Explanatory Memorandum to COM(2004)730 - Amendment of Council Directive 77/91/EEC, as regards the formation of public limited liability companies and the maintenance and alteration of their capital - Main contents
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| dossier | COM(2004)730 - Amendment of Council Directive 77/91/EEC, as regards the formation of public limited liability companies and the maintenance ... |
|---|---|
| source | COM(2004)730  |
| date | 29-10-2004 |
The Second Company Law Directive[?] was adopted in 1976 with a view to co-ordinate, for the protection of the interests of members and third parties, the national provisions applicable to public limited liability companies i.a. in the following areas: formation of companies, minimum share capital requirement, distributions to shareholders, increase in capital, reduction in capital.
The overall purpose of the Directive is thus to establish the conditions which must be satisfied in order to ensure that the capital of the company is maintained in the interest of creditors. Furthermore, it aims at protecting minority shareholders and states the principle that all shareholders who are in the same position should be treated in the same way.
The present proposal for amending the Directive aims at facilitating capital related measures taken in public limited liability companies. This is attempted by enabling Member States to eliminate specific reporting requirements under certain conditions, to facilitate, under certain conditions, specific changes in share ownership, and last not least, to provide a basically harmonised legal procedure for creditors under certain circumstances in the context of capital reduction.
By this, companies ought to be enabled, with regard to capital size, capital structure and ownership, to react more promptly and in a less costly and protracted manner to developments in the markets that are relevant to them. As a result, this proposed modernisation of the Second Directive ought to make a contribution to the promotion of business efficiency and competitiveness without reducing the protection offered to shareholders and creditors, as envisaged in the Commission’s “Communication[?] to the Council and the European Parliament: Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward”.
In the context of the fourth phase of the Simplification of the Legislation on the Internal Market process (SLIM) launched by the Commission in October 1998, a Company Law Working Group issued in September 1999 a Report on the simplification of the First and Second Company Law Directives[?]. This report contained recommendations on the areas in which a simplification could be achieved. The main recommendations relating to the Second Directive emphasized i.a. the need to eliminate under certain conditions reporting requirements in some cases (share issuance for non-cash consideration; exclusion of pre-emptive rights), furthermore the need to facilitate acquisition by a company of its own shares, to facilitate financial assistance by a company for acquisition of its shares by a third party, and the need to facilitate the streamlining of ownership in a company’s share capital.
In its Report to the European Parliament and the Council[?], the Commission stated that it supported the overall objective of the main recommendations relating to the Second Directive and that it would examine further how best to amend the Second Directive accordingly.
According to the “Report on a Modern Regulatory Framework for Company Law in Europe” (issued in November 2002 by the “High Level Group of Company Law Experts”), most of the SLIM Group proposals were indeed worth implementing. In addition, the High Level Group formulated a few additional suggestions aiming at modernising the Second Directive.
A proposal to amend the Second Directive along these lines has therefore been regarded by the Commission as a priority for the short term, in line with Annex 1 of the above mentioned Communication, which calls for the simplification of the Second Directive on the basis of the SLIM-recommendations as supplemented in the High Level Group’s above mentioned report by means of a Directive (“SLIM-Plus”).
With regard to capital related measures of public limited liability companies, which this proposal undertakes to simplify, the main requirements are currently set forth by the Second Directive as follows:
- Shares may not be issued at a price lower than their nominal value, or, where there is no nominal value, their accountable-par. This prohibition applies to all share issues without exception, not just to the initial share issue in the context of the company’s incorporation. This does not imply that subsequent share issues cannot be made at a nominal or accountable par value lower than that of a previous issue, as long as the price at which the new shares are issued complies with the above mentioned obligation.
- Issuance of shares for non-cash-consideration is subject to the requirement of a valuation by one or more independent experts;- Streamlining of ownership in the company’s share capital is, if possible at all, subject in principle to ex-ante authorisation by the statutes, by the instruments of incorporation and/or by the general meeting;- Acquisition by the company of its own shares is subject in principle to approval by the general meeting only for a certain period of time and only for a certain fraction of the company’s capital;
- Financial assistance by the company for the acquisition of its shares by a third party is possible only in very limited cases and only up to a certain limit;
- Exclusion of pre-emptive rights in capital increases for cash consideration is subject to approval by the general meeting and to the requirement of a written report by the administrative or management body;
- For cases of capital reduction, it is up to the Member States to lay down the conditions for the exercise of a creditor’s right to obtain adequate security.
Given the similarities and differences between the Articles 39a and 39b of the present proposal on the one hand, and, on the other hand, the provisions of Directive 2004/25/EC on takeover bids that relate to the so-called “squeeze-out” and “sell-out”-rights of majority shareholders and minority shareholders, respectively, it is clearly stated in the proposal, that the latter take precedence over the former in the context of takeover bids within the scope of Directive 2004/25/EC.
