermore, the

European Parliament and Commission have worked out plans to

create a fourth European company legal form called the European

Private Company, or Societas Privata Europaea (SPE).13 These regu-

lations are, according to Art. 249(2) EC Treaty, directly applicable

in the Member States. They create, beside national company law, an

original European body of company law. The aim of this work is to

analyse the two Aspects structure of European Company Law.

II. The Analysis Structure

In Chapter One, the First Aspect, the coordination of national

company laws, will be analysed. It will be examined by which

means, to which extent, and with which underlying purposes the

coordination of Member State company laws has been carried out.

10 Council Regulation (EEC) 2137/85 of 25 July 1985 on the European Economic In-

terest Grouping (EEIG), OJ L 199, 31.7.1985, p. 1. 11 Council Regulation (EC) 2157/2001 of 8 October 2001 on the Statute for a Euro-

pean company (SE), OJ L 294, 10.11.2001, p. 1, complemented by Council Direc-

tive 2001/86/EC of 8 October 2001 supplementing the Statute for a European

company with regard to the involvement of employees, OJ L 294, 10.11.2001, p.

22. 12 Council Regulation (EC) 1435/2003 of 22 July 2003 on the Statute for a European

Cooperative Society (SCE), OJ L 207, 18.8.2003, p. 1, complemented by Council

Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European

Cooperative Society with regard to the involvement of employees, OJ L 207,

18.8.2003, p. 25. 13 Cf. Commission of the European Communities, European Private Company,

http://ec.europa.eu/internal_market/company/epc/index_en.htm (online,

4/2/2008).

4

Chapter Two will deal with the Second Aspect, the creation of

European legal forms for undertakings. The EEIG, the SE, and the

SCE legal regimes will be analysed, and the SPE plans will be con-

sidered.

There will be interim conclusions at the end of each chapter, and

the results will finally be brought together in a general conclusion.

5

Chapter One.

The First Aspect: Coordination

of National Company Laws

his chapter deals with those sources of European law which

have as their objective or effect a coordination of Member State

company laws. These sources stem from the European legislature as

well as from the European judiciary.

The chapter begins with a section on legislative coordination.

This section deals with the company law directives, analysing how

the E(E)C has regulated on the following issues: formation of com-

panies, capital, shareholder rights; accounting and auditors; mergers

and divisions; takeover bids; publicity and disclosure; and legal cer-

tainty.

The second section of this chapter tackles judiciary coordination.

It shows what role the ECJ played in the development a European

company law and how its influence grew. This process is illustrated

by an analysis of four milestone ECJ rulings, namely those in the

cases Centros, berseering, Inspire Art, and SEVIC.

I. Legislative Coordination

Since 1968, the EC and the then EEC has adopted several

company law directives.14 Their purpose is the creation and ad-

14 Cf. Commission of the European Communities, Directives and other official acts,

http://ec.europa.eu/internal_market/company/official/index_en.htm (online,

4/12/2007), and the interim report on the first decades of legislative coordination

at Dine, J. M., The Community company law harmonisation programme, E.L. Rev.

1989, 14(5), 322.

T

6

vancement of the Single Market15. Their legal basis16 is Art. 44 in

conjunction with Arts. 48 and 43 EC Treaty.17 In order to outline

their substance, one has to pay attention to the fact that, one the one

hand, some of the directives regulate more than one aspect of com-

pany law18 and that, on the other hand, some aspects are regulated

by a group of directives, each one of them covering only a section19.

It thus seems appropriate not to outline each directive individually,

but to choose a more synthetical approach, focussing on the differ-

ent aspects of company law covered. 15 Commission of the European Communities, Company Law & Corporate Govern-

ance, http://ec.europa.eu/internal_market/company/index_en.htm (online,

5/12/2007); cf. Arts. 2, 3(1)(c) EC Treaty. 16 Cf. the provisions on the principle of conferral, Art. 5(1) EC Treaty and Art. 1

No. 6 of the Treaty of Lisbon amending the Treaty on European Union and the

Treaty establishing the European Community, (available at

http://consilium.europa.eu/cms3_fo/showPage.asp?id=1317&lang=en, online,

5/12/2007), comprising future Art. 3b(1) EU Treaty. 17 Before the Treaty of Amsterdam renumbering of the EC Treaty articles, Art. 44

was Art. 54, which therefore appears in the older directives; cf. the preamble of the

12th Directive: [] Having regard to the Treaty establishing the European Eco-

nomic Community, and in particular Article 54 thereof [] (Twelfth Council

Company Law Directive of 21 December 1989 on single-member private limited-

liability companies (89/667/EEC), OJ L 395, 30.12.1989, p. 40.).Cf. the criticisms

concerning the legal basis at Edwards, V., EC Company Law (1999, Clarendon

Press), pp. 93, 222. 18 Cf. the topics regulated by sections I, II, and III of the First Council Directive

68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the pro-

tection of the interests of members and others, are required by Member States of

companies within the meaning of the second paragraph of Article 58 of the Treaty,

with a view to making such safeguards equivalent throughout the Community, OJ

L 065, 14.3.1968, p. 8). 19 Cf. Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 (3)

(g) of the Treaty on the annual accounts of certain types of companies, OJ L 222,

14.8.1978, p. 11, Seventh Council Directive 83/349/EEC of 13 June 1983 based on

the Article 54(3)(g) of the Treaty on consolidated accounts, OJ L 193, 18.7.1983, p.

1, and Eighth Council Directive 84/253/EEC of 10 April 1984 based on Article

54(3)(g) of the Treaty on the approval of persons responsible for carrying out the

statutory audits of accounting documents, OJ L 126, 12.5.1984, p. 20.

7

1. Formation, Capital, and Shareholder Rights

The scopes of the various company law directives differ. Some

provisions are applicable only to public limited companies20, some

only to private limited companies21, and some to both22. Regarding

the formation of companies, private limited companies are not dealt

with broadly, but Art. 2(1) of the Twelfth Directive23 states that they

may be formed in spite of having only one member. Before this di-

rective, Member State laws had differed on the question whether

single-member private limited companies were permitted.24 One

reason for not allowing them was the historical Roman conception

of a company as a contract (which cannot be entered into by less

than two persons).25 A main policy reason for admitting single-

member private limited companies was to promote small and me-

dium-sized enterprises (SMEs).26

20 Cf. Art. 1(1) of the Second Council Directive 77/91/EEC of 13 December 1976 on

coordination of safeguards which, for the protection of the interests of members

and others, are required by Member States of companies within the meaning of

the second paragraph of Article 58 of the Treaty, in respect of the formation of

public limited liability companies and the maintenance and alteration of their

capital, with a view to making such safeguards equivalent, OJ L 026, 31.1.1977, p.

1. 21 Cf. Art. 1 of the Twelfth Directive, supra 17. 22 Cf. Art. 1 of the First Directive, supra 18. 23 Supra 17. 24 Power, V. J. G., Twelfth EEC company law directive, I.C.C.L.R. 1990, 1(3), C44;

Edwards, V., The EU Twelfth Company Law Directive, Comp. Law. 1998, 19(7),

211; Edwards, V., EC Company Law (1999, Clarendon Press), p. 219; Wooldridge,

F., The draft Twelfth Directive on Single-Member Companies, J.B.L. 1989, Jan, 86. 25 Cf. Edwards, V., EC Company Law (1999, Clarendon Press), pp. 219 et seq. 26 Cf. recital 3 of the Twelfth Directive; Edwards, V., EC Company Law (1999, Clar-

endon Press), pp. 222.Cf. the European Parliament Fact Sheet on SMEs (Euro-

pean Parliament, European Parliament Fact Sheet 4.14.0. Small and medium-sized

enterprises, http://www.europarl.europa.eu/facts/4_14_0_en.htm (online,

12/12/2007).

8

The formation of public limited companies is covered by the Sec-

ond Directive27. Art. 2 establishes a minimum requirement for the

statutes of a company. Art. 4 refers to national law concerning pre-

authorisation liabilities. Art. 5 prevents national law from ordering

automatic dissolution in case of the number of members falling be-

low a minimum established by national law. Arts. 6 et seq. comprise

provisions on the initial capital, especially on the type of considera-

tion for the first issue of shares; a major problem to tackle is consid-

eration given in other forms than cash.28 Art. 12 lays down the gen-

eral rule that except in cases of reduction of subscribed capital the

shareholders may not be released from the obligation to pay up their

contributions. These provisions are supported by Arts. 11 and 13,

serving as anti-avoidance rules in cases of post-incorporation

(Nachgrndung29) and conversion.

