lecture 4 Flashcards
(16 cards)
Cross-border transfer of seat
Daily Mail case
Cross-border transfer of seat
this still falls under negative integration
English investment company wanted to move the management location to NL, but need of English Ministry of Finance to do so. Ministry in England said that they had to sell the assets first (to tax unrealized capital gain)
The court had to look at the capital gains before moving, and if this actually was a limitation
- Par 18: registered office & legal personality. If you want to keep legal personality, you have to have permission
- Par 19: this can be the case because legal personality is a feauture which is granted by national legislations
- Par 20?: there was no harmonization measure in this case, and the treaty doesn’t cover the actual transer of seats. And therfore because freedom wasn’t granted, MS are free to do what they want and they can impose requirements on the departure on the actual seat
Cross-border transfer of seat
Uberseering case
Cross-border transfer of seat & possible restrictions
this still falls under negative integration
NL company with NL seat, but the shares are transfered to German shareholders, which means that the people making the decisions could be in GE now.
The court indicated that the freedom of establishement applies here ➞ falls within the scope of Union law
Are there any restrictions here? Is there an issue with regard to the shares being transferred to germans?
- Par 81 & 82
- The host MS had restrictions on seats. National law needs to recognize legal persons which are established abroad. Therefore the rules of the host country must be tested against the freedom of establshment.
- To reincorporate would hinder the marked too much?
So there potentially is a restriction. But is there a justification?
- Par 92 & 93
- Germany said that the rule of reason should apply ➞ important for the protection of tax authorities etc.
- The court says that these are justified measures, however these measures is going too far (see par 93). It doesnt meet a proportionality assessment
Cross-border transfer of seat
Cartesio case
Cross-border transfer of seat
this still falls under negative integration
Was an important case, the question was whether uberseering actually revoked daily mail
Because the court says that free establishment applies, where in the daily mail it didn’t
➞ they had to check whether uberseering and daily mail had to coexist…
Here there was a Hungarian company, which wanted to move its registerd office in Italy. Cartesio went to Hungary to change the info in the register, and the court refused it to be adapted under Hangarian legislation you cannot move your company addres abroad because you will still fall under Hungarian legisalation as a personal law. ➞ so you cannot move the actual seat.
- This seat is similar to the daily mail case, becasue it is also the first country which limits the free movement.
- Par 103: comapany will cease to exist when you do such a transfer
- In par 104-109: court reiterates the reasoning which it had in the daily mail (company exist under national legislation and MS have different rules).
- Par 110: if comapny wants to move seat, its fine but they don’t meet recognistion which was laid down in country
- But, what does that mean?: that in cartesio the court recognizes what it has recognized in the daily mail. MS of establishment CAN decide to do what they want. In other words, uberseering does NOT supersede daily mail because they are two different situations. Host MS vs MS of establishment ➞ you have to keep these two separat
National Grid Indus case
Cross-border transfer of seat
this still falls under negative integration
Here the transfer of the actual office was used to make a financial settlement
Here the idea is to say that the company could still move after a settlement. And this is different from the situation from the daily mail since there it was not only a settlement, but the assets also had to be sold. Here, only a bit of money had to be paid, with the same idea as in the daily mail. It’s important to keep in mind that daily mail has the same standard (doesn’t have to be tested against the freedom of establishment principles).
- Here the transfer of the actual office was used to make a financial settlement
Here the idea is to say that the company could still move after a settlement. And this is different from the situation from the daily mail since there it was not only a settlement, but the assets also had to be sold. Here, only a bit of money had to be paid, with the same idea as in the daily mail. It’s important to keep in mind that daily mail has the same standard (doesn’t have to be tested against the freedom of establishment principles).
➞ case a bit piculiar, so no explicit questions on this at the exam
harmonisation
Cross-border conversion.
cases which are about the freedom of establishment
- cartesio
- vale
- polbud
Cross-border conversion
Vale case
Harmonization ➞ positive integration
Company which wants to move all its activies and seats from Italy to Hungary. This company had been struck off the list of registered companies in Italy, because they didn’t want any activities there anymore. But when the company came to Hungary, the court rejected the registration. They said that the conversion of companies was only able for Hungarian companies. ➞ so a foreign company could not convert into a Hungarian one (par 15)
Par 32: can you apply EU law instead?
- The court says that we can apply the treaty, and we aren’t outside the scope of it.
- If EU law applies, then we must look into if there are restrictions. This is addressed in par 36: so, the court says…
- The court looks into justicication (par 39). Some restrictions may be justified, and those justification can actually be accepted, however in our case (par 40), there are some concerns because the ban on cross-border conversion is a general ban.
➞ such a rule goed beyond what is necessary. So proportionality is again being questioned by the court
The court then looks into seperate arguments. For instance: what to do in the absence of harmonization when companies want to invoke EU law.
- MS have indeed procedural autonomy ➞ decide what they want to do when it comes to procedure. However we must apply the principles of equivalence and effectiveness.
