EUROPEAN (EU) COMPANY LAW Prof. M.E. de Leeuw Università di Ferrara Spring semester 2018

Lecture 19: Commission’s Action Plan European Company law and corporate governance Com(2012) 740 final

Objectives of EU company law Early objectives which underlie measures taken under art. 50(2)(g) FTEU (Commission in 1965): Facilitating the exercise of freedom of establishment; Preventing that companies do not establish across borders due to severity of national company laws; Ensuring certainty in law; Reinforcing protection of members and third parties; Making european companies more competitive by facilitating transnational european companies (1970).

Objectives of modern company law 2003 Modern company law objectives as expressed in Commission’s Action plan (2003), in particular: Efficiency and competitiveness business; To strengthen shareholders rights, and protection for employees, creditors and other parties with which companies deal. Large number of initiatives of 2003 Plan have been adopted.

EU Company Law Directives Directive 2009/101/EC (before First Council Directive 68/151/EEC): Disclosure Directive 2012/30/EU (before Second Council Directive 77/91/EEC): Capital Directive 2011/35/EU (Before Third Council Directive 78/855/EEC): Mergers Fourth Council Directive 78/660/EEC: Annual accounts and SME Fifth: structure of public company (withdrawn) Sixth Council Directive 82/891/EEC: Divisions Seventh Council Directive 83/349/EEC: Consolidated accounts

EU Company Law Directives Eighth Council Directive 84/253/EEC: Statutory audit Ninth: groups, withdrawn Tenth Directive 2005/56/EC: Cross-border mergers Eleventh Council Directive 89/666/EEC: Branches Directive 2009/102/EC (before Twelfth Council Company Law Directive 89/667/EEC): Single member company Directive 2004/25/EC (Thirteenth): Takeover bids Fourteenth: transfer of registered office (not yet adopted) The EU Insolvency Regulation no° 1346/2000 of 29 May 2000 Directive 2007/36/EC: Shareholders rights directive Financial service directives

EU Company Law Directives Directive 2001/86/EC supplementing the Statute for a European company with regard to the involvement of employees; Directive 2007/63/EC amending X directives as regards the requirement of an independent export’s report on the occassion of merger or division of PLC; Directive 2009/109/EC amending X directives as regards reporting and documentation requirements in the case of mergers and divisions. Directive 2010/76/EC amending X directives as regards capital requirements for the trading book an re-securisations, and the supervisory review of remuneration policies. Directive 2012/17/EU amending X directives as regards the interconnection of central, commercial and companies registers (business registers)

EU company law: Regulations Council regulation (EC) 2157/2001 of 8.10.2001 on the Statute for a European company (SE); Council regulation (EEC) 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG); Council regulation (EC)1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE) Proposal creating the European Private Company withdrawn in 2014 (idem European Public Benefit Foundation).

Objectives 2012- Future Action Plan: European company law and corporate governance - a modern legal framework for more engaged shareholders and sustainable companies (COM(2012)740 final) 12.12.2012. Present aim is not anymore to harmonise the companies act of the MS by directives.

Objectives 2012- Future The Action Plan 2012 outlines three key objectives: Enhancing Transparency (par 2.1-2.4); Engaging shareholders (3.1-3.5); Simplifying cross-border operations of European businesses (4.1-4.6). In addition (par. 5) Launching an overarching codification exercise in order to make the regulatory framework more user-friendly (e.g. new Directive 2013/34 of 26 June 2013 amends and merges the Accounting Directives (4 and 7th).).

Enhancing Transparency Non-financial reporting (2.1 Action Plan) The Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups amends the Accounting Directive 2013/34/EU, OJ L 330/6, 15.11.2014.

Enhancing Transparency Non-financial reporting Content: Companies concerned will need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity* on boards of directors. *Diversity information regards information on the company’s diversity policy, such as, age, gender, educational and professional background.

Enhancing Transparency Non-financial reporting Objectives: to increase the transparency of certain companies, and to increase the relevance, consistency, and comparability of the non-financial information currently disclosed, by strengthening and clarifying the existing requirements to increase diversity in the boardrooms of companies through enhanced transparency in order to facilitate an effective oversight of the management and robust governance of the company; to increase the company's accountability and performance, and the efficiency of the Single Market. Scope: Large companies with more than 500 employees.