Once the capital is formed, it has to be maintained. Otherwise the

formation rules could be avoided and the creditors guarantee fund

(Haftungsmasse) diminished.30 Therefore the distribution of capital

to the shareholders, the acquisition of own shares, the providing of

security, with a view to the acquisition of its shares by a third party,

and the acceptance of the companys own shares as security are re-

stricted.31

Capital increase is a sensitive point from an intra-company de-

mocracy point of view, because share capital (and therefore influ-

27 Supra 20; cf. Morse, G., The Second Directive: Raising and Maintenance of Capital,

[1977] ELR 126; Schmitthoff, C. M., The Second EEC Directive on Company Law,

(1978) 15 CMLRev 43. 28 Cf. Arts. 9(2), 10 et seq. 29 Edwards, V., EC Company Law (1999, Clarendon Press), pp. 64 et seq. 30 Cf. Edwards, V., EC Company Law (1999, Clarendon Press), p. 66. 31 Cf. Arts. 15 et seq.

9

ence) can be watered.32 Hence, it is made subject to two main safe-

guards. Firstly, according to Art. 25(1)which has direct effect33,

it must be decided upon by the general meeting. Secondly, when-

ever the capital is increased by consideration in cash, the shares

must be offered on a pre-emptive basis to shareholders in propor-

tion to the capital represented by their shares.34 This right may only

be restricted by decision of the general meeting taken by a qualified

majority35 and on the basis of a written report (containing reasons)

of the administrative or management body.36

But for being ordered by a court, capital reduction is equally sub-

ject to a decision of the general meeting which has to be made by

qualified majority.37 If there are several classes of shares, each class

of shareholders whose rights are affected by the transaction has the

right to a separate vote.38 As capital reduction reduces the creditors

guarantee fund, such a decision is potentially detrimental to credi-

tors. Nevertheless, they cannot prevent the decision. As an offset,

the directive stipulates minimal safeguards in their favour. Accord-

ing to Art. 32(1), those creditors whose claims antedate the publica-

tion of the decision on the capital reduction shall at least have the

32 Cf. Kbler, F., Assmann, H.-D., Gesellschaftsrecht. Die privatrechtlichen Ord-

nungsstrukturen und Regelungsprobleme von Verbnden und Unternehmen, 6th ed.

(2006, C. F. Mller), p. 247; Grunewald, B., Gesellschaftsrecht, 6th ed. (2005, Mohr

Siebeck), pp. 295 et seq. 33 Joined Cases C-19/90 and C-20/90, Marina Karella and Nicolas Karellas v. Minis-

ter for Industry, Energy and Technology and Organismos Anasygkrotiseos

Epicheiriseon AE, [1991] ECR I-2691; cf. Tridimas, T., Direct effect and the second

company law Directive, E.L. Rev. 1992, 17(2), 158. 34 Art. 29(1). 35 Cf. Art. 40. 36 Art. 29(4). 37 Art. 30(1). 38 Art. 31.

10

right to obtain security for claims which have not fallen due by the

date of that publication. Before the creditors have achieved the satis-

faction they deserve, the capital reduction must not take effect.39

Art. 34 prevents Art. 6, defining the minimum capital, from being

frustrated by capital reduction. Arts. 35 et seq. recognise several pe-

culiarities in national company laws.40

Besides the rules on formation and capital, European company

law also governs shareholder rights. The Second Directive41 already

introduced an equal treatment rule for its scope. Recently, the adop-

tion of Directive 2007/36/EC42 has brought an advancement of co-

ordination of the rights of shareholders in general meetings of com-

panies which have their registered office in a Member State and

whose shares are admitted to trading on a regulated market situated

or operating within a Member State43. Art. 4 stipulates that [t]he

company shall ensure equal treatment for all shareholders who are

39 Art. 32(2). 40 Cf. Edwards, V., EC Company Law (1999, Clarendon Press), p. 89. 41 Supra 20; cf. Art. 42. 42 Directive 2007/36/EC of the European Parliament and of the Council of 11 July

2007 on the exercise of certain rights of shareholders in listed companies, OJ L

184, 14.7.2007, p. 17; cf. Grundmann, S., Winkler, N., Das Aktionrsstimmrecht in

Europa und der Kommissionsvorschlag zur Stimmrechtsausbung in brsen-

notierten Gesellschaften, ZIP 2006, p. 1421; Noack, U., Der Vorschlag einer Richt-

linie ber Rechte von Aktionren brsennotierter Gesellschaften, NZG 2006, S. 321;

Noack, U., Die Aktionrsrechte-Richtlinie und das deutsche Aktienrecht, AG 2007,

p. 102; Ratschow, E., Die Aktionrsrechte-Richtlinie neue Regeln fr brsen-

notierte Gesellschaften, DStR 2007, 1402; Schmidt, J., Die geplante Richtlinie ber

Aktionrsrechte und ihre Bedeutung fr das deutsche Aktienrecht, BB 2006, S. 1641;

Schmidt, J., Stimmrechtsvertretung und Stimmrechtsausbung in absentia in

Deutschland und Grobritannien Speziell vor dem Hintergrund aktueller Gesell-

schaftsrechtsreform in Grobritannien sowie der geplanten EU-Aktionrsrechte-

Richtlinie, NZG 2006, S. 487; Wand, P., Tillmann, T., EU-Richtlinienvorschlag zur

Erleichterung der Ausbung von Aktionrsrechten, AG 2006, S. 443. 43 Cf. Art. 1(1).

11

in the same position with regard to participation and the exercise of

voting rights in the general meeting. Art. 6 states that shareholders

with a minimum stake in the company (which shall not exceed 5 %

of the share capital44) shall have the right to put items on the agenda

of the general meeting and to table draft resolutions. Arts. 7 et seq.

shall facilitate participation in the general meeting by prohibiting

certain share depositing requirements and by offering the possibility

of electronic participation. Art. 9 gives every shareholder a right to

receive answers to questions related to items on the agenda of the

general meeting. Arts. 1013 serve the purpose to make the exercise

of the voting right easier, especially with regard to shareholders liv-

ing in another Member State45, by facilitating voting by correspon-

dence46.

2. Accounting and Auditors

Art. 17(1) of the Second Directive47 states: In the case of a serious

loss of the subscribed capital, a general meeting of shareholders

must be called [] to consider [what] measures [should be] taken.

A loss of capital of a company is assessed by accounting48. The an-

nual result of a company, and therefore its capital, can be subject to

44 Art. 6(2). 45 Cf. European Communities, Rapid Press Release IP/07/800 of 12/06/2007, Corpo-

rate governance: Directive on shareholders rights formally adopted,

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/800&format=HT

ML&aged=1&language=EN&guiLanguage=en (online, 5/12/2007). 46 Cf. Art. 12. 47 Supra 20. 48 Cf. the definitions of accounting at Alexander, D., Nobes, C., Financial Account-

ing, An International Introduction, 2nd ed. (2004, Pearson), p. 4. The wider theo-

retical context is outlined at Glautier, M. W. E., Underdown, B, Accounting, The-

ory and Practice, 7th ed. (2001, Pearson), pp. 15 et seq.

12

considerable changes if different methods of accounting are applied.

This illustrates that it is not sufficient to coordinate the laws on

company capital. Provisions on capital always require a reference as

to how the capital shall be assessed. But for a coordination of Mem-

ber State laws on accounting, the same economic incident which

could be held a serious loss within the meaning of Art. 17(1) of

the Second Directive49 in one jurisdiction could be held nothing se-

rious at all in another jurisdiction.50 Consequently, the European

Community started to coordinate Member State accounting laws in

1978 by adoption of the Fourth Directive51.

