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

The 14th Directive on cross-border transfer of registered seat Lecture 9/10 April 2017 Course European Company Law

Topics class: Cross-border transfer of registered seat on EU agenda Current legal situation: EU Treaty SE/CBM Case law National law Why is adoption of a Directive desirable? Motives behind move registered seat

Transfer of registered seat on Commission agenda 1997- First Commission proposal (see def. transfer registered seat); 2003- Mentioned in the Commission’s Action Plan; 2007- Commission conducts an Impact Assessment on a possible Directive, no action Commission wants to await ECJ’s ruling Cartesio (2008) and working of SE Regulation Commission launches public consultations with stakeholders: In 2012 public consultation on future of European Company law; In 2013 (Jan.) public consultation on cross-border transfer of registered seat of companies. Commission published June 2016 Study on the law applicable to companies (tender).

Transfer of registered office: meaning “According to the draft proposal, a company transferring its registered office would be registered in the host Member State and would ‘acquire a legal identity or legal personality’ there, while at the same time being removed from the register in its home Member State and giving up its legal identity (personality) there. If necessary, companies would have to adapt their structures and assets in order to meet the substantive and formal conditions required for registration in the host Member State. However, they would not be obliged to go through liquidation proceedings in their home Member State or to create a new company in the host Member State. The essence of the transfer of a company’s registered office would be that the applicable company law changes” (Vossenstein, March 2008, Utrecht Law Review, p.54)

Transfer of registered seat on EP agenda EP Resolutions in favour of adoption of a Directive, 2007, 2009 and 2012; European Added Value Assessment of a Directive on the cross-border transfer of a registered office 2013 (based on two studies focusing on legal effects and on eco/soc effects of legal instrument); Study on cross-border mergers and divisions, transfer of seat June (Report 2017).

EU instruments on mobility companies Article 49 and 54 TFEU on freedom of establishment; Transfers of company seats performed by for example, the SE, SCE and CBM Directive; ECJ case law, in particular the Cartesio and VALE cases which submit the transfer of the corporate seat to the “conversion” of the company to the national laws of the Home MS and Host MS, subject to the application of the freedom of establishment principle.

EU Legislation on transfer of registered seat Regulation Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE); also SCE and EEIG. Directive 2005/56/EC of the European Parliament and of the Council on cross-border mergers of limited liability companies (CBM); The possibility to transfer the registered office of a company was also foreseen in the proposal for a European Private Company and under the proposal for a European Foundation (FE).

Case C-210/06 Cartesio 108. It should be pointed out, moreover, that the Court also reached that conclusion on the basis of the wording of Article 58 of the EEC Treaty. In defining, in that article, the companies which enjoy the right of establishment, the EEC Treaty regarded the differences in the legislation of the various Member States both as regards the required connecting factor for companies subject to that legislation and as regards the question whether ─ and, if so, how ─ the registered office (siège statutaire) or real seat (siège réel) of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment, but which must be dealt with by future legislation or conventions (see, to that effect, Daily Mail and General Trust, paragraphs 21 to 23, and Überseering, paragraph 69). 110. Thus 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. 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.

Case C-210/06 Cartesio 111    NEVERTHELESS, the situation where the seat of a company incorporated under the law of one Member State is transferred to another Member State with no change as regards the law which governs that company 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 in the latter situation the company is converted into a form of company which is governed by the law of the Member State to which it has moved. 112    In fact, in that latter case, the power referred to in paragraph 110 above, far from implying that national legislation on the incorporation and winding-up of companies enjoys any form of immunity from the rules of the EC Treaty on freedom of establishment, cannot, in particular, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so. 113    Such a barrier to the actual conversion of such a company, without prior winding-up or liquidation, into a company governed by the law of the Member State to which it wishes to relocate constitutes a restriction on the freedom of establishment of the company concerned which, unless it serves overriding requirements in the public interest, is prohibited under Article 43 EC (see to that effect, inter alia, CaixaBank France, paragraphs 11 and 17).

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”.

