The European Company (Law Practitioner Series) (Volume 2)

The European Company The European Company (‘SE’) is a legal entity offering a European perspective for businesses. Its purpose is to allow businesses that wish to extend their activities beyond their home Member State to operate throughout the EU on the basis of one set of rules and a unified management system. The book explains how to set up and organise a European Company, as well as setting out the text of the EC instruments (a Regulation and a Directive) serving as its legal basis, and a list of national implementing laws. This second volume reports on the countries that have legislated during 2005 and 2006. Divided into two sections, it first offers critical review of the usefulness of, and the opportunities presented by, this new vehicle; analyses the Regulation and the Directive; and examines the tax aspects of the SE. The second part reports on each of the Member States. dirk van gerven is a Partner at NautaDutilh, Brussels, and is a member of the Brussels Bar and the New York Bar. He has extensive experience in all areas of corporate law, including litigation, international arbitration, securities regulation and finance. He is Head of Continuing Legal Education for the Dutch Speaking Bar of Brussels, a research fellow at the University of Leuven, and has published widely in the fields of corporate and financial law. Since 2003 he has been a member of the Supervisory Board of the Banking, Finance and Insurance Commission of Belgium. paul storm is a retired partner of NautaDutilh, and is Emeritus Professor of Law at Universiteit Nyenrode. Until 2005 he was Chair of the Combined Committee on Company Law instituted by the Royal Dutch Notarial Society and the Netherlands Bar Association. He is co-author of one of the leading Dutch textbooks on business organisations.

Law Practitioner Series The Law Practitioner Series offers practical guidance in corporate and commercial law for the practitioner. It offers high-quality comment and analysis rather than simply restating the legislation, providing a critical framework as well as exploring the fundamental concepts which shape the law. Books in the series cover carefully chosen subjects of direct relevance and use to the practitioner. The series will appeal to experienced specialists in each field, but is also accessible to more junior practitioners looking to develop their understanding of particular fields of practice. The Consultant Editors and Editorial Board have outstanding expertise in the UK corporate and commercial arena, ensuring academic rigour with a practical approach. Consultant editors Charles Allen-Jones, retired senior partner of Linklaters Mr Justice David Richards, Judge of the High Court of Justice, Chancery Division Editors Chris Ashworth – O’Melveny & Myers LLP Professor Eilis Ferran – University of Cambridge Nick Gibbon – Allen & Overy Stephen Hancock – Herbert Smith Judith Hanratty – BP Corporate Lawyer, retired Keith Hyman – Clifford Chance Keith Johnston – Addleshaw Goddard Vanessa Knapp – Freshfields Bruckhaus Deringer Charles Mayo – Simmons & Simmons Andrew Peck – Linklaters Richard Snowden QC – Erskine Chambers Richard Sykes QC William Underhill – Slaughter & May Sandra Walker – Rio Tinto Books in the series Stamp Duty Land Tax Michael Thomas; Consultant Editor David Goy QC Accounting Principles for Lawyers Peter Holgate The European Company: Volume I General editors Dirk Van Gerven and Paul Storm The European Company: Volume II General editors Dirk Van Gerven and Paul Storm Capital Markets Law and Compliance: The Implications of MiFID Paul Nelson

The European Company VOLUME II General editors

D I R K VA N G E RV E N PAUL STORM

cambridge university press Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, S˜ao Paulo, Delhi Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521860000
C

Cambridge University Press 2008

This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2008 Printed in the United Kingdom at the University Press, Cambridge A catalogue record for this publication is available from the British Library ISBN 978-0-521-86000-0 hardback

Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

Contents

Contributors Preface ix

vii

d i r k va n g e r v e n, NautaDutilh Part I The SE in its sixth year: some early impressions p a u l s t o r m , NautaDutilh

3

Part II Application in each Member State National reports from EU Member States 1 Bulgaria r a i n a d i m i t r o va , Borislav Boyanov & Co.

19

2 Cyprus a l e x a n d r o s t s a d i r a s , Andreas Neocleous & Co.

63

3 Czech Republic ˇ j a n z r z av e c k y´ , j a n d eˇ d i cˇ , Kocian Solc Balaˇst´ık

85

4 France j e a n - m a r c d e s a c h e´ , Gide Loyrette Nouel

114

5 Greece s t e f a n o s c h a r a k t i n i o t i s , Zepos & Yannopoulos

152

6 Ireland m i c h a e l a . g r e e n e , k e av y r ya n, A&L Goodbody

174

7 Italy f r a n c e s c o g i a n n i , Gianni, Origoni, Grippo & Partners

203

231 8 Latvia d a c e s i l ava - t o m s o n e , i v e ta m i k e l s o n e , j u r g i ta s p i g u l e , Lejin´s, Torg¯ans & Partners v

Contents

9 Luxembourg p at r i c i a f e r r a n t e , m a r c m e y e r s , NautaDutilh 10 Malta r o s a n n e b o n n i c i , Fenech & Fenech Advocates

252 287

289 11 Portugal m a r g a r i d a p e r e i r a b a r r o c a s , Barrocas Sarmento Neves 315 12 Romania c a r m e n p e l i , g e o r g e ta d i n u , Nestor, Nestor, Diculescu, Kingston, Petersen Attorneys & Counselors 336 13 Republic of Slovenia m at e j a o g r i cˇ , j u r i j d o l zˇ a n, e va p e r g a r e c , Odvetniki Jurij Dolˇzan, Vidmar & Zemljariˇc 14 Spain m i g u e l l i r i a p l a n˜ i o l , Uria Men´endez

362

National reports from EEA Member States 393 15 Liechtenstein a n d r e a s s c h u r t i , a l e x a n d e r a p p e l , Walch & Schurti 16 Norway l a r s k r i s t i a n s a n d e , Telenor Part III

Annexes

Annex Ia Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European Company (SE)

441

Annex Ib Public limited-liability companies referred to in Article 2(1) of the Regulation

464

Annex Ic Public and private limited-liability companies referred to in Article 2(2) of the Regulation

467

Annex II Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European Company with regard to the involvement of employees

471

Annex III List of national laws implementing the Regulation and the Directive

485

Index vi

411

491

Contributors

BULGARIA Raina Dimitrova Borislav Boyanov & Co. CYPRUS Alexandros Tsadiras Andreas Neocleous & Co. CZECH REPUBLIC Jan Zrzaveck´y Jan Dˇediˇc ˇ Kocian Solc Balaˇst´ık FRANCE Jean-Marc Desach´e Gide Loyrette Nouel GREECE Stefanos Charaktiniotis Zepos & Yannopoulos IRELAND Michael A. Greene Keavy Ryan A&L Goodbody ITALY Francesco Gianni Gianni, Origoni, Grippo & Partners LATVIA Dace Silava-Tomsone Iveta Mikelsone Jurgita Spigule Lejin´s, Torg¯ans & Partners LUXEMBOURG Patricia Ferrante

Marc Meyers NautaDutilh MALTA Rosanne Bonnici Fenech & Fenech Advocates PORTUGAL Margarida Pereira Barrocas Barrocas Sarmento Neves Joana Neto Jos´e Aves do Carmo Jos´e Miguel Oliveira Barrocas Sarmento Neves ROMANIA Carmen Peli Georgeta Dinu Nestor, Nestor, Diculescu, Kingston, Petersen SLOVENIA Mateja Ogriˇc Jurij Dolˇzan Eva Pergarec Dolˇzan, Vidmar & Zemljariˇc SPAIN Miguel Liria Pla˜niol Uria Men´endez LIECHTENSTEIN Andreas Schurti Alexander Appel Walch & Schurti NORWAY Lars Kristian Sande Telenor vii

Preface

This is the second volume of the book on the European Company or Societas Europaea (SE). The first volume, containing general reports on the SE Regulation and Directive and national reports from those Member States which had already adapted their legislation, was published by Cambridge University Press in 2006. The aim of this book is to present the legal framework and rules applicable to the SE throughout the European Union and the European Economic Area. The first volume included reports from Austria, Belgium, Denmark, Finland, Germany, the Netherlands, Estonia, Hungary, Lithuania, Poland, Slovak Republic, Sweden and the United Kingdom as well as Iceland. Volume two contains reports from Bulgaria, Cyprus, the Czech Republic, France, Greece, Ireland, Italy, Latvia, Luxembourg, Portugal, Slovenia, Romania and Spain, as well as the EEA countries of Liechtenstein and Norway. In addition, a short report from Malta is included, even though this country has yet to adapt its legislation to meet the requirements of the Regulation. Thus, taken together, volumes one and two contain reports on the legal framework in all twenty-seven EU Member States and the three EEA countries. It will permit business leaders and lawyers to better understand the rules applicable to the SE throughout the European Union and the European Economic Area, facilitate comparison and help them select a country in which to incorporate an SE in accordance with their specific project or business needs. This book was made possible thanks to contributions from distinguished law firms in the EEA member countries. A list of these contributors is included at the beginning of this book. I wish to thank not only the contributors but also all those whose names are not mentioned herein, in particular Katherine Raab, Bianca Porcelli and Claire Platteuw, all of whom work at NautaDutilh, for their continuing support. Dirk Van Gerven Brussels, 14 August 2007

ix

PA RT I

The SE in its sixth year: some early impressions paul storm NautaDutilh

I II III IV V

I

Implementation by Member States SEs created thus far 4 Why opt for an SE? 6 Some employee participation issues Conclusion 14

3

10

Implementation by Member States On 8 October 2007 it will be six years since the Statute for a European Company was adopted.1 It is early days yet to come up with an assessment, but certain trends are already taking shape. First, however, it is worth looking at the implementation at national level of the relevant Community instruments. Although a regulation is directly applicable throughout the EC and need – indeed must – not be transposed into national law, Council Regulation of 8 October 2001 on the Statute for a European Company (SE) (the ‘Regulation’ or ‘Reg.’) leaves so many options to the Member States that it was necessary for the latter to enact their own laws to enable SEs to be registered in their territories. In addition, Article 64 Reg. imposes certain obligations on Member States to create legislation with respect to SEs. As to Council Directive of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’ or ‘Dir.’), this – of course – had to be transposed by each Member State. Due to the extremely convoluted wording of this directive, this turned out to be a very difficult and time-consuming job. Consequently, only eight of the (then) 25 EU Member States and one of the additional three EEA Member States managed to meet the deadline for transposition: 8 October 2004. This was also the date on which the Regulation entered into force and on which the first SEs could be registered in Member States where the implementing national legislation was in place. In January 2007, Ireland was the last Member State (apart from Romania, which had just acceded to the EU) to transpose the Directive. Thus, at the time of finalising this contribution (July 2007), 29 out of 30 EEA Member States had their 1

In the form of Council Regulation (EC) 2157/2001 on the Statute for a European company (SE) and Council Directive 2001/86/EC supplementing the Statute for a European company with regard to the involvement of employees.

3

The European Company

SE legislation in place.2 As the national chapters in this and the previous volume of this book show, the 32 options given to Member States by the Regulation; the eight options given by the Directive; the 65 references to national law in the Regulation including the very broad Article 10, plus five such references in the Directive; and the obligations imposed on Member States to draw up their own rules of SE-law (three by the Regulation, see Art. 64, and 10 by the Directive) have – of course – resulted in substantial differences between the SE-laws of the various Member States.

II

SEs created thus far In spite of the publicity provided for in Articles 13 and 14 Reg., it is impossible to establish with any accuracy the number of SEs formed.3 However, thanks to research carried out by the European Trade Union Institute (ETUIREHS) (Project SEEurope – Worker participation at board level in the European Company (SE), www.worker-participation.eu) it is reasonably safe to say that at the end of June 2007 some 81 SEs had been formed and were still in existence. A quick analysis of the available data reveals a few interesting statistics. The 81 SEs in question were registered in 17 different EEA Member States. 34 were formed in Germany,4 11 in the Netherlands,5 7 in Belgium, 7 in Austria, 5 in Sweden and one, two or three in each of the other 12 Member States. Only to a limited extent can these differences be explained by the respective delays in producing implementing legislation. From the data collected by ETUI it would appear that, of the 81 SEs, there are around 13 ‘shelf companies’ with no activity at all,6 and around 30 SEs ‘active’ in various service industries (e.g. financial or real estate services), mostly without any employees. According to these data, 27 SEs had no employees 2 3

4 5 6

4

It should be noted that, as at July 2007, Bulgaria had not passed any legislation to make use of the options and comply with the obligations under the Regulation. This is mainly due to two factors: (a) the lack of communication between the national registrars and the Office of Official Publications of the EC, and (b) the inaccessibility of the national registers. As to the lack of communication, experience with the European Economic Interest Grouping (EEIG) has shown that, in spite of Art. 39(2) of the EEIG Regulation (which is in essence identical to Art. 14 Reg.), national registrars do not always forward particulars of EEIGs or SEs with the required punctuality, if at all, while the Office of Official Publications apparently does not follow up glaringly incomplete communications by the registrars. Consequently, any statistic produced by the EC on EEIGs and SEs is unreliable. About 40% of the publications on SEs in the Supplement to the Official Journal of the EU do not even contain all of the (few) essentials required by Art. 14 Reg. As to inaccessibility, a search for all SEs in a particular Member State (in particular in another Member State than one’s own) is, if at all feasible, an extremely cumbersome and costly activity. Three of these transferred their registered offices to other Member States and one was liquidated. Of these 11 SEs, one was transferred to Hungary, another to Germany and two were liquidated. See Section IV below.

The SE in its sixth year: some early impressions

when they were formed. Of another 27 SEs it was not known whether they had any employees. Only some 17 SEs appear to have more than 10 employees. These include: Alfred Berg SE Allianz SE

Sweden Germany

320 133000

8

C7

Banking

M9

Insurance

Conrad Holding SE

Germany

2300

M

Trade in electronics

Elcoteq SE

Finland

7500

C

Electronics manufacturing services

Graphisoft SE

Hungary10

250

C

IT

Hager SE

Germany

9500

C

Electric equipment

MAN Diesel SE

Germany

6400

C

Metal industry

Mensch und Maschine Software SE (MuM)

Germany

350

C

IT

PCC SE

Germany

3750

C

Chemicals, energy

Plansee SE

Austria

1420

C

Metal industry

SE Sampo Life Insurance Baltic11

Estonia

120

M

Life insurance

Strabag SE

Germany

33000

C

Construction

To these should be added five listed companies whose shareholders have already decided to convert into an SE: BASF

Germany

65500

C

Chemicals

Fresenius

Germany

104000

C

Medical care

Porsche Automobil Holding

Germany

11500

C

Automotive

SCOR

France

700

C

Reinsurance

Surteco

Germany

2100

C

Paper/Plastics

7 8

9 10

11

C means that the relevant SE was formed by conversion. Where I was able to ascertain, the number represents the employees of the SE and its branches and subsidiaries in the EU at the time of the SE’s formation. The numbers for MAN and Fresenius are in any event for employees worldwide. M means that the relevant SE was formed by means of a merger. Formed in the Netherlands in 2005, it transferred its registered office to Hungary five months later. Interestingly, Graphisoft SE was the first to form an SE by means of a division. In 2006 it spun off its real estate business to a new company, Graphisoft Park SE. The Regulation does not provide for the formation of an SE by division, but under Art. 9(1)(c)(ii) and 10 Reg. an SE can divide if the law of the Member State where it has its registered office allows public limited-liability companies to do so. Part of a large Finnish insurance group.

5

The European Company

It is interesting to note that all these ‘large’ SEs/future SEs (except Sampo and SCOR) have or will have their registered office in a country with some form of employee participation.12 In addition, all of them (except Allianz, Conrad and Sampo) were/will be formed by conversion. In the case of the three exceptions, these were formed by merging two or more companies belonging to the same group. Therefore, the existing regime of employee participation either did not change at all (see Article 4(4) Dir. and Part 3(a) of the standard rules in the annex to the Directive) or changed in favour of the companies involved in that the number of supervisory board members could be reduced.13 In any event, all these companies (SCOR to a lesser extent) were already familiar with employee participation rules, an aspect of the SE that may constitute a deterrent for companies from the 15 Member States where employee participation does not apply to companies – other than the SE – that are not state-owned or privatised.

III

Why opt for an SE? As discussed in my contribution to the first volume of this book, one of the main reasons for adopting the SE Statute has always been the desire expressed by (some) business people to have at their disposal an EU-wide corporate form for cross-border restructurings by means of mergers. To the extent that it was envisaged that these would be mergers between previously unrelated companies, there is as yet no evidence that the SE is fulfilling that desire. On the contrary, two recent developments seem to have rendered the SE redundant as a vehicle for cross-border mergers. Both events occurred after the first volume of this book had gone to press. On 13 December 2005, the Court of Justice of the EC (‘the Court’) delivered a groundbreaking judgment14 enabling all companies to merge across borders within the EU without having to comply with the complicated and burdensome provisions of the Regulation and the Directive. Meanwhile, on 26 October 2005, the European Parliament and the Council adopted the long-awaited directive on cross-border mergers15 (‘the CBM Directive’). Member States must transpose this Directive by 15 December 2007. It should be noted that the 12

13

14 15

6

By ‘employee participation’ I mean the influence of representatives of employees in the structure of a company, in particular, the composition of the supervisory board or, in the case of a company with a one one-tier board structure, the composition of the board (see Art. 2(k) Dir.). German law requires a supervisory board to consist of 20 members if the number of employees is in excess of 20,000. Under the Directive (see in particular Part 3(b) of the standard rules) no fixed minimum applies. Both Allianz and BASF reduced their number of supervisory board members from 20 to 12, which of course is a more manageable number. MAN Diesel reduced the number from 12 to 10. Case C-411/03, SEVIC Systems AG (‘SEVIC’). Directive 2005/56/EC on cross-border mergers of limited liability companies (Official Journal, L 310, 25.11.2005, p.1).

The SE in its sixth year: some early impressions

rules on employee involvement are somewhat less cumbersome under the CBM Directive than they are under the Directive. To begin with, unlike the latter, the CBM Directive deals only with employee participation, and not with information and consultation. Secondly, although the participation regime laid down in the CBM Directive is largely copied from the Directive, there are situations where under the CBM Directive this regime does not apply or where the procedure may be simplified.16 Until 15 December 2007,17 the Court’s judgment in SEVIC applies to any cross-border merger, tempered only by the possible application of the ‘rule of reason’.18 The judgment essentially allows companies from different Member States to merge if each of them complies with its own country’s law on mergers and provided that the merger does not constitute an abuse of the rights of shareholders, creditors or employees. For a Member State to be justified in preventing such a merger, it would have to establish such abuse on a case-bycase basis.19 To determine what constitutes abuse, reference may be made to the common principles underlying the national provisions implementing Article 11 Dir. and, to some extent, those reflecting the last sentence of recital 18 of the Directive.20 What, then, has motivated the managements and shareholders of companies to opt for the SE so far? The Regulation requires companies that form a holding SE or convert into an SE to publish draft terms including a report that explains and justifies the legal and economic aspects of the SE’s formation and indicates the implications for the shareholders and employees.21 However, due to the inaccessibility of the national registers, in many cases (particularly in those of smaller SEs), it is almost impossible to trace such reports and, thus, the motives for the creation of the relevant SE. I therefore propose to give a short survey of the motives published by the promoters of 12 of the 17 ‘large’ SEs (or future SEs) referred to above.22 Most of these are or will be listed on a stock exchange. It should, of course, be borne in mind that there are wide differences in the circumstances of each company at the time of its decision to create an SE. 16 17 18 19 20 21

22

See Art. 16 of the CBM Directive and Paul Storm, ‘Cross-border Mergers, the Rule of Reason and Employee Participation’, European Company Law, 2006/3, pp.130–138. or, in any Member State where the implementing legislation is in place at an earlier date, until that date, See the contribution referred to in footnote 16. See the Court’s rulings in Inspire Art (Case C-167/01, para. 143 and operative part) and Centros (Case C-212/97, operative part). See Section IV below. See Arts. 32(2) and (3) and 37(4) and (5) Reg. Strangely, no such requirement applies in the event of formation by merger, even though it is laid down in Art. 9 of the Third Directive to which Art. 18 Reg. refers. This casts doubt upon the exhaustive nature of Art. 20(1) Reg., which sets out the contents of the draft terms of merger in such detail that it would appear to be exhaustive. I could not trace the motives of Graphisoft, Hager, Porsche, Sampo and Surteco.

7

The European Company

{ For nine out of twelve companies, the European and transnational image of the SE figures prominently among the reasons stated (a ‘European identity’). { Other abstract reasons for opting for the SE include: • being seen to be a pioneer by adopting the new legal form • strengthening the company’s economic, social and cultural position in Europe • enhancing an international and open enterprise culture • a perception that the SE is more conducive to thinking and acting on an international scale • a perception that the SE helps management to concentrate on critical strategic issues. { Eight companies explicitly mention simplification of the organisational structure (e.g. a unified managing and reporting system). { Other business reasons include: • enhancing corporate governance (management structure, including a reduction of the number of management/supervisory board members)23 • enhancing efficiency and competitiveness • facilitating the raising of capital • involving all European employees (in these cases not just those in Germany) in employee participation. The future will show to what extent these motives are realistic. Personally, I tend to question a number of them. For example, MuM expects the SE to simplify not only its legal and organisational structures, but also its operational business. How? Strabag states that the SE will meet Europe-wide legal acceptance and that it will make it easier to attract capital, especially for cross-border projects. I wonder whether banks will have more confidence in the rather obscure mix of European and national rules governing an SE than in the familiar national legal regimes. Reverting to the envisaged role of the SE as an instrument for cross-border structural change, it would seem that this motive for creating an SE has been relevant only for Allianz, the Baltic subsidiaries of Sampo and the subsidiaries of SCOR. Allianz SE was created through a merger between Allianz AG and its Italian subsidiary RAS Holding SpA. Sampo merged its subsidiaries in three Baltic countries into an SE with registered office in Estonia. SCOR SA decided to merge some of its group companies in France, Germany and Italy to form two more SEs, SCOR Global P&C SE and SCOR Global Life SE, each with about 500 employees. Conversion into an SE per se has nothing to do with cross-border structural change. 23

8

Interestingly, three German companies (Conrad, MuM and PCC) and one Austrian company (Plansee) changed their board structure from two-tier to one-tier.

The SE in its sixth year: some early impressions

Have other reasons having to do with cross-border mobility been given? The yield of my search for reasons is scant. Allianz and a company that wishes to remain anonymous stated that the SE would facilitate future cross-border mergers. After SEVIC and the implementation of the CBM Directive this no longer seems to be relevant. Elcoteq, SCOR and Strabag stated that the SE would facilitate future acquisitions, without indicating how. Only Strabag mentioned that the SE form would simplify a transfer of seat. Under current European law and most national laws, it is impossible for a company to transfer its registered office to another Member State. However, under European law,24 which overrides national law, a transfer of the head office25 of a company under national law is permitted. The Regulation (Article 8) expressly permits transfer of the registered office of an SE, albeit after a rather cumbersome procedure.26 Therefore, where a company wishes to transfer both its registered office and its head office, the SE offers for the time being the only certain Europe-wide way to achieve this. In fact, apart from the formation by means of a merger, the ability to transfer the registered office is the only element of cross-border mobility offered by the SE. It is therefore somewhat surprising that Strabag was the only company to mention this as a motive for creating an SE. Or do companies with many employees and a system of employee participation fear that industrial unrest will ensue if they state that one of their motives for opting for the SE is to transfer their registered office and, by implication, their head office to another Member State? Tax considerations have not been mentioned by any of these ‘large’ SEs. To the extent that they were formed by way of conversion, the reason is obvious: there was no change in the tax position. In the case of Allianz (the merger with RAS Holding SpA), tax issues do not seem to have posed serious obstacles. However, it is not known whether they were a motive for the formation of the SE.27 Tax considerations may well have played a very significant part in the formation of the more than 60 SEs that have kept themselves out of the limelight. My conclusion from the foregoing is that, on the rather scant evidence available so far and contrary to expectations, cross-border mobility does not appear to be the driving force behind the formation of SEs. Rather, the motives are of a more abstract (image) and/or an organisational nature. 24 25 26

27

See Chapter 1 of the first volume of this book, p. 5 and 6. Also called ‘real seat’, see Chapter 1 of the first volume of this book. As has been shown on at least seven occasions, the difficulties can be overcome, but this was achieved by SEs that probably did not have any employees (the exception being Graphisoft SE which, with some 250 employees, transferred its registered office from the Netherlands to Hungary). The other SEs that transferred their registered offices are Afschrift SE (from Belgium to Luxemburg), Joh. A. Benckiser SE (from Germany to Austria), BIBO Zweite Verm¨ogensverwaltungsgesellschaft SE and Bolbu Beteiligungsgesellschaft SE (both from Germany to Wales), Jura Management SE (from the Netherlands to Germany) and Narada Europe SE (from Norway to the UK). See Chapter 4 of the first volume of this book.

9

The European Company

IV

Some employee participation issues In my chapter in Volume 1 of this book, I addressed the possibility of avoidance of employee participation in an SE. As the data collected by ETUI show, at least one-third but probably well in excess of half of the 81 SEs covered by the research have no employees. At least 13 have no activities at all and seem to have been formed for the purpose of being sold to parties that either do not meet the prerequisites for forming an SE or have no time (or think they have no time) to create, and negotiate with, a special negotiating body (‘SNB’). Another possibility is that such parties do not wish to comply with the rules on employee involvement. They might contemplate purchasing the shares of a ‘shelf SE’ in order to avoid the creation of an SNB and then causing the empty SE to acquire a company with a large number of employees or the assets and employees of such a company. One could also think of a company with employees setting up in different Member States two subsidiaries without employees, causing these subsidiaries to form an SE by means of a merger, and then causing that SE to acquire a company with many employees. It should be noted that for the purposes of creating an SNB only the employees of the ‘participating companies’ and their ‘concerned subsidiaries or establishments’28 are relevant, and not any employees of the parent company or of other companies in the same group. What restraints can be put in place against these mischievous but of course purely academic ideas? Let us first consider the scenario of the formation of an SE by companies that have no employees at all. In that event, it is impossible to comply with Article 3 Dir., which requires the participating companies to take the necessary steps as soon as possible to start negotiations with the representatives of the companies’ employees. However, Article 12(2) Reg. provides that an SE may not be registered unless negotiations with those representatives have resulted in some (positive or negative) outcome. Does the absence of employees in the participating companies/company imply that the SE cannot be registered? Or does it not make sense to require the creation of, and conduct of negotiations with, an SNB when there are no employees? At the request of the Hans B¨ockler Stiftung, a foundation allied to the German trade unions, the German professor Dr Thomas Blanke has written a legal opinion29 on ‘Reserve-SE’s’ (shelf SEs) in which he concludes that such an SE without employees cannot ‘acceptably’ be registered. His principal argument appears to be that, according to the express wording of Article 12(2) and (3) Reg., providing for employee involvement is a mandatory prerequisite for 28

29

10

See Art. 2(b) and (d) Dir.: ‘participating companies’ means the companies directly participating in the establishing of the SE and ‘concerned subsidiary or establishment’ means a subsidiary or establishment (branch) of a participating company which is proposed to become a subsidiary or establishment of the SE upon its formation. Publication 2005, nr 161 of the Hans B¨ockler Stiftung.

The SE in its sixth year: some early impressions

registration. This seems to be a petitio principii that ignores the fact that there are no, and may never be, employees to negotiate with. In addition, Article 12(3), quoted by Professor Blanke, provides for the possibility of registering an SE without employees in that it expressly provides for an exception to the requirements laid down in Article 12(2) for registration of an SE30 in the event that none of the participating companies had been governed by participation rules prior to the SE’s registration.31 What Professor Blanke in fact appears to aim at is the conclusion of some agreement, prior to the registration of the SE, which lays down procedures for ‘renegotiation’ of that agreement in the event that the ‘Reserve-SE’ is activated at some time in the future. However, Professor Blanke does not explain with whom the participating companies should conclude such an agreement. This very problem seems to be the reason why he considers registration of an SE without employees to be ‘unacceptable’ (he stops short of finding it impossible). As I will show below, the aim pursued by Professor Blanke has been largely achieved by way of legislation of the Member States. It should be noted that, according to ETUI’s data, there has been at least one case, in Germany, where the registration of an SE was refused on the ground that the company in question (which wanted to register as a subsidiary SE) could not submit an agreement on the involvement of employees because it had no employees.32 On the other hand, the commercial registry court in Berlin accepted the registration of Go East Invest SE, which had no employees, ruling that the objects of the SE could be achieved by the chairman of the management organ, without any employees being required.33 Meanwhile, courts in Aachen, Berlin, Dusseldorf and Munich also accepted the formation of SEs without employees. In addition, such SEs were formed in a number of other Member States, including Austria, the Netherlands, Norway and Sweden. It should be borne in mind, however, that the absence of employees in an SE does not necessarily mean that there were no negotiations with an SNB. The participating companies and their ‘concerned subsidiaries or establishments’ may have had employees from among whom an SNB was elected. This can only apply where the ‘empty’ SE was formed as a holding or a subsidiary (Article 2(2) and (3) Reg.). Where an SE was formed by means of a merger or by conversion and started without any employees, it by definition follows that the participating

30 31 32 33

In a Member State that has made use of the option referred to in Art. 7(3) Dir. Incidentally, in so far as I have been able to ascertain, no Member State has made use of this option. Apparently, in that event there is no requirement that there be any arrangement for other forms of employee involvement. Zoll Pool Hafen Hamburg SE which, in 2005, was intended for the custom clearance of transit containers. In the end, it was decided to form an AG instead. The objects were the giving of advice on (re)location of industrial sites and development of new markets, as well as the provision of services on site in the Middle East and the Far East.

11

The European Company

companies or the converted public limited-liability company, as the case may be, cannot have had employees at the time the SE was formed. As stated above, there may well be some 50 SEs without any employees and probably more without any employee participation. Is this a justified reason for concern among those who are anxious to defend employees’ rights to involvement in the SE? I do not think so, because all Member States have either somehow implemented Article 11 Dir. or created some provision reflecting the spirit of the last sentence of recital 18 to the Directive.34 Article 11 reads as follows: ‘Misuse of procedures Member States shall take appropriate measures in conformity with Community law with a view to preventing the misuse of an SE for the purpose of depriving employees of rights to employee involvement or withholding such rights.’

The last sentence of recital 18 to the Directive reads: ‘Consequently, that approach [securing employees’ acquired rights as regards involvement in company decisions] should apply not only to the initial establishment of an SE but also to structural changes in an existing SE and to the companies affected by structural change processes.’

On close analysis, there is not all that much difference between these two provisions. In fact, ‘structural changes’ is a neutral term covering all changes whether or not made with the intention of depriving the employees of their rights, and therefore includes ‘misuse’. Consequently, many Member States focus on changes/structural changes rather than misuse. Both misuse and structural change may take place prior to and after registration of the SE. In the scenario of misuse referred to in the first paragraph of this section (section IV), the intention of depriving employees of their rights will have arisen prior to registration of the SE but the relevant action (e.g. in the form of the acquisition of a company with a substantial number of employees) will have taken place after the SE’s registration. In such a case, as well as in all bona fide cases where the idea to acquire a company with a large number of employees arises only after the SE has been formed, the call for corrective measures will only be made after registration. I will therefore first deal with cases where the demand for correction is made after registration of the SE. Structural changes, as well as misuse, may take various forms. The first one that comes to mind is a substantial increase in the number of employees after the representative body has been established, as a result of which the ‘new’ employees are not properly represented. In fact, many national implementing laws include a significant change in the number of employees of the SE and its 34

12

See Chapter 1 of the first volume of this book, page 22.

The SE in its sixth year: some early impressions

subsidiaries or establishments in the definition of ‘structural changes’, or put the two on a par. Many Member States specify that a change is ‘structural’ or ‘essential’ where after the change the employees do not have the involvement rights (e.g. the number of representatives on the SNB or the representative body) they would have had if the change had occurred prior to registration of the SE and the rules applicable to the formation of the SE (negotiations with an SNB, etc.) had been complied with. 1135 of the 1936 EEA Member States that focus only on misuse (10) or apply both misuse and structural changes as criteria for corrective measures (9), have introduced a rebuttable presumption of the existence of misuse whenever a change/structural change occurs within one37 year of registration of the SE. In all cases the consequence of misuse is that the SE must start (new) negotiations with a newly composed SNB or representative body. At least 11 Member States38 that focus on misuse provide for criminal sanctions. In the case of structural change without misuse (or presumption of misuse), new members of the representative body must be appointed or elected or the seats must be reallocated between representatives of the relevant Member States. I refer to Chapter 1 in Volume 1 of this book (page 23) to remind the reader of the tax risk connected with any change in employee participation caused by the formation of an SE involving a German company. 15 EEA Member States39 provide for measures in the event of misuse or structural changes prior to registration of the SE. Such measures can range from a reallocation of seats in the SNB to new negotiations or even criminal sanctions.40 I would emphasise that in this day and age an employer of a large workforce, in whichever Member State his enterprise may be located, cannot allow himself to ostensibly misuse an SE for the purpose of depriving his employees from involvement rights. What may well happen, however, is that shortly after an SE has been formed an opportunity presents itself for an important acquisition involving many employees. In such an event the entrepreneur and his advisers must be aware of the rules and of the risks attached to non-compliance. It will be clear from the above that even on these two issues (Article 11 Dir. and recital 18 to that directive) no two Member States have made the same 35 36

37 38 39 40

Austria, Denmark, Estonia, Finland, Germany, Luxembourg (non-rebuttable presumption), Sweden, the UK, Iceland, Liechtenstein (non-rebuttable presumption?) and Norway. Apart from the ones referred to in the previous note, these are Cyprus, Greece, Ireland, Italy, Lithuania, Malta, Poland and Spain. In Lithuania all essential changes occurred ‘shortly’ after formation of the SE are taken into account. In the case of Denmark two years. Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Iceland, Luxembourg, Poland and Spain. Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Estonia, the Netherlands, the Slovak Republic, Slovenia, Spain, Sweden, the UK, Iceland, Liechtenstein and Norway. Criminal sanctions in Slovenia in addition to the countries referred to in note 37.

13

The European Company

implementing provisions. The same applies with respect to almost all other provisions of the Directive. The implementing Acts, decrees or other instruments vary enormously in size and detail. The shortest one (the Norwegian) comprises 31 articles and some 4,100 words, the longest one (the British) 37 provisions and some 10,600 words. It will therefore always be necessary to consult local lawyers in all Member States where there are participating companies or ‘concerned subsidiaries or establishments’.

V

Conclusion It is my impression that European businesses are still testing the waters and that the massive hunt for the €30,000 million annual savings in legal and administrative costs41 has not yet started. Nevertheless, some major businesses have adopted the new legal form, most through conversion, some by means of a merger with a group company. To them, employee participation was familiar and therefore no deterrent. Their choice for the SE form appears not so much to be inspired by a desire for cross-border mobility as by more abstract (a ‘European identity’) and organisational considerations. Looking at where – i.e. in which Member States – SEs of any significant size have thus far been registered (mainly in Germany), it seems fair to conclude that employee participation still remains an obstacle for many large companies that are not already familiar with this phenomenon. The scope for escaping employee participation is very limited. The SEs that have escaped so far appear, for the most part, to exist on the fringes of the European business community. Under Article 15 Directive, the Commission must, by 8 October 2007, in consultation with the Member States and with management and labour at Community level, review the procedures for applying the Directive, with a view to proposing suitable amendments ‘where necessary’. It would be helpful if the Commission proposed some simplification of the very complicated procedures under the Directive and clarify a number of ambiguities some of which I mentioned in my chapter in Volume 1. The Commission cannot compel Member States to bring more uniformity in their implementing laws, but it can and must compel Member States to amend or supplement their laws where these are not complying with the Directive. Article 69 of the Regulation calls for a report on the application of the Regulation and proposals for amendments by 8 October 2009 ‘at the latest’. It would appear that experience with the SE is not yet sufficiently widespread to require any amendments being proposed already in 2007.

41

14

See Chapter 1 in Volume One of this book, page 15.

PA RT I I Application in each Member State

National reports from EU Member States

1 Bulgaria r a i n a d i m i t r o va Borislav Boyanov & Co.

I II

Introduction 20 Formation 22 1 General remarks 22 A Founding parties 22 B Name 23 C Registered office and transfer 24 D Corporate purpose 25 E Capital 25 2 Different means of formation 26 A Formation by merger 26 B Formation of a holding SE 29 C Formation of a subsidiary SE 30 D Conversion into an SE 31 3 Acts committed on behalf of an SE in formation 32 4 Registration and publication 32 5 Acquisition of legal personality 33 III Organisation and management 34 1 General remarks 34 2 General meeting of shareholders 34 A Decision-making process 34 B Rights and obligations of shareholders 36 3 Management 38 A One-tier management system 38 B Two-tier management system 40 C Liability of management 43 D Additional requirements for the management of a public AD 43 IV Employee involvement 44 V Transposition of the Directive of 8 October 2001 45 VI Annual accounts and consolidated accounts 47 1 Accounting principles 47 A Non-application of the requirement to prepare consolidated accounts 49 B Annual report 50 2 Auditor 51 VII Supervision by the national authorities 52

19

The European Company

VIII Dissolution 53 1 Winding up 53 2 Liquidation 53 A Liquidation rules 53 B Commencement of liquidation 53 3 Insolvency proceedings 54 4 Cessation of payments 57 IX Governing law 57 X Tax treatment 57 1 Income Tax 57 A Profit and income from sources inside Bulgaria 58 B Special provision implementing the Regulation with regard to the transfer of the registered office of an SE 2 Other taxes 61 XI Conclusion 61

I

59

Introduction Council Regulation (EC) No 2157/2001 on the Statute for a European company (the ‘Regulation’) has been directly applicable in Bulgaria as of 1 January 2007, while Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’) has been transposed into national law by the Law on Information and Consultation with Employees in Multinational Undertakings, Groups of Undertakings and European Companies of 2006 (‘LICE’), which entered into force on 1 January 2007. In compliance with the Regulation, an SE that has its registered office in Bulgaria shall be treated in Bulgaria as an akzionerno druzhestvo (a joint stock company, JSC or AD),1 formed in accordance with Bulgarian law. This follows from Council Regulation No 1791/2006 of 20 November 2006 adapting certain EU regulations and decisions, including those in the field of company law, by reason of the accession of Bulgaria and Romania to the EU.2 In determining Bulgaria’s aim to become an EU Member State, acceptance of the acquis communautaire started. Thus, most national legislation currently in effect corresponds to the regulations and directives in force within the European Union, and the accession of Bulgaria on 1 January 2007 to the European Union was the step needed to confirm the conformity of Bulgarian law with Community legislation.

1 2

20

The Bulgarian abbreviation for an AD. Amending Annex I to the Regulation to include the AD and Annex II to the Regulation to include the AD and the limited-liability company (OOD).

Bulgaria

The Bulgarian legislature has not adopted a special law to implement the Regulation or enacted any statutory provisions applying expressly to SEs registered in Bulgaria and implementing the options provided for in the Regulation. As of June 2007, there was no bill to that effect pending before Parliament or any officially stated intention to introduce such a bill. However, the Commerce Act, applicable to commercial companies including the AD, and the Public Offering of Securities Act, as a lex specialis covering national public companies offering their securities to the public, already regulate most of the matters covered by the options contained in the Regulation. Pursuant to Article 9(1)(c)(ii) of the Regulation, these national acts shall apply to all SEs registered in Bulgaria. It should also be noted that the options contained in Articles 2(5), 8(5), 8(14), 12(4), 19, 34, 39(2), 39(3), 48(2), 50(3) and 59(2) of the Regulation have not been transposed into Bulgarian law. In Bulgaria, issues surrounding the incorporation, existence and winding up of companies, in particular joint-stock companies, are regulated mainly by the following laws: • The Commerce Act of 1991 as amended (‘CA’) – the main legislation regulating the legal status of companies and their incorporation, as well as mergers, conversions, acquisitions, the sale of shares in limited-liability companies and joint stock companies, the transfer of ongoing concerns, commercial transactions, insolvency proceedings, etc. • The Commercial Register Act of 2006 (‘CRA’) – this legislation will enter into force on 1 January 2008 and will regulate the registration of companies, the Commercial Register, etc. • The Obligations and Contracts Act of 1950 as amended (‘OCA’) – this law covers all matters not covered by the Commerce Act, as well as transfers of assets, transfers and novation of contracts, assignment, etc. It also governs some general issues, such as the invalidity of civil contracts. • The Public Offering of Securities Act of 1999 as amended (‘POSA’) – this law regulates the legal status and special requirements applicable to publicly traded joint stock companies, the procedures for acquiring their dematerialised shares, the obligation to launch a tender offer once certain shareholding thresholds have been reached, etc. • The Labour Code of 1986 as amended (‘LC’) – this law regulates all aspects of the employer-employee relationship, the organisation of employees and employers, etc. • The Law on Information and Consultation with Employees in Multinational Undertakings, Groups of Undertakings and European Companies of 2006 (‘LICE’) – this law implements in Bulgaria the Directive of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees. 21

The European Company

The abovementioned laws are supplemented by relevant secondary legislation, i.e. ordinances adopted in implementing specific provisions. In addition, it should be noted that other legislation sets out additional rules and requirements for specific types of companies with respect to their activities, i.e. the Insurance Code, the Credit Institutions Act, the Special Purpose Investment Companies Act, etc.

II

Formation

1

General remarks

A

Founding parties

Pursuant to the Regulation, only a joint stock company (‘AD’) shall be considered a public limited-liability company in Bulgaria (Art. 2(1) Reg.). An AD is a company whose capital is divided into shares (which can be either registered or dematerialised). The AD is a traditional example of a capital company. One of the features of the AD (which is not obligatory, as all shares in an AD can be held by a single shareholder) is that many of its shareholders are often legal entities. An AD is not liable for the obligations of its shareholders, and the shareholders are only liable for the obligations of the AD up to the amount of their participation in the AD’s share capital. As a rule, shares in an AD may be transferred freely. However, POSA provides for certain obligations to be performed by shareholders that acquire registered shares in a public company. According to the Bulgarian legislation in force, there are two main types of ADs: (i) the so-called classic AD under the CA – shares in such an AD are in materialised form; the regulatory framework is much less restrictive and shareholders have no special obligations; (ii) the public AD under POSA – shares in such an AD are dematerialised; the AD may not issue preferred shares entitling their holder(s) to more than one vote or to an extra share of the liquidation proceeds in the event of winding up; additional requirements and procedures exist for the transfer of shares, the decision-making process, etc. According to POSA, a public AD is an AD (i) which has issued shares in the context of an initial public offering; (ii) whose shares have been registered with the Financial Supervisory Commission (‘FSC’) for the purpose of being traded on a regulated securities market; or (iii) which had more than 10,000 shareholders on the last day of two consecutive calendar years. Public companies must be registered in the FSC’s registry of public companies and other issuers of securities. Any newly incorporated or surviving company that has become public as the result of a merger involving a public company is also subject to this registration requirement. 22

Bulgaria

The transfer of shares in an AD (provided the shares are not dematerialised) is a very simple procedure and requires no registration with a governmental authority, thus no fees need be paid. The AD allows for various flexible instruments to be issued in order to attract investors, such as corporate bonds and special types of shares (e.g., non-voting shares where the investor acquires a stake in the capital but has no say in the management of the company, shares with a fixed dividend or shares with a right of redemption by the company, etc.) An AD may be incorporated by one or more natural persons or legal entities by way of an incorporation meeting; the incorporation must be certified by signing minutes. The incorporation meeting must (i) adopt articles for the company and (ii) elect a supervisory board (if the company has a two-tier management structure) or a board of directors (if it has opted for a one-tier system). After execution of the requisite documents and as soon as the capital (or at least 25% thereof for a non-public AD) has been deposited with a bank in Bulgaria, an application shall be submitted to the regional court of the place where the AD’s registered office is located. An AD is deemed established upon the issuance of a court order calling for its registration with the court’s commercial register.3 If the company is a public entity, it must also be registered with the FSC’s register of public companies and other issuers of securities. Bulgarian law does not allow a company with its head office outside the EU to participate in the formation of an SE in Bulgaria unless the conditions listed under Article 2(5) of the Regulation are fulfilled. B

Name

In general, the corporate identity of an AD must indicate: (i) its name; (ii) the address of its head office and registered office; (iii) its company number; and (iv) its BUSLTAT registration number. An AD’s name must be unique, i.e. no two ADs can have the same name in the district of the regional court where the AD’s head office and registered office are located. After the entry into force of the new CRA, the name of an AD must be unique throughout Bulgaria. An AD must include the abbreviation ‘AD’ and other identifying information on all corporate documents. This obligation also applies to other forms of communication, such as websites, email and other audio-visual means. 3

On 1 January 2008, a new Commercial Register Act shall enter into force. According to the new act: (i) the commercial register shall be kept by the Registry Agency of the Ministry of Justice and publications in the State Gazette shall no longer be made; (ii) all applications may be submitted via the Internet; and (iii) actions by officials shall be subject to oversight by the respective regional courts further to a request by an interested party or a public prosecutor.

