Empirical studies show that ownership structures that separate control and cash flow rights create agency problems and are associated with reduced value for minority shareholders. Institutional investors recognise these inefficiencies and expect a discount on the share price of companies with control-enhancing mechanisms like multiple voting rights shares or pyramidal ownership structures.

In the US, corporate pyramids are discouraged through the taxation of inter-company dividends, whereas multiple voting rights shares are allowed but have to be issued before the firm goes public. Therefore, controlling shareholders who want to entrench themselves in control by retaining multiple voting rights shares pay the costs of this inefficient capital structure when the firm initially goes public at a discounted price.

Some European countries – including Spain, Portugal, Greece and, until very recently, Italy – have adopted a diametrically opposite solution. Multiple voting rights shares have been expressly prohibited by the legislator, but corporate pyramids are commonly used by listed companies and can be created following the IPO of the firm without approval from the shareholders. In this situation, if institutional investors expect that a pyramidal ownership structure will be created in the future, they will discount the price of the shares when the firm goes public. Therefore, if Italy, Spain, Portugal and Greece are willing to privatise some of their state-owned companies and want to maximise the price of their stocks, they should create the conditions to assure the market that these companies will not be controlled through pyramids in the future.

Because of strong opposition from national business elites which control the largest corporate groups, it is very difficult to adopt strict regulations aimed at prohibiting - or at least limiting - the use of pyramidal ownership structures in a relatively short period of time. In order to solve this Olson problem, I suggest that Italy, Spain, Portugal and Greece should use regulatory dualism to create new markets with enhanced corporate governance rules that prevent shareholders' control through pyramids.

Recent events and trends have led to an increased awareness of the importance of Islamic law and a more widespread interest in the subject. However, many areas remain inaccessible and have received relatively little scholarly attention. One such is the law of business associations. The aim of this and a previous article (‘the first article’) is to alleviate this situation somewhat, providing a critical overview and facilitating further research.

The first article contained an overview of the classical sharia, looking at three Sunni schools by way of example, plus a comparison with Western concepts. This article considers the replacement of the sharia regimes by Western-style law and the interaction of the sharia with Western-style law.

The freedom of establishment entails not only a general prohibition of discrimination and restrictions, but also incorporates, as regards the setting-up of secondary establishments, the right to choose between the legal forms of a dependent branch establishment and an independent subsidiary. This right to choose serves the purpose of giving the economic operators in the internal market the opportunity of a gradual integration into foreign markets.

Recent events and trends have led to an increased awareness of the importance of Islamic law and a more widespread interest in the subject. However, many areas remain relatively inaccessible, including the law of business associations. The aim of this and a subsequent article is to alleviate this situation somewhat by providing a general introduction to Islamic perspectives on this area.

This article provides an overview of the classical sharia, looking at three Sunni schools by way of example, plus a brief comparison with Western-style law. The second article will consider the replacement of the sharia regimes in the Middle East and the interaction of the sharia with Western-style law in Muslim-majority jurisdictions and elsewhere.

This paper proposes a conceptual framework according to which a suitable approach for treating corporate groups in insolvency, under domestic law, can be devised. Currently, the event of insolvency within a corporate group is often poorly dealt with under both domestic and international regimes. However, the matter demands special consideration, especially as ‘linking’ between affiliated group companies in their separate insolvencies may be necessary. This paper examines how ‘linking’ tools might be incorporated into domestic laws and ultimately harmonised, so that a level playing field for insolvencies within corporate groups (wherever they may take place) is established. It suggests three main features which are required for any workable solution. First, the system should be prudent and recommend linking tools only when these are needed. Second, clear and objective tests should be used to decide on any proposed mechanism, promoting certainty and clarity in judicial outcomes. Finally, the international scenario should be taken into account as well, in order to prevent possible manipulation by the debtors and use the benefits of treating the corporate group globally. Using these three concepts, the paper examines the various linking tools available, from procedural consolidation to contribution orders. It concludes by asserting that using the proposed concepts to construct the required linking mechanisms will help to achieve effective tools that are broadly accepted and provide an appropriate platform for dealing with corporate groups in their insolvencies.