In its Communication to the Council and the European Parliament “Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward” (issued in May 2003)[?], the Commission has considered that a simplification of the Second Directive on the basis of the proposals and recommendations as mentioned here above in point 1.2. would significantly contribute to the promotion of business efficiency and competitiveness without reducing the protection for shareholders and creditors.
Accordingly, the above mentioned Communication lists a pertinent proposal for a Directive amending the Second Company Law Directive as one of the most important modernisations of company law which should be executed in a short term.
Furthermore, in its thrust to simplify and reduce administrative burdens for companies, the present proposal contributes to the implementation of the Commission’s February 2003 Framework for Action on “Updating and simplifying the Community Acquis”[?]. This initiative is one of the range of actions in the Commission’s “Better Regulation” initiative of June 2002[?] which i.a. responds to the objective to improve the regulatory environment in which businesses operate to enhance competitiveness as one of the goals set out in the Lisbon Strategy.
The main provisions contained in the proposal are inspired by the recommendations made by a Company Law Working Group in September 1999, in the context of the fourth phase of the Simplification of the Legislation on the Internal Market (SLIM) process launched by the Commission in October 1998. This Group met three times in 1999 and was composed of Member States officials, company law practitioners and academics.
The SLIM-Group recommendations concerning the Second Directive and their practical implications have been subsequently discussed with Member States company law experts in meetings in June 2000 and March 2001. From these discussions, it appeared that the main recommendations relating to the Second Directive were supported, pending, however, a number of technical issues to be considered in more depth.
On the occasion of the creation of the “High Level Group of Company Law Experts” by the Commission in September 2001, it was felt appropriate to include into the Group’s mandate the task to further consider the possible simplification of corporate rules in the light of the SLIM-report on the Second Directive.
Consultations
Following an extended public consultation which it held i.a. on possible approaches towards reform of the European capital regime (launched in the second quarter of 2002), the “High Level Group” confirmed in its “Report on a Modern Regulatory Framework for Company Law in Europe” (issued in November 2002), that most of the SLIM Group proposals, as modified to some extent by the “High Level Group”, were indeed worth implementing.
The Commission’s approach towards simplification of the Second Directive, as inspired by the afore mentioned expert groups and by the above mentioned consultation, and as subsequently set forth in the above mentioned Commission Communication, has been strongly re-confirmed by a large majority of respondents to the public consultation of this Communication.
The Second Directive applies to public limited liability companies throughout the EU. Two of the proposed amendments relate to listed companies only (Article 39a and b; Article 29(5a)). No distinction is currently made as regards the sectors of business, the sizes of business or the geographical areas of the Community.
With regard to some of the amended or newly inserted provisions, such as Article 39a and b, as well as Article 32 i, the proposal contains provisions that have to be transposed by the Member States into their national law on a compulsory basis. With regard to other provisions, existing options for transposition by Member States are modified, such as Article 19 i and Article 29(5a), or newly created, such as Articles 10a and 10b and Article 23 i in connection with Articles 23a and 23b.
Apart from general implementing measures, Member States will, in some instances, also have to take special implementing measures, especially with regard to certain safeguard procedures, under the amended provisions of the Directive.
Public limited liability companies will then be able to avail themselves of the simplifications that are envisaged with this proposal, while – where necessary – being obliged to comply with the safeguards which are introduced in the interest of shareholders and third parties.
By availing themselves of the simplifications for capital related measures, which this proposal aims to bring about, companies ought to be in a position to react more promptly and in a less costly and protracted manner to developments in the markets that are relevant to them. As a result, this proposed modernisation of the Second Directive ought to make a contribution to the promotion of business efficiency and competitiveness without reducing the protection offered to shareholders and creditors, as envisaged in the Commission’s “Communication[?] to the Council and the European Parliament: Modernising Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward”.
Contents
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- 1.1 Ground for and objectives of the proposal
- 1.2. General context
- 1.3. Existing provisions in the area of the proposal
- 1.4. Similarities or differences with existing provisions or acts
- 1.5. Consistency with other policies
- 2. RESULTS OF CONSULTATION WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENT
- 2.1. Collection and use of expertise
- 2.3. Impact assessment (see also Annex 1)
- 3.1. Legal basis
- 3.2. Principle of proportionality and subsidiarity
- 3.3. Choice of instruments
The proposed Directive is drafted on the legal basis of Article 44 i of the Treaty.
The proposed simplifications for public limited liability companies necessitate Community action in that they touch on a series of provisions of Community law which up until now exclude or limit the use of these proposed simplifications by public limited liability companies. The proposal is therefore in compliance with the principle of subsidiarity as laid down in Article 5 of the Treaty.
Furthermore, and in compliance with the principle of proportionality, the present proposal tries to limit legislative action to the minimum which is considered necessary to bring about the intended simplifications.
In order to bring about these intended simplifications, it is indispensable for the Community legislator to introduce changes to the Second Company Law Directive. This can only be done with a proposal for a Directive amending the Second Company Law Directive.
Any budgetary implications are not foreseen.