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Eliminating Obstacles to Freedom of Establishment: The Competitive Edge of Uk Company Law

Published online by Cambridge University Press:  06 July 2004

John Lowry
John Lowry*
Affiliation:
University College London
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Abstract

This article examines the implications of the E.C.J.'s decisions in Überseering and Inspire Art against the background of the principal competing theories relating to lex societatis. It considers the tension between freedom of establishment (EC Treaty, arts 43 and 48) and the protective objectives of national corporate law regimes aimed at defeating the so-called Delaware effect. It goes on to argue that significant issues remain unresolved. More particularly, it questions whether creditor protection mechanisms contained in national insolvency laws will, in future, be viewed as obstacles to freedom of establishment.

Type
Articles
Information
The Cambridge Law Journal , Volume 63 , Issue 2 , 18 June 2004 , pp. 331 - 345
Copyright
Copyright © The Cambridge Law Journal and Contributors 2004

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Footnotes

I owe a debt of gratitude to Professor Marise Cremona, Loukas Mistelis, Rod Edmunds and the anonymous referees for their helpful comments on this paper. All remaining errors are my sole responsibility. I also thank Mads Andenas for making available to me material on Überseering. An earlier version of this paper was presented at a conference of the German Lawyer's Association (DAV) and the University of Cologne, Verdrängt Das Europäische Recht Das Nationale Gesellschaftsrecht, 30 October 2003.

References

1 Case C212/97, [1999] E.C.R. I-1459. The ECJ held that Denmark was in breach of EU law in refusing to allow Centros Ltd., a private company registered in England, to establish a branch in Denmark even though it was in fact its primary operational establishment. The Court rejected the argument of the Danish authorities that the Danish owners of Centros Ltd. had chosen the UK as the state of incorporation of its undercapitalised company in order to avoid the minimum capital requirements required under Danish law. The motive of the owners could not be regarded as abusive but were a consequence of their freedom to incorporate a company in one Member State and set up a secondary establishment in another (para. 26-7). For comment, see E. Micheler, ‘The Impact of the Centros Case on Europe's Company Laws’ [2000] Comp. Law. 179; and H. Xanthaki, ‘Centros: Is This Really The End For The Theory Of The Siege Reel’ [2001] Comp. Law. 2.

2 Case C-208/00, November 5, 2002. See, Andenas, Mads, ‘Free Movement of Companies’ (2003) 119 L.Q.R. 221.Google Scholar See further, Dyrberg P., ‘Full Free Movement of Companies in the European Community At Last’ [2003] E.L.R. 528.

3 Case C-167/01, 30 September 2003.

4 Notably eC Treaty, arts 2, 43 and 48.

5 Principally Germany, Austria, France, Belgium, Luxembourg, Greece, Italy, Spain and Portugal: see J. Wouters, ‘Private International Law and Companies’ Freedom of Establishment” [2001] E.B.O.L.R. 101.

6 De Beers Consolidated Mines v. Howe [1906] A.C. 455 (HL). See further, Collier, J.G. Conflict of Laws (Cambridge 2001), pp. 58–59.Google Scholar

7 The argument here is that the seat doctrine prevents a ‘race to the bottom’ among Member States who might otherwise compete to frame a company law regime which foreign companies find attractive.

8 EC Treaty, art 43 (art 52, pre-Amsterdam) and art 48 (art 58, pre-Amsterdam).

9 In practice, UK private companies generally have a purely nominal share capital fund; approximately 80% of all such companies have a share capital of up to £100: see DTI, Companies in 2001-2002, Table A7. As a result of the Second EC Company Law Directive public companies, on the other hand, are required to have a minimum share capital of not less than £50,000: see the Companies Act 1985, s 118(1).

10 The policy is based on the freedom of the incorporators to determine the applicable law without regard being had to where the enterprise operates: see Wulf-Henning Roth, , ‘From Centros to Ueberseering: Free Movement of Companies, Private International Law, and Community Law” [2003] I.C.L.Q. 178, pp. 183.Google Scholar

11 See Roth, note 10 above. See also, Wouters, note 5 above.

12 See Staudinger, J.V., Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen—Internationales Gesellschaftsrecht, Neubearbeitung 1998 (Berlin 1998) paras. 427–430.Google Scholar

13 Implementing the Eleventh Company Law Directive, Directive 89/666/EEC, [1989] O.J. L395/ 36. See B. Hannigan, Annotated Guide to the Companies Act (London 2001).

14 Above, note 2. Noted by D.E. Robertson, ‘‘Uberseering: Nailing The Coffin On Sitztheorie’ [2003] Comp Law 184. See further, F. Wooldridge, “Uberseering-: Freedom of Establishment of Companies Affirmed’ [2003] E.B.L.R. 227.

15 Above, note 3.

16 See Chapter II, General Themes, Final Report of the High Level Group of Company Law Experts on a Modern Regulatory Framework of Company Law in Europe (Brussels 2002), below note 34. See also the approach taken by the UK government in its White Paper, Modernising Company Law (Cm. 5553-I and II). In establishing the High Level Group the European Commission sought its assistance in preparing a new proposal for a Directive on the conduct of takeovers and to define new priorities for the broader development of company law in the European Union. Three issues were initially referred to the Group for consideration: (i) how to ensure the existence of a level playing field in the E.U. concerning the equal treatment of shareholders across Member States; (ii) the definition of the notion of an ‘equitable price’ to be paid to minority shareholders; and (iii) the right for a majority shareholder to buy out minority shareholders. It was during the second stage of the Group's deliberations that, inter alia, it was required to provide recommendations on how best to facilitate corporate restructuring and mobility.