23

The European Company

Bulgarian law does not contain any specific rules regarding an SE’s name. However, according to the Regulation (Art. 11(1)), the name of an SE must consist of the company’s name preceded or followed by the abbreviation ‘SE’. C

Registered office and transfer

The head office of an AD is the place (i.e. city or village) where its registered office is located. Under the CA (Art. 12), the head office of a company is the place where its effective management is located. The official address of an AD is the address of its management. Consequently, the registered office is the place where an AD’s central management and administration are located. Bulgarian law does not allow the head office and registered office of an AD (including SEs) to differ from the place of its effective management. An AD is established by way of registration with the commercial register kept by the regional court of the place where its head office is located. Under the new CRA, the Commercial Register shall take the form of a standard centralised electronic database operated by an information system. Registration shall be based on the location of the company’s head office. With respect to the transfer of a company’s head office and registered office, there are two possibilities: (i) transfer of the head office and/or registered office of an AD to a location within the jurisdiction of the same regional court – an application to the regional court where the head office is located must be filed and the court shall register the new head office and/or registered office; (ii) transfer of an AD’s head office and registered office to a location outside the jurisdiction of the regional court where it is registered – an application with the regional court where the AD’s head office was located prior to the transfer must be filed; the court shall register the new address and send the company’s file to the regional court within whose jurisdiction the new head office and registered office are located. The procedure to transfer the head office and registered office is standard. It should be noted, however, that such a transfer must be approved by the general meeting of shareholders by a two-thirds majority of the share capital represented at the meeting, provided at least half the company’s share capital is present or represented. Bulgaria has not adopted specific provisions designed to protect minority shareholders who oppose the transfer of an SE’s registered office (Art. 8(5) Reg.). In view of the above rules, however, shareholders representing more than onethird of the share capital of an AD can block a resolution to transfer its head office and registered office. 24

Bulgaria

Publication of the transfer proposal may be proved by producing a copy of the State Gazette containing the relevant information. With the entry into force of the CRA, publication in the State Gazette shall be replaced by the filing of an announcement of the proposal with the Commercial Register. Article 8(14) of the Regulation has not been transposed into Bulgarian law, i.e. the Bulgarian authorities are not entitled to oppose the transfer of an SE’s registered office on grounds of public interest. D

Corporate purpose

Bulgarian law does not contain any specific provisions regarding the corporate purpose of an SE. According to general rules of Bulgarian company law, a company may be formed for any commercial purpose. E

Capital

Bulgaria has not yet joined the economic and monetary union. Therefore, in accordance with the option contained in Article 67(1) of the Regulation, the share capital of an SE with its registered office in Bulgaria must be expressed in Bulgarian lev (BGN).4 According to the Regulation (Art. 4(2)), the subscribed share capital of an SE may not be less than €120,000. Consequently, the capital of an SE registered in Bulgaria must be expressed in Bulgarian lev (i.e. a minimum of BGN 234,700) but may also be expressed in euros. The capital of an AD is divided into shares, with the minimum nominal value of one share being BGN 1. The capital must be fully subscribed. An AD may not subscribe for its own shares. Should this prohibition be violated upon the incorporation of an AD, the founders shall be jointly liable for the subscribed shares. If any person subscribes for shares on behalf and at the expense of an AD, the shares in question shall be deemed to be purchased entirely at the expense of that person. Before submitting an application for registration with the court, at least 25% of the value of each share must be paid up. With respect to the incorporation of a public AD, an initial public offering (IPO) of securities must be made. An IPO is an offer of securities made to 100 or more persons or to an unrestricted circle of persons in any form and by any means whatsoever, in which sufficient information on the terms of the offer and the securities to be offered is presented so as to enable investors to decide to subscribe to or purchase the securities (a special prospectus must be issued and approved by the FSC). Special legislation, such as the Special Purpose Investment Companies Act, the Insurance Code, the Credit Institutions Act, etc. may provide that a higher 4

In accordance with the Bulgarian National Bank Act of 1997, as amended, the fixed exchange rate of the Bulgarian lev (BGN) to the euro (EUR) is BGN 1.95583 to EUR 1.

25

The European Company

percentage of the share capital must be registered and paid up in the case of banks, insurance companies, etc. (Art. 4(3) Reg.).

2

Different means of formation

A

Formation by merger

Annex I to the Regulation lists only a joint stock company (akzionerno druzhestvo or AD) with reference to Bulgaria. Therefore, only this type of company can form an SE by merger in Bulgaria, provided the requirements of Article 2(1) of the Regulation have been met. Matters concerning the formation of an SE by merger which are not covered by the Regulation shall be governed by the provisions of national law applicable to mergers involving public limited companies. Two types of mergers may be performed under Bulgarian law: (i) a merger by absorption (one or more companies merge into another (acquiring) company, which becomes their legal successor while the merged entities cease to exist) or (ii) a merger by incorporation (two or more entities combine to establish a new one, which becomes their legal successor and all of the combined entities cease to exist). In both cases, liquidation does not occur. If at least one public AD is involved in a merger, the surviving AD or the new AD, as the case may be, shall also be a public company. The registration of such a merger with the commercial register is allowed only after presentation of the FSC’s decision approving the merger. Bulgarian law does not contain express rules in the event of a merger between an SE and an AD. However, the legislation may be interpreted to provide that an SE shall be considered an AD and, therefore, the rules governing a merger between two ADs and the provisions of the Regulation shall apply. Due to the harmonisation of Bulgarian law with the EU merger rules, the procedure in Bulgaria to perform a merger follows on the whole the same statutory requirements. Prior to taking a decision on the merger, the companies involved must enter into a merger agreement. In accordance with the Regulation (Art. 20), the management bodies of the companies involved in the merger shall draw up draft terms of merger. Currently, Bulgarian law requires publication in the State Gazette of a notice that the merger proposal (merger agreement) has been filed with the competent commercial court at least 30 days prior to the date of the general meeting(s) scheduled to vote on the merger. According to the new CRA, presentation of the required information on the draft terms of merger to the commercial register shall be sufficient. In view of the lack of any special provisions in the CRA 26

Bulgaria

and the CA, and taking into account the Regulation’s requirement (Art. 21) regarding publication in the national gazette, it can be concluded that since the Regulation has direct effect, the companies involved in the merger can effect publication in the State Gazette. Bulgarian law does not regulate the issuance of a certificate attesting to the completion of all pre-merger acts and formalities. Under the CA, the merger agreement should be signed by persons authorised to represent the companies involved and their signatures notarised. The merger agreement is subject to review by an auditor appointed by each company involved in the merger or by common accord of the companies involved. The court or Registration Agency (after 1 January 2008) may also appoint a single auditor for all companies. The auditor must review the merger documents and to prepare a report on the share-exchange ratio. Notwithstanding the possibility provided for by Article 31(2) of the Regulation, the CA requires a merger agreement (plan) and an auditor’s report for each merger. The auditor’s report cannot replace the certificate attesting to the completion of all pre-merger acts and formalities. Consequently, in the absence of special rules in Bulgaria and pursuant to Article 25(2) of the Regulation, a notary must issue a certificate conclusively attesting to the completion of all pre-merger acts and formalities. Pursuant to Article 27(2) of the Regulation, a merger certificate from the competent court registry is required to record an SE in the national (court) register. Under Bulgarian law, the formation of an SE by merger must be approved by a qualified majority of at least three-quarters of the voting shares represented at the general meeting(s) of the companies involved. If the AD (SE) has different classes of shares, the decision must be approved by each class. Bulgarian law does not allow the national authorities to oppose the participation of a Bulgarian company in the formation of an SE by merger (Art. 19 Reg.). However, certain rights are granted with respect to the approval of business transactions (such as mergers) to some special authorities, such as the FSC, the Competition Commission and the Bulgarian National Bank if the participants in a merger are companies whose activities are regulated by special legislation, e.g. banking, insurance, etc. (i)

Protection of minority shareholders The CA contains several rules designed to protect minority shareholders in the event of a merger (Art. 24(2) Reg.).5

5

Applicable in the case of a merger with an AD or an SE.

27

The European Company

Any shareholder can appeal the merger before the courts for violation of the merger rules if it feels that its interests have been impaired (e.g., lack of a merger agreement, violation of the applicable statutory provisions, the merger decision contradicts the company’s articles, etc.). Such an appeal can be filed until registration of the merger, at the latest. If an appeal is lodged, the merger cannot be registered. After the merger date, any shareholder can file a claim to invalidate the newly established company under the general rules set forth in this regard in the CA. Such an action can also be brought for violation of the rules of law or provisions of the company’s articles that pertain to convening the general meeting at which the merger decision was taken (if the petitioner did not attend this meeting). In view of the provisions of Article 30(1) of the Regulation, however, this sort of action cannot be brought in the case of an SE registered in Bulgaria. However, Article 30(2) of the Regulation can be applied for violation of Articles 25 or 26 of the Regulation. Within three months from the date of the merger, any shareholder can file a claim for cash settlement, against the newly established or acquiring company, as the case may be, if it considers the exchange ratio in the merger agreement to be unreasonable. In essence, minority shareholders who voted against the merger may request redemption of their shares. A shareholder may exit the company by giving notarised notice to the company within three months from the date of the merger. Such a shareholder is entitled to receive the cash value of its shares, determined in accordance with the share-exchange ratio stipulated in the merger agreement, and can also seek a cash settlement, as mentioned above. (ii)

Protection of creditors The CA does not contain special rules for the protection of creditors of an SE formed by merger; however, it does contain rules designed to protect creditors in general in the event of a merger. The newly established or acquiring company is obliged to manage the assets of each company involved in the merger separately for a period of six months after registration of the merger. Within this same six-month period, any creditor of a participating company can request either satisfaction of its claim or security. Registration of the merger is done by the regional court with jurisdiction over the acquiring or newly established AD. Registration may not be made within 14 days following the filing date. Any changes to the articles, capital, etc. of the acquiring company or newly established AD are also subject to registration. Bulgarian law does not allow the possibility provided for by Article 12(4)

28

Bulgaria

of the Regulation, i.e. the general meeting is the only body that can amend the company’s articles. According to the general rules of Bulgarian company law, a clause in a company’s articles that violates a statutory provision shall be deemed null and void and shall be replaced by operation of law with the respective statutory provision. If a public AD is involved in the merger, the FSC’s approval must be obtained before registering the changes with the commercial register. To this end, the FSC will examine the agreement, reports and any other documents necessary. Pursuant to Article 12 of the Regulation, an SE must be registered in the Member State in which its registered office is located. According to Article 27 of the Regulation, the merger and subsequent formation of the SE become effective only upon registration. If the assets of the non-surviving companies include real property and/or movables subject to registration formalities, the respective pre-registrations and recordations in the relevant registers should be made. Any permits, licences or concessions held by the companies that shall cease to exist shall be transferred to the newly established or acquiring AD. B

Formation of a holding SE

Pursuant to Annex II to the Regulation, as amended, two types of Bulgarian companies may participate in the formation of a holding SE: (i) the AD and (ii) the limited-liability company (LLC) (druzhestvo s ogranichena otgovornost or ‘OOD’ in Bulgarian). The AD and the OOD are entitled to participate in the formation of a holding SE, provided the conditions set forth in Article 2(2) of the Regulation are fulfilled. The holding AD is the most suitable form for managing and controlling other companies. A holding AD can participate in the share capital and/or management of other companies (subsidiaries), regardless of whether it carries on any other manufacturing or commercial activities. According to the CA, at least 25% of a holding AD’s share capital must be invested directly in its subsidiaries. A subsidiary is a company in which the holding AD owns or controls, directly or indirectly, at least 25% of the shares and is in a position to appoint, directly or indirectly, the majority of the members of its management organs. Under the CA, a holding AD may be incorporated for the following purposes: • the acquisition, management, evaluation and sale of interests in Bulgarian or foreign companies; • the acquisition, management and sale of debentures; 29

The European Company

• the acquisition, evaluation and sale of patents and the assignment of licences for the use of patents to companies in which the holding AD has an interest; • the financing of companies in which the holding AD has an interest. The holding AD may not: • participate in a partnership that is not a legal entity; • acquire licences that are not intended to be used by companies controlled by the holding AD; • acquire real property that is not required for its needs; the acquisition of shares in real estate companies is permitted. There are two possibilities to establish a holding AD: (i) A holding AD can be formed and incorporate subsidiaries, subscribing for at least 25% of their share capital. This is possible when the holding AD and the subsidiaries are formed concurrently. The first step is for the holding AD to be incorporated; then, upon registration of the subsidiaries, the holding AD must prove that it owns at least 25% of their capital. (ii) Members of one or more companies can establish a holding AD by transferring their shares to the capital of a newly formed holding company; thus, the promoting companies become subsidiaries of the holding AD. It should be noted that, according to the CA, such a transfer of shares is deemed a contribution in kind; therefore, a valuation of the shares must be performed prior to establishment of the holding AD so as to determine the number of shares in the holding AD to be granted each shareholder. The holding AD’s name must inform third parties of its special corporate identity, and the CA expressly provides for such wording. If the second option is used and a newly formed AD is established as a holding SE with its registered office in Bulgaria (with the participation of two or more public and/or private limited-liability companies, each with its registered office in the European Union), the relevant rules of the Regulation shall apply, basically Articles 2(2), 32 and 33.6 Despite Article 34 of the Regulation, which allows the introduction of measures intended to protect creditors or employees, Bulgarian law does not envisage any protection in addition to that already afforded under Community or Bulgarian law. C

Formation of a subsidiary SE

Bulgarian law does not stipulate any particular provisions with respect to the creation of a subsidiary SE. In accordance with Article 36 of the Regulation, the 6

30

See pages 36 through 43 of the general report; Chapter 2 of the first volume of this book.

Bulgaria

legal entities participating in the formation of a subsidiary SE shall be subject to the provisions governing the formation of a subsidiary in the form of a public limited-liability company under national law. If the registered office of a subsidiary SE shall be located in Bulgaria, Bulgarian rules on the creation of a joint stock company shall apply in accordance with Article 15 of the Regulation (see Section II.1 of this report). D

Conversion into an SE

Pursuant to Article 2(4) of the Regulation, a Bulgarian joint stock company may be converted into an SE, provided the conditions specified in the Regulation are met, i.e. both its registered office and head office are located within the European Union and it has had a subsidiary governed by the laws of another EU Member State for at least two years. Bulgarian law does not contain any special provisions regarding the formation of an SE by conversion. Consequently, matters not covered by the Regulation shall be governed by national law, i.e. the provisions of the CA on changes to the corporate form of a Bulgarian AD. The CA requires the preparation of a draft conversion plan by the management body and of a report by an independent auditor, appointed by the management body. The plan must be presented to the court (Commercial Register) and published in the State Gazette no less than 30 days before the date of the general meeting scheduled to vote on the conversion. After the entry into force of the CRA, the Commercial Register will have to be notified of the plan at least 30 days before the date of the general meeting scheduled to vote on the conversion. The plan, together with the proposed SE’s articles, must be approved by three-quarters of the voting shares represented at the general meeting. The option contained in Article 37(8) of the Regulation has not been approved in Bulgaria, i.e. there is no requirement that the conversion be approved by the body of the converting company within which employee participation is organised. In a conversion, the converting company continues to exist and function, but in another corporate form. All rights and obligations of the converted company are automatically transferred to the new company. Simultaneously with the change in corporate form, no new shareholders may be accepted into the company. The conversion may not be registered before the expiry of 14 days following the filing date of an application with the competent court or the Commercial Register. The change in corporate form takes effect as from its registration in the commercial register. Shareholders in the converting company become shareholders in the new company. 31

The European Company

If the assets of the converting company include real property and/or movables subject to registration formalities, the respective records in the relevant registers must be made. Any permits, licences or concessions held by the converted company shall be transferred to the new company.

3

Acts committed on behalf of an SE in formation According to the CA, any acts performed by a company’s founders in its name prior to incorporation (i.e. when the company lacks legal personality) create rights and obligations for the persons who carried out the acts in question. When transactions are effected, it must be noted that the company is in the process of incorporation. The persons who effected the transactions shall be liable jointly and severally for any obligations arising therefrom. When a transaction is effected by the founders or a person authorised by them, all rights and obligations are transferred by operation of law to the company immediately upon its incorporation (Art. 69 CA). The above rule contradicts Article 16(2) of the Regulation, which stipulates that persons acting in the name of an SE in formation shall be held jointly and severally liable for any liabilities incurred during this time unless the company assumes these obligations upon registration. In this case, the provisions of the Regulation (Art. 16(2) Reg.) prevail over Bulgarian law.

4

Registration and publication An SE with its registered office in Bulgaria must be recorded in the commercial register and acquires legal personality upon registration.7 For the purposes of court registration, certain documents must be executed, and the capital of the AD (or at least 25% of the nominal value of each share) must be deposited with a local bank. For the purposes of registering with the court/Registration Agency, information on the following must be provided: • the AD’s name – it should not contain words that refer to investment, banking, insurance, or pension activities unless the AD has been granted a special licence to perform such activities; the name should be unique in the judicial district where the company is registered; • the address of the head office and registered office of the AD’s management; • the scope of the AD’s business; • the AD’s initial capital; 7

32

This register was previously kept by the regional courts, but has been kept by the Registration Agency since 1 July 2007.

Bulgaria

• the members of the AD’s management body or bodies; • the certificate(s) of incorporation of the AD’s shareholder(s) if the latter are legal entities. The AD’s articles, as well as all other documents and declarations needed to provide the information listed above, shall be submitted to the competent regional court, i.e. where the AD’s head office is located. The amount of time needed to register an AD depends on two factors: (i) the time necessary to prepare all documents required to be filed with the application to the court and (ii) how long it takes the court to process the application to register the AD. At present, the courts are not bound by any mandatory timetable when issuing a ruling for registration. Under the new CRA, however, time limits will be strictly determined, and the relevant official will be obliged to process the application by the end of the business day following the submission date of the application, unless another time period is provided for by law. After registration with the Commercial Register, the AD/SE with its registered office in Bulgaria must be registered with the Registration Agency (the BULSTAT register) in order to receive a unique identification number to be used for tax purposes, as well. If needed, any other special registrations should be made under the tax legislation (for example, VAT registration). Apart from the publication of a notice of the SE’s registration in the Official Journal of the European Communities, a notice of registration of the company should be published in the Bulgarian State Gazette in accordance with the requirements of the CA and the State Gazette Act. Under the new CRA, announcement of the company’s registration with the Registration Agency’s Commercial Register will be sufficient. Currently, under the CA, publication of information in the State Gazette is only necessary if expressly required by law. Until 15 days after publication of registered information, it is not enforceable against third parties who can prove it was impossible for them to be acquainted with the publication. Information recorded in the Commercial Register pursuant to the new CRA shall be effective vis-`a-vis third parties as from the time of its recordation. Until 15 days after recordation, the information cannot be enforced against third parties who can prove it was impossible for them to be acquainted with the recordation.

5

Acquisition of legal personality The AD, like any other Bulgarian corporate form, is considered to exist as a separate legal entity as from the date of the court ruling calling for its registration in the Commercial Register. The same is true for an SE registered in Bulgaria. 33

The European Company

No specific issues exist, but it should be noted that for some activities, such as banking, insurance, etc., special approval must be obtained from the relevant authorities prior to registration in the Commercial Register.

III

Organisation and management

1

General remarks The organisation and management of an AD do not differ substantially from the solutions applicable in most Member States. The general meeting is the supreme and final body, which decides on any and all matters with respect to the development and existence of the AD, while the management bodies handle dayto-day issues and implement the resolutions of the general meeting. The CA sets forth the main powers of the general meeting and expressly states which powers may not be transferred by the general meeting to the management bodies. Bulgarian law allows an AD to choose between a one-tier and a two-tier management system (except in cases where the AD performs specific activities, in which case closer control is necessary to protect the public interest and the AD must thus have a two-tier system). Therefore, the possibilities provided for in Articles 39(5) and 43(4) of the Regulation already existed in Bulgarian law (Arts. 241–244 et seq. CA).

2

General meeting of shareholders

A

Decision-making process

The general meeting resolves on the most important matters regarding the activities of the AD, such as amendments and supplements to its articles, capital increases and decreases, changes in corporate form, mergers, etc. The general meeting must be convened at least once a year, no later than six months after the close of the financial year. In addition, and in accordance with the option contained in Article 54(1) of the Regulation, the CA states that the first general meeting shall be held within 18 months following the incorporation of a company (including an SE) (Art. 222(2) CA). The general meeting shall be convened by the AD’s management bodies. The management bodies must convene an extraordinary general meeting if the AD’s losses exceed half its capital. In accordance with the option contained in Article 55(1) of the Regulation, the CA provides that the general meeting may be convened at the request of shareholders that have held, for more than three months, shares representing 5% of the subscribed capital. If such a request is not granted within one month or if a general meeting has not been held within three months after submission of such a request, the regional court shall convene 34

Bulgaria

the general meeting or authorise those shareholders who requested the general meeting to do so. POSA contains a similar provision with regard to public companies offering their securities to the public. The process of convening the general meeting includes publication of a notice to shareholders in the State Gazette. The notice shall mention the date and place of the meeting, the agenda, etc. Under the new CRA, the notice should be submitted to the Commercial Register Similarly, the option contained in Article 56 of the Regulation has been adopted by the Bulgarian legislature. According to amendments to the CA, adopted in 2006 and effective as from Bulgaria’s accession to the European Union, the CA provides for a reduced proportion of the subscribed capital, i.e. 5%, that must be held by shareholders for more than three months in order to allow them to include additional items in the agenda of a general meeting (Art. 223a CA). No later than 15 days before the general meeting, the shareholders must file with the Commercial Register a list of items to be added to the agenda, together with any draft resolutions and all related documents. The effect of such a filing is inclusion of the proposed items on the agenda. No later than the next business day, the shareholders shall make the information described above available at the company’s registered office and place of effective management. POSA stipulates that shareholders holding jointly at least 5% of the capital of a public company can petition the regional court to include additional items on the agenda of a general meeting. For that purpose, they must submit a list of additional items, together with draft resolutions and all related documents to the FSC and the regulated market on which the company’s securities are admitted to trading no later than on the business day following the date of the court’s ruling calling for the inclusion of these items. The general meeting may not be held prior to one month from publication/submission to the Commercial Register of the notice. All documents related to the agenda of a general meeting must be placed at the disposal of shareholders no later than the publication date of the notice of the meeting. If the agenda includes the election of members of the board of directors or supervisory board, as the case may be, the documents should also mention the names, permanent addresses and professional qualifications of the candidates. All documents must be made available free of charge to any shareholder upon request. The general meeting is entitled to: • amend the company’s articles; • resolve on any capital increase or decrease; • resolve on changes in corporate form and termination of the company;

35

The European Company

• elect and remove members of the board of directors or the supervisory board, as the case may be; • determine the remuneration of members of the supervisory board or the board of directors, as the case may be, including their right to share in the AD’s profits and to acquire the AD’s shares and debentures; • appoint and remove registered auditors; • approve the annual financial statements, certified by a chartered auditor, and take decisions concerning the allocation of profits, replenishment of the statutory reserve and the payment of dividends; • resolve on the issuance of debentures; • appoint liquidators upon termination of the company, except in the event of bankruptcy; • release from liability the members of the supervisory and management boards or of the board of directors, as the case may be; • resolve on any other matters, which by law or pursuant to the company’s articles fall within its exclusive powers. In general, there is no quorum required for a general meeting, but the AD’s articles may provide for one. However, the CA states that the decisions mentioned under bullet points 1 through 3 above may only be taken if at least half the share capital is present or represented at the general meeting. If the quorum required (by law or pursuant to the company’s articles) is not met, a new meeting shall be held no earlier than 14 days after the first general meeting; at this second meeting, no quorum is required. The date of the second meeting, if any, may be stated in the notice of the first meeting. Resolutions are adopted by a majority of the votes cast by those shares present or represented at the general meeting, unless the law or the company’s articles provide otherwise. The resolutions mentioned under bullet points 1 through 3 above (for termination only) must be approved by a two-thirds majority of the share capital represented. The articles may provide for higher majorities, however. Resolutions of the general meeting take effect immediately, unless effect is deferred. Resolutions on a capital increase or decrease, a change in corporate form, the election or removal of board members, and the appointment of liquidators enter into effect upon recordation in the Commercial Register. If the AD is a public company, the notice of its general meeting must be submitted to the Central Depository of Securities, where the shareholders’ registers of public JSCs are kept. It should also be noted that a shareholder may exercise its right to vote only if it has been a registered shareholder in the public AD for at least 14 days before the general meeting. B

Rights and obligations of shareholders

The rights of shareholders can be divided into several categories. 36

Bulgaria

(i)

Non-material rights in connection with the management of an AD: • right to participate in the management of the AD; • right to vote at general meetings; • right to be elected to the management bodies.

(ii)

Non-material rights in connection with the control of an AD: • right to receive information; • right to request that the general meeting repeals decisions of the management bodies; • right to petition the competent court to have resolutions of the general meeting invalidated.

(iii)

Economic rights: • right to dividends; • right to interest for contributions to the company’s capital (only if the articles so provide); • right to receive newly issued shares; • right to receive shares in the event of a capital increase using the AD’s own funds; • right to a share in liquidation proceeds. The law provides for rights that may be exercised by minority shareholders owning a certain percentage of shares in the AD: • Shareholders holding at least 5% of the capital have the right to convene a GM; • Shareholders holding at least 10% of the capital may file a claim against members of the board of directors or the supervisory board or the management board, as the case may be, for damage caused to the AD; • Shareholders holding at least 10% of the capital may request that the general meeting or the court appoint an expert to examine the company’s annual financial statements; • Shareholders holding at least 5% of the capital of a public AD may commence legal proceedings on the AD’s behalf against third parties should the AD’s management bodies fail to do so and if the omission in question jeopardises the AD’s interests; • Shareholders holding at least 5% of the capital of a public AD may bring an action before the competent regional court for indemnification for any harm caused the AD, wilfully or by gross negligence, through acts or omissions by any members of the company’s management or supervisory bodies or by any managerial agent; • Shareholders holding at least 5% of the capital of a public AD may ask the general meeting or petition the competent regional court to appoint 37

The European Company

auditors to examine all accounting documents of the AD and report on their findings; • Shareholders holding at least 5% of the capital of a public AD may petition the competent regional court to convene a general meeting or to authorise a representative to convene a general meeting with an agenda set by themselves. One material obligation of shareholders is to pay for the shares they subscribe. In the event of a contribution in kind, three experts are appointed by the competent court to examine the contribution in order to determine its monetary value. The AD is not entitled to release a shareholder from the obligation to pay for its shares, except when a capital decrease is made. A shareholder may not set off its obligation to pay for its subscribed shares from any receivables which it is entitled to receive from the AD. If a shareholder does not pay for its shares, a right to interest or compensation may arise, as the case may be. A shareholder who fails to pay for its shares may be excluded from the AD with one month’s notice.

3

Management In terms of management, the AD may choose between two different management structures, which choice should be made in its articles.

A

One-tier management system

In this system, the permanent management body is the board of directors, which must have at least three and may have no more than nine members (in accordance with the option contained in Article 43(2) of the Regulation). All matters that do not fall within the powers of the general meeting (by law or pursuant to the company’s articles) are handled by the board of directors. A member of the board may be any natural person with legal capacity (i.e. in Bulgaria, any person of at least 18 years of age). If a legal entity is appointed to the board of directors, it must appoint a permanent representative to perform its duties. The legal entity bears unlimited liability and is jointly and severally liable with the other directors for any harm caused by the acts of its representative. A person may not be a member of the board of directors if he/she (i) has been a member of a managing or controlling body of a company terminated due to bankruptcy within the two years immediately preceding the date of the adjudication in bankruptcy and there are any unsatisfied creditors; or (ii) does not meet any other requirements provided for by the AD’s articles. The board of directors adopts rules on its functioning and elects a chair and deputy chair from amongst its members. The board meets at least once every three months in order to discuss the development of the AD’s business. Any 38

Bulgaria

member of the board of directors may request that the chair call a meeting to discuss particular matters. The board assigns day-to-day management of the AD to one or more executive directors elected from amongst its members. The number of executive directors must be less than the remaining number of members of the board of directors. Relations between the AD and its executive directors are regulated by a management agreement, which must be executed in writing and signed on behalf of the company by the chairperson of the board of directors. Relations with other members of the board of directors are governed by an agreement executed on behalf of the AD through a person so authorised by the general meeting. (i)

Appointment and removal Members of the board of directors may be appointed and removed by the general meeting only. Board members may be elected for a maximum five-year term, although the articles may provide for a shorter term. There is no limit set by law on the re-appointment of board members. Members of the board of directors must submit declarations as to the absence of certain facts, as well as a certified specimen of their signatures. The general meeting has the right to remove a member of the board of directors from office at any time. A person nominated to the board must, prior to the elections, notify the general meeting of: (i) any shareholdings in other companies as a general partner with unlimited liability; (ii) any shareholding of more than 25% in the capital of another company; and (iii) any participation in the management of other companies or cooperatives as a proxy, manager or board member. If such circumstances arise after such a person has been elected to the board, he or she must issue a written notice forthwith. Members of the board of directors do not have the right, on their own behalf or on behalf of another, to execute business transactions or participate in companies or cooperatives as proxies, managers or board members if the company or cooperative in question performs activities that compete with those of the AD. This restriction does not apply if the articles expressly allow such participation or transactions or if the general meeting has given its express consent.

(ii)

Representation Members of the board of directors represent the AD jointly, unless the articles provide otherwise. The board may delegate its power to represent the AD to one or more of its members. Such a delegation of authority may be revoked at any time. Any restrictions on the representative powers of the board are not binding on or enforceable against third parties, unless expressly provided otherwise by law or in the company’s articles.8 8

That is, the possibilities set forth in the First Company Law Directive (Art. 9) have not been implemented in Bulgarian law.

39

The European Company

The articles may provide that certain transactions require the unanimous approval of the board of directors. According to the CA, the following operations may be undertaken only pursuant to a resolution of the general meeting: • transfer or provision of the use of the AD’s entire business; • disposal of assets having a total value in excess, in the current year, of half the value of the AD’s assets as per its most recent audited annual financial statements; • assumption of liabilities or the provision of collateral to a person or to related parties, the amount of which exceeds, in the current year, half the value of the AD’s assets as per its most recent audited annual financial statements. However, the AD’s articles may expressly provide that some or all of the transactions described above can be undertaken with the prior unanimous consent of the board of directors. It should be noted that even if these rules are violated, any transaction concluded will still be valid, but the person who concluded it without a shareholder resolution or board decision shall be liable to the AD for any damage caused. Members of the board of directors have equal rights and obligations, regardless of any internal division of powers amongst them. Members must exercise their functions with the care expected of a good businessperson and in the interests of the AD and its shareholders. The board of directors may take decisions if at least half its members are present. Decisions are passed by a simple majority of votes cast, unless otherwise provided by law or the company’s articles. The articles may provide that the board can take decisions in absentia, if all members have stated in writing that they approve the relevant resolution. No later than the start of a meeting, any board member must inform the chairperson in writing if he or she or a related party has a conflict of interest with the company in a matter raised for discussion and therefore cannot participate in the deliberations or vote on this matter. B

Two-tier management system

The two-tier vehicle is more suitable for a large AD with a substantial number of shareholders. In this system, the supervisory board acts as a kind of representative for shareholders, overseeing the management board on their behalf. Under this system, there are two boards – a supervisory board and a management board. The supervisory board must have at least three and may have no more than seven members, while the management board must have between three and nine members. Thus, the Bulgarian legislature has already 40

Bulgaria

implemented the options contained in Articles 39(4) and 40(3) of the Regulation. The AD is managed by its management board. All matters that fall outside the scope of the general meeting’s powers (as defined by law or the AD’s articles) are handled by the management board. According to the CA, the supervisory board may not participate in the management of the AD and only represents the AD before the management board and supervises the latter’s activities. Thus, the management board is obliged to report on its activities to the supervisory board at least once every three months. In addition, Article 243(3) of the CA stipulates that the supervisory board may at any time require the management board to provide information or a report on any matter concerning the company. Article 243(4) of the CA further provides that the supervisory board may also carry out any necessary investigations in the performance of its duties, and its members can access all necessary information and documents. For the purposes of such investigations, the supervisory board may employ experts. Certain material decisions may not be taken by the management board unless first approved by the supervisory board. Bulgaria has not expressly adopted the option contained in Article 41(3) of the Regulation to the effect that ‘the supervisory organ may require the management organ to provide information of any kind which it needs to exercise supervision (. . . )’. A Member State may provide that each member of the supervisory organ also be entitled to this facility. The options contained in Article 243(3) and (4) of the CA are thus open to contradictory interpretations. On the one hand, some commentators take the view that in order for the supervisory board to function effectively, its individual members must be able to request the information they deem necessary. In other words, this right supplements, rather than replaces, the supervisory board’s right to collectively request information. Others are of the opinion that the right to request information and documents may only be exercised by the supervisory board collectively, notwithstanding the right of each member to review any information and documents received. To date, this matter is still open to debate. Any natural person with legal capacity (i.e. in Bulgaria, any person of at least 18 years of age) may be a member of the supervisory or management board. If a legal entity is appointed to the board, it must designate a permanent representative to perform its duties. The legal entity bears unlimited liability and is jointly and severally liable with the other board members for any damage caused by its representative’s acts. A person may not be a board member if he or she (i) has been a member of a managing or controlling body of a company terminated due to bankruptcy within the two years immediately preceding the date of the adjudication in bankruptcy and there are any unsatisfied creditors; or (ii) does not meet any other requirements provided for in the AD’s articles. 41

The European Company

No person may simultaneously be a member of the supervisory board and management board of an AD. Bulgaria has not adopted the option contained in Article 39(3) of the Regulation, i.e. a member of the supervisory board cannot temporarily (for a period determined by law) fill a vacancy on the management board. The management board shall adopt rules governing its functioning, which must be approved by the supervisory board. Relations between the AD and the members of its management board are regulated by a management agreement, which must be executed in writing on behalf of the company by the supervisory board’s chairperson. The supervisory board adopts rules on its functioning and elects a chair and deputy chair from amongst its members. The supervisory board meets at least once every three months in order to discuss the development of the AD’s business. Any member of the supervisory board may request that the chair call a meeting to discuss particular matters. Relations between the AD and the members of its supervisory board are governed by a management agreement, executed in writing on behalf of the company by a person so authorised by the general meeting. (i)

Appointment and removal Members of the supervisory board are appointed and removed by the general meeting and may be appointed for a maximum five-year term, although the articles may provide for a shorter term. There is no limit set by the law on the re-appointment of supervisory board members. All members of the supervisory board must submit declarations on the absence of certain facts, e.g. participation in management bodies of companies in bankruptcy, etc. The general meeting has the right to remove a member of the supervisory board from office at any time. Members of the management board are appointed by the supervisory board for a maximum five-year term, although the articles may provide for a shorter term. There is no limit set by law on the re-appointment of management board members. All members of the management board must submit declarations on the absence of certain facts, as well as a certified signature specimen. The supervisory board has the right to remove a member of the management board from office at any time. The option contained in Article 39(2) of the Regulation has not been transposed into Bulgarian law, i.e. members of the management board may only be appointed by the supervisory board and not by the general meeting. The principles set forth in Section 3.A.(i) apply, as well.

(ii)

42

Representation Members of the management board represent the AD jointly, unless the company’s articles provide otherwise. The management board may delegate, with

Bulgaria

the supervisory board’s approval, its power to represent the AS to one or more of its members. For more information in this regard, please refer to Section 3.A.(ii). C

Liability of management

All board members must deposit a management guarantee in an amount determined by the general meeting, but in any case no less than three months’ gross salary. All board members are jointly and severally liable to the AD for damage caused through any fault of their own. A member of the board of directors or management board may be released from liability by the general meeting if that member was not at fault. This possibility represents, to a certain extent, implementation of the options contained in Articles 39(1) and 43(1) of the Regulation, i.e. board members may be released from liability and only the executive members (executive directors) responsible for the current (day-to-day) management of the company shall be held liable. By law, shareholders holding at least 10% of the capital may bring legal proceedings, demanding that members of the board of directors, supervisory board or management board, as the case may be, be held liable for damage caused to the AD. POSA provides that members of the board of directors of a public company offering its securities to the public must deposit their management guarantee within seven days following their election by the general meeting. The general meeting is entitled to determine the exact amount of the deposit; however, as in the CA, it shall not be less than three months’ gross salary. Furthermore, under POSA, shareholders holding 5% of the subscribed capital of a public company may file claims for acts or omissions committed by members of the board of directors. D

Additional requirements for the management of a public AD

Any person who, at the time of his or her election, has been effectively sentenced for property-related offences, economic offences, financial offences, or taxrelated or social security offences, committed in Bulgaria or abroad, is ineligible to be a member of the management board or supervisory board of a public AD, unless rehabilitated. At least one-third of the members of the board of directors or the supervisory board of a public AD must be independent. To be independent, a board member may not be: • a person employed by the AD; • a shareholder holding, directly or through related persons, at least 25% of the rights to vote at general meetings, or a person related to the AD; • a person in a permanent business relationship with the AD; 43

The European Company

• a member of a management or supervisory body, a managerial agent or a person employed by any commercial corporation or other legal entity that controls or is in a permanent business relationship with the AD; • a person connected with another member of a management or supervisory body of the AD. Any person elected to the management or supervisory body of a public AD is obliged to notify the company’s management body immediately if any of the abovementioned circumstances occur after the date of the election. In such a case, this person must cease to perform his or her functions. Without being expressly authorised by the general meeting, the management of a public AD may not effect transactions as a result of which: • the public AD acquires, transfers, receives or surrenders for use or furnishes as security in any form whatsoever any fixed assets with a value exceeding: (a) one-third of the lesser of the following values – the net asset value according to the public AD’s last audited or last prepared balance sheet; (b) 2% of the lesser of the following values – the net asset value according to the balance sheet of the public AD as last audited or last prepared, if interested9 parties participate in the transaction; • the public AD incurs obligations to a single person or to related persons having an aggregate value in excess of the value referred to in (a) above or where the obligations are incurred with respect to or in favour of interested parties, with an aggregate value in excess of the value referred to in (b) above; • any transactions of a public AD in which interested parties participate, other than those specified above, are subject to the prior approval of the management body. If a transaction is performed in violation of the above provisions, it shall be deemed null and void.

IV

Employee involvement In general, labour relations within an SE are governed by the national law of the Member State in which the SE is registered. In Bulgaria, the relevant legislation 9

44

‘Interested parties’ are members of the management and supervisory bodies of the public AD, the managerial agents thereof, as well as any persons holding, directly or indirectly, at least 25% of the rights to vote at general meetings of the public AD or controlling the public AD, where these persons or any persons connected with them: (i) are a party, a representative of a party or an intermediary to the transaction or the transactions or acts are effected in favour of these persons, or (ii) hold, directly or indirectly, at least 25% of the rights to vote at general meetings of the AD or control any legal entity that is a party, a representative of a party or an intermediary to the transaction or the acts are effected in favour of any such legal entity.

Bulgaria

includes: (i) the Labour Code of 1986, as amended; and (ii) the Law on Information and Consultation with Employees in Multinational Undertakings, Groups of Undertakings and European Companies of 2006 (‘LICE’), transposing into Bulgarian law the Directive of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees in the management of an SE. According to the Labour Code, both employees and employers are entitled to form freely, on their own initiative and without prior permission, unions and join and leave such organisations voluntarily. Trade unions represent and protect the interests of employees before the governmental authorities and employers, through collective bargaining agreements and participation in tripartite cooperation, as well as the organisation of strikes and other actions permitted by law. Employers’ organisations represent and protect the interests of employers through collective bargaining agreements, participation in tripartite cooperation, and other actions permitted by law. Furthermore, trade unions are entitled to participate in the preparation, discussion and drafting of all internal rules and regulations of an enterprise relating to labour relations, and the employer is obliged to invite them to take part. Trade unions and their divisions are also entitled, at the employees’ request, to serve as their authorised representative before the courts. The essence of tripartite cooperation is mutual consultation between the state, national trade unions and employers’ organisations with a view to adopting draft laws, regulations and others norms by the government or governmental or local authorities. Such consultation rounds regard labour relations, association rights, social and cultural services to employees, supervision of compliance with labour law, social security, living standards, etc. A collective bargaining agreement (CBA) is an agreement based on the minimum standards set out in the Labour Code and deals with labour and social security issues not regulated by mandatory provisions of the Labour Code. A CBA may not contain clauses that are less favourable to employees than the applicable statutory provisions or the provisions of a collective agreement binding on the employer. The CBA serves as a minimum set of standards upon which an individual labour agreement (ILA) may be concluded. Thus, if a CBA is more advantageous to employees and is concluded at a later date than an ILA, the provisions of the CBA shall be substituted by operation of law for the respective provisions of the ILA.

