Prof. M.E. de Leeuw Università di Ferrara Spring semester 2017 EUROPEAN COMPANY LAW Prof. M.E. de Leeuw Università di Ferrara Spring semester 2017

Lecture 8 April 2018 Course European Company Law EU Company Law: Freedom of establishment and transfer of company's seat Lecture 8 April 2018 Course European Company Law

C-167/01 Inspire Art ltd. Inspire Art is a branch of a UK private liability company and is established in Amsterdam (NL). Question to ECJ whether the rules laid down in the formally foreign company Act (FFCA), and which NL want to apply to the branch, violate FoE. Rules relating to the min. share capital required; Rules relating to the penalties attached to non-compliance with the obligations of the FFCA. ECJ ruled that a number of those provisions constitute a restriction of FoE, which cannot be justified.

Case C-210/06 Cartesio In the absence of uniform Community legislation, a Member State has the power to define both the connecting factor required of a company if it is to be regarded as incorporated under the law of that Member State and, as such, capable of enjoying the right of establishment, and that required if the company is to be able subsequently to maintain that status. (this is a preliminary question- before company can rely on FoE, the company must exist!!) That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation.” (par. 109/110)

Case C-210/06 Cartesio The situation where the seat of a company is transferred to another Member State falls to be distinguished from the situation where a company governed by the law of one Member State moves to another Member State with an attendant change as regards the national law applicable, since that company is converted into a form of company which is governed by the law of the Member State to which it has moved (par. 111). The freedom of establishment permits a company to convert itself in that way without having to be wound up or to enter into liquidation in the Member State of incorporation, to the extent that the law of the host Member State permits such a conversion, unless a restriction of the freedom of establishment serves overriding requirements in the public interest (par. 112).

Case C-378/10 Vale Question to ECJ: Whether Hungarian legislation which enables Hungarian companies to CONVERT but prohibits companies established in another MS to CONVERT to Hungarian companies is compatible with the principle of Freedom of Establishment? In that regard, the Hungarian Court seeks to determine whether, when registering a company in the commercial register, a MS may refuse to register the predecessor of that company which originates in another MS.

Case C-378/10 Vale The ECJ ruled: “Articles 49 TFEU and 54 TFEU must be interpreted as precluding national legislation which enables companies established under national law to convert, but does not allow, in a general manner, companies governed by the law of another Member State to convert to companies governed by national law by incorporating such a company”.

C-196/04 Cadbury Schweppes The ECJ recalls that as to freedom of establishment the fact that the company was established in a MS for the purpose of benefitting from a more favourable legislation does not in itself suffice to constitute an abuse of that freedom (par. 34-38). (Centros) The UK CFC constitutes a restriction on FoE (par. 39-46); Restrictions can be justified in case of abuses, e.g. where it specifically relates to wholly artificial arrangements aimed solely at escaping tax normally due. This is the case when the establishment does not reflect an economic reality (par. 51 and 55);

Centros extract That Mrs and Mrs Bryde formed the company Centros in the United Kingdom for the purpose of avoiding Danish legislation requiring that a minimum amount of share capital be paid up has not been denied either in the written observations or at the hearing. That does not, however, mean that the formation by that British company of a branch in Denmark is not covered by freedom of establishment for the purposes of Article 52 and 58 of the Treaty. The question of the application of those articles of the Treaty is different from the question whether or not a Member State may adopt measures in order to prevent attempts by certain of its nationals to evade domestic legislation by having recourse to the possibilities offered by the Treaty. (par. 18)

Next, it has to be determined whether the restriction arising from UK CFC law may be justified on the ground of prevention of wholly artificial arrangements, and if so, whether it is proportionate to that objective (par. 57); Whether there is an actual establishment to carry on genuine economic activities must be proofed by objective factors ascertainable by third parties, in particular to the extent to which the CFC physically exists in terms of premises , staff and equipment (par. 66/67); This has to be determined by the national court. Judgment (par. 75)

Cadbury Schweppes: in sum The ECJ recalls: that as to freedom of establishment the fact that the company was established in a MS for the purpose of benefitting from a more favourable legislation does not in itself suffice to constitute an abuse of that freedom. (Centros) The ECJ considered: that freedom of establishment requires a stable and continuing basis in the economic life of a member state other than the state of origin. Therefore a company cannot invoke freedom of establishment in another member state for the sole purpose of benefiting from more advantageous legislation, unless the establishment in the other member state is intended to carry on genuine economic activity. A restriction of freedom of establishment is therefore possible in cases of a ‘letterbox’ (fantasma) or ‘front’ (schermo) subsidiary.

Overview Centros, Uberseering and Inspire Art all regarded “HOST-STATE restrictions” on FoE. Recent judgment: Vale Kft. Daily mail regarded “HOME STATE restrictions” on FoE; confirmed and further elaborated upon in Cadbury Schweppes and Cartesio .

Conclusions Case-law Companies exist by virtue of national law, i.e. the law of the country where it has been formed. The law of formation determines when a company has been validly created and the conditions to retain that legal status. A valid legal status is a requirement for the reliance on the freedom of establishment (preliminary question). The ECJ has recognised that transfer of companies regards in particular secondary establishment, through branches, subsidiaries….(protected by FoE): The ECJ has recognised that if MS allows for the move of real seat without loosing the nationality of that country, then other MS must recognise this legal status.

Conclusions Case-law The ECJ has NOT recognised primarily establishment as protected by article 49 (move of real or registered seat). The ECJ has not recognised that the transfer of the real seat is covered by freedom of establishment (Daily Mail). Question of legal status. Move of real seat and retain UK legal status is for UK law to determine. The ECJ has not explicitly recognised that the transfer of registered seat is covered by FoE. Determined by national law regards the change of legal status of a company (normally wind up and liquidate and then re-incorporate in country of company law choice). But the move of registered seat without winding up and liquidation is allowed by a few MS. If host MS allows to convert moved company into host company then any restrictions by home member state on emigration would constitute a restriction of FoE, and must be justified (Cartesio/Vale). (Two national laws involved).

Motives for a company’s change of registered seat Economic reasons Investment climate (state aid, investor protection...) Tax law Company Law issues (classes of shares, management responsibilities and duties, employee representation, board structure...) Soft law issues: life standard for CEO, links for certain activities (fashion in Milan, financial services in London)

Erasmus for Young Entrepreneurs Erasmus for Young Entrepreneurs is an exchange programme which gives entrepreneurs who intend to start a business or have recently started one the chance to learn from experienced owners of small businesses in other European Union countries. The exchange of experience takes place during a stay with the host entrepreneur, which helps the new entrepreneur acquire the skills he/she needs to run a small firm. The host benefits from fresh perspectives on his/her business and gets the opportunities to cooperate with foreign partners or learn about new markets. The stay is partially funded by the European Union.