Section 1 of the Fourth Directive sets out the principle rules,

which are then fleshed out within the following sections, compris-

ing, inter alia, valuation rules52. The general rules state that the an-

nual accounts shall comprise the balance sheet, the profit and loss

account and the notes on the accounts.53 The purpose of the annual

accounts is defined in a way that it shall give a true and fair view of

the companys assets, liabilities, financial position and profit or

loss.54 This provision was very much in dispute during the drafting

of the directive. The purpose of the annual accounts was a point

where two different traditions existed among the Member States.

On the one hand, there were the UK, Ireland, and The Netherlands

relying on the true and fair view concept55; on the other, there

were the other countries which relied on proper accounting princi- 49 Supra 20. 50 Cf. recitals 15 of the Fourth Directive, supra 19. 51 Supra 19. 52 Section 7, Arts. 31 et seq. 53 Art. 2(1). 54 Art. 2(3). 55 This concept is analysed in detail at Grace, E., Lasok, K. P. E., The true and fair

view, Comp. Law. 1989, 10(1), 13.

13

ples.56 The former group traditionally understood financial report-

ing as a conduct which should be in line with guidelines developed

by practitioners, but free from legal constraints. The latter group re-

garded financial reporting as a conduct which must in the first place

obey the provisions of the law.57 The 1971 draft basically followed

the German Aktiengesetz58 1965.59 During the debating procedure,

the later drafts and the final version adopted more Anglo-Dutch

ideas.60

The same dichotomy of traditions had to be tackled during the

coordination debates on consolidated accounts, which finally led to

the adoption of the Seventh Directive61.62 Again, the first drafts had

reflected much of the then German law, whereas the final version

shows considerable Anglo-Dutch influence.63 Consolidated ac-

countsdefined by Art. 16(1)have to be prepared if one (parent)

company legally controls64 another (subsidiary) and if at least one of

the companies is a public limited liability company.65

56 Alexander, D., Nobes, C., Financial Accounting, An International Introduction,

2nd ed. (2004, Pearson), pp. 99 et seq. 57 Ibid., pp. 101 et seq.; Edwards, V., EC Company Law (1999, Clarendon Press), p.

119. 58 Aktiengesetz (Public Limited Liability Companies Act) of 6/9/1965 (German Fed-

eral Law Gazette I p. 1089). 59 Cf. the different draft versions at Alexander, D., Nobes, C., Financial Accounting,

An International Introduction, 2nd ed. (2004, Pearson), p. 101. 60 Edwards, V., EC Company Law (1999, Clarendon Press), pp. 120 et seq., 128; cf.

the analysis of the consequences of the adoption of the Fourth Directive to the

true and fair view concept and of problems of disparity of the interpretation of

what is true and fair at Grace, E., Lasok, K. P. E., Fair accounting, J.B.L. 1988,

May, 235. 61 Supra 19. 62 Edwards, V., EC Company Law (1999, Clarendon Press), pp. 157 et seq. 63 Ibid., pp. 157 et seq. 64 Cf. Art. 1. 65 Cf. Art. 4(1).

14

As coordinated capital rules require coordination of accounting

rules, coordinated accounting rules can only be relied on as an effec-

tive instrument conveying comparability if there are coordinated

rules on the qualification of the persons carrying out the accounting

work. Therefore, as an essential complement to the Fourth and

Seventh Directives66, the Eights Directive67 introduced common

rules on the approval of auditors. In the meantime, the Eights Di-

rective has been replaced by the modernised68 regime of Directive

2006/43/EC69.70

3. Mergers and Divisions

Concerning corporate restructuring, two different approaches can

be distinguished. In some jurisdictions (in particular The Nether-

lands and the UK71), the dominant tools are takeovers, whereas in

other jurisdictions (in particular France, Germany, and Italy72)

66 Edwards, V., EC Company Law (1999, Clarendon Press), p.199. 67 Supra 19. 68 Cf. the Explanatory Memorandum of the Commission, delivered with the Proposal

for a Directive of the European Parliament and of the Council on statutory audit of

annual accounts and consolidated accounts and amending Council Directives

78/660/EEC and 83/349/EEC on 16/3/2004, COM(2004) 177 final, http://eur-

lex.europa.eu/LexUriServ/site/en/com/2004/com2004_0177en01.pdf (online,

7/12/2007). 69 Directive 2006/43/EC of the European Parliament and of the Council of 17 May

2006 on statutory audits of annual accounts and consolidated accounts, amending

Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive

84/253/EEC, OJ L 157, 9.6.2006, p. 87. 70 Cf. Morris, G. D., Audit & Accounts Changes, 31 CSR 2, 13; Bolton, L., Dj vu,

Accountancy 2006, 138(1359), 82; Sweet & Maxwell Ltd. (ed.), Commissioner out-

lines hopes for EU audit regulation and international cooperation, EU Focus 2006,

197, 3; Courtnage, S., Transparent auditors, C.S.R. 2006, 30(13), 102. 71 Hannigan, B., Company Law (2003, LexisNexis UK), p. 52; Edwards, V., EC Com-

pany Law (1999, Clarendon Press), pp. 91 et seq. 72 Cf. Edwards, V., EC Company Law (1999, Clarendon Press), p. 91.

15

mergers and divisions73 dominate. The latter approach was the first

one to be covered by European legislation and will be treated within

this chapter; takeovers will be dealt with in the next one.

In 1978, European secondary law, by the Third74 and Sixth75 Di-

rectives, began to cover mergers and divisions. But these directives

only cover transactions within one Member State.76 Cross-border

mergers are now covered by the Tenth Directive77. Mergers seem to

be regarded as the more important type of transaction. This can be

illustrated at two points. Firstly, the Third Directive78 obliges the

Member to introduce a merger regime, while the Sixth Directive79

only enforces the coordination of existing division regimes.80 Sec-

73 Cf. the conceptual remarks at Hansen, L. L., Merger, Moving and Division Across

National Borders When Case Law Breaks through Barriers and Overtakes Direc-

tives, E.B.L.Rev. 2007, 181, 182, 191. 74 Third Council Directive 78/855/EEC of 9 October 1978 based on Article 54(3)(g)

of the Treaty concerning mergers of public limited liability companies, OJ L 295,

20.10.1978, p. 36. 75 Sixth Council Directive 82/891/EEC of 17 December 1982 based on Article

54(3)(g) of the Treaty, concerning the division of public limited liability compa-

nies, OJ L 378, 31.12.1982, p. 47. 76 Art. 2 of the Third Directive, supra 74, and Art. 1 of the Sixth Directive, supra 75;

Calliess, C., Ruffert, M. (ed.), EUV/EGV. Das Verfassungsrecht der Europischen

Union mit Europischer Grundrechtecharta, 3rd ed. (2007, C. H. Beck), Art. 48

EGV footnote 37. 77 Directive 2005/56/EC of the European Parliament and of the Council of 26 Octo-

ber 2005 on cross-border mergers of limited liability companies, OJ L 310,

25.11.2005, p. 1. Cf. the detailed analysis at Ugliano, A., The new cross-border

merger directive: harmonisation of European company law and free movement,

E.B.L. Rev. 2007, 18(3), 585; and Hansen, L. L., Merger, Moving and Division

Across National Borders When Case Law Breaks through Barriers and Overtakes

Directives, E.B.L.Rev. 2007, 181, 185 et seq. 78 Supra 74. 79 Supra 75. 80 Cf. Art. 2 of the Third Directive, supra 74, one the one hand and Art. 1 of the Sixth

Directive, supra 75, on the other hand.

16

ondly, on cross-border level, there is only a directive on mergers81,

not on divisions.These directives, after defining their scope (espe-

cially the types of companies they refer to)82, establish a common

general procedure for those transactions83.

As a first step, the administrative or management bodies of the

merging companies have to draw up draft terms of mergerother

language versions are more illustrative at this point, cf. the words

projet in French, and Plan in Germanin writing.84 These draft

terms of merger must comprise minimal specifications such as type,

name and registered office of each company, and the share ex-

change ratio.85

Secondly, the draft has to be published.86

Thirdly, the draft has to be reported upon in details both by the

administration or management bodies and by independent ex-

81 Cf. Commission of the European Communities, Proposal for a Directive of the

European Parliament and of the Council on cross-border mergers of companies with

share capital of 18/11/2003, COM(2003) 703 final, http://eur-


8/12/2007), p. 2; Hansen, L. L., Merger, Moving and Division Across National Bor-

ders When Case Law Breaks through Barriers and Overtakes Directives,

E.B.L.Rev. 2007, 181, 192. 82 Art. 1 of the Third Directive, supra 74; Art. 1 of the Sixth Directive, supra 75; Arts.