V

Transposition of the Directive of 8 October 2001 LICE was recently adopted to transpose into Bulgarian law the provisions of the Directive of 8 October 2001. Bulgaria has chosen to adopt the following options from the Directive. 45

The European Company

Firstly, with regard to the method to be used to elect or appoint members of the special negotiating body (SNB), LICE provides that election/appointment may be made by the general meeting of employees in accordance with the Labour Code. The Labour Code provides that the general meeting of employees comprises all employees in an enterprise and may be convened by the employer or the trade union management as well as at the initiative of onetenth of the employees. The quorum required for the meeting is at least half the employees. Resolutions to elect SNB members are approved by a simple majority of votes cast. The meeting may delegate the election of SNB members to representatives appointed by the management of the union(s) or to the employee representatives as defined in the Labour Code.10 Candidates for seats on the SNB may be nominated by any employee or group of employees as well by as the trade unions. The central management or the management of the enterprise participating in the incorporation of the SE shall determine the number of SNB members in such a way that each Member State in which a multinational has one or more establishments or one or more controlled enterprises or a controlling enterprise is represented by at least one member. Secondly, as to the possibility for trade union representatives to serve as SNB members (regardless of whether they are employed by the participating company or concerned subsidiary or establishment, Article 3(2)(b), para. 2 of the Directive), Article 13(4) of LICE provides that candidates for employee representatives to the SNB may be nominated by any individual employee or group of employees as well as by the trade unions within the undertaking. As mentioned above, under the Labour Code, employees are entitled to freely form, at their own initiative, trade unions and to join and leave these organisations. Neither LICE, in its capacity as a lex specialis, nor the Labour Code expressly prohibit the election of trade union representatives to the SNB. Therefore, interpretation of the relevant provisions of LICE leads to the conclusion that trade union representatives employed by an undertaking participating in the creation of an SE may stand for SNB membership. On the other hand, trade union representatives who are not employed by such an undertaking cannot be candidates for SNB membership. With respect to the option contained in Article 3(7) of the Directive (the option for the Member States to lay down budgetary rules with regard to the operation of the SNB and, in particular, to limit the funding to the costs of a single expert), Article 14(10) of LICE provides that all costs incurred within the SNB shall be borne by the participating companies and that the SNB may be assisted 10

46

According to the Labour Code, the general meeting of employees may choose representatives to participate in the decision-making process with respect to issues relevant to the management of the company, if such participation is provided for by law.

Bulgaria

by experts and representatives from EU trade unions as it sees fit (Art. 14(5) LICE). LICE does not contain rules governing the situation whereby the SNB fails to select a form of employee participation from amongst those existing within the various participating companies to be applied to the newly established SE (i.e. there are no alternative rules in the absence of a specific decision by the SNB). Similarly, the Bulgarian legislature did not adopt the options contained in: (i)

Article 7(3) of the Directive, i.e. the possibility to provide for nonapplication of the standard rules of participation set out in Part III of the Annex to the Directive for an SE formed by merger; (ii) Article 8(3) of the Directive, i.e. the possibility to adopt particular provisions pursuing directly and essentially the aim of ideological guidance with respect to information and the expression of opinions within an SE; (iii) Article 13(4) of the Directive, i.e. the opportunity to guarantee that the structures of employee representation existing within the Bulgarian participating companies that will cease to exist as separate legal entities remain even after registration of the SE.11 In accordance with Article 8(2) of the Directive, which gives the Member States the possibility to release the SE’s or the participating company’s supervisory or administrative organ from its obligation to disclose information to the SNB, the employee representative body or its assistants if the nature of the information, according to objective criteria, is such that disclosure could seriously harm the functioning of the company or would be prejudicial to it, LICE (Art. 29(3) and (4)) gives management the right to withhold any sensitive information. If disclosure is refused, the parties may seek assistance in settling their dispute through mediation and/or voluntary arbitration with the National Institute of Conciliation and Arbitration. Currently, Bulgarian law does not contain any provisions on employee participation. Therefore, if SNB negotiations fail, the standard rules on participation shall apply to an SE registered in Bulgaria, but only up to the level of participation existing within the other companies participating in the creation of the SE (Art. 19 LICE).

VI

Annual accounts and consolidated accounts

1

Accounting principles In accordance with Article 61 of the Regulation, the preparation of annual and/or consolidated accounts, including an annual report, as well as the auditing 11

See Articles 16(3) and (4), 29 and 30 LICE.

47

The European Company

and publication of these accounts, for an SE with its registered office in Bulgaria, shall be governed by the provisions of Bulgarian law applicable to public limited-liability companies. Companies in Bulgaria, with certain exceptions referred to in Article 22b of the Accountancy Act,12 must prepare and present their annual financial statements on the basis of International Accounting Standards. Consequently, this also holds true for an AD, unless the company in question is a small or mediumsized enterprise (SME) benefiting from a statutory exemption. Enterprises referred to in Article 38(1), items (2) and (3), of the Accountancy Act, i.e. public enterprises within the meaning of POSA, credit institutions, insurance and investment undertakings, companies for supplementary social security schemes and funds managed by them, are also obliged to prepare and present their annual financial statements on the basis of International Accounting Standards. Any enterprise which has, in a given reporting period, prepared and presented its annual financial statements on the basis of International Accounting Standards may not apply the National Financial Reporting Standards for Small and Medium-sized Enterprises. Consolidated and interim financial statements are prepared and presented on the basis of the accounting standards used to produce the enterprise’s annual financial statements. According to Article 23 of the Accountancy Act, all companies are obliged to draw up their annual financial statements and consolidated financial statements as of 31 December,13 denominated in Bulgarian levs. Bulgaria has yet to join EMU, i.e. in accordance with Article 67(2) of the Regulation, accounts must be denominated in the national currency. However, an SE registered in Bulgaria may prepare and publish its accounts in euros, as well. Annual financial statements must give a true and fair view of the company’s assets and financial situation, its reported financial results and any changes in cash flow and owner’s equity. The annual financial statements consist of the balance sheet, a profit and loss statement, a statement of cash flow, an owner’s equity account and notes. The company’s management bodies are responsible for drawing up and preparing in a timely manner the company’s financial statements as well as the content and publication thereof.

12

13

48

Small and medium-sized enterprises are those which, for at least one of two preceding financial years have not exceeded two of the following criteria: (i) a balance sheet total as of 31 December of BGN 8 million; (ii) net income from sales for the year of BGN 15 million; and (iii) 250 employees on average for the year. In Bulgaria, the financial year is equal to the calendar year, namely 1 January through 31 December.

Bulgaria

The consolidated financial statements consist of a consolidated balance sheet, a consolidated profit and loss statement, a consolidated statement of cash flow, a consolidated owner’s equity account and notes. All companies are obliged to prepare annual financial statements by 31 March of the following year. Consolidated financial statements are prepared only by parent companies. A company is a parent company if it: (i)

controls more than half the voting rights of shareholders or partners in another company (i.e. a so-called controlled company), including under a contractual relationship, provided it is a shareholder or partner in that enterprise; (ii) has the right to appoint or remove more than half the members of the management and/or supervisory body of another company (a controlled company), including under a contractual relationship, provided it is a shareholder or partner in that enterprise; (iii) has the right to determine the financial and/or operational policies of another enterprise under a contractual relationship; (iv) is a shareholder or partner holding 20% or more of the voting rights in another company (a controlled company) and solely through the exercise of such rights it has appointed more than half the members of the controlled company’s management and/or supervisory body, which operated during the reporting period, during the previous reporting period and until the date of preparation of the consolidated financial statements and consolidated financial statements, as defined above, are not drawn up in which the rights specified in items (i) through (iii) above, with respect to the controlled enterprise, are held by another company. A parent company and its subsidiaries are subject to consolidation regardless of where the registered offices of the subsidiaries are located. A

Non-application of the requirement to prepare consolidated accounts

A parent company need not prepare consolidated financial statements if, for all companies within the group subject to consolidation, taken as a whole, according to their annual financial statements as of 31 December of the current year, two of the following three criteria are not met: (i) balance sheet total as of 31 December of BGN 3 million; (ii) net income from sales for the year of BGN 6 million; (iii) 80 employees on average for the year. Moreover, a parent company need not prepare consolidated financial statements if it is also a subsidiary of a domestic parent company or of a parent company 49

The European Company

from another Member State of the European Union, in any of the following cases: (i) the domestic parent company or parent company from another Member State holds all shares in the domestic (subsidiary) parent company; in establishing the ownership of shares in the domestic (subsidiary) parent company, shares or stock held by members of the management and/or supervisory body under statutory provisions or the company’s articles of association or charter are not taken into account; or (ii) the domestic parent company or parent company from another Member State owns 90% or more of the shares in the domestic (subsidiary) parent company and the other partners or shareholders have given their consent in writing that no consolidated financial statements need be drawn up. The Accountancy Act also stipulates other possibilities for exemption from the obligation to prepare consolidated accounts. Consolidated financial statements and the annual consolidated management report are drawn up by the domestic parent company and are subject to an independent financial audit under the terms and in accordance with the procedure set out under point 2 below or, if prepared by the parent company from another Member State, are subject to an independent financial audit in accordance with the legislation of that state. Consolidated financial statements, the annual consolidated management report and the auditor’s report for the domestic parent company are published under the terms and in accordance with the procedure set out under point 2 below or, if prepared by the parent company from the other Member State, published in Bulgarian by the domestic parent company under the terms and in accordance with the procedure set out under point 2 below. B

Annual report

No later than the last day of February of each year, the board of directors or the management board of the company, as the case may be, shall draw up the annual report and financial statement for the previous financial year and submit these to the auditors appointed by the general meeting. The annual report comprises a review of the company’s activities over the course of the year and its current state of affairs, as well as the notes to the annual financial statements. The annual report must contain the following information: (i) the total remuneration paid to board members for the year; (ii) the company’s own shares and debentures acquired, held and transferred by board members during the year; 50

Bulgaria

(iii) the rights of board members to acquire shares and debentures in the company; (iv) participation of board members in any companies (including as general partners with unlimited liability), ownership of over 25% of the capital of any other company, and participation in the management of other companies or cooperatives as proxy holders, managers or board members; (v) the existence of any contracts referred to in Article 240b of the CA executed during the year, i.e. contracts with board members or persons related to them. The annual report must also state the company’s business policy for the coming year, including anticipated investments and personnel development, the anticipated return on its investments, the development of the company’s business, and any forthcoming transactions of material significance for the company.

2

Auditor The annual financial statements are subject to review by auditors appointed by the general meeting. If the general meeting fails to appoint auditors by the end of the calendar year, auditors shall be appointed by the competent court further to a petition filed by the board of directors, the management board or the supervisory board, as the case may be, or by an individual shareholder. The auditors are responsible for ensuring the bona fide and unbiased performance of their audit and the nondisclosure of confidential information. According to the Accountancy Act and unless otherwise provided for by law, the annual financial statements of the following enterprises must be independently audited by a chartered auditor: (i) joint stock companies; (ii) issuers within the meaning of POSA; (iii) credit institutions, insurance and investment undertakings, companies for the provision of supplementary social security and funds managed by them; (iv) enterprises for which this requirement is provided for by a special law; (v) all other entities not mentioned in points 1 through 4 above, with the exception of enterprises that apply a simplified form of financial reporting and budget-funded enterprises. Consolidated financial statements and individual financial statements included in the consolidation are subject to an independent audit. In their report, auditors who carry out an independent audit of financial statements are obliged to express an opinion on whether the annual (consolidated) management report corresponds to the annual (consolidated) financial statements for the same reporting period. 51

The European Company

Upon receipt of the auditors’ report, the management board shall submit it to the supervisory board, together with the annual financial statements and annual report. The management board shall also submit a draft resolution on the distribution of profits to be discussed by the general meeting. The supervisory board checks the annual financial statements, the annual report and the draft resolution and, upon approval thereof, resolves to call an ordinary general meeting. Under the one-tier system, the draft resolution on the distribution of profits is prepared by the board of directors, which then convenes the general meeting. The annual financial statements may not be approved by the general meeting without first being audited by chartered auditors. The verified and adopted annual financial statements are then submitted to the Commercial Register. By 30 June of the following year, companies must publish their annual financial statements, consolidated financial statements, annual management report and annual consolidated management report, as adopted by the general meeting or relevant body. Merchants, within the meaning of the CA (i.e. including ADs), publish their annual financial statements by filing and submitting them for notification purposes to the Commercial Register.

VII

Supervision by the national authorities Bulgarian law does not specifically indicate or refer to the national authorities competent to supervise the activities of an SE. Therefore, an SE incorporated in Bulgaria shall be subject to control or supervision as provided under Bulgarian law, including stock exchange rules and specific legislation pertaining to financial services, banking, trade, communications, media, labour relations, the environment, the construction industry, taxes and customs duties, the social security system, public procurement and other regulated areas. A Bulgarian SE may be subject to supervision by the national competition authority (Competition Commission) and/or the national consumer protection authority (Consumer Protection Commission), insofar as the company’s activities affect the market. The Bulgarian National Bank (BNB) supervises the business of banks (including activities carried on through branches or directly on the territory of a Member State or third country), financial holding companies and mixed-activity holding companies which have a bank as a subsidiary, in terms of their compliance with the rules set forth in the Credit Institutions Act (CIA) and the instruments for its application, to ensure reliable and sound management of banks and to determine the risks to which they are or may be exposed in order to ensure the maintenance of funds adequate to cover such risks. The FSC and its deputy chairperson exercise on-going supervision of insurers and re-insurers exercising activities in Bulgaria regarding their overall operations under the Insurance Code. On-site

52

Bulgaria

inspections may be conducted jointly with the Financial Investigations Agency, the FSC and other competent bodies.

VIII

Dissolution Winding up, liquidation, insolvency, cessation of payments and similar procedures for Bulgarian SEs are governed by Bulgarian law, more specifically Parts II and IV of the CA.

1

Winding up An AD may be dissolved: • by a resolution of its general meeting; • upon expiry of the period for which it was incorporated; prior to expiry of this period the general meeting may pass a resolution to continue the AD; • upon a declaration of bankruptcy; • by court order at the request of the public prosecutor if the AD’s corporate purpose is forbidden by law; • when its net asset value (the ratio between the AD’s assets and liabilities) falls below the amount of its registered capital and, within a period of one year, the general meeting fails to pass a resolution to decrease the capital, to change the company’s corporate form or to dissolve the AD; • if, for a period of six months, the number of members of any of the AD’s boards is less than the minimum number specified by law; • upon the occurrence of any conditions provided for by the company’s articles. An AD with a sole shareholder is not automatically dissolved upon the death of this shareholder or the entry of another shareholder into the company.

2

Liquidation

A

Liquidation rules

The liquidation process is regulated by the CA. Liquidation can take place only if the company’s assets exceed its liabilities, thus not if bankruptcy proceedings have been started. The purpose of liquidation is to convert the company’s assets into cash, settle the company’s liabilities, and distribute any remaining proceeds to shareholders in accordance with their participation in the AD’s capital. B

Commencement of liquidation

Liquidation starts when a decision to dissolve the company is approved. The term for the completion of liquidation is determined by the general meeting 53

The European Company

or the regional court if the liquidators have been appointed by the latter. Liquidators must be registered with the Commercial Register and submit notarised consent to their appointment as well as a signature specimen. The court may, if important reasons exist, appoint or remove liquidators further to an application by shareholders owning at least one-twentieth of the shares. Upon declaring the dissolution of an AD, liquidators must invite the company’s creditors to submit their claims. A notice is sent in writing to all known creditors and is posted in the Commercial Register and published in the State Gazette (as of 1 January 2008, an announcement in the Commercial Register shall suffice). The liquidators are obliged to finalise any pending transactions, gather all payments due, convert the company’s assets into cash and satisfy the company’s creditors. They must also inform the National Revenue Agency of the start of liquidation. Liquidators represent the company and have the rights and obligations of its management organ. Liquidators may represent the company, but only jointly. A single liquidator may accept legal statements addressed to the AD. Liquidators draw up a balance sheet valid as of the moment of termination of the AD and explanatory notes thereto. At the end of each year, the liquidators close the accounts and present a financial statement and annual report to the company’s management body, which approves the report and releases the liquidators from liability. Once all claims have been settled, the liquidators may distribute any remaining cash only if six months have passed since the publication of the notice to creditors in the State Gazette. Once all assets (including cash) have been distributed and all claims settled, the liquidators file an application to delete the company’s entry from the Commercial Register. When a company is terminated due to expiry of the term of existence specified in its articles or further to a resolution of its general meeting, the general meeting may decide to continue the company’s activities unless the distribution of assets has commenced. This resolution must be approved by at least threequarters of the shares represented at the general meeting. The liquidators shall then file the resolution with the Commercial Register. If during settlement of the company’s obligations, the liquidators learn that the company’s assets are insufficient to cover its obligations, the competent court must be notified immediately and insolvency proceedings started.

3

Insolvency proceedings Insolvency proceeding are regulated by the CA and aimed at satisfying creditors and creating opportunities for reorganisation, if possible.

54

Bulgaria

Insolvency proceedings are commenced by filing a petition with the regional court of the place where the AD’s head office is located. The petition can be filed by the AD’s management, a liquidator (if the company is already in liquidation) or a creditor which has a commercial relationship with the AD. If the company has defaulted on a public obligation, the National Revenue Agency can also file a petition. Together with its petition, the petitioner must submit any additional documents tending to prove that the AD is insolvent. If the petition is filed by either the company or a creditor, a corporate restructuring plan and the name of a proposed interim trustee may also be provided. The documents and evidence that must be presented are designed to enable the court to adjudicate on the question of whether the company is insolvent. Insolvency, for these purposes, means the AD: (i)

is unable to meet its matured monetary obligations under commercial transactions; (ii) is unable to meet a public (state or municipal) obligation related to its commercial activities or a purely commercial obligation to the state; (iii) is overburdened with debt (i.e. the value of its assets is less than its monetary obligations). Once the court has established that the company is insolvent, in its ruling it shall: (i) declare the insolvency and determine the initial date thereof; (ii) institute insolvency proceedings; (iii) appoint a temporary trustee in insolvency; (iv) rule on the provision of security (attachment, injunction with respect to immovable property or other measures, if necessary); and (v) fix a date for the first creditors’ meeting, which may not be later than one month following the date of the ruling. The insolvency estate comprises all property rights and any and all takings of the AD. The insolvency estate shall be used to satisfy all creditors of the AD with commercial and non-commercial claims. Claims for statutory or contractual interest on unsecured claims, due after the date of the ruling; loans extended to the debtor by shareholders; gratuitous transactions; and creditors’ expenses incurred in relation to their participation in the bankruptcy proceedings shall be satisfied only after all other creditors have been satisfied in full. Foreign creditors shall have the same rights as domestic creditors in bankruptcy proceedings. Upon the commencement of insolvency proceedings, the debtor shall continue its activities under the supervision of the trustee in insolvency. The debtor may conclude new transactions with the prior approval of the trustee only and in accordance with the measures set forth in the ruling on insolvency. The court may deprive the debtor of the right to manage and dispose of its assets and grant this right to the trustee, should it establish that, by its actions, the debtor could jeopardise the interests of creditors. 55

The European Company

Furthermore, upon the commencement of insolvency, all judicial and arbitral proceedings in civil and commercial matters pending against the debtor, with the exception of labour disputes involving monetary claims, shall be suspended. Suspended proceedings shall be resumed and continue only if certain conditions specified in the CA are met. The trustee in insolvency may terminate any contract to which the AD is a party, provided it has not been performed in whole or in part. Upon termination of a contract, the other contracting party shall be entitled to compensation for any damage caused. Maintaining a contract under which the debtor must make regular payments shall not bind the trustee to effect payments that were overdue on the date of the court ruling on the commencement of insolvency proceedings. After the date of the court ruling, a creditor may set off claims only if certain conditions specified in the CA are met (the claims existed prior to the date of the ruling, the creditor’s and the AD’s claims are mutual, etc.). The trustee (or any creditor if the trustee fails to act) may file a petition with the insolvency court to have certain transactions (gratuitous transactions, exercise of a right of setoff, etc.) declared void or set side. Applications must in all cases be filed prior to expiry of one year from the opening of insolvency proceedings. When payments to creditors are made after realisation of the insolvency estate, certain claims have priority and must be satisfied ahead of all others. In descending order of priority, these are claims the following: (i) (ii)

(iii) (iv) (v) (vi) (vii)

(viii)

debts secured by a pledge, mortgage, distraint or prohibition registered pursuant to the procedure set forth in the Special Pledges Act; debts for which the creditor is exercising a right of lien (these claims have priority only in relation to proceeds from the sale of assets over which the lien is exercised); expenses of the insolvency proceedings; debts arising from employment relations existing before the date of the court’s decision to open insolvency proceedings; statutory allowances owed by the debtor to third parties; public debts existing before the date of the court’s decision to open insolvency proceedings; debts that came into existence after the date of the court’s decision to open insolvency proceedings and which are unpaid upon maturity (other than amounts due to employees in respect of that period); and any remaining unsecured debts existing before the date of the court’s decision to open insolvency proceedings.

All actions of the AD, its creditors, the creditors’ committee, the creditors’ meeting, the trustee in insolvency and the court shall be entered in a separate register, which shall be made publicly available at the insolvency court. Rulings 56

Bulgaria

and resolutions of the court of first instance, the court of appeal and the Supreme Court on appeals against the insolvency court’s decisions shall be entered in the same register. The register may be kept and stored in electronic form.

4

Cessation of payments When a debtor ceases paying its commercial creditors, insolvency is presumed under the CA and any creditor can start insolvency proceedings.

IX

Governing law In principle, SEs registered in Bulgaria shall be governed mainly by the Regulation and, where permitted, by the provisions of Bulgarian law applicable to the SE and public limited-liability companies as well as the national legislation transposing the Directive (LICE). However, if no special rules regarding SEs are contained in Bulgarian law, the general provisions of Bulgarian company law shall apply.

X

Tax treatment

1

Income Tax The taxation of the income of a joint stock company is regulated by the Corporate Income Tax Act of 22 December 2006 (CITA). CITA regulates: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix)

the profit of resident legal entities; the profit of resident legal entities that are not merchants, including income earned by religious organisations from commercial transactions; the profit of non-resident legal entities from a permanent establishment in Bulgaria; the Bulgarian-source income of resident and non-resident legal entities; the expenses of companies; the activities of organisers of games of chance; the income of publicly financed enterprises from any type of commercial transaction; the operational activities of entities that carry out maritime merchant shipping; determination of the tax base.

Under CITA, taxable entities include: (i) resident legal entities; (ii) non-resident legal entities that carry out an economic activity in Bulgaria via a permanent establishment or that receive Bulgarian-source income; 57

The European Company

(iii) employers and commissioning entities under management and control agreements: in respect of the tax on expenses on fringe benefits. For the purposes of taxing Bulgarian-source income, any non-resident with an organisationally and economically distinct formation (such as a trust fund, etc.) that independently carries on an economic activity or performs and manages investments shall likewise be deemed a taxable person if the owner of the income cannot be identified. Any resident legal entity shall be subject to tax under CITA on profits and income attributed to it from all sources inside and outside Bulgaria. Resident legal entities are: (i) any legal entities incorporated under Bulgarian law; (ii) any company (SE) incorporated under the Regulation and any cooperative society incorporated under Council Regulation No 1435/2003, whose registered office is in Bulgaria and which is entered in a Bulgarian commercial register. Non-resident legal entities are entities that are not resident entities. They are subject to tax under CITA on profits realised through a permanent establishment in Bulgaria and on Bulgarian-source income. There are several types of taxes under CITA: (i) corporate tax – 10% of profits; (ii) withholding tax – 7% or 10% of income earned by any resident or nonresident legal entity, as specified in CITA, depending on the source (for example, dividends or the sale of real property); (iii) tax on expenses – 10% of expenses, as specified in CITA; (iv) an alternative corporate tax (the tax base is determined on different principles) at a rate of 10% is levied on: (a) the activities of organisers of games of chance (gambling); (b) income attributed to publicly financed enterprises from any commercial transactions; (c) the operating activities of vessels. A

Profit and income from sources inside Bulgaria

The following shall be deemed profit and income accrued from sources inside Bulgaria: (i)

Any profit and income earned by non-resident legal entities, deriving from an economic activity carried out through a permanent establishment in Bulgaria or from the disposition of property of any such permanent establishment; (ii) Any income from financial assets issued by resident legal entities, the Bulgarian state or a municipality; 58

Bulgaria

(iii) Any income from dividends and shares in liquidation proceeds from a participating interest in a resident legal entity; (iv) Any income from agriculture, forestry and the management of hunting grounds and fisheries within the territory of Bulgaria; (v) Any income from immovable property or transactions in immovable property, including an undivided interest or a limited right in rem to any immovable property situated in Bulgaria; (vi) The following income, charged by resident legal entities, resident sole proprietors or non-resident legal entities and sole proprietors through a permanent established or fixed base in the country or paid by resident individuals or non-resident individuals with a fixed base in Bulgaria in favour of non-resident legal entities, shall be deemed Bulgarian-source: (a) any interest payments, including interest paid under a financial lease agreement; (b) any income from rent or other provision for the use of movable or immovable property; (c) any copyright and licence royalties; (d) any technical assistance fees; (e) any payments received under franchising agreements and factoring contracts; (f) any compensation for management or control of a Bulgarian legal entity. It should be noted that if an effective treaty for the avoidance of double taxation exists, its provisions shall prevail over the provisions of CITA. B

Special provision implementing the Regulation with regard to the transfer of the registered office of an SE

Following the need for changes in the tax law, the provisions of the Regulation on the transfer of the registered office of an SE have been implemented in CITA. Article 152 of CITA provides for the non-dissolution of an SE that transfers its registered office from one Member State to another. When the registered office is transferred from Bulgaria to another Member State, the assets and liabilities of the company must remain effectively connected with a permanent establishment in Bulgaria, and any proceeds from the use of these assets must be taken into account when determining the company’s taxable income. On the other hand, when the registered office is transferred from another Member State to Bulgaria, the assets and liabilities of the company must be effectively connected with the company that commences its legal existence as a result of this operation, and any proceeds from the use of these assets must be taken into account when determining the company’s taxable income. According to the Tax and Social Insurance Procedure Code (effective 1 January 2006) a ‘permanent establishment’ is: 59

The European Company

(i)

a fixed place (whether owned, rented or used on other grounds) through which a non-resident carries on business inside the country, in whole or in part, such as a place of management, a branch, a representative office registered in the country, an office, a bureau, studio, plant, workshop (factory), retail shop, wholesale storage facility, post-sale services establishment, installation, building site, mine, quarry, prospecting drill, oil or gas well, water spring or any other place of extraction of natural resources; (ii) the conduct of business inside the country by persons authorised to contract on behalf of non-resident persons, with the exception of the business of independent agents, as stipulated in the CA; (iii) sustained commercial transactions performed inside the country, even if the non-resident person has no permanent representative or fixed base within the country. Article 153 of CITA provides for the legal succession of an entity in the event of a transfer of its registered office, as described above with respect to Article 152 of CITA. Thus, for tax purposes, upon the transfer of an SE’s registered office from Bulgaria to another Member State: (i)

all acts performed by the company for the current and prior tax periods, including adjustments to its taxable income, shall be considered as having been performed by the permanent establishment; (ii) corporate tax shall not be levied on the company for the period commencing at the start of the year and ending on the date of the transfer; (iii) corporate tax shall be levied on the permanent establishment for the period commencing at the start of the year in accordance with the standard procedure, and activities carried out by the company in the year of the transfer shall be considered as having been carried out by the permanent establishment; (iv) the permanent establishment shall have the right to carry forward any tax losses not carried forward by the company, in accordance with the standard procedure. On the other hand, upon the transfer of an SE’s registered office from another Member State to Bulgaria: (i)

all acts performed by the permanent establishment for the current and prior periods, including adjustments to taxable income, shall be considered as having been performed by the company; (ii) corporate tax shall not be levied on the permanent establishment for the period commencing at the start of the year and ending on the date of the transfer; (iii) corporate tax shall be levied on the company for the period commencing at the start of the year in accordance with the standard procedure, and activities carried out by the permanent establishment in the year 60

Bulgaria

of the transfer shall be considered as having been carried out by the company; (iv) the company shall have the right to carry forward any tax losses not carried forward by the permanent establishment, in accordance with the standard procedure. Furthermore, CITA provides that its provisions on assets and liabilities, profits and losses, and temporary tax differences in the event of a change in corporate form shall also apply to the transfer of an SE’s registered office, in particular Articles 140 to 145. Assets and liabilities not taken into account prior to the transfer and which, consequently, must be taken into account for the purpose of determining taxable income under CITA, shall be valued for tax purposes by the receiving companies at their value under national accounting legislation. Any such depreciable assets shall be posted in the tax depreciation schedule in accordance with the standard procedure. Upon the transfer, the receiving companies shall not have the right to carry forward the transferring companies’ tax losses. Any tax losses not carried forward at the time of the transfer, recorded by a permanent establishment of a local company in another Member State, may not be deducted. In determining taxable income, the accounting results shall be credited against tax losses carried forward at the time of the transfer, recorded by a permanent establishment of a local company in another Member State and which have not been deducted from the permanent establishment’s profits.

2

Other taxes Other taxes a company may owe differ depending on its area of activity or assets (e.g. value added tax, local taxes on real property and means of transport, excise tax on certain goods, such as spirit drinks, fuels, tobacco products, etc.). Thus, it is not possible to cover all possible variations under the tax legislation in this report. It should be noted, however, that under the Bulgarian Constitution, taxes can only be imposed by statute or code. Therefore, the administration is not entitled to impose any taxes not expressly provided for by law or a code.

XI

Conclusion In conclusion, certain amendments to the Bulgarian Commerce Act and the approval of the Law on Information and Consultation with Employees in Multinational Undertakings, Groups of Undertakings and European Companies of 61

The European Company

2006 create the basis for the incorporation and registration of an SE with its registered office in Bulgaria. In addition, the entry into force of the new Commercial Register Act, effective 1 January 2008, will simplify and speed up the registration process. The low rate of corporate tax (10%) is also an important incentive to register SEs in Bulgaria. Finally, as stated in Part IV of this report, LICE can be further amended in order to implement certain of the options provided for in the Directive.

62

2 Cyprus dr alexandros tsadiras Andreas Neocleous & Co

I II III

Introduction 64 Application 64 Definition and characteristics 65 1 Definition 65 2 Legal personality 65 3 Public company 65 4 Comparison with the European economic interest grouping IV Identity 66 1 Name and corporate form 66 2 Registered office 66 V Capital 67 VI Formation 67 1 General remarks 67 2 Different means of formation 69 A Formation by merger 69 B Formation by merger through acquisition by a parent company holding at least 90% of the share capital of a subsidiary 70 C Formation by merger through the acquisition of a wholly owned subsidiary 71 D Formation by incorporation as a holding company 71 E Formation by incorporation as a subsidiary 72 F Formation by conversion 73 3 Registration and publication 73 A Registration 73 B Publication 74 C Effects of publication 74 4 Acts committed on behalf of an SE in formation 75 5 Subsidiaries 75 VII Articles of an SE 75 VIII Organisation and management 76 1 General remarks 76 2 General meeting of shareholders 76 A Powers 76 B Organisation 76 C Quorum and voting requirements 77

66

63

The European Company

D Amendments to an SE’s articles 77 Management (two-tier system/one-tier system) A Powers and functioning 77 B Appointment, removal and liability 78 C One-tier system 80 IX Annual accounts and consolidated accounts 80 X Transfer of registered office 80 XI Termination 81 XII Conversion into a national company 82 XIII Applicable law 83 XIV Conclusion 83 3

I

77

Introduction 1. EC Regulation No 885/2004 of 26 April 20041 extends to Cyprus the application of Council Regulation No 2157/2001 of 8 October 20012 on the Statute for a European company (the ‘Regulation’) and Council Directive 2001/86/EC of 8 October 20013 supplementing the Statue for a European company with regard to the involvement of employees (the ‘Directive’). The European Public Limited-Liability Company Regulations 2006 (the ‘EPLLC Regulations’) and Law 277(I)/20044 were introduced in order to harmonise Cypriot and Community law. Given that the European company (commonly referred to by its Latin name, Societas Europaea or SE) has only existed since mid-2006, there is as yet no Cypriot case law on the subject. As noted at no. 2 of the general report, the Regulation and the Directive apply throughout the European Economic Area (EEA), and references in this chapter to the European Union or to its Member States should be construed to include Norway, Iceland and Lichtenstein.

II

Application 2. Cyprus came under an obligation to bring its legislation into line with the Regulation and the Directive when it acceded to the European Union on 1 May 2004. The EPLLC Regulations facilitate the application of the Regulation and were introduced via Section 387(1)(e) of the Cypriot Companies Law, Chapter 113 (the ‘CCL’). The Directive was incorporated into Cypriot law by Law 277(I)/2004, which was adopted on 31 December 2004. In the event of inconsistency between Community and national legislation, the former shall prevail, and the Member 1 3 4

64

2 Ibid., L 294 of 10 November 2001. Official Journal L 168/1 of 1 May 2004. Council Directive supplementing the Statute for a European company with regard to the involvement of employees, Official Journal L 294/22 of 10 November 2001. Official Gazette of the Republic of Cyprus, 3940, 31 December 2004.

Cyprus

State lays itself open to proceedings brought pursuant to Article 226 EC Treaty as well as to extra contractual liability. It is interesting to note that the Cyprus legislature followed the British and Irish tradition of adopting subsidiary legislation to implement the Regulation and the Directive rather than introduce a new ‘stand-alone’ Companies Law.

III

Definition and characteristics

1

Definition 3. An SE is a public limited-liability company with legal personality and a real link with the European Union, as evidenced by a registered office and centre of administration on the territory of a Member State. The types of companies that qualify for this definition in Cyprus are listed in the Annex to Regulation No 885/2004 of 26 April 2004. The EPLLC Regulations define an SE as a European public limited-liability company within the meaning of the Regulation which, unless otherwise stated, is, or shall be, registered in the Cypriot Republic.5 4. The Regulation contemplates four different means of forming an SE. First, an SE may be established by a merger of two or more public limited-liability companies from different Member States. Second, an SE can be set up as a holding company for European limited-liability companies. Third, an SE can be formed as a subsidiary. Fourth, a national company can be converted into an SE. Specific conditions apply for each of the above options.

2

Legal personality 5. An SE is a legal entity endowed with legal personality (Art. 1(3) Reg.). This means that an SE may sue in its own name to enforce its rights and that it may be sued if it does not abide by its obligations. Legal personality is acquired upon the registration of, or conversion into, an SE (see no. 27).

3

Public company 6. As an SE is a public company (Art. 1(1) Reg.), its share capital is open to the public. The implications of the public character of an SE are determined by the CCL, which includes provisions pertaining to the offer for subscription and payment of share capital,6 the amounts that must be paid up on shares,7 capital increases and reductions,8 and shareholders’ rights and variations therein.9

5 7

Reg. 2(2) EPLLC Regulations. 6 Art. 47a CCL. 8 Ibid., Arts. 60A and 64. 9 Ibid., Art. 69a. Ibid., Art. 58.

65

The European Company

4

Comparison with the European economic interest grouping 7. Council Regulation No 2137/8510 introduced the European economic interest grouping (EEIG) into Community law. The main characteristics of the EEIG are set out in Section III(4) of the general report. The EEIG presents certain similarities with the SE but differs from the SE in many important respects. As far as the similarities are concerned, both the EEIG and the SE formed by merger require the participation of two or more companies located in at least two Member States. With respect to their differences, the special features of the EEIG render it easy to distinguish from the SE. These differences mainly relate to the nature of the two entities, their organisation and management, the liability of their members or shareholders, and finally their tax treatment. A detailed discussion of these issues can be found in Section III(4) of the general report.

IV

Identity

1

Name and corporate form 8. An SE’s name must be preceded or followed by the abbreviation SE (Art. 11(1) Reg.). Only legal entities formed as an SE in accordance with the Regulation are entitled to include the abbreviation ‘SE’ (or Eυρωπ α¨ικ η´ ∆ηµ´oσ ια Eτ αιρε´ια Περιoρισ µ´ενης Eυθ v´ νης in Greek) in their names (Art. 11(2) Reg.). Nevertheless, a legal entity incorporated in Cyprus before 1 May 2004 whose name contains the abbreviation ‘SE’ shall not be required to change it. Failure to comply with the aforementioned obligation shall trigger the application of Article 374 of the CCL on the use of company names.

2

Registered office 9. Cyprus follows the incorporation theory to determine whether a legal entity is regulated by Cypriot law. The head office and registered office of an SE incorporated in Cyprus need not be at the same place, so long as both are situated in Cyprus.11 The registration formalities are determined by the EPLLC Regulations and the CCL. An SE cannot have its registered office outside the European Union. A company whose registered office is located in the European Union but whose head office is not may participate in the formation of an SE if it has been formed under the laws of a Member State and has a real and continuous link with the economy of a Member State.12 10. If an SE ceases to meet the requirements of Article 7 of the Regulation regarding the location of its head office and registered office, the Registrar 10 12

66

Official Journal L 199 of 31 July 1985. Ibid., Regs. 2(5) and 14.

11

Reg. 15 EPLLC Regulations.

Cyprus

of Companies can order the SE to regularise its situation in accordance with Article 64(1)(a) and (b) of the Regulation within a specified period of time. The Registrar can petition the competent district court for an order if the SE fails to comply with these instructions. If the SE does not comply with the court order it can be involuntarily wound up pursuant to Article 211 of the CCL on the ground that it is no longer conducting business.13

V

Capital 11. An SE must have issued and paid-up share capital of at least €120,000 (Arts. 1(2) and 4(2) Reg.). Pursuant to EPLLC Regulation 28, an SE is subject to the provisions of national law applicable to public limited-liability companies as regards the denomination of its share capital. This means that in Cyprus, where the euro has yet to be introduced as the sole currency, an SE must in principle denominate its capital in Cypriot pounds. Nevertheless, an SE registered in Cyprus can also express its capital in euros (Art. 67(1) Reg.). The conversion rate will be that of the last day of the month preceding that in which the SE was formed (Art. 67(1) Reg.).

VI

Formation

1

General remarks 12. As mentioned above, both the registered office and head office of an SE must be situated in the same Member State. The Regulation sets out four different ways of establishing an SE, namely by merger, as a holding company, as a subsidiary or by conversion. Special provisions apply where an SE is formed by merger (i) through acquisition by a parent company holding at least 90% of the share capital of a subsidiary and (ii) through the acquisition of a wholly owned subsidiary. 13. The conclusion of an agreement on employee involvement is a prerequisite for the registration of an SE. Moreover, at least two of the companies involved must be subject to the laws of different Member States (Art. 2 Reg.). A list of qualifying corporate forms in Cyprus is annexed to Regulation No 885/2004 of 26 April 2004 and includes ∆ηµ´oσ ια Eτ αιρε´ια Π εριoρισ ε´ µνης Eυθ v´ νης µε µετ oχ ε´ ς (public company limited by shares) and ∆ηµ´oσ ια Eτ αιρε´ια Περιoρισ µ´ε νης Eυθ v´ νης µε εγγ´v ηση (public company limited by guarantee with share capital). 14. An SE acquires legal personality upon registration and the issuance of a certificate of incorporation (see no. 27). Any formalities not dealt with in the Regulation are governed by the provisions of national law applicable to public 13

Ibid., Reg. 36.

67

The European Company

limited-liability companies of the Member State in which the SE’s registered office is situated (Art. 15(1) Reg.). Pursuant to EPLLC Regulation 10, the Registrar of Companies shall register an SE formed pursuant to Articles 2 and 3 of the Regulation or an SE whose registered office is transferred to Cyprus pursuant to Article 8 of the Regulation, if it is satisfied that all the requirements of the Regulation and the EPLLC Regulations in respect of the formation, conversion or transfer, as the case may be, have been met. Subject to any limitations or qualifications specified in the Regulation, the provisions of the CCL apply with respect to the treatment of documents delivered to the Registrar of Companies,14 the registration or deletion of the registration of an SE, and the Registrar’s functions in respect of such registration or deletion.15 It is also provided that any person who knowingly makes a false statement in any registration form submitted to the Registrar, any document attached to such a form or any other document sent to the Registrar under the EPLLC Regulations can be sentenced to a prison term of up to two years, ordered to pay a fine of up to CYP 20,000 (approximately €34,500) or both. 15. The registration of an SE must be made public (Art. 15(2) Reg.). The publication formalities are regulated by the First Company Law Directive of 9 March 1968 and its implementing legislation. Pursuant to EPLLC Regulation 33(2), the Registrar shall cause to be published in the Official Gazette of the Republic of Cyprus (the ‘Official Gazette’) a notice of the registration and receipt of any related documents and particulars. The formation of an SE must also be published in the Official Journal of the European Communities. For this purpose, the Registrar shall send the relevant notice to the Office for Official Publications of the European Communities.16 16. With respect to employee participation, the procedure to elect or appoint members of the special negotiating body (SNB) is set out in Articles 6 and 7 of Law 277(I)/2004. Trade union representatives may sit on the SNB if they are employees of a participating company or relevant subsidiary or establishment.17 Specific budgetary rules regarding the operation of an SNB apply. The participating companies are required to bear the costs of (i) electing or appointing SNB members; (ii) organizing SNB meetings; and (iii) one expert to assist the SNB with its tasks.18 No particular provisions for SEs have been laid down in Cyprus so that structures allowing employee representation in participating companies that will cease to exist as separate legal entities shall be maintained after registration of the SE.19 14 17 18

68

15 Ibid., Reg. 12. 16 Ibid., Reg. 34. Ibid., Reg. 11. This can be inferred from Article 7 of Law 277(I)/2004. An option to the contrary is granted by Article 3(2)(b) of the Directive. Art. 8(7) of Law 277(I)/2004, exercising the option granted by Art. 3(7) Dir.

Cyprus

Nor have any provisions been introduced to provide ideological guidance with respect to information and the expression of opinions, as permitted by Article 8(3) of the Directive.

2

Different means of formation

A

Formation by merger

17. An SE may be formed by merger of two or more public limited-liability companies situated in at least two different Member States (Art. 2(1) Reg.). The types of Cypriot companies that can participate in the formation of an SE by merger are listed in Annex I to the Regulation, as amended by Regulation No 885/2004 of 26 April 2004, and are the following: (i) ∆ηµ´oσ ια Eτ αιρε´ια Περιoρισ µ´ε νης Eυθ v´ νης µε µετ oχ ε´ ς (public company limited by shares); and (ii) ∆ηµ´oσ ια Eτ αιρε´ια Περιoρισ µ´ενης Eυθ v´ νης µε εγ γ v´ ησ η (public company limited by guarantee with share capital). The Third Company Law Directive on mergers of public limited-liability companies (the ‘Third Company Law Directive’)20 stipulates two different methods of merger: (i) by acquisition; and (ii) by formation. Each method is regulated by a different set of rules. 18. The process that ultimately leads distinct legal entities to merge is clearly and extensively outlined in Section VI(2)(A) of the general report. The EPLLC Regulations and Law 277(I)/2004 complement the Regulation with respect to the formation of an SE by merger in Cyprus. To register an SE formed by merger, the EPLLC Regulations state that a form E1 must be delivered to the Registrar, along with the documents required by the Third Company Law Directive.21 Articles 5 through 10 of Law 277(I)/2004 regulate employee involvement in the formation process. The reference provisions in part 3 of the Annex to the Directive (standard rules for participation) do not apply where an SE is formed by merger.22 The authority competent to scrutinise the legality of a merger in Cyprus, as regards the participation of each merging company, is not the Registrar of Companies but rather the district court, which issues a certificate conclusively attesting to the completion of the requisite pre-merger acts and formalities. The district court is also competent to scrutinise the legality of completion of a merger and formation of an SE. To that end, each merging company must submit to the court a pre-merger certificate within six months of its issuance together with a copy of the approved draft terms (Art. 26(2) Reg.). The district court is required to ensure that the provisions of the Directive have been complied with 19 21 22

Pursuant to Art. 13(4) Dir. 20 Official Journal L 295 of 20 October 1978. Reg. 3 EPLLC Regulations. Art. 11(2) of Law 277(I)/2004, exercising the option granted by Art. 7(3) Dir.

