European company law in the making – The 2017/1132 directive

Directive (EU) 2017/1132 “relating to certain aspects of company law”, entered into force on July 20, 2017, lays the foundations for a fully harmonized European company law. The European Parliament and the Council intend to create the conditions to effectively promote the fulfillment of the freedom of establishment and of the freedom to conduct business as set out by the Treaty on the Functioning of the European Union (TFEU) and the Charter of Nice. This process of consolidation has started in 2012 by the Action Plan, which was the fruit of the public consultation on the European company law and corporate governance aiming at “a modern legal framework for more engaged shareholders and sustainable companies”.

The Directive operates in two directions: on one hand, it aims at streamlining the existing legislations consolidating – and repealing – six previous Directives on European company law:

– Directive n. 82/891/EEC concerning the division of public limited liability companies;

– Directive n. 89/666/EEC concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State;

– Directive n. 2005/56/EC on cross-border mergers of limited liability companies;

– Directive n. 2009/101/EC on coordination of safeguards which, for the protection of the interests of members and third parties, are required by Member States of companies within the meaning of the second paragraph of Article 48 of the Treaty, with a view to making such safeguards equivalent,

– Directive n. 2011/35/EU concerning mergers of public limited liability companies and

– Directive n. 2012/30/EU on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 54 of the Treaty on the Functioning of the European Union, in respect of the incorporation of limited liability companies and the maintenance and alteration of their share capital.

The Annex IV includes a correlation table linking the articles of the consolidated Directives with the new one.

New rules are directed in particular to coordinate safeguards and guarantees that must be provided – as well as the information that must be disclosed – to shareholders and third parties in order to the make them equivalent throughout the Union. As matter of fact, the recitals of the Directive emphasise the need for specific harmonised safeguards to be in place, especially with respect to limited liability companies, notably because of their frequent cross-border business and their predominant feature in the economy of the Member States, more dynamic over last decades.

To date, due to the lack of a uniform discipline, there are indeed 28 different national company laws, which address domestic companies as well as foreign entities operating in another Member State to the detriment – indirectly of course – of freedom of establishment for companies, which, according to art. 54.1 of the TFEU, are to “be treated in the same way as natural persons who are nationals of Member States”.

The Directive consists of 168 articles, four Annexes and three titles that encompass different themes: from the incorporation of public limited liability companies, to companies’ representation, companies registers, branches of companies based in a Member State although govern by the law of another, capital requirements and even mergers (domestic and cross-border) or divisions of companies.

In more detail, the main innovations introduced by the Directive concern:

The incorporation of public limited companies, where the articles of incorporation and the articles of association shall be drawn up and certified in due legal form in all Member States whose laws do not provide for pre-emptive administrative or judicial control at the time the company is actually incorporated.

The implementation of a central companies register – resulting from the interconnection of the existing national registers – that enables users to access from a single web portal.

Capital requirements for public limited liability companies, which shall be not less than euro 25,000.00.  The Commission will regularly examine the economic and monetary trends and, as the case may be, revise this requirement accordingly with a view to devoting this type of company to medium-sized/large undertakings.

Acts of the organs of the company, which shall be binding regardless of the validity of the appointment of the person serving in the organ itself and despite the fact that the acts actually carried out exceed the company’s corporate scope (on this issue, Member States may provide otherwise: for example providing that he company shall not be bound where such acts are outside the objects of the company, if it proves that the third party knew that the act was exceeding those objects or could not in view of the circumstances have been unaware of it, bearing in mind that the pre-emptive disclosure of this information will not suffice as it will always be necessary an assessment on case by case basis.

Disclosure requirements concerning branches of companies set up in another Member State’s territory. These branches will be subject to disclose information to the national register (which, in the meantime, will have become interconnected Europe-wide) in order to offer the public reliable and certain corporate information and data. In particular branches shall disclose information relating to the activity they carry out; the name and legal form of the company and the name of the branch, whenever they differ with one another; the relevant accounting documents along with the identity of the subjects authorized to represent the company in legal proceedings and deal with third parties (it will also be necessary to specify whether they have to operate jointly or not). Likewise, it will be necessary to disclose the information regarding the bankruptcy/winding-up procedures the company may go through along with the identity and the powers of the receiver or, in any case, the person in charge of the winding-up procedure/bankruptcy procedure.

Mergers and companies divisions that will have to be carried out taking into account the safeguards provided by the Directive 2001/23/EC to protect the workers of the companies involved. In this case, the Directive provides a discipline that, similarly to the companies’ incorporation procedure, requires that the document regulating the merger (deeds, contracts depending on the national rules on this matter) shall be drawn up and certified in due legal form whenever the laws of the Member State do not proved for judicial or administrative pre-emptive supervision as to the lawfulness of the whole operation. The same rule shall apply in the event the national laws required that the merger project is approved by the general shareholders meeting of the company.

In the end, if the Directive will have a partial impact on the development a uniform European company law, it is worth noticing that this consolidation project has excluded the harmonization of several further EU Directives concerning the Company Law. As far as the Italian Law it can be said as it is almost entirely compliant already with the Directive excluding those rule on capital requirement (in Italy nowadays the minimum share capital of società per azioni is fixed in 50 thousand euro) and the implementation of the European companies register and the company’s representation rules.. As it does not introduce any new provision, there is no date for the Member States to transpose it at a national level, however, the Annex III remarks the time limit to incorporate the abolished Directives into the domestic legal systems.

As clearly set forth by the Directive “this Directive is not aimed at establishing any centralised registers database storing substantive information about companies. At the stage of implementation of the system of interconnection of central, commercial and companies registers (‘the system of interconnection of registers’), only the set of data necessary for the correct functioning of the platform should be defined”. Surely, the leading aim of the Directive is to improve the certainty of the disclosure and the cross-border access to company and its brunches information, this purpose is very challenging considering the national system of the company registers which are quite fragmented at a local level.

The author of this post is Milena Prisco.