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European and Australian proposals for Corporate Group Law: a comparative analysis

Published online by Cambridge University Press:  17 February 2009

John Kluver
John Kluver
Affiliation:
Executive Director, Australian Companies and Securities Advisory Committee.
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Extract

The Forum Europaeum Konzernrecht (hereafter the Forum Europeum) in its Corporate Group Law for Europe puts forward principles and proposals for a harmonised European corporate group law.

Type
Articles
Information
European Business Organization Law Review (EBOR) , Volume 1 , Issue 2 , June 2000 , pp. 287 - 315
Copyright
Copyright © T.M.C. Asser Press and the Authors 2000

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References

1 Companies and Securities Advisory Committee, Corporate Groups Final Report (May 2000).

2 If you wish to receive a printed or email copy of the Corporate Groups Final Report or obtain information on any other matter referred to in this article, please contact John Kluver by fax at 61-2-9911 2955 or by email

The Advisory Committee has also published its Shareholder Meetings Report (June 2000), which takes into account the laws of each European country. Copies of this Report are also available from John Kluver at the above address.

3 Three general topics discussed in Corporate Group Law for Europe, which are not dealt with in this article, are legal harmonisation in Europe (Harmonisation des Konzernrechts; harmo-nisation du droit des groupes), group publicity (Gruppenpublizität; obligations de publication) and group declaration (Konzern-Erklärung; declaration de groupe).

No legal harmonisation issues arise in Australia, which is regulated by uniform corporate law.

Group publicity deals primarily with reform of the law of group annual accounts and its worldwide harmonisation. This matter was not examined by the Advisory Committee in its corporate groups review.

Group declaration reflects the laws in Germany and some other European states, which permit a company with sufficient majority control to make a group declaration under which it may fully direct the management of the subsidiary, subject to assuming liability for any losses subsequently incurred by the subsidiary and compensating the minority shareholders in the subsidiary. The Australian Corporate Groups Final Report (Recommendation 2) proposes only consolidated wholly-owned corporate groups, governed by single enterprise rather than separate legal entity principles.

The Corporate Groups Final Report also deals with some other matters that are not covered in Corporate Group Law for Europe, but which are more specific to Australia, including nominee directors of group companies (Recommendations 5, 6 and 8), tort liability of group companies (Recommendation 14) and corporate group reconstructions (Recommendations 15-20).

4 Konzernrechtszwecke (German); les buts du droit des groupes des sociétés (French).

5 Begriffder Gruppe (German); notion de groupe (French).

6 Corporations Law, ss. 46-50.

7 Australian Accounting Standard 1024. This accounting standards also defines the term “capacity” as: “ability or power, whether direct or indirect, and includes ability or power that is presently ex-ercisable as a result of, by means of, in breach of, or by revocation of, any of or any combination of the following: (a) trusts; (b) relevant agreements; and (c) practices; whether or not enforceable.”

8 Corporations Law, s. 50AA.

9 Corporate Groups Final Report, Recommendation 1.

10 Ordnungsgemäβe Konzerngeschäftsfüuhrung (German); bonne gestion du groupe (French).

11 S. 187 of the Corporations Law provides:

“A director of a corporation that is a wholly-owned subsidiary of a body corporate is to be taken to act in good faith in the best interests of the subsidiary if:

(a) the constitution of the subsidiary expressly authorises the director to act in the best interests of the holding company; and

(b) the director acts in good faith in the best interests of the holding company; and

(c) the subsidiary is not insolvent at the time the director acts and does not become insolvent because of the director's act.”

12 The Australian case law is discussed in detail in Ch. 2 of the Corporate Groups Final Report.

13 Corporate Groups Final Report, Recommendation 3.

14 Corporate Groups Final Report, Recommendation 7.

15 Sonderprüfung (German); expertise de gestion (French).

16 Corporations Law, ss. 236-242. These provisions are based on a report of the Legal Committee of the Advisory Committee, Statutory Derivative Actions (July 1993).

17 Pflichtangebote (German); offres d'achat obligatoires (French).

18 Corporations Law, s. 602.

19 There are various statutory exceptions to the requirement that a person cannot acquire more than 20% of the voting shares of a public company without making a formal takeover offer for all or a proportion of the remaining shares. E.g., a shareholder may acquire shares beyond the 20% threshold, without the need to make a mandatory offer, if the remaining shareholders approve that acquisition by ordinary resolution (Corporations Law, s. 611, item 7). Also, a shareholder may acquire an additional 3% of the company's shares in each six months period, regardless of how many shares that shareholder already has (id., item 9).