69

The European Company

and that the requirements of the CCL have been met. The absence of scrutiny of the legality of a merger is not a ground for winding up an SE, however. A company registered in Cyprus of a type specified in Annex 1 to the Regulation, and which is subject to Cypriot law, may not take part in the formation of an SE by merger if the Registrar expresses its opposition to participation by this company on grounds of public interest before the issuance of the certificate referred to in Article 25(2) of the Regulation.23 In this case, the merging company may petition the district court for judicial review.24 Cyprus has not introduced any specific provisions to protect minority shareholders who oppose the formation of an SE by merger.25 19. The merger takes effect on the date the SE is recorded in the national registry of a Member State. Each merging company registered in the Cypriot Republic is required to publish in the Official Gazette information on the corporate form, name and registered office of each company involved in the merger; the national registry in which information on each company is made available to the public; an indication of the arrangements under national law on the protection of creditors (Art. 24 Reg.) for the exercise of creditors’ rights and the address at which complete information on these arrangements may be obtained free of charge; an indication of the arrangements under national law for the protection of minority shareholders; and the proposed name and address of the SE’s registered office. Further information specified in Article 201C of the CCL, including reports by the directors and independent experts on the financial implications and mechanics of the merger, must also be published.26 The merging companies must notify the Registrar of Companies of any such publication. If the Registrar deems the notice insufficient or deficient in any manner, republication may be required. Upon completion of the merger, the participating entities cease to exist and the totality of their assets and liabilities is automatically transferred to the new company. Where an SE is formed by merger, regardless of whether its registered office is in Cyprus or another Member State, and a public company registered in Cyprus has taken part in the procedure, the Registrar of Companies is required to publish a notice to this effect in the Official Gazette in accordance with the provisions of Section 365A of the CCL.27 B

Formation by merger through acquisition by a parent company holding at least 90% of the share capital of a subsidiary

20. Cypriot law contains special provisions for a merger where at least 90% of the shares and voting securities of a public limited-liability company are already 23 25

70

Reg. 18 EPLLC Regulations. Pursuant to Art. 24(2) Dir.

24 26

Ibid., Reg. 37(1)(b). Reg. 30 EPLLC Regulations.

Cyprus

held by another public limited-liability company.28 For example, a directors’ or expert’s report is not required in such cases.29 Cyprus has also exercised the option granted by Article 31(2) of the Regulation and applies Article 31(1) of the Regulation to cases where a company holds shares conferring 90% or more but not all the voting rights in a subsidiary.30 C

Formation by merger through the acquisition of a wholly owned subsidiary

21. This special case applies when a company absorbs another company, all of whose shares and voting securities it owns (Art. 31(1) Reg.). Both companies must be on the list of qualifying companies annexed to the Regulation, as amended by Regulation No 885/2004 of 26 April 2004. In this case, the merger procedure is simplified as, for example, no report by an independent expert is required and the draft terms of merger need not indicate the terms for allocating shares in the SE. D

Formation by incorporation as a holding company

22. A holding SE may be established by public and private limited-liability companies formed under the laws of a Member State with their registered offices and head offices within the European Union. A holding SE may only be formed if at least two of the participating companies are governed by the laws of different Member States and have, for at least two years, maintained a subsidiary governed by the laws of another Member State or a branch in another Member State (Arts. 32(1) and 2(2) Reg.). The types of companies that can participate in the formation of a holding SE are listed in Annex II to the Regulation, as amended by Regulation No 885/2004 of 26 April 2004, and are the following: (i) ∆ηµ´oσ ια Eτ αιρε´ια Περιoρισ µ´ενης Eυθ v´ νης µε µετ oχ ε´ ς (public company limited by shares); (ii) ∆ηµ´oσ ια Eτ αιρε´ια Π εριoρισ µ´ε νης Eυθ v´ νης µε εγ γ v´ ησ η (public company limited by guarantee with share capital); and (iii) ιδιωτ ικ η´ ετ αιρε´ια (private company). The resulting company is a legal entity separate from the promoting companies, with its own assets and liabilities. 23. The formation of a holding SE is regulated by Articles 32 to 34 of the Regulation. Section VI(1)(D) of the general report outlines the steps involved. There are a number of issues that should be mentioned with respect to the implementation of these provisions under Cypriot law. Firstly, pursuant to EPLLC Regulation 29(2), where draft terms of formation for a holding SE have been drawn up, regardless of whether the SE’s registered office will be in the Republic of Cyprus or another Member State, pursuant to Article 32(2) of the Regulation a copy of the draft terms must be submitted to 27 29

Ibid., Reg. 33. Ibid., Art. 201C.

28

Art. 201A(1) CCL. Reg. 19 EPLLC Regulations.

30

71

The European Company

the Registrar of Companies together with a form E2(I), set out in the Schedule to the EPLLC Regulations, and the Registrar is required to ensure that a notice of receipt of the draft terms is published in the Official Gazette. Secondly, in accordance with EPLLC Regulation 4, with a view to registering a holding SE the promoting companies must deliver to the Registrar an E2 form together with the necessary documents. Thirdly, pursuant to EPLLC Regulation 32, upon fulfilment of the conditions for the formation of a holding SE, regardless of whether the SE’s registered office will be in Cyprus or another Member State, the promoting company must deliver to the Registrar of Companies within 14 days a notice to this effect on an E2(II) form, set out in the Schedule to the EPLLC Regulations. If the company fails to do so, it shall be liable in summary proceedings for a default fine in accordance with Article 375 of the CCL. Upon receipt of the E2(II) form, the Registrar of Companies shall cause a notice to be published in the Official Gazette to the effect that the requirements for incorporation have been fulfilled in accordance with the provisions of Article 365A of the CCL. The notice must also be published in the Official Journal of the European Communities. An SE acquires legal personality upon registration and is regulated by the laws of the Member State in which its registered office is located. The Member States may adopt provisions designed to ensure protection for creditors, employees and minority shareholders who oppose the operation.31 Cyprus has not adopted any such provisions, however. E

Formation by incorporation as a subsidiary

24. Companies and firms within the meaning of Article 58(2) of the EC Treaty and other legal entities governed by public or private law, formed under the laws of a Member State, with their registered and head offices within the Community may form a subsidiary SE by subscribing for its shares, provided two or more are governed by the laws of different Member States or have maintained for at least two years a subsidiary governed by the laws of another Member State or a branch in another Member State (Art. 2(3) Reg.). The conditions and formalities for incorporation of a subsidiary SE are determined by the national law of the Member State where the SE’s registered office is located. A subsidiary SE must be registered in that Member State. To register a subsidiary SE in Cyprus formed in accordance with Article 2(3) of the Regulation, the founders must provide the Registrar of Companies with an E3 form (set out in the schedule to the EPLLC Regulations) together with the 31

72

Art. 34 Reg.

Cyprus

required accompanying documents.32 The registration must also be published in the Official Journal of the European Communities. The functioning of a subsidiary SE is governed by the laws applicable to public limited-liability companies of the Member State in which its registered office is located (Art. 10 Reg.). F

Formation by conversion

25. A public limited-liability company formed under the laws of Cyprus (∆ηµ´oσ ια Eτ αιρε´ια Περιoρισ µ´ενης Eυθ v´ νης) can be converted into an SE if, for at least two years, it has had a subsidiary governed by the laws of another Member State (Art. 2(4) Reg.). It follows that conversion may not take place if the public limited-liability company does not have a subsidiary in a different Member State. Conversion does not lead to the establishment of a new legal entity but rather the continuation of an existing company in a different form. 26. The conversion process is detailed in Article 37 of the Regulation, and the key features are set out in Section VI(2)(F) of the general report. With respect to Cypriot law, three main issues should be noted. Firstly, in accordance with EPLLC Regulation 29(3), when the draft terms of conversion are drawn up by the management or administrative organ, a copy of the draft terms together with an E4(I) form must be submitted to the Registrar of Companies, who shall cause a notice of receipt to be published in the Official Gazette. Secondly, in order to be registered as an SE formed by conversion, the company must deliver an E4 form, as set out in the Schedule to the EPLLC Regulations, to the Registrar of Companies together with all specified documents.33 A notice of the conversion must also be published in the Official Gazette and in the Official Journal of the European Communities. Thirdly, Cypriot law does not require the approval of a qualified majority or unanimity in the organ of the company to be converted within which employee participation is organised as a precondition for the conversion.34

3

Registration and publication

A

Registration

27. An SE must be registered in the Member State in which its registered office is located, in a register designated by the laws of that state in accordance with 32 34

Reg. 5 EPLLC Regulations. 33 Ibid., Reg. 6. Such a possibility was contemplated by Article 37(8) of the Regulation.

73

The European Company

the First Council Directive (68/151/EEC) of 9 March 1968.35 Legal personality cannot be acquired without registration. An SE can only be registered if: (i) an arrangement for employee involvement pursuant to Article 4 of the Directive has been reached; or (ii) a joint decision not to proceed with negotiations on employee involvement pursuant to Article 3(6) of the Directive has been taken; or (iii) the period for negotiations under Article 5 of the Directive has expired without an agreement having been reached (Art. 12(2) Reg. and Art. 7(1)(b) Dir.). The Registrar of Companies will register an SE formed by conversion or otherwise under the provisions of Articles 2 and 3 of the Regulation or an SE whose registered office is transferred to Cyprus pursuant to Article 8 of the Regulation once all the requirements of the Regulation and the EPLLC Regulations in respect of the formation, conversion or transfer, as the case may be, have been met.36 The Registrar is required to retain any document submitted pursuant to any provision of the Regulation or the EPLLC Regulations in accordance with the provisions of the CCL.37 These provisions also apply with respect to the registration or deletion of the registration of an SE under the Regulation and the functions of the Registrar in respect of such registration or deletion.38 B

Publication

28. Publication of documents and particulars concerning an SE is effected in the manner laid down in the national law of the Member State in which the SE’s registered office is located, in accordance with Directive 68/151/EEC (Art. 13 Reg.). EPLLC Regulation 33 provides that where an event must be publicised, the Registrar of Companies shall publish a notice of receipt of particulars of the event in the Official Gazette in accordance with the provisions of Article 365A of the CCL. A notice of an SE’s registration or deletion of a registration must also be published in the Official Journal of the European Communities, after publication in the official gazette of the Member State where the SE is or was registered. Publication in the Official Journal is for information purposes only (Art. 14(1) Reg.). The Registrar shall send the relevant notice to the Office for Official Publications of the European Communities.39 C

Effects of publication

29. The First Company Law Directive determines the effects of publication of documents relating to an SE. In principle, if a document must be published it 35 37

74

Official Journal L 65 of 14 March 1968. 38 Ibid., Reg. 12. Ibid., Reg. 11(1).

36 39

Reg. 10 EPLLC Regulations. Ibid., Reg. 34.

Cyprus

cannot be enforced against third parties prior to its publication. Section VI(3)(C) of the general report contains an informative discussion of the effects of publication.

4

Acts committed on behalf of an SE in formation 30. Until the process of incorporation of an SE is complete, the SE does not enjoy legal personality and therefore may not create rights or incur obligations in its own name. A party may act on behalf of an SE prior to its registration only if the SE accepts the rights and obligations arising out of such acts following registration. If acts are committed in an SE’s name before its registration and the SE does not subsequently assume the obligations arising out of these acts, the natural persons, companies, firms or other legal entities that committed them shall be jointly and severally liable, without limitation, in the absence of an agreement to the contrary (Art. 16(2) Reg.).

5

Subsidiaries 31. Like any other legal entity, an SE may set up one or more subsidiaries, which may themselves take the form of an SE. Provisions of national law of the Member State in which a subsidiary SE has its registered office that require a public limited-liability company to have more than one shareholder shall not apply to a subsidiary SE. However, provisions of national law implementing the Twelfth Company Law Directive (89/667/EEC) of 21 December 1989 on single-member private limited-liability companies shall apply to SEs mutatis mutandis (Art. 3(2) Reg.). Pursuant to EPLLC Regulation 7, if it is proposed to register an SE formed as the subsidiary of an SE, an E3 form (set out in the Schedule to the EPLLC Regulations) must be submitted to the Registrar along with any necessary documents. The registered office of an SE whose subsidiary is to be registered under the Regulation may be situated in another Member State.

VII

Articles of an SE 32. For the purposes of the Regulation, the term ‘statutes’ has a two-fold meaning. Firstly, it denotes an SE’s instrument of incorporation and, secondly, where they are the subject of a separate document, the company’s articles of association (Art. 6 Reg.). Amendments to an SE’s articles must be published (Art. 59 Reg.). For this purpose, an SE must submit any amendments to its articles to the Registrar of Companies, along with an E10 form, set out in the Schedule to the EPLLC Regulations, within 14 days following their adoption.40 40

Ibid., Reg. 43(1)(a).

75

The European Company

If it appears that an SE’s articles conflict with the arrangements for employee involvement determined in accordance with Article 12 of the Regulation, and the articles have not been amended to the extent necessary, the Registrar can order the SE to amend its articles accordingly within a specified period of time. The Registrar can seek to enforce any such order by petitioning the competent district court.41

VIII

Organisation and management

1

General remarks 33. An SE can have either a one-tier or a two-tier management structure. In the former, there is a general meeting of shareholders and an administrative organ. In the latter, a management organ and a supervisory board replace the administrative organ while the general meeting of shareholders is retained (Art. 38 Reg.).

2

General meeting of shareholders

A

Powers

34. The general meeting of shareholders takes decisions on matters for which it is given sole authority by the Regulation, the Directive and provisions of national law applicable to public limited-liability companies of the Member State where the SE’s registered office is located (Art. 52 Reg.). Section VIII(2)(A) of the general report provides an indicative list of such matters. B

Organisation

35. General meetings of an SE are governed by Articles 124 et seq. of the CCL, subject to specific rules laid down in the Regulation. At least one general meeting must be held each calendar year (Art. 125(1) CCL). A newly formed company must hold its first annual general meeting within eighteen months of its incorporation, meaning that there may not be a meeting in the year of incorporation or the following year (Art. 125(1) CCL). General meetings may be called at any time by the management or administrative organ and the supervisory board (Art. 54(2) Reg.). One or more shareholders holding jointly at least 10% of an SE’s subscribed capital may ask the SE to convene a general meeting, in which case they should draw up an agenda (Art. 55(1) Reg.). This threshold may be reduced by either the SE’s articles or national law. Cyprus currently applies the 10% threshold.42 If, following a request, a general meeting is not held in due time and, in any event, within two months, the Registrar of Companies may order that a general meeting be 41

76

Ibid., Reg. 39.

42

Art. 126 CCL.

Cyprus

convened within a given period of time or authorise either the shareholders who have so requested or their representatives to convene the meeting (Art. 55 Reg.). Although Article 55 is silent on who bears the costs of the meeting in this case, the court will most likely order the SE to do so. One or more shareholders holding at least 10% of an SE’s subscribed capital may request that items be placed on the agenda (Art. 56 Reg.). Cyprus has not exercised the option contained in Article 56 of the Regulation to set a lower threshold. C

Quorum and voting requirements

36. In general, decisions of the general meeting are taken by a simple majority of the votes validly cast (Art. 57 Reg.), not including votes attached to shares in respect of which the shareholder has abstained or has returned a blank or spoilt ballot (Art. 58 Reg.). While the Regulation does not provide for a quorum, the SE’s articles may do so in certain cases. D

Amendments to an SE’s articles

37. In keeping with the CCL, amendments to an SE’s articles must be approved by a majority of at least 75% of the votes cast at a general meeting43 (higher than the two-thirds majority stipulated in Article 59 of the Regulation). The same majority is required even when at least half the SE’s subscribed capital is present or represented.44 If the articles of an SE conflict with the arrangements for employee involvement, the management or administrative organ is not entitled to proceed to amend the articles without the approval of the general meeting.45 As mentioned above, amendments to an SE’s articles must be publicised as required by law in order to take effect.

3

Management (two-tier system/one-tier system)

A

Powers and functioning

38. In the one-tier system, an SE is managed by its administrative organ. In the two-tier system, there is a management organ, which is overseen by a supervisory board. 43 44

45

Reg. 27 EPLLC Regulations. Article 59(2) of the Regulation states that a Member State may provide that a simple majority shall suffice when at least half an SE’s subscribed capital is represented, but this option was not adopted in Cyprus. An option to the contrary is provided in Article 12(4) of the Regulation but was not adopted in Cyprus.

77

The European Company

In both cases, unless otherwise provided by the Regulation or the SE’s articles, the required quorum is at least half the members of the administrative or management body. A majority of the members must be present or represented (Art. 50(1) Reg.). The chair casts the deciding vote in the event of a tie, unless the articles provide otherwise. There can be no provision to the contrary in the articles, however, where half the members of the supervisory organ are employee representatives (Art. 50(2) Reg.). 39. The supervisory or administrative organ of an SE or of a participating company established in Cyprus is not obliged to transmit information to the members of the special negotiating body or to the employee representative body if to do so would, according to objective criteria, seriously harm the functioning of the SE (or, as the case may be, the participating company) or its subsidiaries and establishments or would be prejudicial to them.46 This dispensation is not subject to prior administrative or judicial approval.47 B

Appointment, removal and liability

40. Members of the administrative and supervisory organs are appointed for a term stated in the SE’s articles, which may not exceed six years (Art. 46(1) Reg.). They may be reappointed one or more times, unless the articles provide otherwise (Art. 46(2) Reg.). If a company or other legal entity is appointed, it must designate a natural person to exercise its functions on its behalf (Art. 47(1)(1) Reg.). 41. Persons who are disqualified from serving on the organs of a public limitedliability company of the Member State where the SE’s registered office is located, either by law or pursuant to a judicial or administrative order delivered in the European Union, may not be appointed to an SE’s organs (Art. 47(2) Reg.). The SE’s articles may stipulate special eligibility requirements for members representing certain shareholders, in accordance with the law of the Member State where the SE is registered. 42. The members of an SE’s organs are subject to a duty of confidentiality which continues in effect even after they have ceased to hold office and covers any information concerning the SE the disclosure of which could be prejudicial to the company’s interests, except where such disclosure is required or permitted under provisions of national law applicable to public limited-liability companies (Art. 49 Reg.). 43. In the two-tier system, the management organ is responsible for managing the SE (Art. 39 Reg.) and is overseen by a supervisory board (Art. 40(1) Reg.). 46 47

78

Art. 16(2) Law 277(I)/2004. This option is contained in Article 8(2) of the Directive.

Cyprus

There are no provisions of national law to the effect that a managing director or directors shall be responsible for the day-to-day management of an SE under the same conditions applicable to public limited-liability companies with their registered office in Cyprus.48 44. Details of the two-tier system are set out in Articles 39 to 42 of the Regulation and a detailed discussion can be found in Section VIII(3)(C) of the general report. With respect to the application of these provisions in Cyprus, a number of points should be noted. Firstly, pursuant to EPLLC Regulation 20,49 the articles of an SE may provide that the member or members of the management organ shall be appointed and removed by the general meeting under the same conditions applicable to public limited-liability companies with their registered office in Cyprus. Secondly, in the event of a vacancy on the management organ, a member of the supervisory organ may be appointed to fill the vacancy, in accordance with Article 39(3) of the Regulation, for a period not to exceed six months.50 Thirdly, the minimum number of members of an SE’s management organ and supervisory organ is two.51 Fourthly, the management organ is required to provide each member of the supervisory organ with any information that member needs in order to exercise his or her supervisory functions in accordance with Article 40(1) of the Regulation.52 Fifthly, the supervisory organ may make certain categories of transactions subject to its authorisation.53 The EPLLC Regulations do not specify any such categories to be indicated in an SE’s articles. Thus, the option contained in Article 48(2) of the Regulation has not been adopted in Cyprus. Sixthly, an SE with a two-tier management structure is required to keep at its registered office a register of the members of its supervisory organ. The register must contain the particulars required by Article 192 of the CCL. The SE is required to notify the Registrar of Companies of any changes in these particulars on an E7 form, set out in the Schedule to the EPLLC Regulations. Finally, where employee participation is provided for in accordance with the Directive, the supervisory organ’s quorum and decision-making are, by way 48 49 50 51 52 53

This option is contained in Art. 39(1) of the Regulation. Exercising the option granted by Art. 39(2) Reg. EPLLC Regulation 21, exercising the option granted by Art. 39(3) Reg. Ibid., Regs. 22 and 23, exercising the options granted by Arts. 39(4) and 40(3) Reg., respectively. Ibid., Reg. 24, exercising the option granted by Art. 41(3) Reg. Ibid., Reg. 25, exercising the option granted by Art. 48(1) Reg.

79

The European Company

of derogation from the provisions referred to in Article 50(1) and (2) of the Regulation, subject to the rules applicable, under the same conditions, to public limited-liability companies under the CCL.54 C

One-tier system

45. In the one-tier system, management is entrusted to an administrative organ (Art. 43(1) Reg.). The EPLLC Regulations do not specify a minimum or maximum number of members.55 Furthermore, there is no provision of national law to the effect that a managing director or directors shall be responsible for the day-to-day management of an SE, as is the case with public limited-liability companies with their registered office in Cyprus.56 The administrative organ is supervised by the general meeting. Details of the one-tier system are set out in Articles 43 to 45 of the Regulation and discussed in Section VIII(3)(D) of the general report. It should be noted that the members of the administrative organ are normally appointed by the general meeting but that the first administrative organ may be appointed in the SE’s articles (Art. 43(3) Reg.). The administrative organ elects a chair from amongst its members (Art. 45 Reg.).

IX

Annual accounts and consolidated accounts 46. As regards the preparation of its annual and, where appropriate, consolidated accounts, including the accompanying annual report and the auditing and publication of its accounts, an SE is governed by the national law of the Member State in which its registered office is located (Art. 61 Reg.). In Cyprus, which has yet to introduce the euro as its sole currency, an SE’s annual and consolidated accounts must in principle be prepared and published in Cypriot pounds. However, an SE registered in Cyprus can publish its accounts in both the national currency and in euros (Art. 67(2) Reg.).

X

Transfer of registered office 47. The registered office of an SE may be transferred to another Member State without having to wind up the SE or create a new legal entity (Art. 8(1) Reg.). 48. The transfer of an SE’s registered office is regulated by Article 8 of the Regulation. With respect to the application of this provision in Cyprus, a number of points should be noted. 54 55 56

80

Ibid., Reg. 26, exercising the option granted by Art. 50(3) Reg. Such an option is contained in Art. 43(2) of the Regulation. Such a possibility is contemplated by Art. 43(1) of the Regulation.

Cyprus

Firstly, where it is proposed to transfer to Cyprus the registered office of an SE from another Member State in accordance with the Regulation, the company must provide the Registrar of Companies with an E5 form, set out in the Schedule to the EPLLC Regulations, together with the specified documents.57 Secondly, a copy of any transfer proposal drawn up pursuant to Article 8(2) of the Regulation, together with an E6(I) form, set out in the Schedule to the EPLLC Regulations, must be submitted to the Registrar of Companies, who shall cause a notice of receipt of the proposal to be published in the Official Gazette.58 Thirdly, an SE that plans to transfer its registered office from Cyprus to another Member State must submit an E6 form, set out in the Schedule to the EPLLC Regulations, together with the specified documents,59 to the Registrar of Companies to apply for the certificate referred to in Article 8(8) of the Regulation. If the proposed transfer of the SE’s registered office would result in a change in the law applicable to the SE, the Registrar of Companies may, within the twomonth period referred to in Article 8(6) of the Regulation, oppose the transfer on grounds of public interest.60 Finally, where an SE proposes to transfer its registered office to another Member State it must satisfy the Registrar of Companies that the interests of creditors and the holders of other rights (including public bodies) have been adequately protected with respect to any liabilities that arose or that may arise up to the date of the transfer.61 To this end, the SE must make a declaration of solvency on an E9 form, in accordance with the provisions of Article 266 of the CCL. The declaration of solvency must be approved by a simple majority of all members of the administrative organ, if the SE has a one-tier structure, or by a simple majority of the members of the management organ, if the SE has a two-tier management structure. The Member States are free to adopt provisions to protect minority shareholders who oppose the transfer of an SE’s registered office.62 Cyprus has not adopted any provisions in this respect.

XI

Termination 49. As regards winding up, liquidation, insolvency, suspension of payments and similar procedures, an SE registered in Cyprus is subject to Articles 203 et seq. of the CCL.

57 60 61 62

58 Ibid., Reg. 29(1). 59 Ibid., Reg. 9. Reg. 8 EPLLC Regulations. Ibid. Reg. 17, exercising the option granted by Art. 8(14) Reg. Ibid., Reg. 35 in conjunction with Reg. 16, exercising the option granted by Art. 8(7) Reg. Art. 8(5) Dir.

81

The European Company

The initiation and termination of winding up, liquidation, insolvency or suspension of payment procedures for an SE must be published in accordance with Article 13 of the Regulation (Art. 65).

XII

Conversion into a national company 50. An SE may be converted at any time into a public limited-liability company governed by the laws of the Member State where its registered office is located (Art. 66(1) Reg.). Conversion is regulated by Article 66 of the Regulation, complemented by EPLLC Regulations 45 to 49. Pursuant to EPLLC Regulation 45, an SE that wishes to be converted into a public company must submit to the Registrar of Companies an E8 form, set out in the Schedule, together with the specified documents. For the purposes of registering a former SE which has been converted into a public company, the relevant provisions of the CCL apply. The draft terms of conversion must be submitted to the Registrar of Companies along with an E8(I) form and published in accordance with Article 365A of the CCL. The SE must publish a notice of receipt by the Registrar of its draft terms in the Official Gazette and simultaneously notify the Registrar of Companies of such publication.63 As soon as the E8 form has been submitted to the Registrar of Companies, Articles 14, 15, 17, 102 and 124 of the CCL shall automatically apply, as if the requirements of the CCL in respect of registration of a public company had been met. On registration of the memorandum and articles of association of the former SE, the Registrar of Companies shall issue a certificate attesting that the company is incorporated and retains the legal personality it enjoyed as an SE; that its memorandum and articles of association have been validly registered; and that it is a public company limited by shares. This certificate is conclusive evidence that all requirements of the CCL in respect of registration and matters preceding and incidental thereto have been satisfied and that as of the date of registration, the former SE is a public company limited by shares.64 The provisions of the CCL shall take effect on or after registration of a former SE as a public company. Pursuant to Article 19 of the CCL, a former SE shall be known by the name indicated in its memorandum of incorporation. The persons named on the E8 form shall be deemed the company’s first directors and secretary, effective upon registration.65 Once a former SE has been registered as a public company, records of the SE relating to any period prior to its registration shall be treated, for the purposes of the CCL, as records of that public company.66 63 65

82

64 Ibid., Reg. 47. Reg. 46 EPLLC Regulations. Ibid., Reg. 48. 66 Ibid., Reg. 49.

Cyprus

XIII

Applicable law 51. An SE with its registered office in Cyprus is governed by the Regulation and the Directive. Any areas not covered by the aforementioned legislation are regulated by the CCL and the SE’s articles, to the extent they do not conflict with Community law.

XIV

Conclusion 52. The introduction of the SE is undoubtedly a positive step towards a better and more unified entrepreneurial environment in the European Union. The harmonisation of company law across the European Union is an ambitious undertaking, and the Community legislature has devised a pan-European approach to transnational corporate management and governance by establishing a distinct set of rules that transcends domestic obstacles to cross-border cooperation. It is important, however, to bear in mind that the current Community legal framework constitutes the end product of a long and laborious negotiation process to reconcile divergent national views on basic concepts of company law with different approaches to fundamental principles of labour law,67 which makes the compromises contained in the Community legislation easier to understand and places the foregoing discussion of the SE and the Cypriot implementing measures into the proper conceptual context. 53. By adopting this new corporate form, companies with a presence in more than one Member State, which may be subject to differing constraints under national law, can operate as a single entity throughout the internal market with a single set of rules and a unified management and reporting system. For undertakings operating in more than one EU Member State, the SE could significantly lower operating costs and increase profits. Companies will be able to elect where to register as they can move between jurisdictions without the need for a takeover or a transfer of assets. By adopting the form of an SE, a business can restructure quickly and easily in order to take the best possible advantage of the trading opportunities offered by the internal market. SEs with commercial interests in more than one Member State will be able to move across borders easily, as the need arises, in response to the changing needs of their business. For many years, international businesses have chosen Cyprus as a base for a host of reasons, including its transparent legal system, excellent communications network, world-class professional and banking services, and favourable tax 67

On this point see J. Kenner, ‘Worker Involvement in the Societas Europaea: Integrating Company and Labour Law in the European Union?’ 24 Yearbook of European Law, 2005, 223.

83

The European Company

environment, with a corporate tax rate of only 10% and an extensive network of double tax treaties. Cyprus has already implemented the Merger Directive, thereby allowing companies from other Member States to re-form in Cyprus without adverse tax consequences. Cyprus also has particular advantages for holding and finance companies. The enactment of the SE legislation in Cyprus is a major step forward which will surely enhance Cyprus’s attractiveness as a location for international business.

84

3 Czech Republic j a n z r z av e c k y´ a n d j a n d eˇ d i cˇ ˇ Koci´an Solc Balaˇst´ık

I II

Introduction 86 Formation 86 1 General remarks 86 A Founding parties 86 B Name 86 C Registered office and transfer 86 D Corporate purpose 88 E Capital 88 2 Different means of formation 89 A Formation by merger 89 B Formation of a holding SE 92 C Formation of a subsidiary SE 92 D Conversion into an SE 92 3 Acts committed on behalf of an SE in formation 4 Registration and publication 93 5 Acquisition of legal personality 93 III Organisation and management 93 1 General remarks 93 2 General meeting 94 A Decision-making process 94 B Rights and obligations of shareholders 96 3 Management and supervision 97 A Two-tier system/One-tier system 97 B Appointment and removal 100 C Representation 100 D Liability 101 IV Employee involvement 101 1 Special negotiating body 102 2 Employee participation 102 3 Duty of confidentiality 103 V Annual accounts and consolidated accounts3 103 1 Accounting principles 103 2 Auditors 105 VI Supervision by the national authorities 106 VII Dissolution 107 1 Winding up 107

93

85

The European Company

2 Liquidation 107 3 Insolvency 107 4 Cessation of payments VIII Applicable law 108 IX Tax treatment6 108 1 Income tax 108 2 Value added tax 112 3 Other taxes 112 X Conclusion 112

I

108

Introduction 1. The Regulation and the Directive have been implemented into Czech law by the Act on the European Company No. 627/2004 Coll., effective 14 December 2004 (the ‘SE Act’), and by Regulation No. 293/2005 Coll., effective 21 July 2005, issued by the Ministry of Justice, on documents that must be presented to a notary public for the issuance of a certificate in the event of the relocation of the registered office of a European company or the establishment of a European company by merger.

II

Formation

1

General remarks

A

Founding parties

2. An SE whose registered office will be located in the Czech Republic may be founded by a company whose head office is not located in a Member State, provided it is founded in accordance with the laws of a Member State and has its registered office in that state as well as a permanent and effective link with the economy of a Member State (Art. 2(5) Reg.). B

Name

3. An SE shall be referred to as an evropsk´a spoleˇcnost in Czech. C

Registered office and transfer

(i)

Registered office 4. Pursuant to the Regulation, the registered office of an SE should be located in the same Member State as its head office (Art. 7 Reg.). Under Czech law, if an SE has its registered office in the Czech Republic, its head office should be at the same location as its registered office. If this is not the case, the competent Commercial Register shall issue a notice asking the SE to rectify the situation. If the SE fails to do so and does not implement the remedies ordered pursuant

86

Czech Republic

to Article 64(1) of the Regulation within the specified time limit, the court has the power to wind up the SE at its own initiative and to appoint a liquidator. Although an SE’s articles need not set out the exact details of its registered office (the city in which the registered office is located will suffice), its full address must be provided in order to register with the Commercial Register. 5. A legal entity whose registered office is located in the Czech Republic will be treated in the same way as Czech legal entities and hence will be governed by all commercial law provisions in force in the Czech Republic. (ii)

Transfer of registered office 6. Where, in conjunction with the transfer of an SE’s registered office, already recorded in a public register, from one jurisdiction to another, there is a change in the governing law applicable to the internal relations of the SE as well as to the company’s nationality, the relatively complex provisions of Article 8 of the Regulation shall apply. Further provisions governing issues in connection with the transfer of an SE’s registered office are set out in Sections 10 through 14 of the SE Act. 7. A transfer proposal, drawn up by the SE’s management or administrative organ, must be filed with the Commercial Register’s documents registry and published in the Commercial Bulletin at least two months prior to the date of the general meeting scheduled to approve the transfer (Sec. 10 SE Act). 8. The proposal must be approved by the general meeting by a qualified majority of two-thirds of the votes cast. The articles may provide for a higher majority. The resolution must take the form of a notarised instrument (since it effectively constitutes an amendment to the articles). As soon as practicable following approval of the general meeting’s resolution, the SE’s board of directors or administrative organ must file an application to amend the existing entry in the Commercial Register (Sec. 11 SE Act). 9. Shareholders who voted against the transfer are entitled to protection under Article 8(5) of the Regulation, as in the case of a merger involving public limited-liability companies. The SE has a duty to make a public offer to purchase the shares of dissenting shareholders within one month following the date of the general meeting that approved the transfer proposal. Compliance by the company with this obligation is overseen by the Czech National Bank. 10. Creditors of an SE that is transferring its registered office from the Czech Republic are protected pursuant to Article 8(7) of the Regulation by application of the provisions of the Czech Commercial Code on the protection of creditors during mergers of public limited-liability companies, insofar as relevant. Creditors who file their claims within three months following the publication date of the transfer proposal, and whose claims are not yet due and whose position 87

The European Company

is liable to worsen as a result of the transfer, may request adequate security. In practice, it could be difficult to demonstrate that certain receivables will be more difficult to collect as a result of the relocation, however. 11. The certificate referred to in Article 8(8) of the Regulation, attesting to completion of the requisite pre-transfer acts and formalities, is a public document issued by a Czech notary upon presentation of the required documents. Prior to issuance of the certificate, the SE must provide the notary with an affidavit from members of its board of directors, confirming that they are not aware of any application filed to invalidate the general meeting’s resolution approving the transfer or any document showing that proceedings in connection with such an application have been brought with legal effect or that an application has been rejected with legal effect and/or that any and all authorised persons have waived their rights to file such an application. 12. Article 8(14) of the Regulation provides that the Member States may object to the transfer of an SE’s registered office on grounds of public interest. As yet, there is no provision of Czech law granting the national authorities the right to object to relocation of an SE’s registered office on grounds of public interest and hence such an objection is inadmissible. 13. In addition to the documents specified by the Regulation, other documents must be filed with the documents registry by any SE with its registered office in the Czech Republic, including a transfer application and the general meeting’s resolution approving the application to relocate the registered office. D

Corporate purpose

14. Like any other public limited-liability company in the Czech Republic, an SE may be established to carry on a business or for other purposes. There are no SE-specific rules in this respect. Acts that fall outside an SE’s corporate purpose, i.e. ultra vires acts, are still valid, unless the other party acted in error and seeks to have the act declared invalid on this ground under Section 49a of the Czech Civil Code. An SE is bound to third parties by acts committed by its statutory (i.e. representative) body (even where, in acting thus, the company exceeded its corporate purpose), unless the act in question exceeds the scope of authority of the statutory body in question. Restrictions on the authority of a statutory body imposed by a decision of another corporate organ are not enforceable against third parties, even if the restriction has been made public (Sec. 40 SE Act and Sec. 13 Commercial Code). E

Capital

15. The minimum share capital of an SE is €120,000. Contributions in kind must be made prior to the date on which the company comes into being. Cash contributions must be fully paid up within one year of this date. Contributors 88

Czech Republic

have a duty to pay up in cash any share premium, together with at least 30% of the nominal value of their shares, no later than commencement of the first general meeting. Shares may be bearer or registered, in certificate or book-entry form.

2

Different means of formation

A

Formation by merger

(i)

Procedure and publication requirements 16. The only Czech corporate form allowed to participate in the formation of an SE by merger is the public limited-liability company or akciov´a spoleˇcnost (‘akc.spol.’ and ‘a.s.’ are the accepted abbreviations). However, other forms of commercial companies may be converted into a public limited-liability company and subsequently participate in the formation of an SE by merger. The management of each merging company must prepare draft terms of merger. The authors believe the list of requirements for the draft terms of merger set out in Article 20(1) of the Regulation is exhaustive, meaning it is impossible for the Member States to impose additional requirements. Czech law imposes no language requirements with respect to the draft terms of merger. The merging companies need only ensure that the notary in charge of recording the decisions of the general meetings in a notarised instrument understands the language of the documents. If any document which is to be filed with the Commercial Register’s documents registry is drafted in a foreign language, a Czech translation must be filed as well. If an SE whose registered office is located in the Czech Republic is to issue new shares as a result of a merger, the assets of the absorbed company must be valuated by a court-appointed expert (Sec. 69a(6) Commercial Code). Each company participating in a merger in which a new company is formed must have its assets valuated by a court-appointed expert. The draft terms of merger must be reviewed by an expert (or experts) appointed by a Czech court in accordance with Section 220c of the Czech Commercial Code or, within the meaning of Article 22 of the Regulation, by one or more independent experts appointed further to a joint proposal of the merging companies in the Member State of any merging company or where the future SE’s registered office will be located. The court authorised to appoint the expert is the general court with jurisdiction over the Czech merging company, i.e. the regional court of the place where the company’s registered office is located. The board of directors of a Czech public limited-liability company participating in the formation of an SE by merger is obliged to draft a detailed merger report (Sec. 220b, subsection 1 Commercial Code), and its supervisory board must review the contemplated merger, based on the draft terms of merger and the experts’ reports, and draft a report thereon (Sec. 220b, subsection 2 Commercial 89

The European Company

Code). Czech law does not require that these reports be drafted if all shareholders of the merging company so agree or if the company is to merge with its sole shareholder (Sec. 220b(4) Commercial Code). The draft terms of merger must be filed with the Commercial Register’s documents registry and made available at the registered offices of the Czech merging companies at least one month before the general meeting scheduled to vote on the merger (Sec. 220d Commercial Code). Furthermore, the draft terms of merger, the experts’ reports, the opening balance sheet, the annual accounts and the management reports for the last three years of each merging company should be made available to shareholders at the registered offices of the Czech merging companies at the same time. The information referred to in Article 21 of the Regulation must be published in the Czech Commercial Bulletin. Under Czech law, there are no additional publication requirements applicable to Czech merging companies. 17. The merger must be approved by the general meeting of each merging company. The resolutions must include (i) consent to the draft terms of merger and to assumption of the assets of the absorbed companies, (ii) approval of the final financial statements and opening balance sheet, (iii) a decision to issue new shares or to acquire the company’s own shares, if required to exchange shares in the merging company for shares in the SE, and (iv) a mention of the form, class, type, nominal value and number of shares and the amount of registered share capital of the merging company following the merger. If the latest annual accounts relate to a financial year that ended more than six months prior to the date of the draft terms of merger, the merging companies shall prepare interim financial statements. The board of directors or the management organ must inform the general meeting and the management or administrative organs of the other merging companies of any material changes to the company’s assets, liabilities and profit/loss that have arisen since the decision to merge (Sec. 220e(2) Commercial Code). 18. The general meeting’s decision on the merger must be approved by at least three quarters of the shareholders present. The company’s articles may require a higher majority or compliance with other terms and conditions. If the company has issued several classes of shares, the decision must be approved by threequarters of those shareholders present in each class. The general meeting’s resolution on the merger must be recorded in a notarial instrument, with the draft terms of merger attached. In drafting the notarial instrument, the notary confirms that the decision complies with applicable law and the company’s corporate documents. 19. The certificate mentioned in Article 25(2) of the Regulation constitutes a public document and must be issued by a notary. There is no provision of Czech law granting the Czech competent authorities the right to oppose the merger 90

Czech Republic

before the certificate referred to in Article 25(2) of the Regulation (see Art. 19 Reg.) has been issued. An SE whose registered office will be in the Czech Republic must be registered in the Commercial Register; the information recorded and the content of the documents filed shall be published in the Commercial Bulletin. The authority in charge of reviewing whether the requirements of Article 26 of the Regulation have been met is the registration court; the review shall be carried out as part of the procedure to register the SE in the Commercial Register (Sec. 18(1) SE Act). (ii)

Minority shareholders 20. Shareholders who did not vote in favour of the merger and whose legal status changed due to the merger (e.g. because such shareholders exchanged their shares for shares of another class) have the right to protection pursuant to the provisions of the Commercial Code applicable to share purchases upon mergers of public limited-liability companies. An SE shall make a binding public offer to the above shareholders within two weeks following the effective date of the merger.

(iii)

Rights of creditors 21. If the registered office of an SE formed by merger will be outside the Czech Republic, creditors of the Czech merging companies may request the provision of adequate security at the conditions set forth under number 10 above.

(iv)

Acquisition by a company holding 90% or more of the shares in another company 22. Czech law provides no exemptions from the reporting requirements for a merger by acquisition by a company that already holds at least 90% of the shares in another company. However, a simplified procedure exists for a merger by acquisition of a wholly owned subsidiary. In that case, no merger reports are required (Sec. 220b(4) Commercial Code).

(v)

Avoidance of a merger 23. Under Czech law, every shareholder or member of a company’s board may petition the competent court to set aside a resolution of the general meeting approving a merger if the resolution is contrary to statutory provisions or the company’s articles. This right shall expire if it is not exercised within three months from the date of the general meeting. However, the court shall not invalidate a resolution if, pursuant to an effective ruling, entry of the merger in the Commercial Register has been permitted (Sec. 131 Commercial Code). 91

The European Company

B

Formation of a holding SE

(i)

Procedure and publication requirements 24. In the Czech Republic, the only corporate forms entitled to participate in the creation of a holding SE are public limited-liability companies (akciov´a spoleˇcnost) and private limited-liability companies (spoleˇcnost s ruˇcen´ım omezen´ym).1 The board of directors or executives2 of each promoting company shall prepare draft terms of formation. Czech law imposes no requirements with respect to the language in which the draft terms of formation must be drafted. The promoting companies need only ensure that the notary responsible for drafting the notarial instruments on the general meetings’ decisions understands the language of the documents to be approved. The draft terms of formation must be approved by at least three-quarters of the votes cast by those shareholders present at the general meeting. 25. The board of directors or the executives of each promoting company with its registered office in the Czech Republic shall file a petition for registration in the Commercial Register, attesting to compliance with the terms and condition for formation of a holding SE under Article 33(3) of the Regulation, without undue delay after the shareholders of the promoting companies have assigned the minimum percentage of shares in each company in accordance with the draft terms of formation and if all other conditions are fulfilled.

(ii)

Minority shareholders 26. The provisions of the Czech Commercial Code on the protection of minority shareholders on the occasion of a merger shall reasonably apply to the minority shareholders of a Czech promoting company who voted against the formation of a holding SE.

C

Formation of a subsidiary SE

27. The Czech legislature has not provided any special rules in this respect. D

Conversion into an SE

28. In the Czech Republic, the only type of company that can be converted into an SE (Art. 2(4) Reg.) is the public limited-liability company (akciov´a spoleˇcnost). The draft terms of conversion shall be filed with the Commercial Register’s documents registry and a filing notice shall be published in the Commercial Bulletin at least one month before the general meeting scheduled to vote on the conversion. 1 2

92

Annex II to the Regulation. Private limited-liability companies (spoleˇcnost s ruˇcen´ım omezen´ym) are managed by one or more executives.

