1 University of LuxembourgThe 2016 LSE Study on conflicts of laws : towards a cross-border transfer of seat directive and a « Rome V regulation » ? Pierre-Henri Conac University of Luxembourg 21st European Company Law and Corporate Governance Conference: Crossing Borders, Digitally Tallinn, 5 September 2017
2 Introduction Statistical data, Empirical Survey and Comparative Analysis Normative Analysis Conclusion
3 I. Introduction
4 Report of the reflection Group on the future of EU company law (2011)« The Reflection Group believes that a right to transfer the registered office of national companies would not require major harmonisation of national law in respect of international private law and conflict of laws provisions. Some members furthermore believe that it is time to envisage an EU regulation to clarify the conflict of law issues. » « The Reflection Group invites a debate on arguments in favour and against the real seat theory and possibly a comparative study conducted by the Commission. » Consensus on a cross-border transfer of seat directive and hostility towards the real seat but recognition of impossibility to impose the registered seat
5 Resolution of the European Parliament presented by Klaus-Heiner Lehne (2012) : « conflict-of-law issues also need to be tackled in the field of company law and … an academic proposal in this field (Sonnenberger, 2007) could serve as a starting point for further work on conflict-of-law rules with regard to companies’ cross-border operations » Public Consultation on the Future of European Company Law (2012): some support for the development of conflict-of-law rules Commission Action Plan on European company law and corporate governance (2012) : no reference to conflict-of-law rules
6 Public Consultation on the Cross-border transfer of the registered seat (2013): support but proposal shelved by the Commission for political reasons 2016 LSE « Study on the law applicable to companies with the aim of a possible harmonisation of conflict-of-law rules on the matter » : study requested by the DG Justice Contract law unit (not the Company law unit) 2016 GEDIP draft rules on the law applicable to companies and other bodies Public Consultation on Conflict of laws rules for companies (2017) : questions on identifying the real seat, should the real or statutory seat be imposed …
7 (i) statistical data collection(ii) empirical survey (iii) comparative analysis of the conflict-of-law rules applicable to companies, as well as the related rules of substantive law, in Member States (iv) normative assessment
8 Is a directive on the cross-border transfer of seat needed ?Do the variations on basic concepts of national company laws have an effect on the freedom of establishment and could lead to application of multiple (company and substantive) laws to the same company : definition of real seat, « overriding mandatory provisions », branches … If so, if there is a need for an harmonisation of conflict-of-law rules in company law within Member States and/or towards third countries ?
9 I Statistical data, Empirical Survey and Comparative Analysis
10 Statistical data on foreign incorporationsLSE Study limited to private limited liability companies having their real seat in another Member State than the Member State of incorporation Difficulties to identify foreign incorporations in registers : criteria of nationality (not residence) of all managers and most being shareholders Underestimation ? : no strong link between Germany and Austria (but 2015 Teichmann and Knaier on Austrians establishing UGs in Bavaria)
11 Statistical data on foreign incorporationsForeign incorporations : UK is the most popular target destination, but also Central and Eastern Member States (Estonia, Romania and Slovakia) Most foreign incorporations happen between neighbouring MS with linguistic, social and economic similarities (eg Estonia, Latvia, Finland) Development of foreign incorporations not perfectly related with ECJ case law : most foreign incorporations took place after 2000
12 Survey of lawyers (177) in September 2015ECJ case law not enough : complaints about « overriding mandatory provisions » (despite strict ECJ interpretation), translation costs … Legal uncertainty in most MS regarding the application of conflict-of-law rules : connecting factor, company and non company law, overiding rules Respondents in Central and Eastern Europe indicate lack of familiarity with the relevant procedures and problems with business registers Support for harmonisation of substantive rules and conflict-of-law rules with stronger support for harmonisation in MS with the real seat doctrine
13 Comparative analysis on cross-border transfer of seatMost Member States provide no legislative framework for outbound transfers of seat (few exceptions are Cyprus, Czech Republic, Denmark, Malta and Spain) which has a chilling effect on lawyers and judges Several Member States make outbound transfers impossible (including UK, Ireland and Hungary despite Cartesio) : unanimity, dissolution … Debate in some Member States (Germany, Poland with ECJ Polbud case) whether outbound transfer of seat requires transfer of the real seat ?