20 Corporations Law, Ch. 6, Parts 6.1-6.10.

21 Auskauf (German); achat des participations minoritaires (French).

22 A scheme of arrangement or a selected share capital reduction requires the approval of minority shareholders by special resolution.

23 Corporations Law, ss. 661A-661F. These revisions are based on recommendations in a report by the Legal Committee of the Advisory Committee, Compulsory Acquisitions (January 1996).

24 A shareholder could reach this 90% threshold in various ways without having to make a mandatory offer: see further supra n. 19.

25 Corporations Law, ss. 664A-664G. These provisions are based on the Report by the Legal Committee of the Advisory Committee, op. cit., n. 23.

26 Austritt (German); retrait des associés minoritaires (French).

27 Corporations Law, ss. 662A-663C.

28 Corporate Groups Final Report, Recommendation 3.

29 Id., Recommendation 10.

30 Ibid.

31 Corporate Groups Final Report Recommendation 11.

32 Geschäftsleiterpflichten in der Krise (German); obligations du dirigeant de l'entreprise en difficulté (French).

33 Corporations Law, s. 95A.

34 Corporations Law, s. 588G. Under s. 588H, certain defences apply, including that the directors had reasonable grounds to expect the company was solvent, that they relied on a competent person to monitor the financial position of the company or that they otherwise took reasonable steps to prevent the company incurring a debt while insolvent.

35 Corporations Law, s. 9 definition of “director”.

36 Corporations Law, s. 588V. Under s. 588X, various defences apply, including that the directors reasonably expected that the subsidiary was solvent, they reasonably believed that a competent and reliable person was responsible for monitoring the subsidiary, or they had taken all reasonable steps to prevent insolvent trading by the subsidiary.

37 Corporate Groups Final Report, paras. [6.34]-[6.59].

38 New Zealand Companies Act 1993, ss. 271 and 272.

39 Corporate Groups Final Report, Recommendation 21.

40 Corporate Groups Final Report, paras. [6.99]-[6.112].

41 In the United Kingdom, the Insolvency Law and Practice: Report of the Review Committee, (Cmnd. 8558, HMSO1982) (the Cork Committee Report) supported deferring intra-group claims which, in substance, represented long-term working capital, even though the finance was provided by way of loan rather than share capital. The Committee considered that:

“(…) a person who provides part of the capital of a business cannot call for payment until the creditors of that business have been paid. (…) It appears to us to be a natural application of the same principle to require external creditors of a subsidiary company to be paid before long-term finance provided by other companies in the group is repaid.” (para. 1962).

42 Corporate Groups Final Report, Recommendation 24.

43 ANZ Executors and Trustee Co Ltd v. Qintex Australia Ltd (1990), 2 Australian Corporations and Securities Reports (ACSR) 676 at 681.

44 Justice Rogers, in Qintex Australia Finance Ltd v. Schroders Australia Ltd (1990), 3 ACSR 267 at 268-269, referred to the need for reform to better match insolvency law with commercial practice.

“There is today a tension between the realities of commercial life and the applicable law in circumstances such as those in this case. In the every day rush and bustle of commercial life in the last decade, it was seldom that participants to transactions involving conglomerates with a large number of subsidiaries paused to consider which of the subsidiaries should become a contracting party.

It may be desirable for Parliament to consider whether this distinction between the law and commercial practice should be maintained. (…) Regularly, liquidators of subsidiaries, or the holding company, come to court to argue as to which of their charges bears the liability (…). As well, creditors of failed companies encounter difficulty when they have to select from among the moving targets the company with which they consider they concluded a contract. The result has been unproductive expenditure on legal costs, a reduction in the amount available to creditors, a windfall for some, and an unfair loss to others. Fairness or equity seems to have little role to play (…). If I may venture the observation, there is a great deal to be said for the suggestion (…) that assets and liabilities of the parent and the subsidiaries should be aggregated.”

Austin, “Corporate Groups”, in Rickett, and Grantham, , Corporate Personality in the 20th Century (Oxford, Hart Publishing 1998), p. 89Google Scholar pointed out that “group entrepreneurship does not justify (…) the accumulation, layer upon layer, of intra-group transactions which can make the liquidator's task of unravelling the affairs of the insolvent subsidiaries either impossible or impossibly costly.”

45 Corporate Groups Final Report, Recommendation 23. Liquidators of corporate groups should also have this power with the prior approval of all unsecured creditors (id., Recommendation 22).

46 New Zealand Companies Act 1993, ss. 271 and 272.

47 Corporate Groups Final Report, Recommendation 23.

48 Ibid.