Czech Republic

29. The provisions of the Czech Commercial Code applicable to mergers shall reasonably apply to the appointment of one or more independent experts to draw up a report on the conversion. The Czech Republic did not enact the option contained in Article 37(8) of the Regulation to make conversion subject to a favourable vote of a qualified majority or unanimity in the organ of the company to be converted within which employee participation is organised. 30. The draft terms of conversion, which shall include the new articles, must be approved by three-quarters of the votes cast by shareholders present at the general meeting (unless the articles require a higher majority). If the company has issued several classes of shares, the draft terms must be approved by threequarters of the votes cast by shareholders present in each class.

3

Acts committed on behalf of an SE in formation 31. If acts are performed in an SE’s name prior to its registration, the persons that performed the acts shall be held jointly and severally liable. The SE shall only be liable if the general meeting approves the acts within three months of its registration. Upon approval, the SE shall be deemed by operation of law to have entered into the acts from the outset.

4

Registration and publication 32. An SE with its registered office in the Czech Republic must be recorded in the Commercial Register; the information recorded and the content of the documents filed shall be published in the Commercial Bulletin. In addition, the SE’s articles must be filed with the Commercial Register’s documents registry.

5

Acquisition of legal personality 33. An SE shall acquire legal personality on the date on which it is recorded in the Commercial Register (Art. 16(1) Reg.). This corresponds to the generally applicable principle of Czech law with respect to other types of legal entities.

III

Organisation and management

1

General remarks 34. The organisation of an SE whose registered office is in the Czech Republic is governed by the Regulation, the Czech SE Act, the provisions of the Czech Commercial Code applicable to public limited-liability companies and the company’s articles. Traditionally, Czech law recognises only a two-tier system of management for public limited-liability companies. It is therefore not possible to establish a company with a one-tier management structure in the Czech 93

The European Company

Republic. The only exception is the SE. Rules for a one-tier SE are set out in the Czech SE Act and only apply to SEs. If an SE with a one-tier structure is to be governed by Czech law and if there are no special rules in the SE Act, then – depending on the circumstances – the functions of the chairman of the administrative organ, also acting as managing director (chairman-managing director), the managing director or the delegated managing director shall be governed by the provisions of the Czech Commercial Code applicable to the board of directors of a public limitedliability company. The administrative organ shall be governed by the provisions of the Commercial Code applicable to the supervisory board of a public limitedliability company or the board of directors of such a company, depending on the nature and powers of these bodies. If Czech law applies to a one-tier SE in matters where authority in a company with a two-tier management structure would be split between the board of directors and the supervisory board, and the Czech SE Act sets out no special rules in this regard, then the functions of the chairman-managing director, managing director or delegated managing director shall be governed by the provisions of the Czech Commercial Code applicable to the board of directors of a public limited-liability company and the functions of the administrative organ shall be governed by the provisions of the Czech Commercial Code applicable to the supervisory board of a public limited-liability company (Sec. 4(2) and (3) SE Act).

2

General meeting

A

Decision-making process

35. The general meeting of an SE (with either a one-tier or a two-tier management structure) is governed by the provisions of the Czech Commercial Code on the general meeting of a public limited-liability company, except where otherwise stated in the Regulation and the SE Act. A general meeting must be held at least once a year within the time limit specified in the articles and, in any event, no later than six (6) months following the close of the company’s accounting period (Sec. 184(3) Commercial Code). The first general meeting of an SE may be held at any time during the first eighteen months of its existence (Sec. 43(2) SE Act). The SE Act contains no provisions requiring a mandatory agenda for the general meeting. The general meeting is convened by the board of directors (in the two-tier system) or the managing director (in the one-tier system). If the board of directors fails to take a prompt decision on whether to call a general meeting but is obliged to do so by law and/or if the board has been unable to take decisions on a long-term basis, a member thereof may convene the general meeting. In the two-tier system, the general meeting may also be called by the supervisory 94

Czech Republic

board if the interests of the company so require. In the one-tier system, this power is reserved to the administrative organ. Pursuant to Section 43(1) of the SE Act, the shareholders of an SE are entitled to request that a general meeting be held and to determine the agenda at the conditions set forth in the Commercial Code. In accordance with Section 181(1) of the Commercial Code, a shareholder or shareholders of a company whose registered share capital exceeds CZK 100,000,000, holding shares with an aggregate nominal value of more than 3% or 5% of the registered share capital, as the case may be, can petition the board of directors to call an extraordinary general meeting to discuss the matters proposed. If the board fails to comply with its duty to call a general meeting, the court, further to a petition filed by the shareholders concerned, may approve a decision allowing these shareholders to call an extraordinary general meeting. The general meeting is called in the manner specified in the Czech Commercial Code and the company’s articles. A company with registered shares must make public its notice of a general meeting by sending it to all shareholders at their registered office or home address, as set out in the shareholders’ register, at least thirty days before the date scheduled for the meeting. A company with bearer shares shall cause a notice of its general meeting to be published in the Commercial Bulletin and in another suitable manner, as specified in its articles, in at least one national daily newspaper. This time limit is shortened to fifteen days if the general meeting is to be held at the request of shareholders or if it is a general meeting on second call (Sec. 184(4) Commercial Code). If a company has issued book-entry shares, the articles or a decision taken prior to the general meeting may designate an effective date for participation in the meeting, which cannot be more than seven calendar days before the date scheduled for the meeting. If no effective date is expressly designated, it shall be deemed to be the seventh calendar day before the general meeting (Sec. 184(2) Commercial Code). 36. The general meeting can only deliberate on matters that fall within its powers by law or pursuant to the company’s articles (Sec. 187 Commercial Code). The general meeting does not have the power to approve decisions on any other matters. If, notwithstanding this prohibition, it nevertheless does so, the decision will have no legal effect according to settled case law of the Czech Supreme Court. The general meeting’s quorum requirement is met if shareholders holding 30% or more of the nominal value of the registered share capital are present, unless the articles require a higher threshold (Sec. 185(1) Commercial Code). If the general meeting fails to meet this quorum, a substitute (i.e. second) general meeting will be called. Notice of the (second) general meeting must be sent and made public no later than fifteen days from the date on which the original 95

The European Company

general meeting was scheduled to have taken place. The second general meeting must be held no later than six weeks from the date of the first general meeting. The agenda of the meeting must remain unchanged, and the required quorum will be deemed met, regardless of the number of shareholders present and the nominal value of their shares (Sec. 185(3) Commercial Code). The general meeting approves decisions by a majority of the votes cast by those shareholders present, unless a greater majority is required by law or the company’s articles (Sec. 186(1) Commercial Code). A qualified majority (twothirds or three-quarters of the shareholders present) is required by law to approve resolutions on important matters (e.g. amendments to the articles, an increase or reduction in the registered share capital, conversion of the company, etc.). 37. The applicable provisions of the Czech Commercial Code on the approval of amendments to the articles of a public limited-liability company apply to an SE, unless a greater majority is required under Article 59 of the Regulation (Sec. 44 SE Act). An amendment to the articles of a public limited-liability company must be approved by two-thirds of the votes cast by those shareholders present, assuming the required quorum is met (Sec. 186(2) Commercial Code). A resolution of the general meeting approving a change in the type or class of shares, rights attached to a particular class of shares or restrictions on the transferability of registered shares must be approved by at least threequarters of the shareholders present. If amendment to the articles constitutes an item on the agenda, the notice of the general meeting must at least set out the nature of the proposed amendments, which must be made available to shareholders for inspection at the company’s registered office within the time limit specified to call the general meeting. Any shareholder may request a copy of the proposed amendments at its own expense. Shareholders must be informed of their rights in this respect in the notice of the meeting (Sec. 184(8) Commercial Code). B

Rights and obligations of shareholders

38. The rights and obligations of shareholders are governed by the Regulation, the Czech SE Act, the Czech Commercial Code and the company’s articles. By law and pursuant to a company’s articles, shareholders are entitled to share in the company’s profits and in its liquidation proceeds upon winding up. Shareholders are entitled to participate in and vote at general meetings and to ask questions and receive explanations pertaining to any corporate matters, if such explanations are necessary to the matter under discussion at the general meeting, and to make proposals and counterproposals (Sec. 180(1) Commercial Code). Shares with multiple voting rights are not permitted under the Czech Commercial Code. The articles must specify the number of votes attached to the company’s shares so that shares with the same nominal value carry the same number of votes. If a company issues shares with different voting rights, the 96

Czech Republic

number of votes of such shares must be expressed pro rata in accordance with their nominal value. The articles may place restrictions on the exercise of voting rights by specifying the highest number of shares a shareholder can vote, which can be either the same number for all shareholders or for all shareholders and any entities controlled by them (Sec. 180(2) Commercial Code). Shareholders entitled to call a general meeting can also request that (i) a particular matter be included on the agenda (Sec. 182 Commercial Code and Sec. 43(1) SE Act); (ii) the supervisory board (administrative organ) review the exercise of powers by the board of directors (managing director) on matters set out in the request; (iii) the supervisory board (administrative organ) file a claim for damages on the company’s behalf against a member of the board of directors (managing director); and (iv) the board of directors (managing director) file a claim for payment of the subscription price of shares. If the supervisory board (administrative organ) or the board of directors (managing director) fails to comply with the shareholders’ request promptly, the latter may exercise their right to claim damages or payment of the subscription price on the company’s behalf.

3

Management and supervision

A

Two-tier system/One-tier system

(i)

General remarks 39. The founders of an SE may opt for either a one-tier or a two-tier management structure. In the two-tier system, the SE is managed by its board of directors and supervisory board. In the one-tier system, there must be at least an administrative organ and a managing director, but certain powers may be delegated to other directors. Members of the board of directors, the supervisory board and the administrative organ, as well as the managing director and other directors, are not employees of the SE. Their relationship with the company is a commercial relationship governed by the provisions of the Czech Commercial Code on agency agreements, insofar as appropriate (Sec. 66(2) Commercial Code and Sec. 35(4) SE Act).

(ii)

One-tier system 40. The provisions of Czech law on the one-tier SE are based on French law. The one-tier system introduced by the SE Act comprises two models, which differ depending on the degree of executive involvement by the chairman of the administrative organ. In the traditional model, the chairman of the administrative organ also serves as the managing director (chairman-managing director), while in the other model, these two roles are separate. In the latter model, the chairman of the administrative organ is predominantly concerned with representation and coordination but also wields other (supervisory/regulatory) 97

The European Company

powers typically reserved to an ordinary member of the administrative organ. In both models, powers are reserved to the administrative organ for matters involving the conceptual management of the company. Hence, although the administrative organ cannot interfere in the management of the company’s business, in particular it cannot give the statutory body (the chairman or managing director) specific instructions on how to engage in business, it does have conceptual power to manage the company. The choice between these two models is reserved (at the conditions set forth in the company articles) to the administrative organ (Sec. 35(2) SE Act), which also has the power to decide whether its elected chairman shall serve concurrently as managing director. This decision is notified to shareholders and third parties by recordation in the Commercial Register. If the administrative organ opts for a separate model, it will be responsible for appointing the managing director and can remove the latter from office at any time. The administrative organ determines the scope of the SE’s activities and supervises the performance thereof. Save for those powers expressly reserved to the general meeting and that fall within the company’s corporate purpose, the administrative organ has the power to deal with any other basic matter significant to the proper functioning of the SE and to approve resolutions with respect to these matters (Sec. 40(1) SE Act). The administrative organ also inspects and verifies the management of the SE and the company’s business and operations, insofar as necessary (Sec. 40(3) SE Act). An SE’s administrative organ must have at least three and may have no more than eighteen members. The articles shall specify the maximum number of members (within the above limits). If the administrative organ so decides, its chairman shall be responsible for managing the company’s business. In this case, the chairman acts as a chairman-managing director. If the administrative organ does not entrust its chairman with this function, it must appoint another natural person to the position of managing director. The chairman-managing director and the managing director have authority to act on behalf of the SE. The Czech SE Act adopted the concept of ‘delegated managing director’ from the French model. A delegated managing director can be appointed by the administrative organ at the recommendation of the managing director in order to assist the latter. In addition the administrative organ can, with the managing director’s consent, specify the scope of the delegated managing director’s powers. The articles shall indicate the maximum number of delegated managing directors, which cannot exceed five. The position of delegated managing director corresponds to that of managing director. The managing director also acts as a statutory body of the SE and, vis-`a-vis third parties, his or her scope of authority is identical to that of the managing director. If 98

Czech Republic

the managing director can no longer perform his or her duties (or ceases to do so), the delegated managing director shall remain in office pending the appointment of a new managing director, unless the administrative organ, in specific circumstances, decides otherwise. Only a natural person can serve on an SE’s statutory bodies. Natural persons must meet the requirements of the Czech Commercial Code for membership on the board of directors of a public limited-liability company. One person cannot simultaneously be a member of more than five administrative organs or boards of directors in SEs or public limited-liability companies (Sec. 28(2) SE Act).

(iii)

Two-tier system 41. Under the two-tier system, the board of directors approves decisions on all corporate matters, except those reserved to the general meeting or the supervisory board by the SE Act or the company’s articles (Sec. 191(1) Commercial Code). The board of directors is responsible for managing the company’s business, including ensuring that its accounts are properly kept (Sec. 192(1) Commercial Code). The board of directors has a duty to abide by the instructions of, and principles approved by, the general meeting, provided these are consistent with the law and the company’s articles. Unless provided otherwise by law, no one has authority to issue instructions to the board of directors relating to management of the company’s business (Sec. 194(4) Commercial Code). The board of directors must have at least three members, although this rule does not apply to single-member companies (Sec. 194(3) Commercial Code). If a vacancy arises on the board of directors, the supervisory board must decide which of its members shall temporarily fill the vacancy. This member is authorised to sit on the board of directors only until the next meeting of the body empowered to elect or appoint a new director. This body must elect or appoint a new director at its next meeting. If it fails to do so, the powers of the supervisory board member sitting on the board of directors shall expire at that time, and a new director shall be appointed by the court in accordance with the relevant provisions of the Czech Commercial Code (Sec. 24 SE Act). 42. The supervisory board is responsible for supervising the exercise by the board of directors of its powers and implementation of the company’s business activities (Sec. 197(1) Commercial Code). The supervisory board reviews ordinary, extraordinary, consolidated and interim accounts and drafts proposals for the distribution of profit and the coverage of losses, which it submits for approval to the general meeting (Sec. 198 Commercial Code). In those instances specified by law or the company’s articles, the approval of the supervisory board is required for certain acts taken by the board of directors, and the supervisory board has the power to veto particular acts. The 99

The European Company

supervisory board must have at least three members, and its total number of members must be divisible by three (Sec. 200(1) Commercial Code). Every member of the supervisory board is entitled to request information from the board of directors if necessary for his or her activities on the supervisory board and if an important interest of the company so requires. In the event of a dispute, the extent of a supervisory board member’s right to obtain information shall be determined by the court, further to an application by this board member or by a member of the board of directors (Sec. 25 SE Act). Only natural persons can be members of an SE’s board of directors and supervisory board. B

Appointment and removal

43. Members of the board of directors are elected and removed by the supervisory board. The SE’s articles, however, may provide that members of the board of directors are elected and removed by the general meeting (Sec. 23 SE Act). Members of the supervisory board are elected and removed by the general meeting, unless provided otherwise in the agreement on employee involvement. Minority shareholders and other persons have no power to appoint or remove members of the board of directors or the supervisory board. Only if a director dies, resigns, is removed from office or his or her term of office otherwise comes to an end can the competent corporate organ elect a new member within three months’ time. If, for this reason, the board of directors cannot perform its duties, the vacancies shall be filled by court appointments further to a recommendation of an interested party, who must prove his or her interest, until (a) new member(s) are elected by the competent corporate organ. Otherwise, the court can take the initiative of ordering that the company be wound up and liquidated. Members of the administrative organ are elected and removed by the general meeting, unless otherwise indicated in the agreement on employee involvement. The chairman-managing director or the managing director is appointed and removed by the administrative organ. Delegated managing directors are appointed and removed by the administrative organ further to a proposal of the chairman-managing director or the managing director. C

Representation

44. In the two-tier system, the board of directors acts on behalf of the company. Unless otherwise indicated in the articles, each member of the board of directors has authority to bind the company vis-`a-vis third parties (Sec. 191(1) Commercial Code). In the one-tier system, an SE is validly represented by the chairman of its administrative organ acting as the managing director or by its managing director. 100

Czech Republic

Delegated managing directors and the administrative organ have the same authority (Sec. 26(2) SE Act). Unless the articles indicate otherwise, every member of the administrative organ has authority to bind the company vis-`a-vis third parties. D

Liability

45. The liability of members of the management and supervisory bodies, the chairman-managing director, the managing director and delegated managing directors is governed by the Czech Commercial Code. The aforementioned are liable to the SE for any damage they cause through breach of their statutory duties, including their duty to act with the care expected of a prudent business person and their duty of confidentiality. In the event of a dispute as to whether a particular individual has acted as a prudent business person, the board member in question bears the burden of proof in this regard (Sec. 194(5) Commercial Code). In all other cases, the SE bears the burden of proof. Members of the board of directors, the supervisory board and the administrative organ who have caused loss or damage to the SE owing to breach of their statutory duties while in office shall be jointly and severally liable for such loss or damage. Where the prior consent of the supervisory board (administrative organ) is required by law or pursuant to the company’s articles for certain acts to be taken by the board of directors (managing director), and the supervisory board (administrative organ) does not grant such approval or exercises its right to prohibit the board of directors (managing director) from engaging in particular conduct on behalf of the company, the members of the board of directors (managing director) shall not be liable to the company for any loss or damage caused to it as a result of abiding by the supervisory board’s decision. Members of the supervisory board (administrative organ) who failed to act with the care expected of a prudent business person in the decision-making process shall be held jointly and severally liable. If the supervisory board (administrative organ) has approved the acts or conduct in question, those members of the board of directors (managing director) and the supervisory board (administrative organ) who failed to act with the care expected of a reasonably prudent business person during the decision-making process shall be held jointly and severally liable for any damage caused as a result (Sec. 201(3) Commercial Code).

IV

Employee involvement 46. The SE Act transposes the Directive into Czech law. The Czech Republic has not enacted the option to adopt measures pursuant to Article 13(4) of the Directive. 101

The European Company

1

Special negotiating body 47. The following individuals may serve as employee representatives of Czech participating companies, subsidiaries or establishments on the special negotiating body (SNB): employees of a participating company, subsidiary or establishment or individuals who are not employed by a participating company, subsidiary or establishment but have been duly authorised or empowered by the unions of such a company (Sec. 48(8) SE Act; Art. 3(2)(b) Dir.). If the employees of a Czech participating company, subsidiary or establishment are unionised, the employee representatives must be appointed to the SNB by the union organisation(s) at a joint meeting. If there are no unions in a Czech participating company, subsidiary or establishment, the employees shall elect their representative to the SNB directly from amongst their number. Seats on the SNB reserved for employee representatives of the participating companies, concerned subsidiaries and establishments on the territory of the Czech Republic shall be filled as follows: employees of each participating company, concerned subsidiary or establishment on the territory of the Czech Republic shall be allotted, if possible, at least one direct representative (Sec. 48(5) SE Act; Art. 3(2)(b) Dir.). Participating companies must provide the SNB and its members with sufficient financial, material and organisational means for the proper performance of their activities. SNB members are in particular entitled to reimbursement of reasonable expenses arising from their activities, although they shall not receive a fee for these activities. Participating companies must budget in advance sufficient funds to cover necessary costs, such as the costs of organising SNB meetings, translation and interpreting costs, travel and accommodation expenses, meals, and experts’ and advisors’ fees. Regardless of the actual number of advisors employed, the participating companies shall, in accordance with Article 3(7) of the Directive, be obliged to reimburse the costs of only one expert in each area of expertise.

2

Employee participation 48. Czech law provides for employee participation on the supervisory boards of public limited (joint stock) companies. If a public limited-liability company has over 50 employees working in excess of one-half of weekly working time, the employees shall be entitled to elect one-third of the supervisory board members (Sec. 200(1) Czech Commercial Code). If the SE was formed through conversion of a public limited-liability company, its employees have the right to influence composition of the SE’s bodies in the same way and to the same extent as in the former public limited-liability

102

Czech Republic

company, in accordance with the statutory provisions applicable upon conversion. Pursuant to Article 7(2) of the Directive, if the SE was established by any other means, its employees shall have the right to influence the composition of its corporate bodies in accordance with the broadest form of participation applicable in any participating company on the date the SE was established. If the employees had no participation right, the SE’s employees shall not have such a right either (Sec. 64 SE Act). The Czech Republic has not enacted the option contained in Article 7(3) of the Directive. If the SE’s articles conflict with the agreement on employee involvement, the management or administrative organ is obliged to harmonise the articles with the agreement without undue delay. This is not a decision for the general meeting (Sec. 6 SE Act; Art. 12(4) Reg.).

3

Duty of confidentiality 49. SNB members, the employee representative body and their expert advisors shall keep confidential any information disclosed to them in connection with the negotiations to reach an agreement on employee involvement and which is labelled as confidential. Moreover, they need not disclose certain information, in whole or in part, if disclosure could result in harm to the company or if confidential or secret information or trade secrets are involved (Sec. 50(3) SE Act; Sec. 180(4) Commercial Code; Art. 8(2) Dir.). If the employee representative body of a participating company labels certain information disclosed in connection with negotiations as confidential, the SNB may request that the company’s supervisory body or, as the case may be, a court rule on whether the information has been reasonably labelled confidential. The Czech Republic has not adopted any special provisions within the meaning of Article 8(3) of the Directive.

V

Annual accounts and consolidated accounts3

1

Accounting principles 50. There are no special rules governing SEs under Czech accounting law. Pursuant to Article 61 of the Regulation, SEs are governed by the provisions of national law applicable to public limited-liability companies in this respect. 51. The SE qualifies as an accounting unit and has a duty to keep accounts under the Czech Commercial Code, Regulation No. 500/2002 Coll. giving 3

ˇ This section was written by Helena Navr´atilov´a, a tax partner with Koci´an Solc Balaˇst´ık.

103

The European Company

effect to certain provisions of the Accounting Act governing accounting units (businesses) that keep double-entry books of account. The Czech accounting standards for businesses specify in more detail the scope of individual entries in (simplified and full) financial statements; these standards also govern the accounting methods for assets, equity, loans (from outside sources) and any changes therein, profit and loss as well as certain transactions (e.g. contribution or lease of an undertaking and liquidation) and obligations in connection with bookkeeping and the compiling of annual financial statements, including valuation methods (hereinafter the ‘accounting regulations’). Special implementing regulations and accounting standards apply to SEs that are financial institutions, insurance companies or banks. In addition, the National Accounting Council publishes interpretations of selected questions regarding methods. Although, unlike accounting regulations, these interpretations are not legally binding, in practice they are generally observed by auditors as well as, in most cases, for corporate tax purposes. If an SE has issued shares or other securities listed on a regulated market in a Member State, its accounting methods and the compilation of its financial statements must be in accordance with International Accounting Standards (IAS) applicable within the European Union.4 In such circumstances, however, the profit or loss used to assess the SE’s Czech corporate tax base must be adjusted and disclosed as if it were calculated under the Czech Accounting Act and accounting standards. 52. SEs have an obligation to keep double-entry books of accounts using the accrual method and to use prescribed valuation and accounting methods. An SE’s accounts must provide a fair and prudent view of the company’s assets and liabilities, equity, profit and loss, and financial position. A faithful view of accounts reflects their true position, using the methods prescribed by accounting law; an honest view uses accounting methods to produce a faithful picture of the accounts. In exceptional cases, an SE may derogate from the methods prescribed by law, provided in doing so it provides a faithful and honest view of its financial situation. An SE’s accounts are based on the premise that the company will continue its activities without interruption, unless it becomes aware of circumstances indicating that the opposite is true. An SE has a duty to keep transparent accounts and to make chronological entries of all accounting events in its books of account. Turnover indicated in the individual accounts must be consolidated in a central book of accounts at least once a month. SEs must prepare financial statements (or consolidated financial statements) and an annual report (or consolidated annual report) and publicise these by filing them with the documents registry of the appropriate Commercial Register. The relevant parts of these documents must be made publicly accessible. The accounting period is 4

104

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards.

Czech Republic

the calendar year or business year, although special rules apply when determining the accounting period for an SE formed by merger (through incorporation of a new company or by absorption) or conversion. An SE must denominate its accounts in Czech crowns (koruna). Accounting documents may be drafted in a language other than Czech, provided the company complies with other requirements intended to ensure the comprehensibility of its accounts. The accounts of an SE comprise a balance sheet, profit and loss statement and schedules and may also include a cash-flow chart or a chart indicating changes to the SE’s equity. If the SE is required to appoint an auditor (see no. 55 below), it is also obliged to prepare an annual report or consolidated annual report. The body responsible for preparing the accounts is the SE’s statutory body, (which also has a duty to submit the final accounts for approval to the SE’s general meeting of shareholders). 53. Accounts and annual reports must be archived for at least ten years. Other documents must be kept for five years or for as long as necessary in order to meet certain obligations, e.g. the company bears the burden of proof in the event of an audit, etc. 54. If an SE acts as a managing or controlling entity, becomes part of a consolidated group, is managed or controlled by another entity or becomes an entity subject to significant influence5 it must prepare consolidated accounts if two of the following three criteria are met: (a) the gross value of the company’s assets as indicated on its balance sheet is more than CZK 350,000,000; (b) the company’s net annual turnover is more than CZK 700,000,000 (if the SE has existed for less than twelve months, its turnover will be adjusted accordingly); and (c) the average adjusted number of employees during an accounting period is more than 250. These criteria do not apply if the SE is a bank or insurance or reinsurance company or has issued securities listed on a regulated market. If the SE is part of a consolidated group, it has a duty to furnish the group with its accounts and all other documents necessary to prepare consolidated accounts. The same applies with regard to a consolidated annual report.

2

Auditors 55. An SE’s accounts must be audited if in a given tax period, as well as during the preceding tax period, at least one of the following criteria applies: (a) the gross value of the company’s assets as indicated on its balance sheet is greater than CZK 40,000,000; (b) the company’s net annual turnover is more than 5

Under the Czech Commercial Code, significant influence means a considerable influence on the management or operation of the business that is not decisive. Unless demonstrated otherwise, a significance influence shall be deemed to exist in dealings involving 20% or more of the voting rights.

105

The European Company

CZK 80,000,000 (if the SE has existed for less than twelve months, its turnover will be adjusted accordingly); and (c) the average adjusted number of employees during the accounting period is more than 50. The auditor is selected and appointed by the SE’s statutory body. 56. The auditor can be either a natural person or a legal entity (accounting firm) but, in any case, must be registered with the Czech Chamber of Auditors. The auditor must also meet the requirements of the Auditors Act (No. 254/2000 Coll., as amended). The auditor’s report must set out a statement of the scope of the audit, an assessment of the accounting methods used and an indication of the evidentiary value of the accounts and annual report. The report must also state whether the accounts comply with the applicable accounting legislation or International Accounting Standards and whether they provide a faithful and honest view of their subject matter and the SE’s financial position. The auditor must also confirm that the annual report is consistent with the accounts. Similar requirements apply to consolidated accounts and the consolidated annual report. In its report, the auditor has a duty to set out all matters not included in the annual report which the auditor considers it appropriate to raise, in particular significant material uncertainties and matters that could have a significant effect on the continued existence of the SE, owing to its financial position. The auditor will then discuss the auditor’s report with the SE’s statutory body. 57. The auditor must be independent of the company, and the Auditors Act sets out the circumstances under which an auditor cannot act for an SE as well as the instances in which the auditor must comply with accounting guidelines and other rules of professional conduct, in particular the ethical code. An auditor may not give instructions to change or adjust entries in an SE’s accounts. An auditor is bound by a duty of confidentiality, except in those instances specified by law, but has a duty to notify in writing the competent regulatory or banking authorities or, in other instances, the SE’s statutory or supervisory body if it becomes aware of matters that give rise to a suspicion of violation of the special legislation governing SEs or matters that could have a negative fundamental effect on the company’s business, endanger its unlimited term of existence or result in the refusal to provide a report or the provision of a negative report or one subject to reservations.

VI

Supervision by the national authorities 58. The national authority competent to supervise application of the Regulation depends on the provision in question. Pursuant to Article 68(2) of the Regulation, the competent national authorities in the Czech Republic are: (i) Czech notaries (for the purposes of Articles 8(8) and 25(2)) and (ii) the competent registration court (for the purposes of Articles 26(1), 54, 55(3) and 64(4)).

106

Czech Republic

VII

Dissolution

1

Winding up 59. There are no special provisions of Czech law relating to the winding up, liquidation, insolvency, cessation of payments and similar procedures for SEs. Therefore, an SE with its registered office in the Czech Republic shall be governed by the provisions of national law applicable to public limited-liability companies formed in accordance with Czech law. 60. A company can be wound up with or without liquidation. Winding up without liquidation is only possible if the company’s assets are transferred to its legal successor (i.e. as the result of a merger, division or transfer of assets to the majority shareholder). The body in charge of deciding whether to wind up the company is the general meeting. A decision to wind up a company by liquidation must be approved by two-thirds of the votes cast by those shareholders present, while a decision to wind up a company without liquidation must be approved by at least three-quarters of the votes cast by those shareholders present. Certain conversions require an even higher majority. Under expressly listed circumstances, when a company violates certain of its duties and fails to rectify the situation when called upon to do so by a court, it may be wound up by court order. 61. If a company is to be wound up pursuant to a decision of the general meeting, it shall be wound up on the date set out in the decision or, as the case may be, the date on which the decision is adopted. If a company is wound up by court order, it shall be wound up on the date set out in the order or on the date on which the order takes effect.

2

Liquidation 62. A company enters liquidation on the date on which it is wound up. The start of liquidation shall be recorded with the Commercial Register. If the liquidation is voluntary, the company’s statutory body shall appoint the liquidator. If the company is involuntarily liquidated pursuant to a court order, the court that issued the order shall appoint the liquidator.

3

Insolvency 63. An SE can be declared bankrupt. A legal entity shall be considered bankrupt if (i) it has several creditors and has been unable to discharge its outstanding obligations on a long-term basis or (ii) if it is overburdened with debt. If a debtor ceases to make its payments, it shall be deemed unable to discharge its outstanding obligations on a long-term basis. 107

The European Company

If an SE goes bankrupt its statutory body must file a petition in bankruptcy. If it fails to do so, the members of the statutory body shall be held jointly and severally liable to creditors for any damage resulting there from. 64. The Czech Republic’s new Insolvency Act will enter into effect on 1 January 2008. The Act will introduce new ways of dealing with bankruptcy under Czech law. In addition to the standard bankruptcy proceedings, it will be possible for large companies to resolve bankruptcy issues through reorganisation. Reorganisation basically means any measure on which creditors agree, including, without limitation, waiver of a portion of the debt, sale of the debtor’s entire assets, transfer of the debtor’s assets to a new company owned by the creditors or merger of the debtor with another entity. Pursuant to the new provisions, a debtor shall be deemed bankrupt if (i) it has several creditors; (ii) it has cash liabilities which are more than thirty days past due; and (iii) it will not be able to meet its payment obligations. Legal entities overburdened with debt shall also be deemed bankrupt.

4

Cessation of payments 65. Cessation of payments is one of two cumulative conditions for bankruptcy. If a debtor ceases to make its payments as they fall due and simultaneously has several creditors, it shall be deemed bankrupt and will be obliged to file a petition in bankruptcy. The new insolvency provisions (effective 1 January 2008) provide that a debtor shall be deemed unable to meet its payment obligations if, for example, it has ceased to pay a substantial portion thereof or if they are over three months past due.

VIII

Applicable law 66. SEs registered in the Czech Republic shall be governed by the Regulation and by Czech law.

IX

Tax treatment6

1

Income tax 67. The Czech Income Tax Act does not provide for special tax treatment for SEs or their permanent establishments in the Czech Republic. Under Act No. 586/1992 Coll. on income tax (‘ITA’), as amended, the same approach is used to determine the tax base, tax losses and tax liability of SEs and public 6

108

ˇ This section was written by Helena Navr´atilov´a, a tax partner with Koci´an Solc Balaˇst´ık.

Czech Republic

limited-liability companies.7 The permanent establishment (branch) of an SE is subject to the same tax treatment as similar Czech entities. Generally, an SE qualifies as a taxable entity and must report its worldwide income for the purposes of determining its tax base if its registered office or administrative headquarters are located in the Czech Republic. Hence there is no risk of discrimination against an SE or its permanent establishment for tax purposes. The taxation of a group of companies as a single entity is inadmissible under the ITA, as is, perforce, the consolidation of losses incurred by a foreign SE with its Czech parent company. The Czech tax authorities have not indicated any interest in allowing group taxation for Czech companies. 68. Income included in a company’s general tax base is taxed at a rate of 24%, although profit shares, dividends, liquidation proceeds and settlement shares (paid upon termination of a participation in a limited-liability company) in subsidiaries included in a separate tax base are taxed at a rate of 15%, unless the income is tax exempt (on certain conditions). A similar approach applies when determining the tax base of the permanent establishment of an SE if the latter is not a tax resident of the Czech Republic, in which case the applicable tax rate is also 24%. The methods used to attribute profits to a permanent establishment are based on the principles set out in the OECD Model Convention on Taxation of Income and Capital. The Czech tax authorities generally regard the permanent establishment of an SE as a relatively separate entity for tax purposes and will attribute to it profit and expenses incurred in connection with supplies relating to the SE if the latter is located in a different country. For this purpose, it is essential to ensure that supplies between an SE’s permanent establishment and its head office are priced similarly to those between unrelated parties at similar conditions and at the same time and place. 69. In determining their profit and/or loss, SEs in the Czech Republic may, like any other Czech taxpayer, include income and expenses relating to foreign permanent establishments in their tax base. Hence, an SE may de facto take into account a tax loss, even one determined in accordance with the ITA, in determining its tax base or, in other words, set off income and/or corporate tax paid abroad up to the Czech corporate tax threshold in proportion to the foreign permanent establishment’s income. 70. Council Directive 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States, as amended by Council Directive 2005/19/EC of 17 February 2005, was fully incorporated into the ITA effective 1 May 2004. As a result, this enables, in certain circumstances, the tax-neutral treatment of the formation of 7

Sec. 37(5) ITA.

109

The European Company

an SE (i) by merger; (ii) as a subsidiary whose shares are subscribed for by way of a contribution in kind (e.g., an undertaking or part thereof); and (iii) as a holding company. 71. The formation of an SE in one of the ways referred to under number 70 at the conditions set forth under number 73 will be neutral for tax purposes. The successor company (in the event of a merger) or the company assuming the contribution (in the event of a contribution of an undertaking or part of an undertaking) may assume (a) statutory reserves and adjustments (provisions) by the creation of a transferring company at terms otherwise applicable to the contributing company; (b) hitherto unused tax losses or portions thereof from the contributing company (in the event of a merger, all tax losses will be contributed, while in the event of a transfer of an undertaking or any part thereof, only the documented or proportional losses attributable to the undertaking or part of an undertaking will be transferred), which may be used to reduce the receiving company’s tax base within the period specified by law;8 and (c) items deductible from the tax base in respect of which an entitlement has arisen on the part of the company that will cease to exist or the transferring company, if such items have not already been claimed for tax purposes. The successor or receiving company shall continue to depreciate tangible and intangible assets in the same way as the company that ceases to exist or the transferring company. Any income that would have appeared on the accounts of the successor company or receiving company in connection with the valuation of assets and liabilities during the merger or transfer of an undertaking or part thereof is not included in corporate tax base of any company taking part in any form of the formation of an SE. 72. The capital of a member of or shareholder in a company that will cease to exist owing to a revaluation of assets and liabilities during a merger, if shown on the accounts, is not included in the member’s or shareholder’s tax base if this member or shareholder is a tax resident of the Czech Republic or (if this is not the case) holds a stake in the company that will cease to exist through a permanent establishment in the Czech Republic. The acquisition price of the interest in the successor company will be equal to the value of the member’s interest in the company that ceases to exist for tax purposes on the day immediately preceding the effective date of the merger. The acquisition price in the receiving company is the price of the transferred undertaking or part thereof, as valued for the purposes of a contribution in kind in accordance with the Czech Commercial Code or, in other instances, as determined in accordance with the Property Valuation Act. 8

110

Tax losses arising prior to 1 January 2004 may be used for seven tax periods immediately following the period in which they were assessed. Tax losses arising after this date may only be used for five tax periods.

Czech Republic

73. The tax treatment set out briefly under number 72 will apply if: (a) the participating company takes one of the corporate forms set out in the Annex to Council Directive 90/435/EEC, i.e. it is a public limited-liability company or a private limited-liability company existing in accordance with the Czech Commercial Code; (b) the SE is a tax resident of a Member State (one condition of tax residency is that the company’s income must be subject to tax, as set out in the Annex to Council Directive 90/435/EEC, meaning the company cannot be exempt from the payment of tax or in a position to avail itself of any exemption); (c) (i) the company that ceases to exist or the transferring company is a tax resident of the Czech Republic or another Member State and the successor company or receiving company is a tax resident of another Member State, and the assets and liabilities passed on further to the merger or transferred upon the contribution of an undertaking or part thereof form part of a permanent establishment or of the receiving company located in the Czech Republic; or (ii) the company ceasing to exist or the transferring company is a tax resident of another Member State and the successor company or receiving company is a tax resident of the Czech Republic, and the assets and liabilities passed on upon the merger or transferred further to the contribution of an undertaking or part thereof do not form part of a permanent establishment of the successor company or the receiving company located outside the Czech Republic. In effect, pursuant to this last condition, assets and liabilities passed on upon a merger or transferred upon a contribution will effectively remain connected with the permanent establishment of the participating company located in the Czech Republic or another Member State or with the SE having its registered office in the Czech Republic. Hence the Czech Republic will retain the power to tax income arising from dealings in such assets and liabilities. If moveable assets or other types of (intellectual or industrial) property are contributed to a company registered abroad as a separate asset item, the Czech Republic will not levy input tax in the event these assets are subsequently transferred. 74. National tax and accounting legislation will apply to changes in the corporate form of an SE and will ensure that any such conversion has no effect on the SE’s tax base. 75. Under the ITA, no capital gains or losses are recognised in connection with the contribution of ownership interests or shares to a holding company that could affect the tax base. The same therefore holds true for the establishment of a holding SE. The acquisition price of a holding SE is the acquisition price of the contributed ownership interests or shares (which in general can differ from the acquisition price as determined under the applicable accounting regulations). 76. Czech tax law contains no express provisions on the tax effects of transferring an SE’s registered office to another Member State. If an SE’s activities in the

111

The European Company

Czech Republic are discontinued in connection with the transfer of its registered office abroad, it seems that Act No. 337/1992 Coll. on the administration of taxes and fees, as amended, would apply to the termination of the permanent establishment’s activities. On the other hand, if the SE continues to do business in the Czech Republic, the taxable entity will continue to be the SE’s permanent establishment in this country, without any tax consequences i.e. at the conditions set out under number 71 above.

2

Value added tax 77. An SE engaged in economic activity is liable for VAT like any other entity in the same position. Hence, is has a duty to abide by the applicable provisions of the Czech VAT Code in the same way as any other entity subject to tax in the Czech Republic. Generally speaking, all rules of the Sixth VAT Directive have been transported into Czech law, and the interpretation of these rules closely follows the ECJ’s case law.

3

Other taxes 78. Like other taxable entitles, an SE has other tax obligations, in particular a duty to withhold and remit advance payments of income tax and pay employer’s and deduct employees’ mandatory social security contributions and health insurance contributions. In practice, this means a further increase in the cost of labour. In recent years, a frequent subject of debate at the national level has been whether to set an upper limit on such contributions since, to date, there is no such ceiling for either employers or employees. An SE also has a duty, where applicable, to pay real estate tax, real estate transfer tax and other relatively insignificant property taxes. 79. The Czech Republic imposes no tax on contributions to the capital of a company, unlike some other Member States.

X

Conclusion 80. Several major Czech corporate groups have realised the potential of the SE and the possibilities for cross-border mergers. Moreover, as a result of the media coverage of several mergers involving leading Czech industrial and financial groups, the Czech business community has become aware of the SE in general terms. Despite the somewhat delayed implementation of the Regulation, Czech law does not impose any obstacles on successful completion of transactions involving the formation or relocation of an SE. Furthermore, the Czech judiciary is accustomed to such transactions. However, the extent to which the traditionally

112

Czech Republic

pragmatic Czech business environment will regard the SE as a high-quality ‘brand’ remains uncertain. The authors are rather sceptical in this respect and believe the SE will be viewed as less attractive and gradually forgotten over time in the Czech Republic, despite the potential it provides for migration within the European Union, following full implementation of the Merger Directive.

113

4 France jean-marc desache Gide Loyrette Nouel

I II III

IV

V

114

Introduction 115 Reasons to opt for an SE 116 Formation 117 1 General remarks 117 A Founding parties 117 B Name 117 C Registered office and transfer 117 D Corporate purpose 121 E Capital 121 2 Different means of formation 121 A Formation by merger 122 B Formation of a holding SE 125 C Formation of a subsidiary SE 127 D Conversion into an SE 128 3 Acts committed on behalf of an SE in formation 129 4 Registration and publication 129 5 Acquisition of legal personality 130 Organisation and management 130 1 General remarks 130 2 General meeting 131 A Decision-making process 131 B Rights and obligations of shareholders 132 3 Management and supervision 133 A General remarks 133 B One-tier system 135 C Two-tier system 136 D Appointment and removal 137 E Representation 138 F Liability 138 Employee involvement 139 1 General remarks 139 2 Special negotiating body (SNB) 139 A Composition of the SNB 140 B Protection of employee representatives 141 C Duty of confidentiality 141 D Negotiations within the SNB 141

France

3

Standard rules 142 A Information and consultation 142 B Employee participation 142 4 Reconvention/reorganisation in the event of substantial changes 143 5 Complaints procedure 144 VI Annual accounts and consolidated accounts 144 1 Annual accounts 144 2 Consolidated accounts 145 3 Auditors 145 VII Supervision by the national authorities 146 VIII Dissolution 147 1 Winding up 147 2 Liquidation 148 IX Applicable law 148 X Tax treatment 148 1 Income tax 148 2 Value added tax 150 3 Other taxes 150 XI Conclusion 150

I

Introduction 1. The Regulation and the Directive have been implemented in France by the law of 26 July 2005 on the promotion of confidence and economic modernisation (the ‘Law’). As the Regulation is directly applicable in France, France only enacted a limited number of provisions implementing certain options contained in the Regulation in order to ensure consistency with French company law. Thus, fifteen articles (Arts. L.229-1 to L.229-15) were inserted in a new Chapter IX on the SE (De la soci´et´e europ´eenne) in Title II of Book II of the French Commercial Code (the ‘Commercial Code’) and a new Chapter IV bis was added to Title IV on the violation of rules applicable to the SE (Des infractions concernant les soci´et´es europ´eennes). The Directive, on the other hand, had to be transposed into French law. Thus, a new Chapter XI was added to Title III of Book IV of the French Labour Code on employee involvement in the SE and on the SE’s works council (Implication des salari´es dans la soci´et´e europ´eenne et comit´e de la soci´et´e europ´eenne). The general provisions of the Law are supplemented by Decree No. 2006448 of 14 April 2006 and Decree No. 67-236 of 23 March 1967 on commercial companies, as well as by the decree of May 30 1984 on the French trade register 115

The European Company

and Decree No. 2006-1360 of 9 November 2006 on employee involvement in the SE. 2. Article L.229-1 of the Commercial Code provides that the rules applicable to French limited-liability companies (soci´et´e anonyme or SA) shall apply to SEs registered in France, unless they contradict the provisions of the Regulation or provisions of national law specifically enacted for the SE. In order to ensure the enforceability of provisions typically found in shareholder agreements, Articles L.229-11 to L.229-15 of the Commercial Code allow the articles of association of a private (closely held) SE to provide for transfer restrictions on shares or the exclusion of certain shareholders. These provisions are based on those applicable to French simplified joint stock companies (soci´et´e par actions simplifi´ee or SAS) (see Section IV.2.B: Rights and obligations of shareholders). Some commentators believe that the French legislature took too much liberty with the provisions of Article 9 of the Regulation in this respect.1 As a result, various sets of rules are applicable to SEs registered in France, and problems of consistency may arise, which shall be pointed out, when applicable, in this report.