The global financial crisis has revealed significant weaknesses in resolution regimes for large and internationally active financial institutions. The nub of the problem is the mismatch that exists between the way institutions are organised and operate, the way they are regulated and supervised and the way they are resolved in a crisis. The Lehman case illustrated that the greater the integration of individual entities into the operations of the wider group, the greater the challenges in achieving an orderly resolution. In a crisis it is legal entities rather than business lines that fail, and it is the legal entities that will be liquidated in separate and territorially-based proceedings. It is unrealistic to expect the creation of a global regulatory authority or an overarching international insolvency framework for cross-border financial groups in the foreseeable future. In light of the quasi-insurmountable obstacles to achieving a framework that adapts legal and regulatory frameworks to the economic reality of complex group structures and allows for a coordinated (or even consolidated) resolution of global financial institutions, this paper proposes an alternative approach. In order to reduce the complexities in resolution it suggests changes to the way in which financial groups structure themselves and conduct their operations.

Corporate governance and the theory of the firm are discussed primarily from the shareholders' perspective. This point of view neglects the tremendous effects of private pensions and of co-determination as well as interdependencies between codetermination, pensions and corporate governance. Since in the private pension world the firm serves as an investment tool, the focus should be shifted from short-term interests to concepts maximising long-term shareholder value. In this context, also moderate forms of co-determination might serve as a tool for long-term oriented corporate governance. Given the rise of the European Company, co-determination is likely to spread in Europe. Both, private pension-based corporate governance systems and stakeholder-oriented corporate governance systems should be re-examined in the light of the financial and economic crisis and due to the rise of behavioural law and economics.

Under the provisions of the Prospectus Directive, the publication of a prospectus for an offer of securities to the public, or an admission of securities to trading on a regulated market, is subject to the prior approval of the prospectus by the competent authority of the issuer's home Member State. This article examines the approval system as envisaged under the Directive. The aim is two-fold. First, the article conceptualises the approval system as a regulatory instrument. By studying the provisions relating to the prior approval in the Prospectus Directive, and by drawing on the literature on regulation, the approval system will be conceptualised as an ex ante enforcement system. Second, the article examines the approval system critically as an investor protection measure and as a risk reduction strategy for issuers. Proceeding on the premise that in order to justify the prior approval, the approval system must not only improve upon the quality of disclosure but that this improvement must matter if considered from the perspective of the recipient of the approved prospectus, the benefits and costs of the prior approval will be assessed for investors and issuers. These two points will be developed hereunder by examining in turn the regulatory nature and the purpose of the approval system.

This article examines the general characteristics of limited liability principles and exemptions to limited liability introduced for creditor protection in Turkish Law. In the first section, it examines the general application of limited liability in the Turkish Commercial Code. In the second section, it examines the exemptions to limited liability introduced by case law and statutory laws. This work concentrates on recent developments that might attract interest at international level by broadening the discussion in the area of limited liability. Thus, this article does not cover every exemption. The chosen examples introduce fundamental and controversial exemptions to the limited liability principle. The third section of the article examines the future of limited liability in Turkish law by examining the Draft Commercial Reform Bill. As the Draft Bill introduces some exemptions to limited liability in corporate groups, the issue is examined in detail as a special concern.

A Bill to amend Dutch private company law is currently pending before the Dutch Parliament. In our paper, we discuss the proposed rules for the protection of creditors of Dutch private limited companies (BVs). In order to give an insight in the background of the proposals, we first summarise our study on alternatives for capital protection, which served as a basis for the legislative proposals. Next, we point out what criticisms were made during the consultation following the publication of the draft Bill in April 2006 and how the legislature responded to these criticisms. We show that certain controversial provisions have been amended as a result of the outcome of the consultation process. Our paper ends with a few remarks on the rather limited amendments made to Directive 2006/68/EC. We conclude that after the implementation of the Bill, the rules on creditor protection applicable to Dutch BVs and Dutch NVs (public companies) will differ considerably. In our view, there is no reason to fear that the new creditor protection rules applicable to the BV will lead to increased popularity of the NV, as has been suggested by some. Time will tell whether the fundamental reform of the law applicable to the Dutch BV renders it well-equipped to contend with foreign competition.

The EC Commission's strategy for the modernization of the rules implementing Articles 81 and 82 EC Treaty has unfolded in three acts. The focus of the first act, the White Paper of 28 April, 1999, is on Article 81(3). The Commission proposes to abolish the Regulation 17 rules for the implementation of Article 81(3) and its own exclusive power to grant exemptions. In the future, Article 81 is to be interpreted as a directly applicable exception system to be applied by the Commission, national competition authorities, and national courts. A Council regulation will extend the direct applicability so far limited to Article 81(1) to Article 81(3). Consequently, there is no provision for separate exemption decisions and there are no “detailed rules” for the supervision of exempted agreements as called for by Article 83(2b).