1 et seq. (esp. Art. 1 in conjunction with Art. 2(1)) of the Tenth Directive, supra

77. 83 Cf. the two phases model at Bouloukos, M., The European Company (SE) as a Ve-

hicle for Corporate Mobility within the EU: A Breakthrough in European Corporate

Law?, E.B.L.Rev. 2007, 535, 541 et seq. 84 Art. 5(1) of the Third Directive, supra 74; Art. 3(1) of the Sixth Directive, supra 75;

Art. 5 of the Tenth Directive, supra 77.The latter directive refers them as the

common draft terms of cross-border merger. 85 Art. 5(2) of the Third Directive, supra 74; Art. 3(2) of the Sixth Directive, supra 75;

Art. 5 of the Tenth Directive, supra 77. 86 Art. 6 of the Third Directive, supra 74; Art. 4 of the Sixth Directive, supra 75; Art.

6 of the Tenth Directive, supra 77.

17

perts.87 These reports mainly serve as source of information for the

shareholders, who additionally have some rights of inspections of

other documents.88

As a forth step, the transaction has to be approved by the general

meetings of the companies concerned.89

The date when the transaction, which has to be publicised90, takes

effect is to be defined by Member State law91 because due to the

great legal diversity on this point the Commission considered it im-

possible to reach a uniform solution.92 The main consequences of

the transaction are that ipso iure and simultaneously:

assets and liabilities are transferred to an acquiring/recipient or

a new company93 (eitherin case of a mergerall of them or

in case of a divisionin accordance with the allocation laid

down in the draft terms),

87 Arts. 9 et seq. of the Third Directive, supra 74; Arts. 7 et seq. of the Sixth Directive,

supra 75; Arts. 7 et seq. of the Tenth Directive, supra 77. 88 Art. 11 of the Third Directive, supra 74; Art. 9 of the Sixth Directive, supra 75. The

Tenth Directive, supra 77, does not contain an equivalent provision. Apparently,

the information conveyed with the reports are regarded sufficient, cf. Art. 9(1) of

the directive and pp. 9 and 13 of the Commission Proposal, supra 81. 89 Art. 7 of the Third Directive, supra 74; Art. 5 of the Sixth Directive, supra 75; Art.

9 of the Tenth Directive, supra 77. 90 Art. 18 of the Third Directive, supra 74; Art. 16 of the Sixth Directive, supra 75;

Art. 13 of the Tenth Directive, supra 77. 91 Art. 17 of the Third Directive, supra 74; Art. 15 of the Sixth Directive, supra 75;

Art. 12 of the Tenth Directive, supra 77. 92 Edwards, V., EC Company Law (1999, Clarendon Press), p. 112. 93 Art. 19(1)(a) of the Third Directive, supra 74; Art. 17(1)(a) of the Sixth Directive,

supra 75; Art. 14(1)(a) of the Tenth Directive, supra 77.

18

shareholders of the companies concerned become shareholders

of the acquiring/recipient respectively the new company,94 and

one or more companies (the acquired or divided ones) cease to

exist.95

Under special circumstances, in particular if the acquir-

ing/recipient company is the sole shareholder of the ac-

quired/divided company, the procedure is simplified, because then

certain measures which shall protect minority shareholders are su-

perfluous.96

Due to the internationality of the transaction, the Tenth Directive

comprises an Article97 on employees participation, establishing the

general rule (subject to exceptions98) that the post-merger company

is subject to the rules in force concerning employees participation,

if any, in the Member State where it has its registered office.

4. Takeover Bids

A takeover is a different way of corporate restructuring (besides

mergers), defined as the acquisition of sufficient shares of a (tar-

get/offeree) company by another (bidder/offeror) company,

giving the later control of the former.99 After fifteen years of political

94 Art. 19(1)(b) of the Third Directive, supra 74; Art. 17(1)(b) of the Sixth Directive,

supra 75; Art. 14(1)(b) of the Tenth Directive, supra 77. 95 Art. 19(1)(c) of the Third Directive, supra 74; Art. 17(1)(c) of the Sixth Directive,

supra 75; Art. 14(1)(c) of the Tenth Directive, supra 77. 96 Cf. Art. 26 of the Third Directive, supra 74; Art. 20 of the Sixth Directive, supra 75;

Art. 15 of the Tenth Directive, supra 77. 97 Art. 16. 98 Art. 16(2)(7). 99 Hannigan, B., Company Law (2003, LexisNexis UK), p. 867; cf. Keenan, D., Smiths

& Keenans Company Law, 13th ed. (2005, Pearson), p. 496.

19

discussion100, the Thirteenth Directive on takeover bids101 was finally

adopted in 2004. It has the purpose to protect the interests of hold-

ers of the securities of companies [when] at least some of their secu-

rities are admitted to trading on a regulated market in a Member

State [and] to create Community-wide clarity and transparency in

respect of legal issues to be settled in the event of takeover bids and

to prevent patterns of corporate restructuring within the Commu-

nity from being distorted by arbitrary differences in governance and

management cultures.102 It should create conditions for the emer-

gence of a European market for corporate control103, or a level

playing field104 between the Member States.

The general principles to be implemented into Member State laws

are set out in Art. 3, whereas:

equivalent treatment and minority protection within the hold-

ers of securities of the offeree must be safeguarded,105

sufficient106 and neutral107 information must be provided to the

holders of securities,

100 Cf. the first Commission proposal put forward in 1989 (OJ C 64/8, 14.3.1989);

Hannigan, B., Company Law (2003, LexisNexis UK), p. 891.The directive his-

tory is analysed in details at Johnston, A., The European Takeover Directive: ruined

by protectionism or respecting diversity?, Comp. Law. 2004, 25(9), 270, 270 et seq. 101 Directive 2004/25/EC of the European Parliament and of the Council of 21 April

2004 on takeover bids, OJ L 142, 30.4.2004, p. 12.The implementation in the UK

is dealt with at Matthews, T., Part 28 of the Companies Act 2006, Comp. Law.

2007, 28(8), 240. The implementation in the Czech Republic is described at Havel,

B., Report from the Czech Republic, E.C. Law 2007, 4(3), 125, 126 et seq. 102 Cf. recitals 2 et seq. 103 Wooldridge, F., Some important provisions, and implementation of, the Takeovers

Directive, Comp. Law. 2007, 28(10), 293. 104 Ibid. 105 Art. (3)(1)(a) of the Thirteenth Directive, supra 101. 106 Art. (3)(1)(b). 107 Art. (3)(1)(c).

20

false markets must not be created,108

reliability of bids must be ensured,109 and

an offeree company must not be hindered in the conduct of its

affairs for an unreasonable length of time.110

The directive establishes a mandatory bid in order to protect mi-

nority holders of securities.111 Art. 5(1) states that a person who has

acquired direct or indirect control of a company is generally112 re-

quired to bid on the securities owned by the minority shareholders

at an equitable price113.

The time-frame for the acceptance of a bid may generally not be

less than two weeks nor more than ten weeks from the date of pub-

lication of the offer document.114 The publication has to be done in

such a way as to ensure market transparency and integrity for the

securities of the offeree company, of the offeror or of any other

company affected by the bid, in particular in order to prevent the

publication or dissemination of false or misleading information.115

The most controversial provisions of the Thirteenth Directive116

were Arts. 9 and 11. Both provisions concern the question whether

(and if, how) an offeree company may try to frustrate a bid.

Art. 9 deals with the obligations of the board of the offeree com-

pany. If a bid is published, the offeree company board can in theory

108 Art. (3)(1)(d). 109 Art. (3)(1)(e). 110 Art. (3)(1)(f). 111 Cf. De Wulf, H., European Union: markets takeovers, I.C.C.L.R. 2004, 15(10),

N83. 112 Cf. the exemption in Art. 5(2). 113 Defined in Art. 5(4). 114 Art. 7(1). 115 Art. 8(1). 116 Supra 101.