II

Reasons to opt for an SE 3. The advantages of the SE most often mentioned are its European nature (meaning a symbolic European dimension and the gradual elimination of national roots), the ability to transfer its registered office to another Member State without the loss of legal personality and, finally, the ability to take part in cross-border mergers. The Tenth Company Law Directive (2005/56/EC) of 26 October 2005 on crossborder mergers of limited-liability companies has yet to be implemented in France2 and, consequently, the SE is the only corporate form that currently provides an autonomous legal framework to realise such mergers. The SE provides adequate tools for the organisation of European corporate groups. Thus, it can be formed as a single-member company, a subsidiary or a holding company. An SE can be public or private and, in the latter case, its articles of association may include, as mentioned above, tailor-made provisions organising 1

2

116

Notably the Movement of French Enterprises (Mouvement des entreprises de France or MEDEF), the largest employers’ union in France, Soci´et´e europ´eenne (aspect de droit des soci´et´es), Company Law Committee (Commission Droit de l’Entreprise), December 2006, unpublished. Pursuant to Article 19 of this directive, the Member States shall bring into force laws, regulations and administrative provisions necessary to comply with it by 15 December 2007.

France

relations among shareholders (see Section IV.2.B: Rights and obligations of shareholders).

III

Formation

1

General remarks

A

Founding parties

4. France has not enacted the option contained in Article 2(5) of the Regulation and, under French law, an SE can only be formed by companies having their registered office and head office within the Community. As mentioned above, an SE can offer its securities to the public3 and can thus be either public or private. Its shareholders can be either legal entities or natural persons, but if an SE has only one shareholder, this shareholder must be an SE.4 B

Name

5. Article 11 of the Regulation and Article R.229-21 of the Commercial Code provide that the name of an SE must be preceded or followed by the abbreviation ‘SE’ on all acts and documents issued by the company. If an SE fails to comply with this obligation, the public prosecutor or any interested party can petition the president of the competent commercial court, ruling as in summary proceedings, to order the SE to comply or pay a penalty.5 The same sanction can be imposed on a company other than an SE that uses the abbreviation ‘SE’ in its name.6 C

Registered office and transfer

(i)

Registered office 6. The right of third parties to rely on the location of a company’s head office is a general principle of French company law,7 which appeared to the French legislature even more important when dealing with an SE, which can transfer its registered office abroad without losing legal personality. Therefore, France has enacted the option contained in Article 7 of the Regulation to require the head office and registered office of a French SE to be at the same place.8 3 4

5 8

Paragraph 12 of the preamble to the Regulation. This SE, a sole shareholder, cannot itself be a single-member company (see Section III.2.C: Formation of a subsidiary SE). 6 Ibid., Art. L.238-3-1. 7 Ibid., Art. L.210-3. Art. L.238-3 Commercial Code. Ibid., Art. L.229-1. This provision has been criticised as requiring an SE registered in France to hold meetings of its corporate organs at its registered office, which is not the case for an SA (see the report by No¨elle Lenoir to the Justice Minister, ‘La Societas Europaea ou SE – Pour une citoyennet´e europ´eenne de l’entreprise’, 19 March 2007, and the example of LCL SA, whose registered office is in Lyon but whose corporate organs meet in Paris).

117

The European Company

If an SE registered in France transfers its head office abroad while its registered office remains in France or transfers its head office to another location in France, the competent public prosecutor shall be informed by the competent authority of the relevant Member State,9 and any interested party may petition the president of the commercial court to force the SE, subject to a penalty and within a fixed period of time, to rectify the situation by either transferring its registered office or by re-establishing its head office at the place where its registered office is located. If the SE does not comply with this court order, it may be liquidated (see Section VIII.2: Liquidation).10 These provisions aim to discourage SEs from transferring their head office abroad without complying with the applicable rules. (ii)

Transfer 7. According to the provisions of French company law applicable to the soci´et´e anonyme, the transfer abroad of an SA’s registered office and the subsequent change in its nationality11 must be approved by all shareholders12 or an extraordinary general meeting, where France and the host country have entered into an international treaty to that effect.13 From this point of view, although the procedure is still cumbersome, the SE greatly facilitates the transfer of a company’s registered office from one Member State to another by providing specific protection for (i) shareholders who object to the transfer and (ii) creditors. In order to carry out such a transfer pursuant to Article L.229-2 of the Commercial Code, the SE’s management must draft both a report under the conditions set forth in Article 8(3) of the Regulation and a transfer proposal under the conditions set forth in Article 8(2) of the Regulation. Two months prior to the general meeting scheduled to vote on the transfer, the transfer proposal must be filed with the clerk of the competent commercial court and published.14 8. Pursuant to Article 8(14) of the Regulation and Article L.229-4 of the Commercial Code, during the period between publication of the transfer proposal and the date of the general meeting scheduled to vote on the transfer, which must be at least two months,15 the competent national authorities are entitled to object to the transfer on grounds of public interest (see Section VII: Supervision by the national authorities).

9 11 12 13 14

118

Ibid., Art. L.229-9. 10 Ibid. Pursuant to Article L.210-3 of the Commercial Code, ‘companies with their registered offices on the French territory shall be subject to French law’. Art. L.225-96 Commercial Code; Art. 1836 Civil Code. Art. L.225-97 Commercial Code. 15 Art. 8(6) Reg. Ibid., Art. R.229-3 sets forth the publication procedure to be followed.

France

Pursuant to Article 8(4) of the Regulation, shareholders and creditors of the SE shall have the right, at least one month prior to the general meeting scheduled to vote on the transfer, to examine and obtain, free of charge, a copy of the transfer proposal and the management report. 9. The transfer of an SE’s registered office requires an amendment to its articles of association16 which, according to French law, must be approved by at least 75% of the company’s shareholders.17 Within one month of its adoption, a notice of the decision taken by the extraordinary general meeting must be published under the same conditions applicable to the notice of the transfer proposal.18 Article L.229-2 of the Commercial Code also specifies that, in accordance with French company law (Arts. L.225-99 and L.228-35-6),19 when an SE has different categories of shares, the decision to transfer its registered office must be approved by 75% of each class at an extraordinary general meeting. Similar rules apply to particular types of securities, such as investment certificates.20 10. France enacted the option contained in Article 8(5) of the Regulation and has adopted provisions designed to ensure specific protection for minority shareholders who oppose the transfer of an SE’s registered office from France to another Member State. These shareholders can oblige the SE to buy back their shares.21 According to Article R.229-7 of the Commercial Code, the purchase offer must be sent to every objecting shareholder by registered mail within 15 days from receipt of their request. The offer must indicate the price per share, the means of payment and the offer period, which cannot exceed 20 days.

16 19

20

21

17 Art. L.225-96 Commercial Code. 18 Ibid., Art. R. 229-5. Ibid. With respect to securities granting access to share capital issued by an SE prior to the transfer of its registered office, Article L.229-2 of the Commercial Code does not contain any specific rules, but we recommend following the provisions of Article L.228-103 and submitting the transfer proposal to an extraordinary general meeting of the holders of such securities for approval. Article L.229-2 of the Commercial Code expressly provides that the general meeting of investment-certificate holders must approve the transfer, unless the SE proposes to acquire their certificates upon request and such acquisition has been accepted by the general meeting of investment-certificate holders. The particularities of these securities no doubt led the French legislature to enact a specific provision, whereby their issuance has not been possible since the entry into force of the order of 24 June 2004, i.e. since 27 June 2004. Article R.229-9 of the Commercial Code sets forth the applicable procedure in this regard. Pursuant to Articles L.229-2 and R.229-6 of the Commercial Code, the objection and request for redemption must be made within one month from publication of the notice of the extraordinary general meeting’s decision to transfer the company’s registered office and sent to the SE by registered mail.

119

The European Company

If the shares to be repurchased by the SE are listed, the purchase price shall be determined in accordance with Article L.433-4 of the Monetary and Financial Code, applying the multi-variable approach used in the event of a squeeze-out.22 The offer price may be challenged during the offer period, in which case the price shall be determined by an independent expert appointed by the parties or, failing an agreement, by the competent commercial court.23 Although some commentators maintain that Article 236-6 of the General Regulation of the French Market Authority (‘AMF’), which enables the AMF to require majority shareholders to launch a squeeze-out in the event of inter alia significant changes to a company’s articles of association, could apply to the transfer of an SE’s registered office,24 the authors believe that any procedure imposing additional requirements on the transfer of an SE’s registered office is not valid. 11. Creditors of a French SE transferring its registered office abroad benefit from the same protection as in the merger of an SA (see Section III.2.A: Formation by merger). Thus, in accordance with Articles L.229-2 and L.228-65 of the Commercial Code, the transfer proposal must also be submitted to the general meeting of bondholders of the SE, unless the SE proposes to acquire the bonds upon request.25 If the general meeting of bondholders agrees to the transfer, the process will continue and they shall remain bondholders of the SE. If the bondholders oppose the transfer26 and management decides nonetheless to go ahead, the bondholders can refer the matter to the competent commercial court, which can either reject their petition or rule on the adequacy of the guarantees offered by the SE. Any failure to comply with a court order in this regard renders the transfer unenforceable and ineffective against bondholders and other creditors. It should be noted that France has enacted the option set forth in Article 8(7) of the Regulation to extend the protection described above to creditors whose

22

23 24

25 26

120

This approach is based on objective methods used to value an assignment of assets, taking into account the weighted value of the assets, the profit realised, their market value, the existence of subsidiaries and commercial prospects. Art. R.229-8 Commercial Code. C. Cathiard, ‘La soci´et´e europ´eenne en droit fran¸cais, 2e` me partie: Les modalit´es de fonctionnement d’une SE immatricul´ee en France’, J.Cl. Droit des soci´et´es, January 2006, 7. The AMF applied Article 236-6 of its General Rules upon the formation of EADS N.V. and decided not to require the majority shareholder of ASM (a French company contributed to EADS) to launch a squeeze-out, as the articles of association of EADS had been amended in a way that the AMF considered sufficient to protect the interests of minority shareholders. Article R.229-10 of the Commercial Code sets forth the various steps in the procedure. Art. L.228-73 Commercial Code.

France

claims arise after publication of the transfer proposal but prior to the transfer itself.27 Notwithstanding the foregoing, Article L.229-2 of the Commercial Code provides that any creditor may lawfully insert in a credit agreement an acceleration clause in the event the debtor decides to transfer its registered office abroad. 12. The final step in the transfer process described in Article L.229-2 of the Commercial Code is verification by a notary, who did not take part in the transfer,28 of completion of the requisite pre-transfer acts and formalities (including observance of all the protective measures described above) and issuance of a certificate in this respect. D

Corporate purpose

13. There are no SE-specific rules and, consequently, as with any SA, the corporate purpose of an SE must, pursuant to general principles of French company law, be identified in its articles of association29 and be lawful.30 Any act that falls outside an SE’s corporate purpose shall be binding on the company unless the third party was aware, or should have been aware under the circumstances, of the ultra vires nature of the act. Publication of the articles of association of an SE does not constitute sufficient proof of such knowledge.31 E

Capital

14. Article 4(2) of the Regulation states that the subscribed share capital of an SE shall amount to at least €120,000.32 If the shares of an SE are offered to the public, French law provides that the registered capital shall amount to at least €225,000.33

2

Different means of formation 15. Pursuant to the Regulation, France has enacted provisions aimed to allow the formation of an SE by merger, the creation of a holding or subsidiary SE, and conversion of an SA into an SE. The twelfth recital to the Regulation, which provides that an SE can seek public financing under the same conditions as an SA, could lead to the conclusion 27 28 29 31 32 33

Application of Article R.229-11 of the Commercial Code, however, results in a mismatch, and the period for objecting to the transfer expires before the transfer itself occurs. Art. R.229-2 Commercial Code. 30 Art. 1833 Civil Code. Art. L.210-2 Commercial Code. Arts. L.225-35 para. 2 and L.225-64 para. 2 Commercial Code. The third phase of economic and monetary union applies to France, and thus Article 67 of the Regulation cannot apply in France. Art. L.224-2 para. 1 Commercial Code.

121

The European Company

that an SE can be formed through an initial public offering. However, this interpretation goes beyond the Regulation, which clearly sets forth four limited means of forming an SE.34 A

Formation by merger

16. Article 17 of the Regulation states that an SE may be formed by a merger through acquisition, in which the acquiring company takes the form of an SE, or through the formation of a new company that takes the form of an SE. In both cases, the only types of companies that can participate in the merger are the SA and the SE.35 With respect to mergers, matters not covered by the Regulation are governed by the provisions of the third Council Directive of 9 October 1978 and its implementing legislation under French law. Due to the limited number of provisions in the Regulation and French law36 on the formation of an SE by merger, the rules of French law applicable to mergers involving SAs shall apply, which is fully consistent with the spirit of the Regulation and the fact that such a merger can only involve an SA and/or an SE.37 Thus, the board of directors or the management board of each merging company must draw up draft terms of merger, containing the relevant information set forth in Article 20 of the Regulation and Article R.236-1 of the Commercial Code, and issue a report detailing the draft.38 One month prior to the general meeting scheduled to vote on the merger, the management report and the draft terms of merger must be made available to shareholders at the merging SA’s registered office. The draft terms of merger shall then be submitted to the clerk of the commercial court in the district where the SA’s registered office is located, and two notices relating to the draft terms shall be published pursuant to French law and to Article 21 of the Regulation.39 34

35

36 38 39

122

M. Menjucq and S. Guilcart, La soci´et´e europ´eenne, Th`emexpress, e´ d. Francis Lefebvre 2005, no. 31. MEDEF [Soci´et´e europ´eenne (aspect de droit des soci´et´es), Company Law Committee (Commission Droit de l’Entreprise), December 2006, unpublished] if of the opinion that an SE cannot be created ex nihilo, but see F. Collin and J.P. Dom, ‘Enjeux et perspectives de la Soci´et´e Europ´eenne’, Actes pratiques soci´et´e, November – December 2005. Article 3 of the Regulation states that for the purposes of Article 2(1) on mergers, an SE shall be regarded, as far as France is concerned, as an SA and shall thus be entitled to take part in the formation of an SE by merger under the same conditions. Art. L.229-3 Commercial Code. 37 Pursuant to Annex I and Art. 3 Reg. Art. L.236-9 Commercial Code. One notice containing the information set forth in Article 21 of the Regulation shall be published in the Official Gazette for Civil and Commercial Announcements (Bulletin Officiel des Annonces Civiles et Commerciales or ‘BODACC’) by the clerk of court and one notice containing the

France

17. Furthermore, one or more independent experts (commissaires a` la fusion)40 appointed by the competent commercial court shall examine the draft terms of merger and issue a report, which must be made available to all shareholders of the merging SA.41 18. The extraordinary general meeting of each merging company must approve the proposal by at least 75% of those shareholders present or represented or, if there are different classes of shares, by at least 75% of each class.42 The general meeting of each merging company may make registration of the SE contingent on its approval of the agreement on employee involvement, if such an agreement has not been reached at the time the general meeting is held. Article 31(1) of the Regulation provides for a simplified merger procedure when the absorbing company holds 100% of the shares and other securities conferring the right to vote at general meetings of the absorbed company (the ‘simplified procedure’). In this case, the Regulation provides that there is no need to establish a shareexchange ratio, appoint an independent expert and issue a report,43 insofar as these exemptions are consistent with French law. Although French law grants an exemption from the obligation to appoint an independent expert to determine the fairness of the share-exchange ratio (commissaire a` la fusion) and to have the board of directors or the management board of the acquired company issue a specific report, it is still necessary to have an independent expert44 (commissaire aux apports) assess the value of any contribution in kind.45 Under the simplified procedure, Article 23(1) of the Regulation provides that the general meeting of each merging company shall approve the draft terms of merger. In this respect, the simplified procedure to form an SE by merger is less flexible than French law46 which, very reasonably, does not require the

40 41

42 43 44 45

46

information set forth in Article R.236-2 of the Commercial Code shall be published in an official newspaper entitled to publish legal notices in the d´epartement where the participating SA is registered. If one of the SAs is a public company, the notice must also be published in the Bulletin des Annonces L´egales Obligatoires (Balo). Art. L.236-10 Commercial Code. Pursuant to Article 22 of the Regulation and Article R.236-6 of the Commercial Code, the participating SAs may jointly petition the competent commercial court to appoint a single expert to examine their draft terms of merger and draw up one report for all shareholders. Art. L.236-9 Commercial Code. This interpretation prevails, although Article 31(1), which refers to Article 22 of the Regulation, is worded ambiguously. Art. L.236-11 Commercial Code. This procedure was applied in France when SCOR Global P&C absorbed its wholly owned subsidiaries (E. Rousseau and A. Grumberg, ‘Scor, la premi`ere soci´et´e fran¸caise cot´ee a` adopter le statut de soci´et´e europ´eenne: principaux avantages de la Societas Europaea’, Option Finance, 4 September 2006, no. 896). Arts. L.236-2, L.236-11 and L.236-23 Commercial Code, implemented pursuant to the Third Company Law Directive.

123

The European Company

approval of the general meeting of the absorbed company in this instance, since the absorbing company already holds 100% of the latter’s voting rights. France did not adopt the option contained in Article 31(2) of the Regulation to extend the simplified procedure to a merger carried out by a company holding at least 90%, but not all, of the shares and other securities granting the right to vote at general meetings of the absorbed company. 19. Bondholders and other creditors enjoy the same protection as in the merger of an SA under French law, thus ensuring the same level of protection as when an SE’s registered office is transferred abroad (see Section III.1.C.(ii)). 20. France has ruled out the option contained in Article 24(2) of the Regulation to grant specific protection47 to minority shareholders of an SA promoting the formation of an SE by merger. Thus, the merger process is easier than the procedure to transfer an SE’s registered office (see Section III.1.C (ii)) where minority shareholders request redemption of their shares. This is consistent with the general approach of French law to mergers, in that minority shareholders cannot prevent a merger from going through or force the company to repurchase their shares. 21. Once the merger has been approved by the general meeting of each merging company, Article L.229-3 of the Commercial Code provides that those companies registered in France must file with the relevant trade register a statement of all steps carried out to proceed with the merger, confirming that the merger has been carried out in accordance with the applicable laws and regulations. The clerk is responsible for verifying proper performance of the pre-merger procedure,48 while a French notary,49 who has not taken part50 in the merger, shall review51 completion of the merger and establishment of the SE.52

47

48 49 50 51

52

124

Pursuant to French law and subject to certain criteria, the shareholders of listed companies can create an association to represent their interests (Art. L.225-120 Commercial Code). Shareholders also have a right to convene a general meeting, to add resolutions to the agenda of a meeting, to be informed, etc. (see Section IV.2.A: Decision-making process and Section IV.2.B: Rights and obligations of shareholders). Art. 25 Reg.; Arts. L.229-3 and L.236-6 Commercial Code. Art. 26 Reg.; Art L.229-3 and Art. R.229-13 Commercial Code. Art. R.229-2 Commercial Code. Within six months from issuance of the clerk’s certificate, each merging company shall submit this certificate, as well as inter alia a copy of the draft terms of merger approved by the general meeting, to a French notary. M. Menjucq, S. Guilcart, La soci´et´e europ´eenne, Th`emexpress, e´ d. Francis Lefebvre 2005, no. 31. MEDEF [Soci´et´e europ´eenne (aspect de droit des soci´et´es), Company Law Committee (Commission Droit de l’Entreprise), December 2006, unpublished] considers that it would have been be more efficient to designate the clerk of the relevant commercial court as the national authority competent to scrutinise completion of a merger and the formation of an SE.

France

The notary will ensure that all merging companies have approved the draft terms of merger under the same conditions, that the provisions on employee involvement have been adhered to, and that French law has been fully applied before delivering a certificate attesting to completion of the merger and the concomitant procedural formalities. According to Article 19 of the Regulation, the competent authorities (see Section VII: Supervision by the national authorities) can oppose a merger until the notary delivers the abovementioned certificate. The merger and formation of the SE take effect upon registration of the SE pursuant to Article 29 of the Regulation. B

Formation of a holding SE

22. Pursuant to Article 2(2) of the Regulation, both an SA and a soci´et´e a` responsabilit´e limit´ee (SARL) can participate in the formation of a holding SE provided another public or private limited-liability company governed by the laws of a different Member State is involved or if the SA or SARL has for at least two years had a subsidiary governed by the laws of another Member State or a branch located in another Member State. As mentioned in Article 2(2) of the Regulation, a company will be considered a subsidiary of another if more than half its share capital is directly held by that company.53 According to Article L.229-5 of the Commercial Code, the companies promoting the formation of a holding SE shall draw up terms of formation and offer all shareholders the opportunity to contribute their shares to the holding SE. The agreement shall state inter alia54 the proportion of shares in each promoting company to be contributed to the holding SE, which must result in the SE holding directly more than 50% of the voting rights of each company promoting its formation. No less than one month prior to the first general meeting scheduled to vote on the formation of a holding SE, each participating company shall file its draft terms of formation with the trade register in which it is registered55 and publish a notice to this effect.56 23. Pursuant to Article 32(4) of the Regulation, Article L.229-5 of the Commercial Code provides that one or more independent expert(s)57 appointed by 53 55 56 57

54 Art. 32(2) Reg. Art. L.233-1 Commercial Code. Art. 32(3) Reg.; Art. L.229-5 Commercial Code. Article R.229-15 of the Commercial Code sets forth the publication procedure to be followed. Commissaires a` la constitution de la soci´et´e europ´eenne holding pursuant to Article R.229-16 of the Commercial Code.

125

The European Company

the president of the competent commercial court shall examine the draft terms of formation of the holding SE and issue a report containing the information set forth in Article 32(5) of the Regulation as well as, pursuant to Article R.229-17 of the Commercial Code, the date of the accounts used to determine the value of the shares contributed to the holding SE. The promoting companies may ask the experts to draw up a single report for all shareholders. Article L.229-5 of the Commercial Code refers to the provisions applicable to mergers of SAs, according to which the board of directors or the management board of each company taking part in the formation of a holding SE shall draw up a report detailing and justifying the formation.58 24. The general meeting of each company promoting the formation of the holding SE must approve the draft terms of formation by the quorum and majority required at an ordinary general meeting, since the formation of a holding SE does not necessitate an amendment to the articles of association of the promoting companies.59 It should be noted that the general meeting of each promoting company may make registration of the SE contingent on its approval of the agreement on employee involvement, if no agreement has been reached at the time the general meeting is held. 25. The creation of a public limited-liability company through a contribution of shares is well known under French law;60 however, presumably in order to ensure shareholders, investment-certificate holders, bondholders and other creditors the same degree of protection as when an SE is formed by merger, French law refers to the provisions of national law designed to protect shareholders and creditors in the event of a merger when a holding SE is formed61 (see Section III.2.A: Formation by merger). Thus, France did not enact the option contained in Article 34 of the Regulation allowing the Member States to grant additional protection to minority shareholders in this instance. 26. Within one month following the general meeting’s decision to approve the formation of a holding SE, a notice to this effect shall be published. The notice must inter alia indicate to shareholders how they can inform the company of their ‘intention to contribute their shares’.62 Article 33(1) of the Regulation states that the shareholders of each company promoting the formation of a holding SE shall have three months, starting on

58 60 61 62

126

Art. L.236-9 para. 4 Commercial Code. 59 Ibid., Art. L.225-98. Ibid., Art. L.225-8 (on contributions in kind). Referring to Arts. L.236-9, L.236-13 and L.236-14 Commercial Code. Ibid., Art. R.229-18.

France

the date on which the terms of formation are approved, to inform the company if they intend to contribute their shares to the holding SE. This provision is reflected in Article R.229-18 of the Commercial Code, which provides for a three-month period that starts to run when the general meeting’s decision to approve the formation of a holding SE is first published. Upon expiry of this three-month period, the holding SE may be formed, subject to a contribution of at least the percentage fixed in the draft terms, which cannot be less than 50% of the voting rights of the promoting companies. According to Article R.229-19 of the Commercial Code, once the conditions to form a holding SE are fulfilled, each French promoting company shall publish a notice to this effect.63 Shareholders that have not yet decided whether to contribute their shares shall have an additional month to contribute their shares to the holding SE. Upon expiry of this additional one-month period, the holding SE is formed, and, once it is shown that the formalities referred to in Article 32 of the Regulation have been completed, it shall be registered in accordance with Article 33(5) of the Regulation. C

Formation of a subsidiary SE

27. Any company in France may participate in the formation of a subsidiary SE in accordance with Article 3(2) of the Regulation, as long as an entity from a different Member State is involved. Article L.229-6 of the Commercial Code allows an SE to be the sole shareholder of a subsidiary SE registered in France, subject to the restriction that it cannot itself be a single-member company.64 Accordingly, Article L.229-6 of the Commercial Code makes clear that the sole shareholder shall exercise the powers of the general meeting. Furthermore, the subsidiary SE’s directors or supervisory board members need not hold any shares in the company. Subsidiary SEs are governed by the provisions of the Regulation and the rules applicable to French single-member SARLs. Taking advantage of implementation of the Regulation in France, Senator Marini proposed introducing a single-member SA. His proposal was rejected, however.65 63 64 65

The notice shall be published in a newspaper entitled to publish national legal notices and in the BODACC. Art. L.223-5 para.1 Commercial Code. Bill on the European company of 9 October 2003, proposal of Senator Philippe Marini.

127

The European Company

D

Conversion into an SE

28. Pursuant to Article 2(4) of the Regulation, a public limited-liability company, i.e. an SA, which has both its registered office and head office in France may be converted into an SE, if for at least two years, it has had a subsidiary governed by the laws of another Member State. Once again, the provisions of the Regulation must be read in conjunction with the national rules applicable to the conversion of a French SA. Consequently an SA may only be converted into an SE if, at the time of conversion, it has been in existence for at least two years and has drawn up balance sheets for its first two financial years and had them approved by its general meeting of shareholders.66 According to Article L.225-245-1 of the Commercial Code, the board of directors or the management board of the French SA must prepare draft terms of conversion.67 One month prior to the general meeting scheduled to vote on the conversion, the draft terms must be filed with the trade register of the place where the SA is registered and a notice to this effect published.68 29. In addition, one or more independent experts appointed by the president of the competent commercial court shall prepare a report and certify that the net assets of the company to be converted are ‘at least equivalent to its share capital’,69 which is slightly different from the wording of Article 37(6) of the Regulation, which provides that the net assets of the company shall be ‘at least equivalent to its capital plus those reserves which must not be distributed under the law or the articles of association’. As the Regulation is more stringent, we recommend following its provisions,70 especially since it appears to be more protective of shareholders and creditors. The company SCOR is the first French listed SA to have started the process to be converted into an SE.71 It chose to abide by the provisions of the Regulation, and two independent experts certified that the company’s net assets were ‘at least equivalent to its capital plus those reserves which must not be distributed under the law or the articles’.72 66 67 68 69 70

71 72

128

Art. L.225-243 Commercial Code. As well as a report explaining and justifying the conversion, pursuant to Article 37(4) of the Regulation. Article R.229-20 of the Commercial Code sets forth the publication procedure. Ibid., Art. L.225-245-1. C. Cathiard, ‘La soci´et´e europ´eenne en droit fran¸cais, 1e` re partie: Les modalit´es de constitution d’une SE en vue de son immatriculation en France’, J.Cl. Droit des soci´et´es, December 2005, no. 25. By a decision of its board of directors of 4 July 2006. E. Rousseau and A. Grumberg, ‘Scor, la premi`ere soci´et´e fran¸caise cot´ee a` adopter le statut de soci´et´e europ´eenne: principaux avantages de la Societas Europaea’, Option Finance, 4 September 2006, no. 896.

France

30. Implementing Article 37(7) of the Regulation, Article L.225-241-1 of the Commercial Code provides that the general meeting must approve the conversion under the same conditions required to approve the formation of an SE by merger (i.e., a 75% majority). France did not adopt the option set forth in Article 37(8) of the Regulation, allowing the corporate body responsible for organising employee involvement within the company to oppose the conversion by a unanimous vote or a qualified majority. In any case, pursuant to Article 37(9) of the Regulation, rights and obligations regarding terms and conditions of employment in the converted company shall be maintained in the SE. Rights relating to terms and conditions of employment existing on the date of registration of the SE are transferred to the SE by operation of law through such registration. The Regulation and French law provide that all agreements and undertakings regarding employees shall not be affected by the conversion, subject, however, to the provisions of any agreement on employee participation that may have been reached during the negotiation process.73 According to Article R.229-22 of the Commercial Code, the decision to convert an SA into an SE must be approved by the same (75%) majority required to amend the company’s articles of association and published accordingly.74

3

Acts committed on behalf of an SE in formation 31. As a general rule and pursuant to Article L.210-6 of the Commercial Code, persons who have acted in the name of a company in formation before it has acquired legal personality shall be jointly and severally liable for obligations incurred in the company’s name, unless, following its registration, the company assumes the obligations incurred by the founding parties on its behalf. These obligations shall then be deemed to have been entered into by the company. It should be noted that the option contained in Article 16(2) of the Regulation to derogate from the above principle by way of arrangement, while contrary to general principles of French company law, should nevertheless apply.75

4

Registration and publication 32. In France, an SE must file with the trade register of the place where it intends to establish its registered office the same information as any French company.76 73 74

75

Art. 439-32 Labour Code. The notice shall be published in an official newspaper entitled to publish legal notices in the d´epartement where the SE’s registered office is located. The entry in the trade register shall be modified, and the clerk shall cause this amendment to be published in the BODACC. Art. 16(2) Reg. 76 Art. R.123-35 et seq. Commercial Code.

129

The European Company

It must also file, within 15 days of the first filing, two certificates issued by a notary (for an SE formed by merger) or a copy of its draft terms of formation and an independent expert’s report (for a holding SE).77 With respect to the transfer of an SE’s registered office to France, French law provides that within one month following the decision of the extraordinary general meeting to transfer the registered office, the SE must inter alia provide the clerk of the commercial court of the place where its registered office is located with two copies of its articles of association and a certificate issued by the competent national authority confirming completion of the requisite pre-transfer acts and formalities.78 Filing is only possible if the rules on employee involvement have been observed or, if no agreement has been reached by the SNB, if the board of directors or the management board agrees to apply the standard rules.79 Once the SE is registered, the clerk shall cause a notice to be published in the BODACC80 and in the Official Journal of the European Communities pursuant to Article 14 of the Regulation. A notice shall also be published in an official newspaper entitled to publish legal notices in the d´epartement where the SE has its registered office.

5

Acquisition of legal personality 33. According to Article 16 of the Regulation and Article L.229-1 of the Commercial Code, an SE acquires legal personality upon registration.

IV

Organisation and management

1

General remarks 34. The organisation and management of an SE, as set out in the Regulation, as well as the rules on general meetings largely mirror the relevant provisions of French company law applicable to SAs. In addition, the Regulation provides that, when not contrary to its own provisions, the organisation and management structure, as well as general meetings,81 of an SE shall be governed by the relevant provisions of national law applicable to SAs.82 Consequently, implementation of the Regulation in France did not require substantial changes to French company law, with the few exceptions noted below.

77 79 80

130

Ibid., Art. R.123-118. 78 Ibid., Arts. R.123-72, R.123-73 and R.123-74. Art. 12(2) Reg.; Arts. L.439-34 and R.439-17 Labour Code. 81 Ibid., Art. L.229-8. 82 Ibid., Art. L.229-7. Art. R.123-155 Commercial Code.

France

2

General meeting

A

Decision-making process

35. At least one general meeting must be held each year, within six months from the close of the financial year, to approve the annual accounts. France did not adopt the option to allow an SE to hold its first general meeting at any time during the first 18 months of its existence (Art. 54(1) Reg.). Pursuant to Article 54(2) of the Regulation, French company law applies and thus the management board, the board of directors and/or the supervisory board have authority to call a general meeting. According to Articles 55(1) and 56 of the Regulation, one or more shareholders who jointly hold at least 10% of an SE’s subscribed capital may request that the company convene a general meeting and draw up an agenda for the same. According to the Regulation, the articles of association or national law may stipulate a lower percentage under the same conditions applicable to public limited-liabilities companies. In this respect, French law provides for a 5% threshold,83 but shareholders are not entitled to directly convene the general meeting and must request the competent commercial court to appoint a representative to do so if the board of directors or the management board fails to act. Moreover, if the board of directors or the management board fails to convene the general meeting, the company’s auditor, a representative84 appointed by the president of the competent commercial court at the request of any interested party upon a showing of urgency, the liquidators or a majority shareholder (following a takeover bid, a share exchange offer or a change in control) can all convene a general meeting.85 The agenda of the general meeting is determined by the parties who called it, but one or more shareholders holding at least 5% of the SE’s subscribed capital may add a resolution.86 36. Pursuant to the Regulation and French law, which refers to the rules applicable to SAs, resolutions that do not amend the articles of association are approved by the ordinary general meeting by a majority vote87 where the shareholders present or represented hold at least one-fifth of the voting shares.88 Amendments 83 84 85 86 87 88

Or an association of shareholders if the company is listed, under the conditions set forth in Article L.225-120 of the Commercial Code. The authority referred to in Article 55(3) of the Regulation. Art. L.225-103 Commercial Code. Ibid., Art. L.225-105. This percentage is reduced if the company’s share capital is increased. Art. 57 Reg.; Art. L.225-98 Commercial Code. If the meeting is adjourned and subsequently reconvened, resolutions can be passed regardless of the percentage of share capital present or represented.

131

The European Company

to the articles of association, on the other hand, must be approved at an extraordinary general meeting by two-thirds89 of the votes cast, where those shareholders present or represented hold at least one-quarter of the voting shares.90 However, unlike under French law,91 abstentions and blank or spoilt ballots are not considered negative votes pursuant to the Regulation.92 France opted out of the option contained in Article 59(2) of the Regulation to provide that where at least half of an SE’s subscribed capital is represented at a meeting, a simple majority vote is sufficient to amend the company’s articles of association. Article 12(4) of the Regulation allows the Member States to provide that if the articles of association of an SE require amendment due to a conflict with the new arrangements for employee involvement required by the Directive, the SE’s management shall be entitled to amend the articles without a decision of the general meeting. France chose not to exercise this option, and the SE’s organs must, in such a case, convene an extraordinary general meeting to amend the articles. B

Rights and obligations of shareholders

37. Shareholders have a right to be informed about the general course of the company’s business. This right can be exercised in the context of a general meeting93 or at any time during the year.94 Furthermore, in addition to access to specific documents, such as the annual accounts, management reports, auditor’s reports, etc., shareholders have a right to submit questions to the board of directors or to the management board and to receive answers to their questions at general meetings95 or any time during the year with regard to specific management decisions,96 or twice a year with regard to any event liable to compromise the company’s activity.97 In addition, the articles of association or applicable law can also impose specific obligations on shareholders, such as in listed companies where shareholders may be required to notify certain thresholds98 relating to voting rights or share capital and, subject to certain conditions, launch a takeover bid or a squeeze-out. 89 90 91 92

93 96

97

132

Art. 59 Reg.; Art. L.225-96 Commercial Code. One-fifth if the meeting is adjourned and subsequently reconvened. Arts. L.225-96 and L.225-98 Commercial Code. Articles 57 and 59 of the Regulation refer to votes ‘validly cast’, and only votes in favour or against a resolution are counted. 94 Ibid., Art. L.225-117. 95 Ibid., Art. L.225-108. Art. L.225-108 Commercial Code. Article L.225-231 of the Commercial Code provides that this possibility is open to one or more shareholders holding jointly at least 5% of a company’s share capital. In the absence of a satisfactory answer within one month, these shareholders can petition the competent court to appoint an expert to draft a report on one or more management transactions. 98 Ibid., Art. L.233-7. Art. L.225-232 Commercial Code.

France

As the Regulation does not contain any specific rules regarding relations between an SE’s shareholders, France has enacted various rules for private SEs in order to ensure the same type of freedom as within an SAS. 38. As mentioned above, Articles L.229-11 to L.229-15 of the Commercial Code, applicable to the SE, are based on Articles L.227-13 to L.227-19, which apply to the SAS. Article L.229-11 of the Commercial Code provides that the articles of association of a private SE can provide for transfer restrictions on the company’s shares, although any such restriction cannot prevent a shareholder from selling its shares for more than ten years. Any sale of shares in violation of transfer restrictions set forth in the company’s articles shall be deemed invalid and can be voided with respect to the assignee or its successors, unless a decision ratifying the sale is taken unanimously by the remaining shareholders. The articles of a private SE may also contain provisions aimed at excluding certain (types of) shareholders or identifying a change in control of a shareholder; both cases can be sanctioned by suspending the voting rights of the shareholder in question.99 The validity of such provisions has been questioned since they are based directly on provisions of domestic (French) law applicable to the SAS and not on provisions of Community law, contrary to what is stated in Article 9(c) of the Regulation.100 In any case, since these specific clauses are aimed at increasing the obligations of shareholders, they can only be included in the articles of association by a unanimous vote.101

3

Management and supervision

A

General remarks

39. An SE may choose either a one-tier or a two-tier management system, both of which previously existed under French law.102 99 100

101 102

Arts. L.229-12 and L.229-13 Commercial Code. F. Collin and J.P. Dom, ‘Enjeux et perspectives de la Soci´et´e Europ´eenne’, Actes pratiques soci´et´e, November-December 2005; C. Cathiard ‘La soci´et´e europ´eenne en droit fran¸cais, 2e` me partie: Les modalit´es de constitution d’une SE en vue de son immatriculation en France’, J.Cl. Droit des soci´et´es, December 2005; MEDEF, Soci´et´e europ´eenne (aspect de droit des soci´et´es), Company Law Committee (Commission Droit de l’Entreprise), December 2006, unpublished. Art. L.229-15 Commercial Code. Ibid., Art. L.229-7. Thus, France did not have to enact any of the specific options contained in Articles 39(5) and 43(4) of the Regulation when national law does not recognise a two-tier management structure.

133

The European Company

The initial choice is not final, and nothing prevents an extraordinary general meeting from amending the articles of association in order to change from one system to the other. This right, unlike under French law,103 is not expressly laid down in the Regulation and seems to be based on the principle of freedom of contract expressed therein.104 Pursuant to Article 46 of the Regulation, the members of an SE’s board of directors, management board and supervisory board (the ‘organs’) are appointed for a maximum term of six years, which must be stated in the company’s articles of association. This provision derogates from the rules applicable to SAs.105 Article 47(1) allows legal entities to be members of an SE’s organs unless national law provides otherwise.106 Thus, with respect to SEs registered in France, legal entities can be members of the board of directors and the supervisory board but not the management board.107 Article 50 of the Regulation provides that decisions of the organs shall be approved by a majority of their members, where at least half the members are present or represented, unless the SE’s articles provide otherwise. This rule gives the SE with great flexibility compared to the SA, as the quorum required in the latter is one half the management or supervisory board members attending physically or by videoconference.108 In that respect, France decided not to apply the option contained in Article 50(3) of the Regulation allowing a Member State to apply the quorum and majority rules applicable to public limited companies in that state to an SE’s organs. Article 48(1) of the Regulation states that an SE’s articles of association shall list the categories of transactions that require the authorisation of the supervisory board, in the two-tier system, or an express decision by the board of directors, in the one-tier system. 40. Contrary to Article 48(1) of the Regulation, the supervisory board of an SE registered in France cannot decide to make certain categories of decisions subject to its approval. 103 105

106

107

134

Ibid., Art L.225-57. 104 Arts. 9 and 38(b) Reg. The first directors or members of the supervisory board of a private SA are appointed in the articles of association for a term not to exceed three years (Arts. L.225-18 and L.225-75 Commercial Code). Members of the management board may be appointed for a two- to six-year term, depending on the applicable provisions in the articles of association. In the absence of such provisions, they shall remain in office for four years (Art. L.225-62 Commercial Code). Unlike the Regulation, French law does not make the appointment of a legal entity to an SA’s board of directors (Art. L.225-20 Commercial Code) or supervisory board (Art. L.225-76 Commercial Code) subject to the existence of a provision allowing such an appointment in the company’s articles. Art. L.225-59 Commercial Code. 108 Ibid., Art. L.229-7.

France

France decided,109 further to Article 48(2) of the Regulation, to require all SEs registered in France to set forth rules in substance equivalent to those applicable to SAs,110 providing that any agreement concluded directly or indirectly between the company and any member(s) of its management board or board of directors, any other company with the same member(s) of the management board or board of directors, or any shareholder holding more than 10% of the company’s share capital, shall be subject to the prior approval of the board of directors or supervisory board. The members involved in the transaction cannot take part in the decision,111 and any such agreement must be approved by the general meeting of shareholders. 41. The board of directors or management board has the right to refuse to disclose to third parties information concerning the SE’s trade secrets or any information that may be prejudicial to the company’s interests, except where such disclosure is required by French law or is in the public interest.112 The French legislature, opting out of the option contained in Article 8(2) of the Directive, does not require an administrative authorisation for, and thus leaves up to management, the choice of whether to disclose to the employee representatives any information that could seriously harm or be prejudicial to the functioning of the SE. France did not lay down any particular provisions, as proposed by Article 8(3) of the Directive, for SEs established on its territory that pursue directly and essentially the aim of ideological guidance with respect to information and the expression of opinions. Therefore, the same confidentiality rules shall apply to SEs and SAs in France. B

One-tier system

42. In the one-tier system, the board of directors is entrusted with overall management of the SE. Pursuant to Article 43(2) of the Regulation, Article L.229-7 of the Commercial Code provides that the rules applicable to SAs with respect to the minimum and maximum number of directors113 shall apply to SEs registered in France, notwithstanding employee representation rules.114

109 111 112 113

114

Ibid. 110 Ibid., Arts. L.225-38 to L.225-42 and L.225-86 to L.225-90. Article L.229-7 of the Commercial Code provides that in the case of a single-member SE, authorisation shall be deemed granted once the decision is recorded in the specified registry. Art. 49 Reg. Art. L.225-17 Commercial Code. Thus, the board of directors of an SE registered in France shall have three to eighteen members, depending on the relevant provisions of the SE’s articles of association. Ibid., Arts. L.225-23 and L.225-27 para. 2.