This paper surveys the main effects of recent legislative changes to the corporate insolvency law of the United Kingdom, from the standpoint of their potential impact upon corporate rescue. The reforms, enacted in 2000 and 2002 and brought into force during 2003, have recast the law relating to company voluntary arrangements, administrations, and administrative receiverships. After considering the various deficiencies in the pre-existing law, which rendered each of these procedures in varying ways unsatisfactory for the purpose of addressing the problems of financially troubled companies, the paper examines the process by which the declared intentions of the government when introducing its reforming legislation were significantly altered during the course of enactment into law. While the outcome of this dialectical drama has been the bringing about of some worthwhile improvements in the refashioned administration procedure, this has been accompanied by a significant dilution of the government's previously stated intentions with respect to the attenuation of the rights and powers of creditors holding security in the form of a floating charge. Consequently, the paper concludes that administrative receivership will retain a far greater practical significance than had been previously envisaged, while the opportunities made available to floating charge holders under the revised administration procedure provide a strong incentive for institutional lenders to continue to make use of this species of security. The author concludes that UK insolvency law has been unable to embrace the ‘American way’ of corporate rescue, with debtor-in-possession as its core principle, but has instead opted for a ‘rescue’ model in which creditor interests continue to assert a dominant influence.

An important field in comparative corporate governance research during the last decade has tried to illuminate the prospects of convergence on a uniform organisational model and legal clothing for the modern firm. The volume under review assembles many of the formative statements in the debate, most of which have been published elsewhere earlier and were only slightly adapted for reprint. Hence, the book does not aim primarily at providing up-to-date reflections on the most recent developments and insights – with the notable exception of the editor's introduction – but at enabling corporate law scholars who have not been following the controversy closely to familiarise themselves with the major arguments characterising the discussion. However, the editorially skilful arrangement of the articles goes far beyond a chronologically accurate reiteration of the evolution of the debate and thereby awards even the expert in the field an opportunity to reclassify certain claims and counterclaims and reassess their validity. Moreover, after rereading the contributions consecutively, the identification of clearly distinguishable and antagonistic strands of thought, popular among corporate law commentators, does not seem to adequately capture the picture. The chapters procure a more nuanced impression of the debate which is characterised rather by discrepancies in accentuation than by sharp and irreconcilable contrasts.

In the emerging 21st Century the Internet has become an all-encompassing part of our lives. At least a third of all people in Germany and the UK have access to the Internet. In the US estimates go up to 50%. No successful company may safely ignore the web; “e-commerce” is everywhere. The Internet required many changes to the various legal systems, in private, criminal and public law. While some of these changes happened fast and drastically, certain areas have only carefully been adapted. Among these slowly evolving parts is the law of corporations. Therefore, even though business contacts are already made online, it is still common practice to base shareholder communications and the filing of information with public registers on paper.

Financial markets have increasingly grown cross-border, this having important implications for the design and conduct of prudential regulation and the provision of safety nets, such as deposit insurance or crisis management structures (lender of last resort operations).

The financial crisis has evidenced a number of weaknesses specific to cross-border banking. The study of regulation on the basis of recent cases of banking failure during the crisis allows developing conclusions about the evolution of cross-border banking and the challenges present in the current EU regulatory and supervisory framework. In particular, attention is paid to the impact that legal structures used in cross-border banking may have on financial stability.

This paper analyses the way in which cross-border banking has evolved during the last years, focusing on the legal structures and their impact on competition and financial stability. Thought is given to the specific changes in regulation and supervision that may lead to sustainable cross-border banking within the EU. Finally, the current EU regulatory proposals as well as the changes in the EU supervisory architecture are critically analysed, and final conclusions are drawn on the way forward.

Privatisation has been one of the defining economic developments of the last two decades in several manufacturing and service industries in both industrialised and developing countries. This paper reviews a number of theoretical and empirical studies linking privatisation processes to innovation activities at the firm level. First, it refers to the literature on corporate governance structures and innovation in order to analyse the theoretical relationship between changes in the principal-agent structure of firms following privatisation, incentives to invest in R&D and R&D performance. It then reviews a number of empirical studies that have analysed this issue in the context of Western Europe.

