Europe: an unjustified restriction on the free movement of capital - golden shares in Portuguese Telecom

In January 2008, the European Commission referred Portugal to the European Court of Justice because it considered that the special rights conferred on the State by its golden shares in Portugal Telecom (PT) discouraged investment from other Member States in violation of the EC Treaty.

Today the European Court of Justice gave its opinion - Commission v Portugal (Case C-171/08) - and supported the Commission's position. The court observed (paras. [60] to [62]):

... the Portuguese State’s holding of those golden shares, in so far as it confers on that State an influence on the management of PT which is not justified by the size of its shareholding in that company, is liable to discourage operators from other Member States from making direct investments in PT since they could not be involved in the management and control of that company in proportion to the value of their shareholdings (see, inter alia, Case C‑112/05 Commission v Germany [2007] ECR I‑8995, paragraphs 50 to 52).

Similarly, the structuring of the special shares at issue may have a deterrent effect on portfolio investments in PT in so far as a possible refusal by the Portuguese State to approve an important decision, proposed by the organs of the company concerned as being in the company’s interests, is in fact capable of depressing the value of the shares of that company and thus reduces the attractiveness of an investment in such shares (see, to that effect, Commission v Netherlands [C-283/04, [2006] ECR I‑9141], paragraph 27).

In those circumstances, it must be found that the Portuguese State’s holding of the golden shares at issue constitutes a restriction on the free movement of capital for the purposes of Article 56(1) EC".

A summary of the decision is available here (pdf). Following Lisbon, Article 56 is now Article 63 in the Treaty on the Functioning of the European Union: see here (pdf).

Europe: shareholder liability and the First Company Law Directive

Advocate General Trstenjak gave her opinion in Idryma Typou (Law relating to undertakings) (case C-81/09) last week. The case raised an interesting question regarding European law and the liability of public company shareholders.

Under Greek law, a fine in respect of infringements of legislation and other rules governing the operation of television stations was imposed jointly and severally on a company, its directors and those shareholders holding over 2.5% of the share capital. An annulment of the fine was sought and the court hearing this claim requested a preliminary ruling from the European Court of Justice as to whether the provision providing for the imposition of the fine was precluded by the First Company Law Directive (Council Directive 68/151/EEC) (now Directive 2009/101/EC).

In the opinion of Advocate General Trstenjak, which is not binding on the court, the First Company law Directive did not preclude provisions of the kind adopted by Greece. However, such provisions were, in her opinion, precluded by Articles 43, 48 and 56 of the EC Treaty (see now, respectively, Articles 49, 56 and 63 of the Treaty on the functioning of the European Union: here, pdf). The Advocate General noted (para. [57]):

In the absence of express provision in Directive 68/151 ... the power to prescribe the exceptional extension of liability to shareholders of public limited companies falls within the competence of the national legislature. In the absence of harmonisation, it is for the Member States, in principle, to decide to what extent they wish to take account of the protection of the interest in question in relation to extending liability to the shareholders of a public limited company".

Poland: European Commission refers Poland to the ECJ

The European Commission has referred Poland to the European Court of Justice because, in the Commission's view, the Polish Act on Special Powers of the Treasury and their Exercise in Companies of Special Importance for Public Order or Public Security (and two implementing ordinances) is contrary to the principle of free movement of capital and freedom of establishment under the EC Treaty. 

The Act grants the State special rights - including a right of veto in respect of important management decisions - in thirteen Polish companies in the copper ore mining, media/audiovisual, railway infrastructure, electricity, gas and petroleum, motor spirits and diesel oil sectors.  Further information is available here.