135

The European Company

Pursuant to French law, the board of directors shall decide, in accordance with the SE’s articles of association, if the chair wields both executive (directeur g´en´eral, the equivalent of a CEO) and non-executive (pr´esident du conseil d’administration) powers or if the company shall be run by a general manager and a board, supervised by the chair. Both systems are consistent with Article 43(1) of the Regulation, which provides that a general manager or director(s) shall be responsible for the day-to-day management of an SE.115 Article 44(1) of the Regulation provides that the board of directors shall meet at least once every three months in accordance with the company’s articles of association. French law does not stipulate the required intervals between board meetings, but Article L.225-36-1 of the Commercial Code states that if the board has not met for more than two months, at least one-third of the directors may oblige the chair to convene a meeting with a specific agenda. The general manager may also oblige the chair to convene a board meeting with a specific agenda. C

Two-tier system

43. The two-tier structure comprises a management board and a supervisory board. Pursuant to the Regulation and French law, it is not possible to sit simultaneously on both the management board and the supervisory board.116 In contrast to the rules applicable to the SA, Article L.229-7 of the Commercial Code provides, pursuant to Article 39(3) of the Regulation, that if there is a vacancy on the management board, it can be filled for a period not to exceed six months by a member of the supervisory board, whose functions as a member of the latter body shall then be suspended. As mentioned above, in applying most of the SA’s organisational and management structure to the SE, France enacted the option in Article 39(1) of the Regulation, thus providing that the general manager or members of the management board shall be responsible for day-to-day management of the company under the same conditions as for an SA. Under French law, the management board of an SA must have at least two members (or one if the company’s share capital is less than €150,000)117 and 115

116

136

Art. L.225-51-1 Commercial Code. However, MEDEF [Soci´et´e europ´eenne (aspect de droit des soci´et´es), Company Law Committee (Commission Droit de l’Entreprise), December 2006, unpublished] considers the reference in Article 43(1) to ‘day-to-day management’ to differ from ‘general management of the company’ within the meaning of the Commercial Code. Moreover, it is of the opinion that the Regulation may be interpreted as not allowing the chair of the board of directors to exercise such managerial functions. The authors, however, believe there is no basis for this opinion. 117 Art. L.225-58 Commercial Code. Art. 39(3) Reg.; Art. L.225-74 Commercial Code.

France

may have up to seven members if the SA is listed. However, pursuant to Article 39(4) of the Regulation, France provided in Article L.229-7 of the Commercial Code that the management board of an SE may count up to seven members, even if the company’s shares are not listed. According to Article 41(1) of the Regulation and to French law,118 the management board shall, no less than once every three months, report to the supervisory board on the company’s current business and the foreseeable evolution thereof. Moreover, according to Article 41(2) of the Regulation, the management board shall promptly pass on to the supervisory board any information about events likely to have a significant effect on the SE. This obligation echoes the right of each member of the supervisory board to request from the management board any information deemed necessary to perform his or her duties. Indeed, Article L.229-7 implements the option contained in Article 41(3) of the Regulation and gives a statutory basis for the right of the individual members of an SA’s supervisory board to be informed. With reference to the rules applicable to SAs, France enacted the option contained in Article 40(3) of the Regulation, and the supervisory board of an SE may have, in accordance with the company’s articles of association, anywhere from three to eighteen members.119 This limit is not applicable, however, when the supervisory board’s members include employee representatives.120 D

Appointment and removal

(i)

One-tier-system 44. Under French law, directors are appointed by the general meeting of shareholders121 and must hold the number of shares provided for in the articles of association.122 The Regulation does not provide any specific rules regarding the removal of directors, and thus the rules of French company law applicable to SAs shall apply to SEs registered in France.

(ii)

Two-tier system 45. The procedure to appoint and remove supervisory board members is similar to that applicable for directors. Pursuant to Article 39(2) of the Regulation, members of the management board are appointed and removed by the supervisory board.123 118 119 121 123

Ibid., Art. L.225-68 para. 4. 120 Ibid., Arts. L.225-69, L.225-79, and L.229-7 para. 3. Ibid., Art. L.225-69. 122 Ibid., Art. L.225-25. Ibid., Art. L.225-18 para. 1. Whereas French law (Art. L.225-61 Commercial Code) provides that the power to remove members of the management board is wielded by the general meeting of shareholders and can be granted to the supervisory board only if the company’s articles of association so provide.

137

The European Company

Article 39(2) of the Regulation provides that a Member State may require or permit an SE’s articles of association to provide that members of the management board shall be appointed and removed by the general meeting under the same conditions as for public limited-liability companies with their registered offices on that Member State’s territory. Thus, pursuant to French law,124 the general meeting of an SE registered in France shall be granted the power to remove members of its supervisory board. E

Representation

46. In the one-tier system, an SE is represented by its general manager, who may, but need not, be the chair of the board of directors.125 In the two-tier system, the chair of the management board or, where applicable in small companies, the sole member of the management board represents the SE. However, an SE’s articles of association can allow the supervisory board to grant the same power of representation to one or more other members of the management board.126 F

Liability

47. According to Article 51 of the Regulation and Article L.244-5 of the Commercial Code, the liability of members of the board of directors, the management board and the supervisory board of an SE registered in France is governed by the rules applicable to SAs. France has added a new chapter to the Commercial Code on violation of the rules applicable to SEs. Article L.244-5 of the Commercial Code extends to SEs the provisions applicable to violation of the rules on formation, management, the general meeting of shareholders, changes to share capital and liquidation of an SA. In the one-tier system, the directors127 and general manager shall be individually or jointly and severally liable to the SE and to third parties for violations of the laws or regulations applicable to SEs, for breach of the SE’s articles of association and for tortious or negligent acts of management. The courts can determine the share of liability of the general manager and each director.128 In the two-tier system, members of the management board can be held liable in the same way as directors.129 124 125 127

128

138

Art. L.225-61 Commercial Code. 126 Ibid., Art. L.225-66. Ibid., Arts. L.225-56 and L.225-51-1. Article L.248-1 of the Commercial Code expressly provides that the rules on the liability of general managers shall apply to directors. 129 Ibid., Art. L.225-256. Art. L.225-251 Commercial Code.

France

Members of the supervisory board can be held liable for negligent or tortious acts committed in the performance of their duties to oversee the company’s management. In principle, members of the supervisory board cannot incur liability for acts of management or as a result thereof, insofar as they are not personally involved in management. However, they may be held civilly liable for criminal offences committed by other members of management if they were aware of such offences and did not report them to the general meeting.130

V

Employee involvement

1

General remarks 48. The Directive has been transposed into French law by the law of 26 July 2005, supplemented by the decree of 9 November 2006 on employee involvement in the SE. These provisions are applicable to (i) SEs with their registered offices in France; (ii) companies with their registered offices in France that take part in the formation of an SE; (ii) subsidiaries and establishments of an SE located in France but with their registered offices in other Member States.131 The imposition of any restrictions on (i) the formation of an SNB, (ii) the appointment of SNB members or (iii) SNB operations is a criminal offence, pursuant to Article L.483-1 of the Labour Code. Provisions of French law on the European works council and the information and consultation procedures provided for by Articles L.439-6 to L.439-24 of the Labour Code do not apply to SEs.132 The structure of employee representation in French promoting companies that will cease to exist as separate legal entities following the registration of an SE shall be maintained in the newly formed SE, provided the criteria are still valid and that no agreement to the contrary has been reached133 (Art. 13(4) Dir.).

2

Special negotiating body (SNB) 49. Article 12 of the Law provides for a negotiation procedure to reach an agreement on employee involvement in an SE. Negotiations are held between the SNB and the boards of directors or management boards of the promoting companies.

130 132

Ibid., Art. L.225-257. Ibid., Art. L.439-43.

131 133

Art. L.439-25 Labour Code. Ibid.

139

The European Company

A

Composition of the SNB

50. An SNB is established as soon as possible after: (i) publication of the draft terms of merger; (ii) formation of a holding SE; (iii) approval of the draft terms of formation for a subsidiary SE; or (iv) conversion into an SE, as the case may be.134 The SNB enjoys legal personality135 and represents the workers of the promoting companies and concerned subsidiaries and establishments. Articles L.439-27 and L.439-28 of the Labour Code set forth, in accordance with Article 3 of the Directive, rules to determine the number of seats available on the SNB and the distribution of these seats amongst employee representatives from the various Member States. If French companies, subsidiaries or establishments participating in the formation of an SE have trade unions, seats on the SNB are distributed amongst the union members employed by the promoting companies and sitting on the works council (at the company or establishment level), if any, or amongst trade union representatives (repr´esentants syndicaux).136 France did not exercise the option contained in Article 3(2) of the Directive to allow trade union representatives, regardless of whether they are employees of a promoting company, concerned subsidiary or establishment, to sit on an SNB. If there is no trade union in an SE with its registered office in France or in any French subsidiary or establishment, the employee representatives (repr´esentants du personnel) to the SNB shall be appointed by the employees directly in accordance with the same rules used to appoint employee representatives (repr´esentants du personnel) to the works council.137 Thus the SNB members may include both union representatives and employee representatives.138 Negotiations on employee involvement in the SE begin as soon as the SNB is established and can last, in principal, for up to six months, unless the parties exercise their option to extend the negotiations for a further six-month period. Members of the SNB are entitled to reasonable paid time-off to perform their duties and to the assistance of experts. However, pursuant to Article 3(7) of the Directive, Article L.439-31 of the Labour Code provides that the promoting companies need bear the costs of only one expert.

134 135 137

140

Ibid., Art. L.439-26 para. 2. 136 Ibid., Arts L.439-29 and R.439-6. Ibid., Art. L.439-26 para. 1. 138 Ibid., Art. R.439-7. Ibid., Art. L.439-30.

France

B

Protection of employee representatives

51. Pursuant to Article 10 of the Directive and Article L.439-47 of the Labour Code, SNB members enjoy the same degree of protection against dismissal as employee representatives under French law, which is quite high. Thus, their dismissal is subject to an opinion of the works council and prior approval of the competent state employment agent (inspecteur du travail). C

Duty of confidentiality

52. Members of an SNB or European works council and employee representatives, as well as the experts who assist them, are bound by a duty of confidentiality with regard to any information received from management that is identified as confidential.139 D

Negotiations within the SNB

53. Throughout negotiations, the SNB shall be updated regularly on the formation of the SE. The SNB’s decision-making process, as set forth in Article 3(4) of the Directive, has been adapted into French law by Article L.439-33 of the Labour Code. According to Article L.439-32 of the Labour Code, the agreement on employee involvement shall mention the information set forth in Article 4 of the Directive. French law also requires information regarding the ‘scope of the agreement’, namely the companies, subsidiaries and establishments to which the agreement applies. Where an SE is formed by conversion, the agreement shall provide for a level of information, consultation and participation at least equivalent to that prevailing in the company to be converted into an SE. The phrase ‘at least equivalent’ is likely to raise some interpretative difficulties since neither the Law nor the Directive provides any guidance in this respect.140 If no agreement is reached during the time period mentioned above, or if the SNB did not, at any time during negotiations, decide that the employees should benefit from the rules on employee involvement applicable in the Member State where the SE shall employ them,141 Article 12 of the Law provides for application of the standards rules,142 which require the information of and consultation with employees and their participation in the SE’s decision-making process. 139 141 142

140 Ibid., Art. L.439-32. Ibid., Art. L.439-21. Art. 3(6) Dir.; Art. L.439-33 Labour Code. Even when an SE is formed by merger, as France opted out of the derogation contained in Article 7(3) of the Directive not to apply the standard rules to certain cases where an SE is formed by this means.

141

The European Company

3

Standard rules

A

Information and consultation

54. As mentioned above, in the absence of an agreement, the Law provides for the application of specific information and consultation rules to SEs. Thus, a works council shall be established in order to be informed and consulted by management. Like the SNB, the works council shall enjoy legal personality and is made up inter alia of the SE’s manager or representative (chairperson of the works council) and employee representatives from the promoting companies and concerned subsidiaries and establishments,143 appointed under the same conditions as SNB members.144 The employee representatives shall have (under the same conditions as employee representatives on a French works council) training in economics and, for the duration of their term, shall be paid by the SE.145 Any documents distributed to members of the works council which are not in French shall include a French translation.146 Furthermore, the works council can be assisted by experts of its choosing, but the SE need only bear the costs of one expert per year.147 The works council is competent for any matters relating to the SE and its subsidiaries or establishments located in other Member States as well as for any matters that exceed the powers of the employee representative body of a company in a given Member State.148 The works council shall meet at least once a year149 or more often if it is in the interest of the employees to do so or within eight days of an initial public offering.150 Within four years and six months of its formation, the works council shall begin negotiations with the aim of concluding with management an agreement on employee involvement.151 B

Employee participation

55. Employee participation is defined by Article L.439-25 of the Labour Code as the exertion of influence by employee representatives on the composition of an SE’s organs.

143 145 147 149

142

Art. L.439-35 Labour Code. 144 Ibid., Arts. L.439-37 and L.439-38. 146 Ibid., Art. L.439-40 para. 4. Ibid., Art. L.439-40. 148 Ibid., Art. L.439-35. Ibid., Art. L.439-40 para.1. 150 Ibid. 151 Ibid., Art. L.439-48. Ibid., Art. L.439-39.

France

The degree of employee participation in an SE shall be determined by the SNB in accordance with various procedures, depending on whether the SE is formed by conversion or by other means.152 When an SE is formed by conversion, the level of employee participation in the converted SA shall apply to the SE. If an SE is formed by other means, the form of employee participation applicable to the SE shall be determined by the SNB, after examining employee participation in the promoting companies.153 In the absence of an agreement within the SNB, French law provides, pursuant to Article 7(2) of the Directive, that the management board or board of directors of the SE shall determine the form of employee participation,154 it being understood that, in any case, the highest level of employee representation in the organs shall be retained. Under French company law, an SA may provide in its articles of association for employee participation155 on its board of directors or supervisory board, and such a provision is mandatory for a listed SA.156 In that respect, prior to any general meeting, the management board or board of directors of the SA shall consult with the employees holding shares in the company, through an employee savings plan or mutual fund, so that they can appoint one or more representatives to attend the meeting.157

4

Reconvention/reorganisation in the event of substantial changes 56. If substantial changes occur during negotiations, in particular relocation of the SE’s registered office or a restructuring of the SE, the composition of the SNB shall be adjusted accordingly.158 If such changes occur after the SE is registered, the agreement on employee involvement shall be amended under the same conditions as when it was originally drafted. In the absence of a new agreement, the standard rules shall apply.159 152 153

154 155 156

157 159

Ibid., Art. L.439-42. Participation will only be examined by the SNB if it meets the thresholds set forth in Article L.439-33 of the Labour Code, i.e. for an SE formed by merger, if participation covers at least 25% of the total number of employees of the participating companies or, for a holding or subsidiary SE, if participation covers at least 50% of the total number of employees of the promoting companies. Art. L.439-42 para. 4 Labour Code. Arts. L.225-27 and L.225-79 Commercial Code. Pursuant to Articles L.225-23 and L.225-71 of the Commercial Code, one or more members of the board of directors or the supervisory board shall then be elected by employees holding more than 3% of the company’s share capital. 158 Art. L.439-31 Labour Code. Art. L.225-106 Commercial Code. Ibid., Art. L.439-50.

143

The European Company

5

Complaints procedure 57. Complaints regarding the appointment of SNB members or members of a European works council shall be brought before the tribunal d’instance (district court) of the place where the SE’s or any promoting company’s or subsidiary’s registered office is located or where the establishment is situated.

VI

Annual accounts and consolidated accounts

1

Annual accounts 58. According to Article 61 of the Regulation, the rules governing public limited companies in France shall apply to SEs registered in France as regards the preparation, auditing and publication of their annual and (where applicable) consolidated accounts. French law provides that annual accounts must be honest and truthful and ensure a fair overview of the company’s assets, financial situation and results. If, in exceptional cases, application of a particular accounting rule proves unsuitable to ensure a fair view of the company’s assets, financial situation or results, an exception must be made. This exception shall be indicated in the annex to the accounts and duly justified, with an indication of its effect on the reporting of the undertaking’s assets, financial situation and results.160 At the end of each financial year, the board of directors or management board shall prepare a statement of assets and liabilities and the company’s annual accounts,161 consisting of a balance sheet, income statement and an annex, which shall form an inseparable whole. Management shall also prepare a report on the annual accounts, which must be made available to shareholders at least fifteen days prior to the annual general meeting.162 An SE’s accounts must be approved by its general meeting of shareholders and filed with the clerk of the competent commercial court within one month of their approval.163 In addition, within four months following the close of the financial year and at least fifteen days prior to the annual general meeting, listed companies must publish in the Balo draft annual accounts for the year and their proposed allocation of profits to the annual general meeting164 and, within forty-five days following this general meeting, the documents approved by shareholders.165 Furthermore, within four months following the close of the first half of the financial year, listed companies must publish in the Balo an interim financial 160 161 164

144

Arts. L.123-14 and L.233-21 Commercial Code. 162 Ibid., Art. R.225-89. Ibid., Art. L.232-1. 165 Ibid., Art. R.232-11. Ibid., Art. R.232-10.

163

Ibid., Art. L.232-23.

France

statement (including a balance sheet, income statement, statement of cash flow, etc.), an interim activities’ report, and an auditor’s opinion.166 Finally, forty-five days following each quarter, listed companies must publish in the Balo information on their net sales for that quarter and, if applicable, for each previous quarter of that year as well as total net sales since the start of the current financial year (on a consolidated basis, if applicable) plus corresponding net sales from the previous financial year.167 The entry into force on 20 January 2007 of the Transparency Directive168 imposes new information obligations on listed companies in France, such as an annual financial report including a management report, semi-annual financial report and quarterly reports169 (for the first and third quarters).170 Depending on the size of the company, additional information may be required.171

2

Consolidated accounts 59. Each year, the board of directors or the management board shall draw up and publish consolidated accounts and a group management report for any companies they control, either jointly or severally, or over which they exert significant influence.172 Consolidated accounts must be drawn up in accordance with IFRS standards. Special rules apply to banks and insurance companies. Article 62 of the Regulation states that these rules shall also apply to SEs.

3

Auditors 60. An SE must appoint one auditor and a substitute or two auditors if it publishes consolidated accounts.173 The auditors must be independent both from one another and from the SE. The auditors are appointed by the general meeting of shareholders (or in the articles of association of newly formed private SEs) for a renewable six-year term174 , 175 and can be removed from office for just cause.176

166 167 169

170 171 174 175 176

Ibid. Art. L.232-7; Art. R.232-13. Ibid., Art. R.232-12. 168 Council Directive 2004/109 of 15 December 2004. This requirement does not entail quarterly accounts, only a general description of the issuer’s financial situation and income for the period under consideration and turnover by area of activity. Cf. AMF communication of 30 November 2006. 172 Ibid., Art. L.233-16. 173 Ibid., Art. L.823-2. Art. L.232-2 Commercial Code. Ibid., Art. L.823-3. Article L.822-14 of the Commercial Code provides that the auditors of a public company cannot be reappointed. Ibid., Art. L.823-7.

145

The European Company

The auditors audit the company’s annual accounts, issue a report in that respect, and certify or make reservations and qualifications regarding the company’s accounts. Their role entails more than mere review of the accounts; they must ensure equal treatment of shareholders and alert management and the competent commercial court if there is an ongoing concern about the company. The auditors also issue various other reports, such as a report on the authorised agreements177 mentioned in Section IV.3.A above, a report on the issuance of shares without pre-emptive rights or of securities with rights to shares, as well as a report if there is a delegation of authority by the general meeting to the board of directors or management board to increase, by any means, the company’s share capital. The auditors must alert the shareholders of any failure by management to comply with its numerous information obligations under French law178 or of specific facts, such as a change in control179 or statutory violation by any member of the management or supervisory board.180 The rules on the liability of an SA’s auditors shall apply to SEs. French law provides for specific criminal sanctions if the auditors’ report to the general meeting on an increase in the company’s share capital with a waiver of preemptive rights conveys or confirms incorrect information.181

VII

Supervision by the national authorities 61. Several national authorities are competent to supervise application of the Regulation in France. Pursuant to Article 68(2) of the Regulation, the competent national authorities in France are the following: • The clerk of the competent commercial court conclusively attests to completion of the pre-merger procedure, for the purposes of Article 25(2) of the Regulation, and issues a certificate in this respect; • A French notary must attest to completion of the requisite formalities to be accomplished prior to the transfer of an SE’s registered office and issue a certificate to this end, for the purposes of Articles 8(8) of the Regulation; a notary must also attest to completion of a merger and the subsequent procedure and issue a certificate to this end, for the purposes of Article 26(1) of the Regulation; • The public prosecutor is competent to object to the transfer of an SE’s registered office or to the promotion or formation of an SE by merger by a French company, for the purposes of Articles 8(14) and 19 of 177 179

180

146

Ibid., Art. L.225-88. 178 Ibid., Art. L.823-10. Article L.247-1 of the Commercial Code provides for criminal sanctions if such information is not provided. 181 Ibid., Art. L.244-5. Ibid., Art. L.823-12.

France

the Regulation; this power is also granted to the Credit Institutions and Investment Firms Committee (Comit´e d’´etablissement de cr´edit et des entreprises d’investissement)182 when a French credit institution or authorised investment company is involved, to the AMF when a French portfolio management company (soci´et´e de gestion de portefeuille) is involved, and to the Insurance Supervisory Committee (Comit´e des enterprises d’assurances)183 when an insurance company is involved. Unfortunately, the grounds for opposition are unclear184 and could include those mentioned under Article L.151-3 of the French Monetary and Financial Code, which refers to areas supervised by the public authorities185 (e.g. activities liable to violate public policy or go against public safety or national defence; research in, and production or marketing of, arms, munitions and explosives, etc.). However, as investments in such areas are, under certain circumstances, subject to the prior approval of the finance minister, it would behove French law to reconcile these procedures. • If an SE transfers its registered office from France to another Member State in violation of Article 7 of the Regulation, the public prosecutor shall be informed for the purposes of Article 64(4) of the Regulation.

VIII

Dissolution According to Article 63 of the Regulation, winding up, liquidation, insolvency, cessation of payments and similar procedures involving an SE are governed by the statutory provisions applicable to SAs.

1

Winding up 62. The dissolution of a company can be either voluntary, in which case the extraordinary general meeting approves the dissolution, or involuntary if, as a result of losses duly recorded in the accounts, the value of a company’s equity falls below half its share capital and the situation is not regularised.186 If a company foresees or sustains an economic, legal or financial set-back, French law contains provisions aimed at facilitating its recovery. If a company has ceased payments, the competent commercial court can declare the company bankrupt or order its liquidation. 182 183 184

185

Arts. L.511-13-1, L.532-3-2 and L.532-9-2 Financial and Monetary Code. Arts. L.322-28 and L.322-29 Insurance Code. ´ These decisions can be appealed to the Council of State (Conseil d’Etat). Although not specifically mentioned in French law, a decision of the public prosecutor to oppose an operation pursuant to Article L.229-4 of the Commercial Code can be appealed, and Article 8(14) of the Regulation expressly provides for this possibility. 186 Art. L.225-248 Commercial Code. In accordance with Article 296 of the EC Treaty.

147

The European Company

Pursuant to Article 30(1) of the Regulation, once an SE formed by merger has been registered, the merger may not be declared null and void. However, an SE formed by merger can be wound up on two grounds if an interested party so requests within six months from the last filing with the trade register required by the merger procedure:187 (i) the absence of scrutiny of the legality of the merger or (ii) invalidity188 of the general meeting’s decision on the merger.189 The competent commercial court can grant the SE a deadline by which to regularise its situation or liquidation shall occur in accordance with its articles and Articles L.237-1 to L.237-31 of the Commercial Code.190

2

Liquidation 63. The rules on the liquidation of an SA shall apply to SEs (Art. 63 Reg.). In addition, an SE with its registered office in France may be ordered to liquidate if it transfers its head office abroad (see Section III.ii: Transfer). In this case, the competent court shall grant the SE a deadline by which to regularise its situation, failing which it shall order the company to liquidate.

IX

Applicable law 64. SEs registered in France shall be governed by French law. However, the laws of another Member State may apply in certain cases, such as when an SNB is established or for tax purposes.

X

Tax treatment

1

Income tax 65. Unlike in most other European countries, French corporate tax is based on the territoriality principle, pursuant to Article 209 of the French Tax Code (FTC). According to this principle, and subject to the applicable tax treaties, a French resident company is subject to corporate income tax at a standard global rate of 34.43%191 on business income generated by enterprises operating in France. Accordingly, business income realised by enterprises operating outside 187 188 190

191

148

According to the rules applicable to the SA. According to the rules applicable to the SA. 189 Art. L.229-3 Commercial Code. According to Article R.229-4 of the Commercial Code, this decision shall be published in the BODACC by the clerk of the competent commercial court and in an official newspaper entitled to publish legal notices in the d´epartement where the SE’s registered office is located. If the SE is public company, the notice must also be published in the Balo. This rate is based on the standard corporate tax rate of 33.33% increased by a social contribution tax of 3.3% (applied to the 33.33% standard rate) after deduction of a €763,000 rebate.

France

France is not taken into account for French corporate tax purposes, nor are losses generated by such enterprises. French tax law does not contain any particular provisions with respect to SEs. Therefore, an SE incorporated in France shall be afforded the same tax treatment as an SA, subject to the territoriality principle. Exceptions to the territoriality principle exist. For example, authorised French companies can apply the rules on worldwide income or consolidated income (b´en´efice mondial or b´en´efice consolid´e) to consolidate their total profits and losses realised both within and outside France. These rules are of particular interest for activities that generate losses abroad and profits in France; in this case, consolidation allows foreign-source losses to be set off against Frenchsource income for French corporate tax purposes. The provisions of the Merger Directive (90/434) of 23 July 1990 have been extended to SEs by the Directive 2005/19 of 15 February 2005. The tax-neutral merger rules may therefore also apply to French SEs. The transfer of a French SE’s registered office to another Member State will not give rise to taxation in France, as it is not considered as a taxable event, unlike the winding up of a business,192 provided the SE’s assets remain in France. In practice, the assets should be attributed to a permanent establishment in France whose profits (income and capital gains) remain subject to French corporate tax in accordance with the standard rules. An SE may be set up in France in order to act as a holding company. Withholding tax, generally arising in the distributing company’s country of residence, may be limited either by the applicable tax treaties or the Parent-Subsidiary Directive.193 Furthermore, dividends received by a French SE may be exempt from corporate income tax in France, provided the SE has opted for the participation exemption, subject to certain conditions.194 Under these rules, 95% of dividends received are exempt from corporate tax; the remaining 5% (or actual expenses, if lower) is deemed to correspond to expenses incurred with respect to the shareholding or participation and is taxed at the standard rate. Capital gains realised by a French SE upon the disposal of a qualifying equity interest (titres de participation)195 are exempt from tax in France as of 1 January

192 193 194

195

Article 221(2) FTC, as amended by Article 34 of the 2005 Finance Bill. Directive 2003/123 of 22 December 2003, amending Directive 90/435 of 23 July 1990. The requirements are: (i) the parent company must be subject to corporate tax at the standard rate on all or part of its activities; (ii) the shareholding or participation must be at least 5% of the subsidiary’s share capital (with respect to both the right to receive dividends and voting rights); (iii) the shares must be registered or have been deposited with an approved intermediary; and (iv) the parent company must have held the shares for at least two years. Pursuant to Article 219 Ia quinquies FTC, titres de participation are: (i) shares that qualify as such for accounting purposes; (ii) shares acquired within the course of a public takeover bid

149

The European Company

2007, with the exception of a 5% share which remains taxable at the standard rate.

2

Value added tax 66. An SE is subject to VAT under the standard rules applicable to French resident companies.

3

Other taxes 67. An increase in a French SE’s capital through a contribution of any of the following triggers a registration duty of either €375, if the SE has share capital of less than €225,000, or €500 in all other cases: • cash; • assets other than real property, real property rights, going concerns and leasehold rights; • real property, real property rights, going concerns and leasehold rights realised by a company subject to corporate tax. Contributions to an SE of real property, real property rights, going concerns and leasehold rights by a company that is not subject to corporate tax are subject to a 5% registration duty (with respect to going concerns, only on the value in excess of €23,000). However, such contributions may be subject to the €375 or €500 registration duty if the contributor undertakes to hold the shares received in exchange for at least three years. If the contributor receives cash (rather than shares) in return for its contribution, the registration duty applicable to a sale shall apply (for example, 5% for real property or a going concern). The same holds true if the contributor transfers liabilities to a newly formed subsidiary, up to the amount of such liabilities. A capital increase resulting from an incorporation of reserves is subject to a registration duty of €375, if the company has share capital of less than €225,000, or €500 in all other cases.

XI

Conclusion 68. The introduction of the SE in France did not lead to a revolution in French corporate and labour law, since most of the provisions of the Regulation and the Directive reflect pre-existing provisions of French law applicable to the SA. (a takeover bid or share exchange offer); and (iii) shares qualifying for the parent-subsidiary regime, provided they appear on the balance sheet in the appropriate account or any other account that suits their characterisation for accounting purposes, with the exception of shares in real estate companies.

150

France

For instance, both a one-tier and a two-tier management system already existed under French law. Likewise, the provisions on the protection of creditors and minority shareholders when an SE is formed by merger or as a holding company or subsidiary are based on the protection afforded creditors and shareholders of an SA in the event of a merger. The major changes in French corporate law relate to the transfer of an SE’s registered office, whereby minority shareholders may force the company to redeem their shares. The procedure within the SNB to reach an agreement on employee involvement could outweigh the advantages of the SE and be considered very cumbersome, even if the rights the employees eventually obtain are not very different from those granted in the jurisdiction where the SE operates. From a forum-shopping perspective, the statutory freedom to restrict the transferability of shares and to organise relations between shareholders afforded to private SEs registered in France could attract investor interest.

151

5 Greece stefanos charaktiniotis Zepos&Yannopoulos

I II III

Introduction 152 Reasons to opt for an SE 152 Formation 153 1 General remarks 153 A Founding parties 153 B Name 153 C Registered office and transfer 154 D Corporate purpose 155 E Capital 155 2 Different means of formation 156 A Formation by merger 156 B Formation of a holding SE 158 C Formation of a subsidiary SE 159 D Conversion into an SE 159 3 Acts committed on behalf of an SE in formation 159 4 Registration and publication 160 5 Acquisition of legal personality 161 IV Organisation and management 161 1 General remarks 161 2 General meeting 161 A Decision-making process 161 B Rights and obligations of shareholders 163 3 Management and supervision 164 A Two-tier system/one-tier system 164 B Appointment and removal 165 C Representation 166 D Liability 166 V Employee involvement 167 1 Special negotiating body 167 2 Employee participation 167 3 Protection of employee representatives 168 VI Annual accounts and consolidated accounts 168 1 Accounting principles 168 2 Auditors 168 VII Supervision by the national authorities 169 VIII Dissolution 169

152

Greece

IX X

XI

I

1 Winding up 169 2 Liquidation 170 3 Insolvency 170 Applicable law 170 Tax treatment 171 1 Income tax 171 2 Value added tax 172 3 Other taxes 172 Conclusion 172

Introduction 1. Greece has implemented the Regulation, albeit with a significant delay, by Law 3412/20051 establishing a framework for the formation and operation of SEs (hereinafter ‘the SE Act’). The SE Act entered into force on 4 May 2006, following the issuance of presidential decree 91/20062 on the involvement of employees in the European company (hereinafter the ‘presidential decree’), intended to harmonise Greek law with the provisions of Council Directive 2001/86/EC3 supplementing the Statute for a European company with regard to the involvement of employees.

II

Reasons to opt for an SE 2. The SE has a number of advantages over national corporate forms, the first being enhanced mobility, as SEs can move across borders without having to dissolve and wind up. It has also been acknowledged that the creation of an SE may offer participating companies the opportunity to simplify their organisation and reduce their administrative costs, as they will be able to use the same form of legal entity in each country in which they conduct business. This enhanced freedom of movement is expected to maximise companies’ ability to take full advantage of trading possibilities within the internal market and increase their competitiveness within a large-scale market economy. The SE may also provide an alternative vehicle for cross-border joint ventures and mergers. In addition, the SE offers, as stated in the explanatory memorandum to the SE Act, a well-defined legal framework for cross-border businesses, which could lead to heightened protection for minority shareholders and creditors. Last but certainly not least, the SE can be an important marketing tool as it allows companies to trade their national identity for a pan-European one. 1 3

Government gazette 276 A/04.11.2005. 2 Ibid., 92 A/04.05.2006. Council Directive 2001/86 of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees, Official Journal 294, 10/11/2001. P. 0022-0032.

153

The European Company

3. Notwithstanding the above, it remains to be seen whether the new European company will be successful. As a new corporate form – and one very recently introduced in Greece – it remains subject to a certain amount of criticism. For instance, the SE is only considered suitable for larger enterprises. As many Greek businesses are small or medium sized, it is thought that the costs and other complex issues related to the formation of an SE will discourage the adoption of this corporate form. The provisions of the Regulation have also been criticized as being out of date and inflexible. In view of the above, it seems that the success of the SE will be judged on case-by-case basis. The SE may turn out to be a handy tool for enterprises that wish to make use of certain provisions of national law. For instance, Greek companies interested in appointing a single manager could opt to incorporate as an SE, as this would allow them to use the two-tier management structure introduced by the SE Act which did not previously exist under Greek law. On the other hand, foreign companies could opt to take the form of a Greek SE in order to be able to directly appoint managers to the board, pursuant to Article 18(3) of Law 2190/1920 (the Limited-Liability Companies Act).

III

Formation

1

General remarks

A

Founding parties

4. Pursuant to the Regulation (Annexes I and II), the Greek corporate forms that can take part in the establishment of an SE are the company limited by shares (anonymos etairia or AE) and the limited-liability company (eteria periorismenis efthinis or EPE). Pursuant to the SE Act (Art. 3), a company whose head office is not located in the EU can participate in the formation of an SE provided it is established in and operates under the laws of an EU Member State, has its registered office in that Member State, and has a real and continuous link with the economy of a Member State. B

Name

5. An SE is referred to as a ‘Evropaiki etairia’. The company’s registered name must include the abbreviation ‘SE’. Only SEs can include this abbreviation in their names (Art. 11 Reg.). However, the SE Act expressly provides (Art. 29) that if a company already had the abbreviation ‘SE’ in its name when the law entered into force, it is not required to change it. In general, all matters related to an SE’s name are governed by Article 5 of Law 2190/1920 on public limited-liability companies. Under this law, the name of a company must indicate its purpose. 154

Greece

C

Registered office and transfer

(i)

Registered office 6. Greece applies the incorporation doctrine to determine whether a company is governed by Greek law (Art. 10 Greek Civil Code). This means that a company established abroad but with its head office in Greece shall not be deemed duly incorporated in Greece. Pursuant to the relevant case law, such companies can only be considered general or de facto partnerships. Article 7 of the Regulation provides that the registered office and head office of an SE must be located in the same Member State. Greece has adopted the stricter option provided for in the Regulation, according to which an SE’s registered office and head office must be at the same place (Art. 6 SE Act). However, Greek law does not refer to the potential sanctions that can be imposed if this requirement is not met. If an SE fails to comply with this requirement (i) it will not be able to enforce its real registered office against third parties and (ii) it may be liable in tort pursuant to Article 914 of the Greek Civil Code. If an SE does not have both its registered office and its head office in Greece, the competent Greek supervisory authority will ask the SE to either (i) re-establish, or establish its head office in Greece or (ii) transfer its registered office to the Member State in which its head office is located. The SE must comply with this request within a certain period of time. If it does not do so, its licence shall be revoked and, pursuant to a decision of the supervisory authority, it shall be ordered to liquidate. Any interested party can, however, petition the courts to set aside the supervisory authority’s decision to revoke an SE’s licence. Such a petition suspends application of the decision.

(ii)

Transfer of registered office 7. Article 8 of the Regulation provides that an SE’s registered office may be transferred to another Member State without first having to wind up the company or create a new legal person. In this context, a transfer proposal must be drawn up and published by the company’s management or administrative organ. Furthermore, in order to ensure compliance with the conditions set forth in the Regulation, a certificate attesting to completion of the requisite pre-transfer acts and formalities must be issued. Pursuant to the SE Act, the competent authority for issuance of the abovementioned certificate is the Ministry of Development or the prefecture in the area where the SE’s registered office is located (Art. 6 SE Act). In order to acquire this certificate, an SE transferring its registered office must prove, with respect to any liabilities that arise up to the date of the transfer, that the interests of creditors and the holders of other rights (including public bodies) have been adequately protected. Creditors with claims that arose prior to the transfer but which are not yet due at the time of the transfer are entitled, within one month from the transfer, to request sufficient guarantees if the SE’s financial condition 155

The European Company

renders such protection necessary and provided the creditor has not already been granted sufficient security (Art. 70 Law 2190/1920). In order to obtain the abovementioned certificate, an SE transferring its registered office must also submit a certificate stating that it has fulfilled its obligations relating to the payment of social security contributions and taxes (Art. 6(5) SE Act). 8. A special scheme is also foreseen for the protection of minority shareholders who object to the transfer of an SE’s registered office. According to Article 6(3) of the SE Act (which refers to Article 84(2) of Law 2190/1920), minority shareholders of an SE registered in Greece are entitled to request, even by way of interim relief, that the company redeem their shares, provided a good reason for doing so exists. In this case, minority shareholders are entitled to an amount proportionate to the value of their shares. In the event of disagreement as to this amount, the competent court of first instance will decide the matter, pursuant to the rules of voluntary jurisdiction. 9. It should be noted that although the Regulation provides that the Member States can object to the transfer of an SE’s registered office on grounds of public interest, the SE Act does not contain provisions to this effect. It is therefore impossible for the Greek authorities to prevent the transfer of an SE’s registered office from Greece on grounds of public interest. D

Corporate purpose

Pursuant to Article 5 of Law 2190/1920, the articles of association of an SE established in Greece must mention its object, i.e. the framework within which its business is conducted. An SE may conduct more than one type of activity, all of which must be described in a detailed manner in its articles of association. A vague or very general description is thus prohibited. The company’s purpose, on the other hand, is a broader concept which refers to whether its goal is to turn a profit. A company’s corporate purpose must comply with the law and may not be contrary to public policy or morality. E

Capital

10. With the exception of the Regulation’s minimum capital requirement, all other issues concerning the share capital of an SE are regulated by Law 2190/1920. An SE’s share capital must be at least EUR 120,000, fully paid-up within two months from the effective date of its incorporation. To register an SE whose share capital exceeds EUR 300,000 a prior administrative assessment of its articles of association with a view to ensuring compliance with the law is required. The minister of development exercises authority through ‘locally competent’ prefectures. However, certain types of companies, such as banks, 156

Greece

insurance companies and investment companies, as well as listed companies, are subject to stricter centralized control.

2

Different means of formation

A

Formation by merger

(i)

Types of companies that can be involved in the formation of an SE by merger 11. The only Greek corporate form that can participate in the formation of an SE by merger is the public limited-liability company (anonymos etairia or AE) (see Annex I to the Regulation). During the first phase of the merger process, Greek company law (Law 2190/1920) applies to issues not covered by the Regulation as well as to issues related to the protection of creditors, bondholders, and the holders of securities other than shares which carry special rights in the merger and to determine the legality of the merger. On the other hand, the provisions of the Regulation govern matters that arise in the second stage of the merger, including conclusion of the merger agreement and recordation in the relevant company register. According to Article 9 of the SE Act, the board of directors of each Greek participating company must draw up a draft merger agreement including the items listed under (a) to (e) of Article 21 of the Regulation. The draft agreement is subject to the publication requirements mentioned in Article 7b of Law 2190/1920 for each merging company at least two months prior to the date of the general meeting called to vote on the draft agreement (Art. 69(3)). The merger agreement must take the form of a notarial instrument to which the solemn statement mentioned in Article 8 of Law 1599/1986 is appended (i.e., a statement to the effect that no objections have been raised by creditors or that any objections raised have been settled). The prefecture in the area where the company’s registered office is located is competent to issue the certificate attesting to completion of the requisite pre-merger acts and formalities. 12. Under Greek law, the supervisory authority competent to scrutinize the legality of a merger is the prefecture in the area where the company’s registered office is located. The merger will be approved once it has been ascertained that the merging companies have validly completed all steps required by Law 2190/1920. 13. In order for a merger to be effective against third parties, the following formalities must be fulfilled: (i) the supervisory authority’s approval of the merger must be recorded in the register of companies limited by shares kept by the prefecture in the area where the company’s registered office is located and (ii) an announcement of the formation of a company by merger must be published 157

The European Company

in the issue of the government gazette dealing with companies limited by shares and limited-liability companies. (ii)

Right to object to a company participating in a merger 14. Greek law allows the tax authorities and other competent authorities, such as the prefectures, to object to the participation of a company in the formation of an SE by merger on grounds of public interest.

(iii)

Minority shareholders 15. As regards the protection of minority shareholders who oppose the formation of an SE by merger, Article 12 of the SE Act and Article 84(2) of Law 2190/1920 apply. Pursuant to these provisions, minority shareholders who have objected to a merger are entitled to request that the company, even by way of interim relief, buy back their shares, upon a showing of good cause, in particular in the event of a share exchange that is extremely unfavorable to their interests. In this case, they are entitled to an amount proportionate to the value of their shares. In the event of disagreement as to this amount, the competent court of first instance shall decide the matter, pursuant to the rules on voluntary jurisdiction.

(iv)

Rights of creditors 16. With respect to the protection of creditors, Article 70(2) and (3) of Law 2190/1920 applies. According to this provision, within one month following publication of the draft merger agreement, creditors whose claims arose prior to, but which are not yet due as of, the publication date of the merger proposal are entitled to request sufficient guarantees if the merging companies’ financial position renders such protection necessary and provided they have not already been granted adequate security. Creditors have the right to raise their objections to the merger in writing to the merging companies within one month. In any event, the court of first instance of the district where the company’s registered office is located can allow the merger to go through, further to an application by the Greek merging company despite objections by creditors, if it finds that the objections are not substantiated based on the merging companies’ financial position or guarantees previously received by or offered to creditors.

(v)

Acquisition by a company holding 90% or more of the shares in another company 17. A simplified merger procedure is foreseen in cases where a company holds 90% or more of the shares in another company (Art. 16(1) SE Act). If a company holds 100% of another company’s shares, the merger (by absorption) is divided into a preliminary phase, which includes drafting a merger agreement and making arrangements for the protection of creditors of the absorbed companies, and a final phase, which covers the main substantial and formal requirements, determination of the liability of directors of the absorbed companies, and avoidance of the merger.

158

Greece

18. If a company holds 90% or more, but not all, the shares or other voting securities in another company, Greek company law governs the independent experts’ reports, the reports by the management and administrative bodies, and all other necessary documents (Art. 16(2) SE Act). Thus, in order to conclude the merger, and to the extent the absorbed or absorbing company is governed by Greek law, the following are required: a valuation report drawn up by a committee of experts on the assets and liabilities of the merging companies (Art. 9 Law 2190/1920) and a resolution of the general meeting approving the draft merger agreement and the necessary amendments to the company’s articles of association. The merger is effected by a notarial instrument. The resolutions passed by the general meetings of the merging companies, the merger agreement and the relevant administrative authorisations shall be published in accordance with the provisions of Article 7b of Law 2190/1920. (vi)

Avoidance of a merger 19. A merger can be declared void under Greek law (Art. 15 SE Act) if the supervisory authority has not scrutinised the legality of the merger. In particular, any person with a lawful interest may petition the court of first instance of the place where the SE’s registered office is located to dissolve the company. The petition must be filed within two months following registration of the SE in the register of companies limited by shares kept by the competent prefecture. The court shall rule on the matter pursuant to the voluntary jurisdiction rules, and its decision shall be recorded in the abovementioned register.