The Member States’ approach “This present condition of the Union provides for paradoxical outcomes. When considering the formation of a company, the founders may take advantage of the company law regime of any Member State in the Union and are free to choose between them, but once the company has been formed, it cannot directly change its company law regime to that of another Member State. A Member State may prevent its national companies from moving their real seat out of its territory, but it cannot prevent a company of another Member State from operating in its territory irrespective of where its real seat is located. Member States can prevent their national companies from transferring to a different national company law regime and require them to keep their real seat in their territory, but they cannot prevent them from engaging in a merger with a company of another Member State which may effectively result in the adoption of a new company law regime and a transfer of the real seat as a result of the merger. The result is an uneven distribution of rights that requires companies to expend considerable resources and costs in order to enjoy the flexible freedom of movement within the Union that should be the birth right of all citizens and companies in the Union; a loss of resources that could be put to better use by the companies in creating jobs and is often outside the reach of SMEs.” The Reflection Group on the Future of Company Law set up by EC DG Internal Market (2011)

Countries with incorporation, real seat and mixed regimes Source: Research paper by Jeantet Associés Aarpi in the light of resolution EP.2012

Countries allowing outbound and/or inbound transfer of registered seat MS having implemented legislation on cross-border transfer (e.g. CY, CZ, ES, FR, IT) allow inbound and outbound transfers. (see map next slide) Most MS’ legal systems have no mechanism ensuring that companies can maintain their legal personality when they transfer their seat within the EU (AT, DE, NL, UK for example).

Transfer RO not possible Transfer RO possible. Source: Research paper by Jeantet Associés Aarpi in the light of resolution EP 2012

Advantages of 14th Directive Arguments mentioned in support of economic need for Directive: Instead of winding up/liquidation and creating new company: cost-saving and less administrative burdens (example Cie 2007) Single operation instead of multiple (SE/CBM), which is cost-saving; More effective then ‘direct effect’/’infringement’ procedure to protect FOE (if it protects transfer of registered office); Harmonised procedure for the transfer in MS provides for transparency.

Delaware example Why do companies move? Lessons from Delaware

Objective defined in Commission’s Impact Assesment 2007 “Improve the efficiency and competitive position of the European companies by providing them with the possibility of transferring their registered office more easily, and hence choose a legal environment that best suits their business needs while at the same time guaranteeing the effective protection of the interests of the main stakeholders in respect of the transfer.”

Change of applicable law: move registered office Change applicable law: host state Company law (lex societatis) and corporate governance rules; Insolvency rules; Jurisdiction. No change of applicable law: home state Tax law (place of effective management applies, hence, if no move of headquarters or business activities at the same time no change of tax law); Labour law; Environmental law.

Possible motives for transfer registered offices* Company and corporate law motives: reduced capital requirements; the increased efficiency and the reduction in the cost of the management of business (e.g. administrative and legal expenses); more flexible merger/division rules outside the scope of the 3rd and the 6th company law directives; less stringent company law, more freedom to define the content of the articles of association; the scope of disclosure requirements (e.g. less burdensome obligations for listed companies with regard to disclosure requirements stemming from the Transparency Directive); * SEC(2007)1707 Cie impact assessment on cross-border transfer of registered seat.

Possible motives for transfer registered offices* more choice as to the board structure (unitary or two-tier boards); the rules on employee participation; more transparency and accessibility of the company law (thus minimising the cost of professional advice); the corporate law with more lenient standards dealing with majority-minority conflicts (could have a value for a majority shareholder even if this could adversely affect the share value) ;the increased protection for investors. More access to finance through better insolvency and bankruptcy procedures; More efficient judicial system; Moved already real seat.

Commission Feedback on Public consultation on cross-border transfer of registered office of companies, Sept. 2013 Main motives identified by companies and other stakeholders, favourable: Tax regime Business climate Company law Social law Insolvency law Stable legal framework

Negative effects of transfer of seat Cross-border transfers with the resulting change of law can have negative effects on the rights of stakeholders such as: Creditors; Minority shareholders; Employees; National authorities, (i.e. national administrations); Third parties (contractors, consumers, etc).

Risks involved “Race to the bottom” by transferring registered company seat to a MS with less efficient/protective company law. Prevented by inclusion in legal instrument of protective measures like employee protection (if also real seat is transferred), or no transfer of seat of a company against which proceedings are brought (like winding-up, liquidation, insolvency, on going judicial or administrative procedures…..See EP Resolutions with recommendations on a 14th directive on transfer registered seat (2012).

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.