Europe: Spain - free movement of capital and freedom of establishment

On July 17 the European Court of Justice gave its opinion in Commission v Spain (Case C-207/07). The case concerned the requirement, for those acquiring shareholdings in certain energy sector companies, to seek the prior authorisation of the National Energy Commission (the Spanish regulatory body with responsibility for the operation of energy systems).  The European Commission took the view that this requirement breached Community law and instigated infringement proceedings against the Spanish Government. The ECJ has agreed. Its opinion is not yet available in English but a press release in English has been published in which it is stated:

The system constitutes a restriction on the free movement of capital inasmuch as it is capable of deterring investors established in other Member States other than Spain from acquiring shareholdings in Spanish undertakings operating in the energy sector and is therefore liable to prevent or limit the acquisition of shareholdings in those undertakings. Furthermore, this new system entails a restriction on the freedom of establishment. However, a system which entails such restrictions may be justified by reasons laid down in the EC Treaty or by overriding reasons in the public interest, such as public safety. To that end, the system has to satisfy certain conditions: that it is suitable for securing the attainment of the objective pursued and is proportionate to that objective".

It is also noted:

... Spain has not shown that the system of prior authorisation which has been established is a measure that is suitable for securing the attainment of the objective sought by the Spanish legislature, that is, security of energy supply. In any event, the Court considers that the Spanish system of prior authorisation is not proportionate to the objective of ensuring security of energy supply. First, the system does not limit the NEC’s power to refuse to allow the acquisition of shareholdings or assets referred to above or to make subject them to certain conditions on the sole ground of securing the objective of security of energy supply ... Secondly, the Court finds that Spain has not demonstrated that the objective pursued may not be attained by less restrictive measures, in particular by a system of ex post declarations".

For further information see:
ECJ press release (English) | ECJ opinion (Spanish) | Comment in International Herald Tribune | Europa - free movement of capital information | Europa - freedom to provide services / freedom of establishment information | 

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".

Europe: freedom of establishment and the 'life and death' of companies

Yesterday, Advocate General Poiares Maduro gave his opinion in Cartesio Oktató és Szolgáltató Bt. (Case C-210/06). The case concerned a limited partnership (Cartesio) which wanted to move its headquarters from Hungary to Italy. Hungarian law prevented Cartesio transferring its headquarters to another Member State whilst retaining its status as a partnership governed by Hungarian law. The only way for Cartesio to transfer its operational headquarters was by dissolving its business in Hungary and reestablishing in Italy. Does this amount to a restriction on freedom of establishment under Articles 43 and 48 of the EC Treaty?

The Advocate General held that the Hungarian legislation, which applied to partnerships and companies, breached Articles 43 and 48 of the EC Treaty. Articles 43 and 48, in his opinion, precluded rules which make it impossible for a company or partnership formed under the national law of a Member State to transfer its operational headquarters to another Member State. In this regard, and after considering recent case law of the Court, the Advocate General observed:

... it is impossible, in my view, to argue on the basis of the current state of Community law that Member States enjoy an absolute freedom to determine the ‘life and death’ of companies constituted under their domestic law, irrespective of the consequences for the freedom of establishment. Otherwise, Member States would have carte blanche to impose a ‘death sentence’ on a company constituted under its laws just because it had decided to exercise the freedom of establishment".

The Advocate General nevertheless recognised that restrictions of the kind in the Hungarian law could be justified on grounds of general public interest including the prevention of fraudulent conduct or the protection of the interests of creditors, minority shareholders, employees or the tax authorities. The Hungarian law did not, however, contain any grounds of justification.

NB:

[1] The Advocate General's opinion is not binding on the Court but in the majority of cases such opinions are followed.

[2] In 2004 the European Commission consulted on a proposed Directive (the 14th Company Law Directive) on the right of limited companies to transfer their registered office from one Member State to another. However, in December 2007 the Internal Market Commissioner Charlie McCreevy decided that legislative action was not required (see here). In the impact assessment it was explained why:

Since the practical effect of the existing legislation on cross-border mobility (i.e. the cross-border merger directive) is not yet known and that the issue of the transfer of the registered office might be clarified by the Court of Justice in the near future, the assessment concludes that it might be more appropriate to wait until the impacts of those developments can be fully assessed and the need and scope for any EU action better defined"

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.