EC investment services regulation is a regime in transition. Since the adoption of the Financial Services Action Plan (FSAP) in 1999, the harmonized EC investment-services regime has been undergoing a period of seismic change. This process of change has been accelerated by the presentation of the seminal Lamfalussy Report on the Regulation of European Securities Markets in February 2001. The shape of the regime which will emerge from this period is still opaque. It is likely, however, that this most recent developmental stage of EC investment-services regulation will conclude with the formation of a mature, fully-fledged system of EC investment-services market regulation. In particular, it appears that the new regime will regulate the single market in investment services considerably more aggressively than does the current regime. It is unlikely, therefore, to be characterized simply as a functional integration-device which facilitates the construction of the single market in investment services via a regulatory passport: this characterization does, however, describe the current regime, for the most part.

The private international law of business organisations is a difficult field. It is difficult in its core as well as at its periphery. The core question is the one of appropriate conflict rules for business organisations. The two best-known concepts are the incorporation theory and the seat theory. Either approach is followed by a number of states, but neither appears wholly persuasive. The discussion of appropriate conflict rules will also have to take into account concepts which modify the one or the other “theory” or try to combine elements of both. However, requirements for a satisfactory conflict rule in the field of the private international law of business organisations can already be defined (see infra section 2). An issue related to the core question arises due to the more specific requirements of European law. The creation of a business organisation involves the exercise of three rights guaranteed by the EC Treaty: the freedom of establishment (Articles 43 and 48), the freedom of capital transfer (Article 56) and the right of EU citizens to acquire shares on a non-discriminatory basis (Article 294). The impact of these provisions on national conflict rules is highly controversial. However, it seems clear that in the long run Member States will have to recognise companies validly formed in other Member States. Correspondingly it appears necessary to continuously harmonise the national laws of business organisations in important fields such as, for example, creditor protection. This harmonisation can be carried out by various means (see infra section 3). The periphery of our subject-matter addresses the question of the scope of the central conflict-of-laws rule for business organisations: which aspects of material law are included, and which follow different conflict-of-laws concepts? This question may be raised for matters as diverse as workers' codetermination rights and legal requirements for take-over bids. It is closely connected with the issues dealt with before: the better the necessary protection of creditors, investors and employees can be guaranteed independent of the status of a business organisation the less their respective interests can be used as an argument for or against the one “theory” of international company law or the other (see infra section 4).

This article examines the role of bid prices for determining the fair value of securities in a subsequent squeeze-out appraisal. The recent Takeover Directive includes a legal presumption of a fair bid price under certain prescribed conditions. The author seeks to identify circumstances that may be regarded as a sufficient reason to reverse the fairness presumption and deviate from the consideration offered in a bid when determining the squeeze-out price. Theoretical underpinnings of the preconditions are also presented. Particular interest is paid to the question what significance may be given, when determining the fair squeeze-out price, to the consideration offered in such a voluntary bid that fails to gain acceptance by a qualified majority (90 per cent) of securities targeted.

Promoting entrepreneurship is high on the agenda at both European and national level. This is, e.g., reflected in a number of company law initiatives, which have mainly focused on creating easier and cheaper access to limited liability, for example, by introducing sub-types of the private limited company. The main questions addressed here are whether it is possible to promote entrepreneurship through company law reforms and what the content of such frameworks should be in order to meet the needs of entrepreneurs. The analysis takes its point of departure in a new Danish survey of what the content of company legislation should be in order to meet the needs of entrepreneurs. In line with existing empirical studies, the importance of the capital requirement and formation procedures and costs is analysed, and further insight is given into, for example, what level of minimum capital and cost is regarded as acceptable. Besides this insight, the Danish survey adds to the existing studies and literature by also shedding light on whether company laws can be further optimised, for instance, by introducing more flexible rules for company management, etc. The results of the survey are compared with the reforms which, in recent years, have been adopted in several EU Member States, with the aim of evaluating whether these have met the needs indicated in the survey. The overall conclusion is that this is not the case on all points and that there is thus room for improvement. It is also briefly discussed whether the different reform methods used in the recent national reforms are well-suited for further optimising the legislation and it is shown that the method of introducing sub-types of private limited companies has its limitations.