Enhancing Transparency: Quality of corporate governance (Action plan 2 COMMISSION RECOMMENDATION (2014/208/EU) of 9 April 2014 on the quality of corporate governance reporting (‘comply or explain’), L 109/43, 14.4.2014. The Recommendation mainly aims to provide guidance on how listed companies should explain their departures from the recommendations of the relevant corporate governance codes (aim to improve the quality of corporate governance reporting).

Enhancing Transparency (action plan 2.3 and 2.4) An initiative to improve the visibility of shareholdings in Europe (as part of the Commission’s legislative work program in the field of securities law); On 12 June 2013 the European Union adopted Directive 2013/50/EU amending the existing Transparency Directive (2004/109/EC)., and An initiative (possibly through an amendment to the Shareholders’ Rights Directive) on disclosure of voting and engagement policies and voting records by institutional investors (9 April 2014).

Engaging shareholders (Action Plan 3.1.-3.5) The Commission aims to improve shareholders engagement in EU companies through revision of shareholder’s rights Directive; Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (i.e. Shareholder’s rights Dir.) and Directive 2013/34/EU (new accounting Dir.) as regards certain elements of the corporate governance statement (9 April 2014). Legislative stage: opinion EP, march 2015.

Shareholders’ Directive (2007) Shareholders’ Directive focuses on impediments to cross-border voting (administrative right) in listed companies with their seat in the EU; Cross-border use of voting power is not conceived narrowly, but comprises the convening of a general meeting, the information to be disclosed, the right to participate and the casting of votes proper, be it by electronic media or in complete absence, or be it by proxy. Two objectives: protecting shareholders’ rights and enhancing good corporate governance.

Engaging shareholders (Action Plan 3.1.-3.5) An initiative (possibly through an amendment to the Shareholders’ Rights Directive) to improve transparency on director remuneration policies and individual remuneration of directors, and to grant shareholders the right to vote on companies’ remuneration policies and disclosure; An initiative (possibly through an amendment to the Shareholders’ Rights Directive) aimed at improving shareholders’ control over related-party transactions; An initiative (possibly through an amendment of the Shareholders’ Rights Directive) to improve the transparency and conflict-of-interest frameworks applicable to proxy investors (advisors); Develop guidance regarding the relationship between investor cooperation for corporate governance purposes and the rules on “acting in concert” under the Takeover Bids Directive and the Transparency Directive; and Encouraging the development of transnational employee share ownership schemes in Europe.

Simplifying cross-border operations of EU companies (Action Plan 4.1-4.6) Must rules on the transfer of registered seat be adopted?; Revision of the rules on cross-border mergers; Should EU legislation be adopted on cross-border divisions?; Continue work on the follow-up to the SPE (european private company), with a view of enhancing cross-border opportunities for SME; withdrawn in 2014. Increasing awareness of the European Company (SE); Improving the information available on group structures and recognition of the concept of “group interest”.

Societas Unius Personae* Problem: SME find it costly and difficult to take up activities abroad (set up subsidiaries) due to legal, administrative and linguistic requirements and lack of trust in foreign companies amongst business partners and customers. EU Proposal for a Directive on single-member private liability companies: MS must make available in national legal order a national company law form for single-member private limited liability with a number of harmonised main requirements and one common name SUP; Hence, proposal does not provide for EU single member llc like SE. It is a national and not European legal form It replaces (and incorporates) the 12th Directive on single member companies. (12th Dir. provides for creation single member llc, and regulates the members powers at GM. It does not address issues such as formation, registration, creditor’s protection or min. share capital requirements) * European Commission memo, 9 april 2014.

Characteristics proposal SUP Objective: Make it easier and less costly for SMEs to operate across the EU by simplifying the process of registering subsidiaries in other MS. Focus: The proposal focuses on private llc because this is the legal form most commonly used by SME. Key element: As a result of Directive there should be in each country a national company law form called SUP with same requirements across the EU as regards: Registration (possible to do whole registration electronically) Uniform template of articles of association (in respect of formation, shares, capital organisation, accounts and dissolution SUP) Min. share capital 1 euro. And adequate protection of creditors through balance sheet test/insolvency statement

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 expenses56); 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 (this issue will be further discussed in the options section); 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 bankrupcy procedures; More efficient judicial system; Moved already real seat.