21

adopt a variety of (defensive) measures in order to thwart the of-

ferors plans. Such defensive measures can be, in particular, the issue

of new shares, the purchase or vending of assets of a material

amount, or the entering into contracts otherwise than in the ordi-

nary course of business.117 Takeover situations can lead to a conflict

of interests within the management of the offeree company118. It

shall act for the benefit of the shareholders. Defensive measures,

however, are often only advantageous for the management (which

remains in power if the bid is frustrated), but not for the sharehold-

ers of the offeree company (takeovers are usually an attractive op-

portunity to sell the shares at high prices). Therefore, Art. 9 states

that the board shall obtain the prior authorisation of the general

meeting of shareholders before taking any action, other than seek-

ing alternative bids, which may result in the frustration of the bid

and in particular before issuing any shares which may result in a

lasting impediment to the offerors acquiring control of the offeree

company.

Art. 11 contains the breakthrough rule. Takeover restrictions

provided for in the articles of association of the offeree company or

in contractual agreements shall not apply vis--vis the offeror. Mul-

tiple-vote securities carry only one vote each at the general meeting

of shareholders which decides on defensive measures. (Shareholders

who cannot exercise their rights due to the breakthrough shall,

however, be provided equitable compensation for any loss suf-

fered.119)

117 Cf. Hannigan, B., Company Law (2003, LexisNexis UK), pp. 886 et seq. 118 Cf. ibid., p. 886. 119 Art. 11(5); cf. De Wulf, H., European Union: markets takeovers, I.C.C.L.R. 2004,

15(10), N83, N84. Cf. the critical remarks at Clarke, B., Articles 9 and 11 of the

22

As both Articles make takeovers (especially hostile ones) more

likely, political misgivings arose, opposing the attitude of the Com-

mission which held takeovers a favourable means to strengthen the

European economy.120 (It can be assumed that this conflict reflects

the underlying, fundamentally different concepts within the Mem-

ber States traditions of whether companies should only pursue

shareholder value or also other aims.121) The content of Arts. 9 and

11 was so much in dispute that the Council came to a deadlock,

which could only be broken by the final compromise rendering

those provisions optional122 (NB the opt-in right in Art. 12(2)).

The Thirteenth Directive123 is subject to a controversial debate. As

its options have led to diversity and protectionism amongst Member

State laws124, it is criticised for having failed to create a level playing

Takeover Directive (2004/25) and the market for corporate control, J.B.L. 2006, Jun,

355, 370. 120 Cf. The Lord Millett (ed.), Gore-Browne on Companies, 45th ed. (2004 [Update 67],

Jordans), pp. 44[3] et seq.; Johnston, A., The European Takeover Directive: ruined

by protectionism or respecting diversity?, Comp. Law. 2004, 25(9), 270, 273 et seq.;

Wooldridge, F., Some important provisions, and implementation of, the Takeovers

Directive, Comp. Law. 2007, 28(10), 293, 295 et seq.; Clarke, B., Articles 9 and 11 of

the Takeover Directive (2004/25) and the market for corporate control, J.B.L. 2006,

Jun, 355, 370, 374. 121 Cf. Johnston, A., The European Takeover Directive: ruined by protectionism or re-

specting diversity?, Comp. Law. 2004, 25(9), 270, 276; The Lord Millett (ed.), Gore-

Browne on Companies, 45th ed. (2004 [Update 67], Jordans), p. 44[12]). 122 Cf. Art. 12; Commission of the European Communities, Commission Staff Work-

ing Document, Report on the implementation of the Directive on Takeover Bids of

21/2/2007, SEC(2007) 268,

http://ec.europa.eu/internal_market/company/docs/takeoverbids/2007-02-

report_en.pdf (online, 10/12/2007), p. 5; Johnston, A., The European Takeover Di-

rective: ruined by protectionism or respecting diversity?, Comp. Law. 2004, 25(9),

270, 273 et seq. 123 Supra 101. 124 Commission of the European Communities, Commission Staff Working Docu-

ment, Report on the implementation of the Directive on Takeover Bids of 21/2/2007,

23

field.125 Another view, however, approves the flexibility of the di-

rective.126

5. Publicity and Disclosure

An important aim of EC company law is establishing equivalent

safeguards for the protection of the interests of members and

other.127 Due to the legal and economic complexity of company-

related issues, members and others (potential creditors, e. g.) pro-

tection requires that they have access to certain information about

companies. This need has been recognised by the European legisla-

ture since the beginning of coordination measures in 1968, when

the First Directive128 was adopted.

Section I of the First Directive deals with Disclosure129. Every

Member State is obliged to establish a register130which, according

SEC(2007) 268,

http://ec.europa.eu/internal_market/company/docs/takeoverbids/2007-02-

report_en.pdf (online, 10/12/2007), pp. 6 et seq.; NB the table in Annex 1 (p. 12) of

this Working Document, giving an overview over the state of transposition in the

Member States. 125 Wooldridge, F., Some important provisions, and implementation of, the Takeovers

Directive, Comp. Law. 2007, 28(10), 293, 295 et seq.; cf. Simpson, S. V., Corte, L.,

EU Directive fails to harmonize takeovers, I.F.L. Rev. 2005, 24(4) Supp (The Guide

to Mergers and Acquisitions 2005), 15; Hopt, K. J., Concluding Remarks, ECFR

2007, 169, 171.For further criticism cf. Clarke, B., Articles 9 and 11 of the Take-

over Directive (2004/25) and the market for corporate control, J.B.L. 2006, Jun, 355,

370, 373 et seq. 126 Johnston, A., The European Takeover Directive: ruined by protectionism or respect-

ing diversity?, Comp. Law. 2004, 25(9), 270, 276. 127 Cf. Art. 44(2)(g) EC Treaty. 128 Supra 18. 129 Cf. the official section title. 130 Art. 3(1).

24

to a recent directive amendment131, must be able to work electroni-

cally132where every limited liability company133 is registered.

Member States have to require134 at least the disclosure of:

the consolidated135 instrument of constitution136 plus amend-

ments137,

the appointment, termination of office and particulars of per-

sons who have special functions138,

information concerning the amount of capital subscribed139,

and accounting documents140,

any transfer of the seat of the company141, and

any declaration of nullity or ending of the company142.

The Second Directive143 on its part provides for minimal informa-

tion within the instrument of constitution and thus ensures the ef-

fectiveness of the respective disclosure requirements of the First Di-

rective.144

131 Art. 1(3) of Directive 2003/58/EC of the European Parliament and of the Council

of 15 July 2003 amending Council Directive 68/151/EEC, as regards disclosure re-

quirements in respect of certain types of companies, OJ L 221, 4.9.2003, p. 13. 132 Art. 3(3). 133 The scope of legal forms which the directive covers is set out in Art. 1 of the First

Directive, supra 18. 134 Cf. the requirement to provide for appropriate penalties for certain forms of non-

compliance, which is comprised in Art. 6. 135 Art. 2(1)(c). 136 Art. 2(1)(a). 137 Art. 2(1)(b). 138 Art. 2(1)(d). 139 Art. 2(1)(e). 140 Art. 2(1)(f). 141 Art. 2(1)(g). 142 Art. 2(1)(h)(k). 143 Supra 20. 144 Cf. Arts. 2 et seq. of the Second Directive, supra 20.

25

Details on the publicity of accounting documents are regulated by

the Fourth and Seventh Directive.145 Auditor details originally had

to be published under Art. 28 of the Eighth Directive, which re-

quirement has been replaced and extended by Arts. 15 et seq. of Di-

rective 2006/43/EC146.

The aforementioned publicity regime covers separate legal enti-

ties only. Consequently, it turned out that there was a loophole in

the legislation in cases where companies were carrying out business

in a foreign Member State not by means of a subsidiary, which was a

separate legal entity and therefore within the scope of the publicity

regime, but by means of a mere branch.147 Until the adoption of the

Eleventh Directive, Art. 54 (now repealed) of the Fourth Directive

left branch registration to the Member States. The Eleventh Direc-

tive148 extended the publicity duties to foreign branchesregardless

of whether their parent company is from a Member State or from a

third country149.