- equivalence: that foregin companies cannot be treated less favorably than domestic companies
- effectiveness: That when antional rules are applied, it shouldn’t be more complicated to exersice freedom to carry out conversion ➞ it shouldn’t be impossible or exessibly dificult (a bit more complicated will happen no matter what)
In vale case, it makes it completely impossible. So the court of justice says that cross-border conversions should be allowed by all the MS. And if a MS doesn’t have a specific procedure for this, than companies should be able to use the domestic procedure.
Polbud case
Positive integration ➞ harmonization
Statutory seat: registration PL ➞ LUX company
They wanted it removed from the polish registers, but PL refused to do this. Can the conversion of the company be restricted?
- Only statutary seat moved in this case
- Par 38: EU law applies
- Par 39: the court looks at a question which was raised by PL. LUX abusing its rights?
- Par 42: why all the other cases doesn’t follow in this case…
- Par 54: the court looks at justification that PL could use to prevent the compnay from being struck of its registers. The court reminds that in these cases, there are legitimate interests. To protect the activities, you should find another way of doing so
- The courts (par 60) looks at combating abuses ➞ the court says that PL, if the company wants to be registered in LUX, the only solution is to liquidate some of the assets ➞ this is a presumtion of abuse
- Abuse should be established by a case by case analysis (par 60 ev)
This case makes the life of companies much easier
Directive 2019/2121 (amending directive 2017/1132)
➞ minimum level of protection = the idea
There should be a protection of the members of the company etc. however, not everything is harmonized.
For instance, it is the same minimum level of protection ➞ MS can go further and add requirements
- In exam you need to know pre and post harmonization
- Depending on the date that they will give you, 2024 onwords = apply harmo, before = appky case law
- If you need to compare, you need to mention both
Directive 2017/1132
In the reader, you have a consolidated version. So this one (amending the 2019 directive) ➞ so it is included
- Art 86 a and following ➞ deal with limited liablity companies and their conversion. There are exeptions. The 2019 directive has codified the result of the Polbud ruling (see art 86b), ‘at least the registered office’, so can be more
➞ what are the conditions attached to the cross-border conversion?
Safeguards - directive 2017/1132 or 2019 amending
Art 86j ➞ safegaurds for creditors
Art 86k and 86L ➞ employee quarantees
Procedure for the cross-border conversion?
Directive 2017/1132
- Proposal for conversion (86d)
- Legal and economic effects corporate participants
and employees (86e) - Expert report (86f and 86s)
- Disclosure of documents before AGM (86g)
- Approval of AGM (buyout scheme for dissenters
(and others, if any)) (86h and 86i) - Pre-conversion certificate (86m)
- this certificate aims to check that all the internal procedures of the MS of departure have been proparly followed. The directive provides that a certificate can be refused if there is clear fraud or abuse of rights.
- Abuse of rights are especially difficult to access. So there might be some case law on this in the future
Porportion of votes needed in the meeting isn’t completely harmonized ➞ at least 2/3rd of the votes, but MS can make it be up to 90% (so from 66-90%).
Directive 2019/2121
vs Directive 2017/1132
➞ there are additional things which come from this directive
In its recitals, you have clear situations which are considered as abuse or no (art 31 ev)
However, some of these elements, are clear situations of abuses. MS should never use these elements alone (see Polbud case), should be done by a case by case basis
Once you have got your certificate of conversion, you need to switch to the MS of destination procedure (art 86o)
- MS of destination can decide when the conversion is taking effect (probably not one year, because might be an infringement)
- Registration (86p)
- Date of entry into force (86q)
- Effects (86r)
- Nullity (86s)
Directive 2019/2121
The effects = art 86r
- All assets are transfered
- The shareholders of old become shareholders of new
- Employment contract transfered without any change
Harmonisation
Cross-border mergers
➞ principles pretty much the same as in conversions
Cross-border mergers refer to the consolidation of two or more companies from different countries into a single entity. These mergers involve companies that operate in different national markets coming together to form a unified organization
different forms of mergers
- Triangular merger
- Merger by acquisition
- Merger by incorporation of a new company
- Cross-border mergers
- Any of the above merger types, but between companies from different countries
Keep in mind that there used to be case law ➞ sevic case: cross border mergers are a special form of the freedom of establishment and that they should be allowed even in the absence of harmonization measures.
Potential exam question
Define the Delaware effect, and explain how directive 2017/1132 supports, hinders or mitigates such effect
The Delaware effect refers to regulatory competition where countries lower corporate standards (e.g., on shareholder or employee protection) to attract businesses—risking a race to the bottom. It comes from the U.S., where Delaware became dominant for incorporations due to its lax corporate laws
Directive 2017/1132:
This EU directive harmonizes rules on cross-border mergers and company mobility. It facilitates corporate restructuring across borders but also includes safeguards
How It Relates to the Delaware Effect:
Mitigates the Effect:
- Includes rules protecting employees and creditors.
- Increases transparency and oversight in cross-border processes
Conclusion:
While Directive 2017/1132 can support the Delaware effect by easing mobility, its procedural safeguards—and especially the amendments in Directive 2019/2121—help mitigate a full race to the bottom
To do that, you need to understand what the Delaware effect is and examine how can the directive actually support a race to the top or a race to the bottom (protection of predators, shareholders, etc)
Also see slides of directive 2019/2121 for race to the bottom
At exam don’t forget to put a conclusion
