1. W. Georg Ringe University of Oxford, Faculty of Law Corporate mobility in the European internal market – a flash in the pan? Université de Laval, 18 Mars 2014

2. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 2 Paper motivation  This is an empirical paper, testing the extent of “regulatory competition” in European Union (EU) company law [NB: the paper is available at http://ssrn.com/abstract=2247323]http://ssrn.com/abstract=2247323  One of the EU’s cornerstones is “freedom of establishment” for companies  As interpreted in the famous Centros case (1999), it has opened up the borders for companies, similar to the Delaware effect in the US  This is the ‘market solution’ = let companies decide on where to incorporate  -> competition between lawmakers?

3. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 3 Overview (1) The Centros case and its impact (2) First empirical evaluations (3) Regulatory responses of EU Member States (4) Empirical re-assessment and evaluation (5) Interpretation of the results (6) Conclusion

4. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 4 (1) Centros and its impact Historically, jurisdictions have followed different principles in company law  Incorporation theory (UK, NL)  Real seat theory (Germany, Austria) Transfer of seat mostly not possible Daily Mail ruling (1988) Proposal for a directive on the transfer of seat (1990s) Centros ruling (1999)

5. Incorporation No operation in A; only reason for incorporating in A is to circumvent minimum capital requirements in B Member State A (‘home’) Member State B (‘host’) May B refuse the registration of the company’s branch in B due to the fact that the only reason for incorporating in A is to circumvent more restrictive legal requirements in B? Centros (1999)

6. Incorporation and operation Transfer of real seat Member State A (‘home’) Member State B (‘host’) May B refuse immigration (transfer of real seat) of a validly incorporated company because of different conflict rules regarding company law? Überseering (2002)

7. Incorporation Member State A (‘home’) Member State B (‘host’) May B impose a minimum capital require- ment on ‘formally foreign’ companies? Inspire Art (2003) No operation in A; the only reason for incorporating in A is to circumvent minimum capital requirements in B

8. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 8 (1) Centros and its impact Further ECJ rulings: - SEVIC (2005) - Cadbury Schweppes (2006) - Cartesio (2008) - Vale (2012) Impact: - Liberal interpretation of freedom of establishment - Creation of a ‘market for corporate law’ - English corporate law is most attractive - No minimum capital requirement - Incorporation service – fast and supportive - Strong impact in D where min capital of € 25,000 - Competition accelerated by the emergence of intermediary agencies

9. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 9 (2) First empirical evaluations Armour (2005)

10. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 10 (2) First empirical evaluations Bratton et al (2008)

11. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 11 (2) First empirical evaluations Becht et al (2008)

12. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 12 (2) First empirical evaluations Becht et al (2008)

13. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 13 (3) Regulatory responses National corporate law reforms - France 2003 (SARL reformed) - Spain 2003 (new SLNE) - Germany 2008 (UG = new GmbH variant) - Denmark 2009 - Netherlands 2010 - UK (!) 2006 (CA)

14. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 14 (3) Regulatory responses

15. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 15 (3) Regulatory responses Open questions  Why reforms in continental Europe?  What is the impact?  Slowing down of English incorporations?  Slowing down of English incorporations because of the law reforms?  ‘Success’ of law reforms?

16. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 16 (4) Empirical re-assessment  Data of Fame database (English Companies House)  Incorporations 2004-2011  Filter: ‘Foreign companies’  At least one director is German  Registered office is identical for at least 100 companies  Monthly coverage

17. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 17 (4) Empirical re-assessment

18. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 18 (4) Empirical re-assessment

19. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 19 (4) Empirical re-assessment

20. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 20 (4) Empirical re-assessment

21. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 21 (4) Empirical re-assessment MoMiG 23/10/2008 Gvt draft 23/5/2007 (€ 10 000) First draft 29/5/2006 (€ 10 000) Reform Rumours

22. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 22 (4) Empirical re-assessment  Claim of ‘successful law reform’ questionable  Support by comparison to Austria  Similar legal system and tradition  Minimum capital requirement for an Austrian GmbH: € 35,000  No lowering of minimum capital requirements after Centros  Identification of a corresponding data sample  Filter: ‘Foreign companies’  Fame database 2004-2011  At least one director is Austrian  Registered office is identical for at least 10 companies (adapted to GDP)

23. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 23 (4) Empirical re-assessment

24. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 24 (4) Empirical re-assessment Austria-operating English companies 2004-2011

25. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 25 (4) Empirical re-assessment

26. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 26 (4) Empirical re-assessment Results  Slowing down of the number of incorporations for Germany and Austria since spring 2006 (‘flash in the pan’)  Timeframe is important  Before German law reform (MoMiG)  Slowing down in Austria despite no abolition of minimum capital requirements  there have to be other explanations  First conjectures  Anticipation of law reforms  Initial demand met  (Psychological) acceptance problems  Bad reputation due to high rate of insolvencies

27. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 27 (5) Interpretation of the results Decreasing attractiveness  Legal loopholes closed  Elimination of restructuring opportunities 2003-05 mobility-friendly case-law  Acceptance of foreign companies (BGH March 2003)  Liability of shareholders and directors according to foreign law (BGH March 2005)

28. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 28 (5) Interpretation of the results Since 2006 more restrictive caselaw to prevent misuse 1) Obligation to file for insolvency and liability according to German law LG Kiel 2006; MoMiG 2008; KG 2009 2) Ban on exercising a profession or business for managing directors of a GmbH applies to directors of a foreign company OLG Jena 2006, BGH 2007 (+ MoMiG, Nov 2008) 3) German principles of estoppel liability apply BGH February 2007 4) Ban on sole ‘corporate director’ according to English law Reform of English law, October 2008 5) Disqualification of foreign directors according to English law Reform of English law, October 2009 6) UK jurisdiction for intra-company disputes acc to Art 22(2) Brussels Regulation OLG Frankfurt Feb 2010; BGH 2011 7) German criminal law applies (embezzlement) BGH April 2010

29. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 29 (5) Interpretation of the results

30. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 30 Inadmissibility of a corporate director, Oct 2008 Obligation to file for insolvency, April 2006 Ban on exercising a business, March 2006 / May 2007 Estoppel liability, February 2007 German criminal law, April 2010 English disqua- lification, Oct 2009 Jurisdiction is in the UK, Feb 2010

31. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 31 (5) Interpretation of the results Austria: 2004-09 mobility-friendly caselaw  Acceptance of legal capacity and capacity to act (OGH 1999)  Acceptance of entire law of incorporation (OGH 2004)  No piercing of the corporate veil (OGH 2009) Also restrictive attitude from the beginning  OGH 2004: Strict evidence requirements for Austrian branch  Minimum corporation tax as domestic GmbH (Feb 2006)  No registration where lack of Austrian banking licence (OGH 2008) Are there German UGs in Austria?

32. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 32 (5) Interpretation of the results Overall: a combination of factors - Theory of initial demand - Disadvantages had not been known in the beginning - (Psychological) acceptance problems - Bad reputation due to high rate of insolvencies - Restrictive attitude of caselaw, registries and tax authorities - Law reforms (and anticipation of them) - UG in Germany - UG in Austria (?) - Tax reform in Austria - Reform of English Companies Act

33. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 33 (6) Conclusion Results  Initially high demand for foreign legal forms of companies  Slowing down of incorporations for Germany and Austria since spring 2006  Before German law reform (MoMiG)  Slowing down in Austria despite no reform of minimum capital  Explanations  (Psychological) problems of acceptance  Bad reputation due to high rate of insolvencies  Initial demand met  Anticipation of law reform  Increasing restrictive attitude; closure of loopholes from both sides of the channel  and German law reform (MoMiG)

34. 18 Mars 2014 Corporate mobility in the European internal market – a flash in the pan? Page 34 (6) Conclusion Implications  Has the German law reform (MoMiG) been superfluous, wrong, without effect?  Impact on legal policy for a law reform in Austria 2013  Overall positive effect of the competition of corporate legal forms  Defensive competition  Faster and simpler incorporations; entrepreneurship culture  Negative integration achieves common standards in the same way as positive integration does

35. Wolf-Georg Ringe Professor of International Commercial Law Copenhagen Business School University of Oxford georg.ringe@law.ox.ac.uk http://ssrn.com/author=836081 18 Mars 2014 Page 35 Corporate mobility in the European internal market – a flash in the pan?