A special need for disclosure arises if a company has only got one

single member, especially if he or she is the sole director. The single

member-director can hold a general meeting of, or enter into con-

tracts with the company without any witness. This leads to risks of

manipulation. In case of a foreseeable insolvency, e. g., the single 145 Cf. Section 10 of the Fourth Directive, supra 19, and Arts. 34 et seq. as well as Sec-

tion 5 of the Seventh Directive, supra 19. 146 Supra 69. 147 Edwards, V., EC Company Law (1999, Clarendon Press), p. 212.The problem of

a lack of definition of the term branch is dealt with at Edwards, V., EC Company

Law (1999, Clarendon Press), pp. 213 et seq. 148 Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclo-

sure requirements in respect of branches opened in a Member State by certain

types of company governed by the law of another State, OJ L 395, 30.12.1989, p.

36. 149 Cf. recital 11 and Section II of the Eleventh Directive, supra 148.

26

member-director could try to deprive the company of its remaining

assets by feigning a contract prior to those of the creditors. In order

to ensure sufficient information, the Twelfth Directive150 states that

the quality of being a single-member company must be registered

and decisions of the general meeting (whose powers the single

member exercises151) as well as contracts between the single member

and the company have to be recorded in writing152.

The amount of subscribed capital of a company can be an impor-

tant piece of information for potential creditors, because it indicates

their guarantee fund.153 For this reason, any alteration must be pub-

lished.154

The ability of the shareholders to exercise their rights strongly

depends on their ability to take part in the general meeting. There-

fore, Art. 5 of Directive 2007/36/EC155 imposes an obligation on the

Member States to ensure that shareholders are sufficiently informed

before a general meeting by establishing conditions (deadlines, e. g.)

for the convocation. In addition, the voting results must be pub-

lished by the company on its Internet site within a certain period of

time after the general meeting.156

Due to the complexity of the issues arising, information is also es-

sential in cases of corporate restructuring.

For cases of domestic mergers, the Third Directive157 states that

the draft terms of merger have to be published at least one month 150 Supra 17. 151 Cf. Art. 4(1). 152 Cf. Arts. 3., 4(2), 5(1). 153 Cf. chapter one I.1., supra. 154 Cf. Arts. 25(1) and 30(1) of the Second Directive, supra 20. 155 Supra 42. 156 Art. 14(2) of Directive 2007/36/EC, supra 42. 157 Supra 74.

27

before the date of the general meeting which is to decide thereon.158

Before the decision, the shareholders must be given a right to in-

spect certain documents, particularly the draft terms of merger and

the reports on it.159 Finally, once the merger has taken effect, it has

to be publicised.160 The same applies if a merger is declared void.161

For cases of divisions, Arts. 4, 9, 16, and 19 of the Sixth Direc-

tive162 provide equivalent information safeguards.

For cases of cross-border mergers, the common draft terms of the

cross-border merger have to be publicised according to Art. 6(1) of

the Tenth Directive163. The scope of the publicity duty additionally

covers basic information about the companies concerned164, ancil-

lary arrangements165, and information where details can be ob-

tained166. The cross-border merger completion has to be publicised

in each of the Member States concerned.167

For cases of takeovers, the Thirteenth Directive168, defines the

general principle that the holders of the securities of an offeree

company must have sufficient time and information to enable them

to reach a properly informed decision on the bid169. This principle

is fleshed out by the duties established by Arts. 6 and 10, whereas

158 Art. 6. 159 Art. 11. 160 Art. 18. 161 Art. 22(1)(e). 162 Supra 75; cf. recital 6 of the Sixth Directive stressing shareholders need for infor-

mation. 163 Supra 77. 164 Art. 6(2)(a). 165 Art. 6(2)(b). 166 Art. 6(2)(c). 167 Art. 13. 168 Supra 101. 169 Art. 3(1)(b).

28

the offeror is required to publish an offer document with defined

minimal information170 and the companies have to publish detailed

information on the structure of their capital and about other par-

ticulars171.

6. Legal Certainty

A certain amount of legal certainty172 is crucial for economic

prosperity, because many economic decisions reach several years

into the future and thus can only be planned if the legal context is

consistent. The European company law directives tackle the legal

certainty problem by regulating within two areas.

a) Validity of Defective Obligations

One area is the validity of obligations entered into by a company

which are affected by certain legal defects:

It occurs that a prospective (future) limited liability company

enters into obligations before its formation is completed.

Moreover, it is sometimes publicised that one person is organ

representative (particularly director) of a company, but in fact

the appointment was irregular.

Finally, it happens that organ representatives of a company

act without the objects of the company (ultra vires).

When these defects occur, it is up to the law to decide whether the

defects shall affect the validity of the obligations entered into by the

(future) company. This decision must be either in favour of the (fu-

170 Art. 6(2), (3), (5). 171 Art. 10(1). 172 Cf. the detailed analysis of this principle at Raitio, J., The Principle of Legal Cer-

tainty in EC Law (2003, Kluwer), pp. 125 et seq., 368 et seq.

29

ture) company or in favour of the other party to a contract. EC

company law has generally decided to protect the other party to a

contract. Art. 7 of the First Directive173 states that the persons who

acted shall be liable for pre-incorporation obligations if the com-

pany does not assume the obligations. According to Art. 8, a com-

pany cannot, except for proved knowledge of the other party, rely

on any irregularity in the appointment of organ representatives

once the formalities of disclosure are completed. Regarding ultra

vires acts of organ representatives, Art. 9(1) sets out the general

rule174 that such acts shall be binding upon the company, unless

such acts exceed the powers that the law (not the statutes of the

company or organ decisions175) confers or allows to be conferred on

the persons acting.176

b) Limitation of Nullity.

The other area is the nullification of certain procedures. Proce-

dures like formations, mergers, or divisions of companies are that

complex that undoing them would cause immense practical prob-

lems and grave legal uncertainty. Therefore the European legislature

has limited the power of Member State company laws to declare

such procedures null and void.177

173 Supra 18. 174 Cf. the options for national law exceptions to this general rule provided for in Art.

9. 175 Cf. Art. 9(2). 176 Cf. Edwards, V., EC Company Law (1999, Clarendon Press), pp. 31 et seq. 177 Cf. recital 6 of the First Directive, supra 18, recital 9 of the Third Directive, supra

74, recital 11 of the Sixth Directive, supra 75, and recital 8 of the Tenth Directive,

supra 77.

30

Member State laws may only provide for the nullity of a company

if the decision is made by a court of law and made for a reason men-

tioned in an exhaustive enumeration.178 This catalogue allows nulli-

fication only in cases of severe failures during the foundation pro-

cedure179, grave deficits of the statutes of the company180, or if the

objections of the company are contrary to the law or to public pol-

icy181.

Domestic mergers and divisions covered by the Third182 and

Sixth183 Directives are subject to an almost184 identical nullification

regime. This has to do with the fact that both directives stem from

one Commission Proposal185. Domestic mergers and divisions may,

as a rule, only be declared void if at least the final decision is vested

in a court of law.186 This rule is subject to certain exceptions, reserv-

ing Member States (as the Third Directive says) the right to declare

178 Art. 11 of the First Directive, supra 18; the enumeration is given under no. 2. NB

that in case of private limited liability companies no. 2 lit. f has been superseded by

Art. 2(1) in conjunction with Art. 1 of the Twelfth Directive, supra 17; cf. chapter

one I.1., supra. 179 Cf. Art. 11(2)(a), (d)(f) of the First Directive, supra 18.The limits of the scope

of the nullity limitation established by Section III of the First Directive are as-

sessed by the ECJ in Case 136/87, Ubbink Isolatie BV v. Dak- en Wandtechniek BV,

[1988] ECR 4665, stating (in paras. 11 et seq., cf. esp. para. 16) that third parties

cannot rely on the existence of a company if the company register does not con-

firm it because the formalities for incorporation required by national law have not

been completed. 180 Cf. Art. 11(2)(c) of the First Directive, supra 18. 181 Cf. Art. 11(2)(b) of the First Directive, supra 18. 182 Supra 74. 183 Supra 75. 184 Cf. the differences regarding post-nullification liability in Art. 22(1)(h) of the

Third Directive, supra 74, and Art. 19(1)(h) of the Sixth Directive, supra 75. 185 COM(70) 633 final of 12/6/1970, [1970] OJ C 89 p. 20; cf. Edwards, V., EC Com-

pany Law (1999, Clarendon Press), pp. 90 et seq. 186 Art. 22(1)(a), (2) of the Third Directive, supra 74; Art. 19(1)(a), (2) of the Sixth

Directive, supra 75.