14 Comparative analysis: application of dual company or substantive laws to companies having their statutory and real seat in two MS Member States divided among real seat and statutory seat approaches Variations regarding the definition of the real seat (board of director or headquarters) and the application of national laws to foreign companies Branches in host Member State can be subject to substantive provisions : corporate name, liability of branch managers, managers’ disqualification … Risk of reclassification in partnership but against EU law and no case law
15 Comparative analysis: application of two companies or substantive laws to companies having their statutory and real seat in two MS Variations regarding the scope of the lex societatis, lex bursae, lex concursus… Unity of « lex societatis » is mostly respected in practice : no real application by real seat Member States (outside of the case of branches) of « overriding mandatory provisions » even on codetermination Lack of clarity for liability of directors: tort (« misrepresentation »), in insolvency (but Insolvency Regulation), criminal law and contracts …
16 II Normative Analysis
17 Directive on the cross-border transfer of seatLSE Report supports a directive on the cross border transfer of seat Directive should harmonise legal procedures, deal wtih quorum and majority, and provide minimum harmonisation of the rules on minority shareholders’ and creditors protection, codetermination following the model of the Cross-border merger Directive and the SE Regulation Extra question: Should MS with a real seat doctrine be allowed in the directive to require the transfer of the real seat like in the SE regulation ?
18 No recommendation by the LSE report to the EU to impose the statutory seat or the real seat on Member States company law Proposing to impose the registered seat in all Member States would risk to have Member States and the EU Parliament trying to impose the real seat Imposing the real seat would be a violation of ECJ case law (« creatures of national law ») and article 54 of the TFEU (real seat « or » statutory seat) Registered seat accepted as the connecting factor for conflict-of-law issues
19 Adoption of a « Rome V regulation for the Harmonisation of the Law Applicable to Companies » merging all « Rome regulations » Rome I on the law applicable to contractual obligations (2008) and Rome II Regulation on the law applicable to non-contractual obligations (2007) Rome V Regulation would be applicable to « all business entities with separate legal capacity constituted under civil or commercial law » Relations with third countries could be covered (with opt in or opt out)
20 Non-exhaustive list of matters governed by the applicable lex societatisMostly consensual among MS: formation and legal personality; corporate name; capacity and authority of organs; capital structure; rights and obligations of the members; internal management matters (board); duties of directors and liability for a breach of duty ; voluntary winding up Less consensual among MS : derivative actions ; right of shareholders to challenge resolutions of the corporate organs; financial reporting Member States can keep « Overriding mandatory provisions » with exemples
21 Matters excluded from the conflict-of-law harmonisationMatters subject to the lex societatis : workers’ participation, groups Matters subject to the lex concursus : liability of directors in the vicinity of insolvency, liability of shareholders (piercing the corporate veil) Matters subject to lex loci delicti : liability for incorrect disclosure on securities markets Matters subject to the lex contractus : relationship between the issuer and bondholder and among bondholders (but not capacity to issue bonds)
22 Protection of third parties contracting with an agent and relying in good faith on the application of another law than the lex societatis First Company Law Directive : no full harmonisation and national scope Application of the lex societatis but where the application would lead to the invalidity of an act, this fact cannot be invoked against third parties acting in good faith and if the restriction does not exist in his/her country
23 IV. Conclusion
24 Legally impossible and not advisable for the EU legistator to impose on the Member States the real seat or the registered seat approach Cross-border transfer of seat : no problem in theory but many in practice Conflict-of-law rules : many problems in theory but no problems in practice Specific substantive (transactions with third parties) and conflict-of-law rules included in company law directives might be an easier approach