31

a transformation void following any supervision other than judicial

or administrative preventive supervision of legality187. It could be

assumed from the wording of the Sixth Directive that it gave more

freedom to the Member States than the Third Directive, since it only

states: [] following any supervision of legality188, without men-

tioning the restriction comprised in the equivalent paragraph of the

Third Directive ([] other than judicial or administrative preven-

tive []189). But regarding the French and German version of the

Sixth Directive it becomes clear that its content is the very same as

the content of the Third Directive. The French version states: Il

nest pas port atteinte aux lgislations des Etats membres relatives

la nullit dune scission prononce la suite dun contrle de celle-

ci autre que le contrle prventif judiciaire ou administratif de

lgalit190. The German version states: Unberhrt bleiben die

Rechtsvorschriften der Mitgliedstaaten ber die Nichtigkeit einer

Spaltung, die im Wege einer anderen Kontrolle der Spaltung als der

vorbeugenden gerichtlichen oder verwaltungsmigen Kontrolle der

Rechtmigkeit ausgesprochen wird191.

Nullification proceedings have to be subject to a six months dead-

line.192 Three reasons for nullification are admissible, namely:

187 Art. 22(3) of the Third Directive, supra 74. 188 Art. 19(3) of the Sixth Directive, supra 75. 189 Art. 22(3) of the Third Directive, supra 74. 190 Art. 19(3) of the French version of the Sixth Directive, supra 75; emphasis added. 191 Art. 19(3) of the German version of the Sixth Directive, supra 75; emphasis added. 192 Cf. Art. 22(1)(c), (f) of the Third Directive, supra 74; Art. 19(1)(c), (f) of the Sixth

Directive, supra 75.

32

lack of judicial or administrative preventive supervision of le-

gality,

failure to meet requirements concerning due legal form,

voidness or voidability of the decision of the general meeting.193

However, a primacy of remedy has to be observed by the national

courts wherever possible.194

In addition to the legal requirements, the legal consequences of

nullity are also limited, namely in a way that nullification shall not

of itself affect the validity of obligations owed by or in relation to the

acquiring/recipient companies.195 In case of nullification, the com-

panies concerned with the attempted transaction are liable for re-

spective obligations.196

The limitation of nullity goes even further under the Tenth Direc-

tive197. For the sake of legal certainty198, Art. 17 plainly states: A

cross-border merger which has taken effect [] may not be de-

193 Cf. Art. 22(1)(b) of the Third Directive, supra 74; Art. 19(1)(b) of the Sixth Direc-

tive, supra 75. 194 Cf. Art. 22(1)(d) of the Third Directive, supra 74; Art. 19(1)(d) of the Sixth Direc-

tive, supra 75. 195 Cf. Art. 22(1)(g) of the Third Directive, supra 74; Art. 19(1)(g) of the Sixth Direc-

tive, supra 75. 196 Cf. Art. 22(1)(h) of the Third Directive, supra 74; Art. 19(1)(h) of the Sixth Direc-

tive, supra 75. 197 Supra 77. 198 Cf. recital 8 of the Tenth Directive, supra 77; Commission of the European Com-

munities, Proposal for a Directive of the European Parliament and of the Council

on cross-border mergers of companies with share capital of 18/11/2003,

COM(2003) 703 final, http://eur-


8/12/2007), p. 6, annotation to the proposed Art. 12, which is the equivalent of the

final Art. 17.

33

clared null and void. This ban shall be compensated by a pre-

merger certification and scrutinising procedure.199

7. Conclusion

Legislative coordination has been exercised in many areas of

company law. Besides relatively marked-off areas such as forma-

tion of limited liability companies, the European legislator has

dealt with tasks of a more cross-sectional nature, particularly in-

formation and legal certainty, which occur in nearly every piece

of legislation. In this context it is worth pointing out how the role of

the courts of law has been strengthened. By forbidding decisions on

nullity without the possibility of court review, the executive branch

of power is effectively subordinated to the judiciary. This is in line

with the rule of law, a fundamental principle of the European Un-

ion200. As other underlying purposes of the company law directives

can be identified: the support of SMEs201, the protection of share-

holders, the protection of third parties (especially creditors), and the

fostering of cross-border economic integration.

II. Judiciary Coordination

Coordination of the Member State company laws is also the result

of decisions of the ECJ, which, due to the doctrines of supremacy

199 Cf. Arts. 10 et seq. of the Tenth Directive, supra 77. 200 Cf. Art. 6(1) TEU. 201 Cf. Power, V. J. G., Twelfth EEC company law directive, I.C.C.L.R. 1990, 1(3), C44;

Wooldridge, F., Affiliated companies under the Belgian Companies Code, Comp.

Law. 2007, 28(5), 154 et seq.; and the European Parliament Fact Sheet on SMEs

(European Parliament, European Parliament Fact Sheet 4.14.0. Small and me-

dium-sized enterprises, http://www.europarl.europa.eu/facts/4_14_0_en.htm

(online, 12/12/2007).

34

and direct effect of European law202, has a vast influence on the de-

velopment of the law governing the EC.

The most important Treaty provisions in the context of this work

are Arts. 43 and 48 EC on the freedom of establishment. In the con-

text of companies, freedom of establishment can be considered in

two ways. Firstly, it can be seen as a right to move the seat of a com-

pany to another Member State.203 (Both the statutory and the real

seat are meant here. The statutory seat is the place stated in the arti-

cles of incorporation. The real seat is the place where the factual

centre of management is situated.) This is called primary estab-

lishment.204 Secondly, it can be seen as a right to establish branches

and subsidiaries in other Member States.205 This is referred to as

secondary establishment.

Originally, the ECJ interpreted the scope of Arts. 43, 48 EC rather

narrowly, such as in Daily Mail206, where it upheld a Member State

(tax) administrative decision which forbade a company to move its

seat to another Member State without losing legal personality. The

main argument of the court was that the Treaty itself207 states that

there is still additional legislation necessary in order to let compa-

nies retain their legal personality when moving their seat into an-

other Member State. (The ECJ observed that neither under Art. 293 202 Both doctrines are described in detail at Calliess, C., Ruffert, M. (ed.), EUV/EGV.

Das Verfassungsrecht der Europischen Union mit Europischer Grundrechte-

charta, 3rd ed. (2007, C. H. Beck), Art. 249 EGV paras. 22 et seq.; cf. Haratsch, A.,

Koenig, C., Pechstein, M., Europarecht, 5th ed. (2006, Mohr Siebeck), pp. 79 et seq. 203 Cf. Arts. 43(1) sentence 1, 48 EC. 204 Cf. Haratsch, A., Koenig, C., Pechstein, M., Europarecht, 5th ed. (2006, Mohr Sie-

beck), p. 339. 205 Cf. Arts. 43(1) sentence 2, 48 EC. 206 Case 81/87, The Queen v. H. M. Treasury and Commissioners of Inland Revenue,

ex parte Daily Mail and General Trust plc., [1988] ECR 5483. 207 Cf. Arts. 293 recital 3, 44(2)(g) EC.

35

recital 3 nor under Art. 44(2)(g) EC, the respective coordination

measures had been taken.) Thus, the ECJ concluded, Arts. 43 and 48

EC cannot grant such a right on their own.208

In Daily Mail209, the ECJ granted both Member States, the one

which the company wants to leave and the one into which the com-

pany wants to move, extensive possibilities to restrict the identity-

retaining movement of a company. In four more recent decisions,

however, the ECJ has changed its interpretation of Arts. 43 and 48

EC.

The four cases treated within the following subsections have been

selected due to the fact that they were the most important mile-

stones in the development of the ECJs case law. All of them

brought a new piece of the puzzle, as the analysis will show; and

each case is essential in order to understand European Company

Law.

1. Centros

The first decision where the ECJ revealed a new interpretation of

the freedom of establishment provisions was the Centros case210.

a) Facts

The facts were as follows211: Danish nationals had founded Cen-

tros Ltd., a private limited liability company under English and

Welsh company law, registered in England and Wales. Centros did

208 Case 81/87, The Queen v. H. M. Treasury and Commissioners of Inland Revenue,

ex parte Daily Mail and General Trust plc., [1988] ECR 5483, paras. 19 et seq. 209 Cf. Grundmann, S., Europisches Gesellschaftsrecht (2004, C. F. Mller), p. 360. 210 Case C-212/97, Centros Ltd v. Erhvervs- og Selskabsstyrelsen, [1999] ECR I-1459. 211 Cf. ibid., paras. 2 et seq.

36

not carry out any trading activity in its country of registration. The

intention of its members was to trade solely in Denmark, but they

wanted to benefit from the fact that English company law, unlike

Danish company law, permitted incorporations without paying up a

minimum share capital. A Centros member requested Erhvervs- og

Selskabsstyrelsen (the Danish Trade and Companies Board, an or-

ganisation under the Danish Government Department of Trade) to

register a branch of Centros in Denmark. (Danish company law

generally offered private limited liability companies established in

another Member State the possibility to do business in Denmark

through a branch.) Erhvervs- og Selskabsstyrelsen refused to regis-

ter the branch. It based its decision particularly on the grounds that

Centros was in fact seeking to establish in Denmark not a branch

but a principal establishment by circumventing the national mini-

mum capital rules.

b) Issue

The refusal was contested before the courts, and the ECJ had to

decide (by way of preliminary ruling212) whether Arts. 43 and 48 EC

are to be construed in a way that they prohibit the refusal of the reg-

istration of a branch of a company formed in accordance with the

legislation of another Member State in which it has its registered of-

fice but where it does not carry on any business when the purpose of

the branch is to enable the company concerned to carry on its entire

business in the State in which that branch is to be set up, while

avoiding the formation of a company in that State, thus evading ap-

plication of the rules governing the formation of companies which

212 Cf. Art. 234(1)(a) EC.

37

are, in that State, more restrictive so far as minimum paid-up share

capital is concerned.213

c) Decision

The ECJ ruled that such a refusal is contrary to Arts. 43 and 48

EC. However, the court continued and pointed out that authorities

of the Member State which are asked to register the branch are not

barred from adopting any appropriate measure for preventing or

penalising fraud, either in relation to the company itself or in rela-

tion to its members, where it has been established that the members

are in fact attempting to evade their obligations towards private or

public creditors.

d) Reasoning

At first, the court rejected the Danish governments argument

that Arts. 43 and 48 EC were not applicable here. The government

had claimed that due to the fact that only Danish natural persons

were involved, and that their intention was to carry out their busi-

ness only in Denmark there was no sufficient external element.214

The ECJ notes that it is immaterial for the question of applicability

of Arts. 43 and 48 EC whether a company, formed in accordance

with the law of a Member State in which it has its registered office,

carries out any business in the latter Member State.215

The court distinguished between the question of the general ap-

plicability of Arts. 43 and 48 EC and the question whether or not a

213 Case C-212/97, Centros Ltd v. Erhvervs- og Selskabsstyrelsen, [1999] ECR I-1459,

paras. 13 et seq. 214 Ibid., para. 16. 215 Ibid., paras. 17 et seq.

38

Member State may adopt measures in order to prevent evasion at-

tempts.216 In line with established case law217, exemptions to the ap-

plication of the EC Treaty freedoms are declared possible insofar as

necessary to prevent objectively assessed abusing conduct.218 The

ECJ stated that which conduct can be called abusive depends on

the objective of the freedom in question. And for the freedom of es-

tablishment, the court stated that it is its very purpose to enable

companies formed in accordance with the law of a Member State

and having their registered office, central administration or princi-

pal place of business within the Community to pursue activities in

other Member States through an agency, branch or subsidiary.

Hence, the fact that a national of a Member State who wishes to set

up a company chooses to form it in 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. The ECJ cited case law219 where it had assessed that there was

no requirement in Art. 48 EC that the company actually conducts

business in the Member State where it has its registered office. In-

stead, the right to form a company in accordance with the law of a

Member State and to set up branches in other Member States is de-

clared inherent to the exercise of the freedom of establishment.220

Thus, no exemption to the applicability of Arts. 43 and 48 EC is held

216 Ibid., para. 18. 217 Cf. the case law cited ibid., para. 24. 218 Ibid., paras. 24 et seq. 219 Case 79/85, D. H. M. Segers v. Bestuur van de Bedrijfsvereniging voor Bank- en

Verzekeringswezen, Groothandel en Vrije Beroepen, [1986] ECR 2375, para. 16; cf.

Case C-212/97, Centros Ltd v. Erhvervs- og Selskabsstyrelsen, [1999] ECR I-1459,

para. 29. 220 Case C-212/97, Centros Ltd v. Erhvervs- og Selskabsstyrelsen, [1999] ECR I-1459,

paras. 26 et seq.

39

admissible here. Once it is assessed that a certain conduct falls

within the scope of a freedom guaranteed by the EC Treaty, Mem-

ber State actions restricting this conduct are only in line with the re-

spective EC Treaty provisions if they are objectively justified.

Consequently, the ECJ examined whether the refusal to register

the branch was justified by the grounds put forward by the Danish

authorities.221 Erhvervs- og Selskabsstyrelsen argued that the refusal

was justified by imperative requirements in the general interest, as

the minimum share capital requirement, whose circumvention the

refusal shall inhibit, pursued a dual objective: firstly, it shall rein-

force the financial soundness of the companies in order to protect

public creditors against the risk of seeing the public debts owing to

them become irrecoverable, and secondly, it shall protect all credi-

tors (public and private) by anticipating the risk of fraudulent bank-

ruptcy due to the insolvency of companies whose initial capitalisa-

tion was inadequate. According to Erhvervs- og Selskabsstyrelsen,

there was no less restrictive means of attaining this dual objective;

any other way of protecting creditors, especially by introducing

rules making it possible for shareholders to incur personal liability,

would be more restrictive than a minimum share capital require-

ment.222

The ECJ stated that since Art. 46 EC was not applicable in this

case, restrictions are only justified if they meet a four criteria test,

developed in the cases Kraus223 and Gebhard224.225 The restricting

221 Ibid., paras. 31 et seq. 222 Ibid., paras. 32 et seq. 223 Case C-19/92, Kraus v. Land Baden-Wrttemberg, [1993] ECR I-1663. 224 Case C-55/94, Gebhard v. Consiglio dellOrdine degli Avvocati e Procuratori di Mi-

lano, [1995] ECR I-4165.

40

measures must be applied in a non-discriminatory manner; they

must be justified by imperative requirements in the general interest;

they must be suitable for securing the attainment of the objective

which they pursue; and they must not go beyond what is necessary

in order to attain it.226 Applying this test, the ECJ found that the

Danish measure failed to fulfil those criteria.

The refusal to register the branch was considered unsuitable to at-

tain the objective of protecting creditors which it purported to pur-

sue since, if Centros had conducted business in the United King-

dom, its branch would have been registered in Denmark, even

though Danish creditors might have been equally exposed to risk.

Furthermore, potential creditors, aware of the fact that Centros was

a company under English and Welsh law, will not rely on the addi-

tional security inferred from the Danish share capital minimum. Fi-

nally, the court disagreed with Erhvervs- og Selskabsstyrelsen and

stated that it was possible to adopt measures which are less restric-

tive, making it possible in law for public creditors to obtain the nec-

essary guarantees, e. g.

e) Analysis

In Centros, the ECJ turned away from the idea it had expressed in

Daily Mail227 that lacking coordination of Member State company

225 The Kraus-Gebhard-Test is described and explained within the context of the

freedom of establishment and the free movement of capital at Habersack, M., Eu-

ropisches Gesellschaftsrecht, 3rd ed. (2006, C. H. Beck), pp. 10 et seq. 226 Case C-19/92, Kraus v. Land Baden-Wrttemberg, [1993] ECR I-1663, para. 32;

Documents

European Company Law