B

Formation of a holding SE

(i)

Procedure and publication requirements 20. According to the provisions of the SE Act, the corporate forms that can take part in the formation of a holding SE are the private limited-liability company (eteria periorismenis efthinis) and the public limited-liability company (anonymos eteria) (see Annex II Reg.). The management or administrative bodies of the companies promoting the formation of a holding SE must draw up draft terms of formation, including a report explaining and justifying the legal and economic aspects of the formation and indicating the implications for shareholders and employees. Pursuant to the SE Act (Art. 17), when the formation of a holding SE is promoted by a Greek public limited-liability company, the draft terms are subject to the publication requirements set forth in Article 7b of Law 2190/1920, at least one month prior to the general meeting scheduled to vote on the matter. The SE Act does not contain any other special rules on the formation of a holding SE. The provisions of the Regulation shall thus apply. 159

The European Company

(ii)

Minority shareholders 21. As with the formation of an SE by merger, the SE Act includes special provisions for the protection of shareholders when a holding SE is formed. The procedure is the same as that described above (see no. 16 of this report).

C

Formation of a subsidiary SE

22. Under the SE Act, the corporate forms that can participate in the formation of a subsidiary SE are the private limited-liability company (eteria periorismenis efthinis) and the public limited-liability company (anonymos eteria) (see Annex II Reg.). No other special provisions apply. D

Conversion into an SE

23. The only corporate form that can be converted into an SE is the public limited-liability company (Art. 19 SE Act). The content of the draft terms of conversion is not specified in the SE Act. However, based on the provisions governing the formation of an SE by merger and of a holding SE, the draft terms must indicate and explain the legal and economic consequences of the conversion. Furthermore, the draft terms must be published pursuant to the provisions of Article 7b of Law 2190/1920 at least one month prior to the general meeting scheduled to vote on the conversion. The general meeting’s resolution approving the draft terms must be passed in accordance with the applicable provisions of national law, thus by the increased quorum and majority set forth in Article 72 of Law 2190/1920. In particular, at the general meeting scheduled to vote on the conversion of an SA into an SE and on the relevant amendments to the company’s articles of association, shareholders representing at least two-thirds of the paid-up share capital must be either present or represented. If this quorum is not met, the general meeting will adjourn, and another meeting will be called at which at least half the paidup share capital must be present or represented. If, once again, this quorum is not met, the general meeting will adjourn and another meeting will be called at which at least one-third of the paid-up share capital must be present or represented. The resolution must be adopted by two-thirds of the votes cast at this meeting.

3

Acts committed on behalf of an SE in formation 24. Article 2(2) of the SE Act provides that natural persons or legal entities that have acted and expressly signed in the name of an SE prior to its incorporation and registration shall be jointly and severally liable for these acts, unless the SE assumes the relevant obligations within two months following its registration. Thus, Greek law imposes additional conditions to those set forth in Article 16(2) of the Regulation with respect to the liability of natural persons and

160

Greece

legal entities who commit acts on behalf of an SE in formation, as in order to be held liable under Greek law, these persons must have signed on the SE’s behalf.

4

Registration and publication 25. Pursuant to the provisions of Law 2190/1920, the formation of an SE involves four stages: (i) adoption of the articles of association; (ii) subscription of the share capital; (iii) authorisation by the competent authority; and (iv) publication. The articles of association must be executed before a notary public in Greece. The physical presence of the founders is not necessary, as duly authorised representatives may execute the articles on their behalf. The articles are submitted to the competent authority for approval and registration in the companies register, while a summary thereof is published in the government gazette (in the issue on companies limited by shares and limited-liability companies, ‘tefchos AE and EPE’). Capital contributions may be made either in cash or in kind, including intangibles. In the latter case, however, a valuation report by a committee of experts appointed by the supervisory authority is required Notwithstanding the foregoing, an SE whose share capital does not exceed EUR 300,000 is eligible for ‘fast track’ registration, or same-day registration without prior authorisation. The requirements are: (i)

prior approval of the company’s trade name and distinctive title by the competent chamber of commerce; (ii) adoption of the company’s articles of association by notarial instrument; (iii) subscription of the share capital; and (iv) publication. 26. Administrative authorisation is not required. Exceptionally, the ‘fast track’ procedure is not available for companies whose share capital has not been fully paid in, athletic companies, and public limited companies formed by conversion. To register an SE whose share capital exceeds EUR300,000, a prior administrative assessment of its articles of association with a view to ensuring their compliance with the law is required. In this respect, the minister of development exercises authority through the local prefectures. However, some companies such as banks, insurance companies, investment companies and listed companies, are subject to stricter, centralised control. 27. Pursuant to Article 7(1) of the SE Act, the supervisory authority’s decision (if applicable) and the SE’s articles must be recorded in a special SE register (separate from the register of companies limited by shares) kept by the competent supervisory authority. The SE will then be granted a special registration number (‘ARMAE’). This constitutes the first stage in the twofold publication system introduced to ensure compulsory disclosure of important documents and company particulars. In the second stage, a notice of recordation of 161

The European Company

the instrument of incorporation must be published in the official government gazette (in the issue on companies limited by shares and limited-liability companies, ‘tefchos AE and EPE’) at the initiative of the appropriate authority and at the company’s expense. The company must submit proof of such publication to the supervisory authority within one month’s time or risk having its entry deleted.

5

Acquisition of legal personality 28. An SE acquires legal personality only after having obtained administrative approval (if required) and once its articles of incorporation have been recorded in the SE register kept by the competent supervisory authority which, as mentioned above, is separate from the register of companies limited by shares (Art. 2(2) SE Act).

IV

Organisation and management

1

General remarks 29. Greek law has traditionally recognised a one-tier system of organisation and management in which the board of directors is authorised to manage and represent the company. The general meeting of shareholders, on the other hand, wields all other powers (with the exception of management and representation) and adopts resolutions in accordance with the company’s articles of association and the law.

2

General meeting

A

Decision-making process

30. Under Greek law, the general meeting of shareholders is the company’s ‘supreme organ’ (Art. 33 Law 2190/1920). Pursuant to Article 52 of the Regulation, the general meeting has authority to take decisions on matters for which it is given sole responsibility by the Regulation and national law in the Member State where the SE’s registered office is located. Pursuant to Law 2190/1920, the general meeting is competent to take decisions on: (i) amendments to the company’s articles of association, including changes to the company’s capital; (ii) the appointment of members of the board of directors and auditors; (iii) approval of the company’s annual accounts; (iv) the distribution of annual profits; (v) the issuance of debentures, including convertible bonds; (vi) the merger, division, conversion, revival, extension of duration or dissolution of the company; and (vii) the appointment of liquidators. In general, the provisions of Law 2190/1920 on the calling, holding and organisation of general 162

Greece

meetings of shareholders contain strict procedural rules designed to protect shareholders. The general meeting must meet at least once each calendar year, within six months following the close of the financial year. In addition, a general meeting can be called at any time by the management organ, the supervisory organ or the competent authority, even though no reference is made to the latter in the SE Act. Notices of a general meeting must comply with the provisions of Article 26 of Law 2190/1920. Pursuant to this provision, the notice should state at least the date and time of the meeting as well as the items on the agenda, which must be posted at a prominent location at the company’s offices and published in the government gazette (in the issue on companies limited by shares and limited-liability companies), one widely circulated Athenian daily newspaper, one financial newspaper published at least six times per week and which has been in continuous circulation for at least three years with a daily publication rate of at least 5000 issues, and one daily or weekly newspaper issued in the area where the company’s registered office is located or, if there is no such newspaper, in at least one daily or weekly paper published in the capital city of the prefecture of the area where the SE’s registered office is located. The items on the agenda are defined by the party calling the meeting. Article 24 of the SE Act provides that shareholders representing 5% of the paid-in share capital can request that one or more items be added to the agenda of a general meeting and can also request that a general meeting be called and draw up an agenda for the same. The Regulation provides that if, following a request by shareholders holding 5% of the share capital, a general meeting is not held in due time and, in any event, within two months, the competent judicial or administrative authority of the Member State where the SE’s registered office is located can order that a general meeting be held within a given period of time or authorise the shareholders in question or their representatives to call a general meeting. No mention is made of this provision in the SE Act. In order to attend a general meeting, shareholders must deposit their share certificates and proxies with defined banks at least five days before the date scheduled for the meeting. Shareholders that are legal entities can participate in a general meeting by appointing up to three natural persons as their representatives. A shareholder who has failed to comply with this requirement may attend the general meeting only with the latter’s permission. The meeting is presided over by a chair (normally the chair of the board of directors or a person designated in the articles of association); a secretary is also appointed. 31. Law 2190/1920 applies to determine the quorum required for a general meeting. Article 29 of this law provides that a meeting can be validly held when shareholders representing at least one-fifth of the paid-in share capital 163

The European Company

are present or represented by proxy. In the absence of such a quorum, the meeting shall be adjourned and convened again within twenty days’ time with at least ten full days’ notice. On second call, the meeting can validly take decisions on items on the agenda of the initial meeting regardless of the share capital represented. Special quorums are required for statutory general meetings called to adopt resolutions on important matters. Thus, the general meeting can validly pass resolutions concerning, for example, the transfer abroad of a company’s registered office, a change in its objects, an increase in its shareholder obligations or share capital, or a reduction in its share capital, if shareholders representing two-thirds of the paid-in share capital are present or represented. Once again, if this quorum is not met on first call, a second meeting shall be held under the conditions described above, for which the required quorum is one-third of the paid-in share capital. The majority required to adopt resolutions is determined by the Regulation, which provides that, with the exception of those matters for which a greater majority is required by its provisions or national law, resolutions shall be adopted by a simple majority of votes validly cast. The Regulation requires a greater majority for resolutions to amend an SE’s articles of association. The provisions of Law 2190/1920 apply to other matters pertaining to the holding and organisation of general meetings, the casting of votes, and void and voidable resolutions. B

Rights and obligations of shareholders

32. The rights of shareholders are defined by Law 2190/1920 and in the SE’s articles of association. In general, shareholders wield the management rights attached to their shares. In addition, they have the right to attend general meetings and to vote, to inspect the accounts and to request information. Under Greek law, voting rights cannot be restricted in an SE’s articles of association. Shareholders can vote by proxy. Voting trusts are allowed, but breaches thereof do not affect the SE. A share also bestows on its holder certain property rights, namely the right to participate in profits and liquidation proceeds. The right to participate in profits gives rise to an entitlement only when the general meeting has decided to distribute a dividend. In the absence of such a decision, shareholders have no claim to the company’s profits. An entitlement to a dividend can take the form of a negotiable instrument, a dividend coupon, which can be transferred like any other such instrument. Due to the SE’s nature as a company limited by shares, Greek company law does not provide for obligations other than the payment of a capital contribution upon incorporation.

164

Greece

3

Management and supervision

A

Two-tier system/one-tier system

(i)

General remarks 33. The SE Act provides for both a one-tier and a two-tier system of management. If the shareholders of an SE select the one-tier system, the SE shall have two corporate bodies, a management board and a general meeting of shareholders, so that its structure shall reflect for the most part that of a traditional Greek public limited company. If, on the other hand, the shareholders opt for a two-tier system, the SE shall have three corporate bodies, namely the general meeting of shareholders, a management board and a supervisory board. The supervisory board is a relatively new concept in Greek company law.

(ii)

One-tier system 34. Pursuant to Article 22 of the SE Act, the articles of an SE may provide for the one-tier system of management traditionally used in Greek public limited companies. If the company’s shareholders opt for this system, the provisions of Law 2190/1920 shall apply with regard to formation of the management organ. According to the SE Act, the management organ must have three members (Art. 22). The Regulation does not distinguish between executive and non-executive members. The SE Act, however, with reference to Articles 18(2) and 22(3) of Law 2190/1920, allows specific powers to be attributed to one or more members of the management organ, in accordance with Article 43 of the Regulation. Under Greek law, members of the management organ are authorised to represent the SE and to take decisions on all matters related to its management, the administration of its property and the implementation of its objects in general. Members of the management organ have fiduciary duties and a duty of loyalty to the SE. Thus, they must protect the interests of the SE and implement its objectives acting with the honesty, due care, impartiality, good faith and diligence expected from a fiduciary. Furthermore, the management organ has a duty to ensure the accuracy of the SE’s balance sheet and other public financial statements. 35. Members of the management organ may or may not be entitled to remuneration. Traditionally, they are not compensated, it being assumed that their financial stake in the company encourages them to serve in this capacity. Nevertheless, remuneration paid out of the company’s profits must be taken out of the balance of net profits, after deduction of amounts contributed to ordinary reserves and any dividends paid. Any other remuneration is chargeable to the company, if approved by a specific resolution of the ordinary general meeting of shareholders. Excessive remuneration may be reduced by the courts (Art. 24 Law 2190/1920). 165

The European Company

(iii)

Two-tier system 36. Pursuant to Articles 20 and 21 of the SE Act, the articles of an SE may provide for a two-tier management structure. Under Greek law, the management board of an SE must have at least one member and no more than five. Exceptionally, if an SE’s share capital exceeds EUR3,000,000 at the time of appointment of its management board, the board must have at least three members, unless the articles of association provide otherwise. In the event of a vacancy, a member of the supervisory board may sit on the management board until the vacancy is filled. An appointment must be made no later than the next general meeting of shareholders. With respect to the supervisory board, the SE Act stipulates only the minimum number. Thus, the number of members of the supervisory board, as set forth in the SE’s articles of association, may not be less than three. The SE Act does not go into detail concerning the rights and obligations of members of the management and supervisory boards. Therefore, the applicable provisions of the Regulation shall apply.

B

Appointment and removal

37. In principle, members of the management organ are elected by the general meeting of shareholders, which has exclusive authority in this regard. By way of exception, the SE’s articles may give a specified shareholder or shareholders the right to appoint members of the management board, which number is not to exceed one-third of the total number of directors, according to the provisions of Article 18(3) through (5) of Law 2190/1920. Members may be freely removed from office at any time by a decision of the general meeting of shareholders, while members appointed by other means can be removed and replaced at any time by the shareholders who appointed them. Furthermore, shareholders representing at least one-tenth of the paid-in share capital can petition the president of the competent court of first instance to remove directors for just cause. Members of the supervisory board are, in principle, also appointed by the general meeting of shareholders, although the first board members may be appointed in the articles of association. Pursuant to Article 20(1) of the SE Act, in conjunction with Article 18 of Law 2190/1920, an SE’s articles can give a specified shareholder or shareholders the right to appoint members of the supervisory board, which number is not to exceed one-third of the total number of members, and determine simultaneously the conditions for exercise of this right, especially with regard to the participation in share capital and the disallowance of certain shares, i.e. whose transfer requires the prior authorisation of the board of directors. 166

Greece

C

Representation

38. In the one-tier system, an SE is represented by its board of directors. By application of Law 2190/1920, the management board represents the SE in and out of court, acting jointly as a body (Art. 18(1) Law 2910/1920). This power is unlimited and cannot be restricted. ‘Joint action’ does not imply action on the part of all members but rather action taken in accordance with the rules to pass a valid resolution. In place of collective representation, the law allows individual representation for specific matters. In particular, the articles of association can authorise the assignment of the management board’s powers, in whole or in part, to one or more of its members (Art. 22(3) Law 2190/1920) or to third parties (Art. 18(2) Law 2190/1920). It should be noted, however, that only the management board has authority to specify those persons who, in accordance with the SE’s articles, are authorised to represent and bind the company and their powers. 39. In the two-tier system, a single member of the management board or its chair is entitled to represent the SE before third parties. This means that the management board is de facto required to appoint a chair. Furthermore, the SE Act provides for the possibility of granting representation powers to other members of the board by referring to Articles 18(2) and 22(3) of Law 2190/1920 (Art. 20(4) SE Act). D

Liability

40. The liability of members of the management organ is governed by the rules applicable to Greek public limited companies. In particular, members of the management board are liable to the company for any fault committed by them in managing the company or arising from breach of duties imposed on them by the company’s articles of association or by a resolution of the general meeting of shareholders. Members of the management board may be held liable to the company but not to individual shareholders. Board members are liable for any wrongdoing on their part (fraud or negligence), unless they can prove that they managed the company’s affairs with the diligence expected of a conscientious manager or can show that their acts or omissions were based on lawful resolutions passed by the general meeting of shareholders. In this context, the company can file suit against members of its management organ in the following ways. First, the general meeting can pass a resolution authorizing the board to bring proceedings or empowering a special representative(s) to do so, if one-fifth of the paid-up share capital is present or represented and the resolution receives an absolute majority of the votes validly cast. In the alternative, shareholders representing one-third of the paid-up share capital can request that the board bring proceedings or petition the competent court of first instance to appoint a special representative(s) to do so. The same body, i.e. the general meeting of shareholders, has authority to abandon or settle a 167

The European Company

suit against a director, while the defendant director is not entitled to vote on a resolution to bring proceedings against him or her. 41. Members of the supervisory board are liable to the company for any wrongdoing (fraud or negligence), unless they can prove that they acted with the diligence expected of a conscientious manager.

V

Employee involvement 42. Directive 2001/86 has been transposed into Greek law, with a considerable delay, by presidential decree 91/2005 (government gazette A92/04.05.2006) (the ‘presidential decree’), which adopts most provisions of the Directive. The issuance of presidential decree 91/2005 signalled the conclusion of the Greek legislative process to allow the establishment and operation of SEs in Greece. Thus, as of 4 May 2006, it has been possible to establish and operate an SE in Greece.

1

Special negotiating body 43. Article 3(2) of the presidential decree provides for the establishment of a special negotiating body (‘SNB’). SNB members are, in principle, elected by the relevant trade unions. If no such trade unions exist, the SNB members are elected by the work councils in the relevant companies, pursuant to the provisions of Law 1767/1987. Finally, the employees themselves can elect the members of the SNB pursuant to the provisions of Article 12 of Law 1264/1982 and Article 4 of Law 1767/1988, if neither a trade union nor a work council exists. Each company is entitled to elect the following number of representatives: (i) three, if it has up to 300 employees; (ii) five, if it has between 300 and 1000 employees; and (iii) seven, if it has more than 1000 employees. Representatives elect by secret ballot a number of SNB members corresponding to the number of employees of the participating companies in Greece. All necessary expenses relating to operation of the SNB shall be borne by the participating companies. By way of example, these expenses can pertain to: (i) the election of SNB members; (ii) the organisation of SNB meetings, including translation, travel and housing costs, etc.; and (iii) fees for an expert appointed by the SNB to assist it in its tasks.

2

Employee participation 44. The provisions of the presidential decree regarding employee participation reflect those of the Directive. The decree thus provides for a formal negotiation procedure between the SNB and the participating companies’ organs which

168

Greece

aims to conclude a written agreement governing employee involvement in the SE. If formal negotiations fail, the standard rules shall apply. Greece has enacted the option contained in Article 7(3) of the Directive.

3

Protection of employee representatives 45. Pursuant to Article 10(1) of the presidential decree, members of the SNB are granted the same protection as members of work councils and trade unions. Members of the SNB are thus protected against abusive acts or omissions by their employers, or third parties acting on their behalf, aimed at impeding in any way the exercise of their rights. In addition, members of the SNB are protected against abusive dismissal and unfavourable treatment and are entitled to paid time off to perform their duties (meetings) and participate in conferences. Employers that fail to comply with the above requirements shall be subject to sanctions (monetary fines or temporary closure of their business), pursuant to the provisions of Article 16 of Law 2639/1998.

VI

Annual accounts and consolidated accounts

1

Accounting principles 46. Pursuant to Article 61 of the Regulation, SEs are governed by the rules applicable to public limited-liability companies in the Member State in which their registered office is located as regards the preparation of their annual and, where appropriate, consolidated accounts, including the accompanying annual report and the auditing and publication of these accounts. In this regard, it should be noted that Greece has implemented, by presidential decrees 409/1986 and 498/1987, Fourth Council Directive 78/660 on the annual accounts of certain types of companies, as amended by Seventh Council Directive 83/349 on consolidated accounts. Thus, Law 2190/1920, as amended by presidential decree 409/1986, implementing the abovementioned directives, includes provisions on fiscal years (Art. 42), annual accounts in general (Art. 42a), the structure of the balance sheet and the income statement (Arts. 42b, 42c, 42d, 42e), valuation rules (Art. 43), the content of notes to the accounts and the management report (Art. 43a), and the publication of annual accounts (Art. 43b).

2

Auditors 47. Pursuant to Law 2190/1920, an SE must appoint at least two auditors. The provisions of Law 2190/1920 (Art. 36) governing the rights and duties of auditors are of mandatory application. The auditors are appointed by the ordinary general meeting. The auditors’ fees are paid by the company and fixed by the general meeting. 169

The European Company

48. With regard to the powers and duties of auditors, the following should be noted. During the accounting period, the auditors supervise the company’s accounting and managerial practices. To this end, they must be granted access to all books, records and documents of the company and to the minutes of the general meetings and meetings of the board of directors. In discharging their duties, the auditors are required to suggest necessary actions to the board of directors and to inform the supervisory authority of any violation of the law or the company’s articles of association. After close of the fiscal year, the auditors examine the company’s balance sheet and income statement and draft a report for the ordinary general meeting. This report should state that the company’s bookkeeping is lawful and proper, that the balance sheet presents the company’s actual financial position, and that the income statement presents the company’s true results. In addition, auditors are required to attend the ordinary general meeting and to provide any explanations requested about their audit. Finally, in discharging their duties, the auditors are liable for any damage caused to the company. Pursuant to the provisions of Article 37 of Law 2190/1920, their liability cannot be excluded, amended or limited by contract. Claims by a company against its auditors for damages are time-barred after two years.

VII

Supervision by the national authorities 49. The national authority competent to supervise application of the Regulation depends on the provision in question. Pursuant to Article 68(2) of the Regulation, the competent authority for ensuring effective application of the Regulation is the Ministry of Development through the locally competent prefectures, i.e. the prefecture where the SE’s registered office is located.

VIII

Dissolution

1

Winding up 50. By way of application of Law 2190/1920 (pursuant to Article 63 of the Regulation), an SE can be dissolved: (i) upon expiry of its term of existence, as set forth in its articles of association; (ii) by a resolution of the general meeting adopted by a qualified quorum and majority of two-thirds; or (iii) if the company declares bankruptcy or is declared bankrupt. The company may also be ordered to dissolve if the value of its assets falls below one-half of its share capital. In this case, the board of directors is obliged to convene a general meeting within six months following the close of the financial year in order to vote on dissolution or adopt other restructuring measures. 51. Another cause of dissolution is revocation of the company’s licence by the relevant prefecture. Revocation is only allowed in those cases specifically provided for by law, such as: (i) failure to pay a capital contribution or contribute

170

Greece

to a capital increase; (ii) failure by the company to remove a member of the board of directors or a manager convicted of a crime committed and associated with management of the company’s interests; (iii) the value of the company’s assets falls below one-tenth of its share capital; and (iv) failure to submit to the supervisory authority, as required by law, balance sheets approved by the general meeting, for at least three financial periods. The first three cases shall result in mandatory revocation of the authorisation, while, in the latter case, the authorities have discretion.

2

Liquidation 52. Dissolution is followed by liquidation. Liquidation is mandatory for a dissolved public limited company and therefore for SEs. In should be noted that, in the event of dissolution due to bankruptcy, the bankruptcy rules replace the liquidation process, and a trustee in bankruptcy is appointed to manage the company’s property. Liquidators are usually named in the articles of association. If this is not the case, they are appointed by the general meeting. If the company is dissolved due to expiry of its term of existence, the board of directors acts temporarily as a liquidation committee until liquidators are appointed by the general meeting. The appointment of liquidators, as well as the results of liquidation, must be published. The liquidators are required to terminate all pending business, pay off the company’s debts, collect money and receivables owed to the company, and distribute any remaining proceeds to shareholders. Finally, it should be noted that the duration of the liquidation process varies depending on the extent of the company’s debts, the assets to be distributed to shareholders, etc. Nevertheless, under normal circumstances, liquidation usually lasts five years and under no circumstances may it exceed ten.

3

Insolvency 53. Bankruptcy proceedings may be initiated either by creditors or by the company itself (Art. 528 Commercial Code). The law also allows the courts to commence proceedings ex officio, but this is rare in practice. Once a company has been declared bankrupt by a competent court, it is ipso jure dissolved. The bankruptcy of a company has no adverse financial effects on the members of its board of directors or its individual shareholders.

IX

Applicable law 54. As a general rule, an SE with its registered office in Greece shall be governed by Greek law with respect to matters not addressed by the Regulation. 171

The European Company

X

Tax treatment

1

Income tax 55. A Greek SE is, in principle, subject to corporate tax at a rate of 25% on its worldwide income. A non-resident SE with a permanent establishment in Greece is also subject to corporate tax at a rate of 25%, but only on profits attributable to its permanent establishment. Greece has not enacted any specific direct or indirect tax measures with respect to SEs. The direct and indirect tax treatment of an SE does not differ from that of any other public limited company. Consequently, there is no specific risk of discrimination against the SE compared to national or foreign legal entities established under domestic or foreign law. With respect to the offsetting of losses, Greek tax law does not provide for consolidation within a group, or for cross-border consolidation at the headoffice level. Losses incurred outside Greece can only be offset against taxable profit generated outside Greece. Under Greek tax law, tax losses from business activities conducted in Greece can be carried forward five years. Finally, any tax losses carried forward by a transferring company located in Greece may, in principle, be taken over by its Greek permanent establishment under the same conditions applicable in purely national restructurings (e.g. mergers, divisions, etc). The creation of an SE by means of a cross-border merger shall not give rise to taxation on capital gains or hidden reserves, provided the newly formed company (the SE) retains the book values and depreciation methods used by the transferring company, and the transferred assets and liabilities constitute a permanent establishment of the new SE in Greece. Nevertheless, the possibility of a cross-border merger is not regulated under Greek corporate law, even though Directive 90/434 EEC, as amended by Directive 2005/19 EEC, has been fully transposed into Greek law. Under Greek tax law, the formation of a holding SE by means of a share exchange in a cross-border transaction is not considered a taxable event, provided the shareholders of the target company assign the same book value to their new shares in the SE. The formation of a subsidiary SE by means of a transfer of assets by a Greek company shall be treated, from a tax perspective, as the formation of a Greek public limited company. Nevertheless, the creation of a subsidiary SE by means of a cross-border transfer of assets shall be tax neutral, provided the transferred assets and liabilities constitute a branch of activity. If assets situated in Greece are contributed to a foreign SE, the assets should remain in Greece in the form of a Greek permanent establishment at their previous book value in order to benefit from tax deferral.

172

Greece

Pursuant to Greek tax law, the transfer of an SE’s registered office does not give rise to taxation of capital gains provided the assets and liabilities of the SE remain effectively connected with a permanent establishment in Greece. The permanent establishment must maintain the tax value of the assets for the purposes of calculating depreciation.

2

Value added tax 56. An SE will be subject to Greek VAT at a rate of 19% at the same terms and conditions as other Greek companies, in accordance with the Sixth VAT Directive.

3

Other taxes 57. Contributions to the capital of a Greek SE are subject to a 1% capital contribution tax.

XI

Conclusion 58. The recently introduced SE presents two main advantages over national corporate forms, namely a simplified procedure to transfer its registered office and the possibility to engage in tax-neutral cross-border mergers. Hence, the SE will facilitate the restructuring of companies across Europe. Nevertheless, the SE is still viewed with scepticism in Greece, where most enterprises are small or medium sized and are thus unwilling to bear the burdensome costs and tackle the complex issues related to the formation of an SE. Furthermore, under Greek tax law, a cross-border merger is not eligible for tax deferral, which renders moot in practice one of the main incentives to form an SE. Under these circumstances, it remains to be seen whether the SE will be successful in Greece.

173

6 Ireland m i c h a e l g r e e n e a n d k e av y r ya n A&L Goodbody

I II

III

IV

V

174

Introduction 175 Formation 176 1 General remarks 176 A Founding parties 176 B Name 177 C Registered office and transfer 178 D Corporate purpose 181 E Capital 181 2 Different means of formation 181 A Formation by merger 181 B Formation of a holding SE 184 C Formation of a subsidiary SE 185 D Conversion into an SE 185 3 Registration and publication 186 4 Acquisition of legal personality 186 Organisation and management 186 1 General remarks 186 2 Shareholders 187 A General meeting 187 B Types of resolutions 188 C Rights and obligations of shareholders 188 3 Management and supervision 189 A One-tier system/two-tier system 189 B Appointment and removal 190 C Liability 191 Employee involvment 191 1 Special negotiating body (SNB) 192 2 Employee participation 193 3 Protection of employee representatives40 193 4 Complaints procedure 194 194 5 Information and confidentiality42 6 Existing employee involvement rights 195 Annual accounts and consolidated accounts 195 1 Accounting principles 195 A General remarks 195 B Annual accounts 195

Ireland

C Consolidated accounts 196 2 Auditors 196 VI Supervision by the national authorities 196 VII Dissolution 197 1 General remarks 197 2 Liquidation 197 A Members’ voluntary liquidation45 197 B Creditors’ voluntary liquidation 197 198 C Compulsory liquidation46 3 Receivership 198 4 Examinership 198 5 Schemes of arrangement 199 VIII Tax treatment 199 1 Introduction 199 2 Income tax 200 3 Value added tax 200 4 Other taxes 201 IX Conclusion 201

I

Introduction 1. The Regulation has been implemented in Ireland partly by means of two new statutory instruments, the European Communities (European Public LimitedLiability Company) Regulations 2007 (the ‘ECR1’) and the European Communities (European Public Limited-Liability Company) (Forms) Regulations 2007 (the ‘ECR2’) together (the ‘ECRs’). This legislation was issued on 31 January 2007. ECR1 and ECR2 deal with the company law aspects of SEs. The ECRs are supplemented by the legal provisions applicable to public limited companies, found mainly in the Companies Acts 1963–2006 (the ‘CA’) and the common law. The Directive has also been implemented in Ireland by means of a statutory instrument, the European Communities (European Public Limited-Liability Company) (Employee Involvement) Regulations 2006 (the ‘EEIR’). In drawing up the ECRs, the legislature adopted a minimalist approach and drafted the legislation in such a manner so as to avoid significant conflicts with existing domestic company law. This report focuses on implementation of the Regulation and transposition of the Directive in Ireland, and in particular on the options provided in the Regulation which Ireland has chosen to adopt. Any reference in this chapter to ‘Ireland’ or the ‘State’ refers to the Republic of Ireland.

175

The European Company

II

Formation

1

General remarks

A

Founding parties

2. Article 2(1) to (4) of the Regulation lists the legal entities that can participate in the formation of an SE. In Ireland, the following types of entities qualify: (i)

Formation by merger • Public companies limited by shares. • Public companies limited by guarantee having a share capital.

(ii)

Formation of a holding SE or a subsidiary SE • Public companies limited by shares. • Public companies limited by guarantee having a share capital. • Private companies limited by shares. • Private companies limited by guarantee having a share capital.

(iii)

Conversion of an existing public limited company into an SE • Public companies limited by shares. • Public companies limited by guarantee having a share capital. 3. Ireland has chosen to allow a company whose head office is not in a Member State to participate in the formation of an SE if that company’s registered office is located in a Member State and the company has a real and continuous link with the economy of a Member State (Art. 2(5) Reg.).1 Under clause 6(2) of the Irish Regulations, the Registrar of Companies (the ‘Registrar’) shall not be satisfied that a company has such a link with the State unless that company furnishes a statement in writing: (a) that has been given to it by the Irish Revenue Commissioners within two months, ending on the date on which the statement is furnished; and (b) that the Irish Revenue Commissioners have reasonable grounds to believe that the company has a real and continuous link with the State’s economy. The Revenue Commissioners have advised that, in order for a company to be considered to have a real and continuous link with an economic activity carried on in the State, it must actively participate in generating income in the State. If a company is trading and has an activity and employees in the State and/or income from a business in the State, it will be considered to have an economic link with the State. 4. By virtue of Article 15 of the Regulation, the existing rules for the formation and registration of a public limited company in Ireland will apply. A PLC must 1

176

Reg. 6(1) ECR1.

Ireland

have at least seven members and comply with certain registration requirements. section 6(1) of CA 1983 provides that a company initially registered as a PLC shall not do business or exercise any borrowing powers unless the Registrar has provided it with a certificate under that section. The reason for this restriction is to ensure compliance with the minimum authorised share-capital requirements applicable to PLCs. The form which must be filed with the Registrar is Form 70, which sets out the following matters enumerated in section 6(3) of CA 1983: • that the nominal value of the Company’s allotted share capital is not less than the authorised minimum; • the amount paid up, at the time of the application, on the company’s allotted share capital; • the amount, or an estimate, of the company’s preliminary expenses and the persons that have paid or owe any of these expenses; and • any amount or benefit paid or given, or intended to be paid or given, to any promoter of the company and the consideration received in return. Where a statutory declaration is made in accordance with CA 1983, section 6(2), it shall be deemed sufficient evidence of the matters stated therein. Where the Registrar issues a certificate under this section, this shall be conclusive evidence that the Company is entitled to do business and exercise any borrowing powers.2 Where a PLC registered as such does not obtain such a certificate within one year from its original incorporation, the Registrar can strike it off the Register of Companies (the ‘Register’) in accordance with section 311(5) of CA 1963. B

Name

5. Under the Regulation, the name of an SE must be preceded or followed by the abbreviation ‘SE’, and only SEs may include this abbreviation in their names (Art.11 Reg.). Under ECR1, if an SE or any of its officers fails to comply with this provision, the SE and every officer in default shall be found guilty of an offence and be held liable on summary conviction for a fine not exceeding €3,000.3 An SE with its registered office in Ireland must be registered with the Companies Registration Office (CRO) and should contact the CRO before selecting a name to ensure that the CRO has no objection to the chosen name. The CA contains detailed provisions prohibiting the registration of certain names, and the Registrar can object to a name that is already in the Register which is confusingly similar to an existing registered name or where a name is deemed to be offensive, misleading or otherwise objectionable. 2

S. 6(6) CA 1983.

3

Reg. 34(1) ECR1.

177

The European Company

C

Registered office and transfer

(i)

Registered office 6. For any SE to be established in Ireland, whether by way of merger, conversion from a PLC, or as a subsidiary or holding company, the relevant forms to be filed with the Registrar must state that its registered office is to be situated in Ireland. A full street address to which mail and other documents can be readily delivered must be given; a PO box will not suffice. Under the CA,4 every company must have a registered office within the State. There is currently no obligation in Ireland for companies to have their head office and registered office in the same place and, therefore, the option contained in Article 7 of the Regulation has not been adopted in Ireland.

(ii)

Transfer of registered office to Ireland 7. Where it is proposed to transfer the registered office of an SE to Ireland from another Member State, a transfer proposal must be drawn up by the management or administrative organ in accordance with Article 8 of the Regulation. This proposal must be filed at the CRO using a Form SE6. A copy of the SE’s articles and a certificate by the former registration authority, attesting to completion of the acts and formalities which must be completed before the transfer, must be filed with the Form SE6. This form also includes a statutory declaration which must be sworn by either a lawyer involved in registering the SE (who must be entitled to pursue his or her professional activities under one of the denominations laid down in Council Directive 77/249/EEC or Council Directive 98/5/EC) or a director or the company secretary in the presence of either a commissioner of oaths, notary public, solicitor or peace commissioner, confirming that all registration requirements have been completed. The Form SE6 must also detail the SE’s balance sheet and the proposed end of its financial year. The Registrar will assign to the SE an annual return date.5 The Form SE6 must also include details of the SE’s subscribers, director(s) and secretary. Publication of the transfer proposal is effected by filing it at the CRO and publication in the CRO Gazette.

(iii)

Transfer of registered office out of Ireland 8. An application to transfer the registered office of an SE from Ireland to another Member State must be filed with the Registrar in accordance with the details set out in Form SE7. The application must mention the Member State to 4 5

178

S 113 CA 1963, as amended by s 4(1) of Companies Amendment Act 1982. Reg. 33 ECR1.

Ireland

which the SE is to transfer its registered office and the proposed address. The following documents must be submitted with the Form SE7: (a) a copy of the general meeting’s resolution approving the transfer; (b) a Form SE8 (statement of solvency); and (c) a copy of the company’s individual accounts,6 together with a copy of the auditors’ report, which should be unqualified, and the directors’ report on each set of accounts. The individual accounts must be prepared as of a date no earlier than two months from the date of the application to transfer the SE’s registered office. 9. The Form SE7 must contain a declaration by either a secretary or director of the SE confirming that: (a) a transfer proposal was drawn up and publicised pursuant to Article 13 of the Regulation; (b) a report explaining and justifying the legal and economic aspects of the transfer and explaining the implications of the transfer for shareholders, creditors and employees has been drawn up; (c) shareholders and creditors of the SE have been notified in accordance with Article 11(1) of the Regulations of their rights to examine and obtain copies of the transfer proposal and report; (d) at least one month before the general meeting called to decide on the transfer, shareholders and creditors of the SE could examine and obtain copies of the transfer proposal and the abovementioned report; (e) the SE’s invoices, orders for goods and business letters complied with the requirements of Regulation 11(2) of the Regulations; (f) the SE’s general meeting has approved the transfer; (g) the individual accounts and the auditors’ report and directors’ report on the accounts attached to the form are true copies of each such document; (h) no proceedings have been commenced for winding up, liquidation, insolvency, or suspension of payments or any other similar proceedings; (i) the Form SE7 also includes a statutory declaration to be sworn by a lawyer involved in transferring the SE’s registered office out of Ireland, confirming that all of the acts, formalities and conditions required by Article 8 of the Regulation, have been completed. 10. The transfer of an SE’s registered office will necessitate an amendment to its articles (Art. 59(1) Reg.). An SE that proposes transferring its registered office from Ireland will be governed by Irish law as far as the amendment of its articles is concerned and, therefore, the transfer must be approved by 75% of the SE’s shareholders. A Form SE14 must be filed with the CRO along with the amended articles, within 14 days of adoption of the amendments.7 6 7

Drawn up in accordance with either ss 3, 4 and 5 of CA 1986 or s 149 of CA 1963. Reg. 32 ECR1.

179

The European Company

11. In Ireland, the SE must furnish with Form SE7 a statement of solvency on a Form SE8. If the company has a one-tier management system, this statement must be made by all directors of the administrative organ. If the SE has a twotier system, the statement must be made by all directors of the management organ authorised by the supervisory organ. The statement must provide that all members of the relevant organ are of the opinion that: • As regards the SE’s financial situation immediately after the transfer, there will be no grounds on the basis of which the SE will be unable to pay its debts; and • As regards the SE’s prospects for the year following the transfer date, the company will be able to conduct business as a going concern (and thus able to pay its debts as they fall due throughout the year), having regard to the management of the SE’s business during that year and the amount and type of financial resources which will be available, in the directors’ view, to the SE during that year. • In forming their opinion, the directors must take into account the same liabilities (including prospective and contingent liabilities) relevant under CA section 214 (winding up by court order) in determining whether the company is able to pay its debts. The option to extend the definition of liabilities to include those arising subsequent to publication of the transfer proposal but prior to the transfer itself (Art. 8(7) Reg.) has been enacted in Ireland.8 12. The right of the Member States to oppose transfer applications (Art. 8(14) Reg.) is prescribed under ECR1 in order to protect the public interest.9 The competent authority for this purpose is the Registrar. A decision of the Registrar to oppose the transfer of an SE can be appealed to the High Court within 21 days from being informed of the Registrar’s decision to oppose the transfer. (iv)

Rights of minority shareholders and creditors 13. Under the Irish implementing legislation, in the event the registered office of an SE is transferred from Ireland to another Member State, additional protection is afforded creditors and shareholders in the following manner: (a) The SE must notify in writing its shareholders and every creditor of whose claim and address it is aware of their right to examine the transfer proposal and the report drawn up pursuant to Article 8(3) at its registered office and obtain copies of these documents upon request free of charge no later than one month before the general meeting called to decide on the transfer; (b) Every invoice, order for goods or business letter which, at any time between the date on which the transfer proposal and the report are made 8

180

Reg. 13 ECR 2.

9

Reg. 14 ECR1.

Ireland

available for inspection at the SE’s registered office and the date of deletion of the SE’s registration and transfer, is issued by or on behalf of the SE must contain a statement that the SE is proposing to transfer its registered office to another Member State and identify that Member State; (c) Where it is proposed to transfer the registered office of an SE out of Ireland, any member(s) holding at least 10% of the nominal value of the SE’s issued share capital and who did not consent to or vote in favour of the transfer resolution may apply to the court to either have the decision set aside or require the SE to acquire their securities for cash or order any other remedy it considers just.10 D

Corporate purpose

14. Since the Regulation and the ECRs are silent on this matter, SEs shall be subject to the provisions applicable to PLCs. The corporate purpose (or objects) of an SE registered in Ireland must be clearly defined, as a company may only do what is within the parameters of its permitted corporate activity.11 A company may declare void a transaction concluded in its name if the transaction went beyond the scope of its corporate purpose. Typically companies are incorporated with a multitude of express objects and powers which are ancillary to their main objects to ensure greater flexibility in trading. E

Capital

15. According to Article 4(2) of the Regulation, the subscribed capital of an SE may not be less than €120,000 which is considerably higher than the minimum requirement for PLCs in Ireland (€38,092.14). It should be noted, however, that not all the minimum issued share capital (€38,092.14) must be fully paid-up, and it is sufficient if only a quarter of the nominal value of the SE’s shares is paid up.12

2

Different means of formation

A

Formation by merger

16. Public limited companies established in at least two Member States can form an SE by merger. A merger may result from the acquisition by one company of another or through the formation of a new company. Irish companies that qualify as public limited companies for this purpose are: (i) the public company limited by shares; and (ii) the public company limited by guarantee with share capital.

10

Art. 11 ECR.

11

Sect. 6(1)(b) CA 1963.

12

See S28(1) and S6(3)(b) C(A) 1983.

181

The European Company

(i)

Procedure and publication requirements 17. Pursuant to the Regulation, the management or administrative organs of the merging companies must draw up draft terms of merger. In Ireland, the terms of the Third Company Law Directive involving public limited-liability companies has been implemented pursuant to the EC (Mergers and Divisions of Companies) Regulations 1987 (the ‘Merger Regulations’). In addition to the items which must be included pursuant to the Regulations, the draft terms should also include the following information with respect to Irish companies participating in the merger: (a) confirmation as to whether the companies involved are public companies limited by shares or public companies limited by guarantee; and (b) details of any payment or benefit in cash or otherwise paid or intended to be paid to the independent person who is providing a report in respect of the merger and to any director of the merging companies. The directors of each merging company must also prepare a separate written report detailing the draft terms of merger, the legal and economic grounds for and the implications of the merger with particular reference to the share-exchange ratio, organisation and management structures, recent and future commercial activities and the financial interests of the holders of shares and other securities in the company, the methods used to arrive at the proposed share-exchange ratio and the reason for the use of these methods and any valuation difficulties which have arisen. An expert’s report must be prepared which should contain the information as set out in the Regulation. No additional information need be included in the expert’s report pursuant to the Merger Regulations. Each merging company must submit the draft terms of merger to the Registrar and publish the same in the CRO’s Gazette and at least two daily papers with a circulation in the district where the company’s registered office is situated at least one month before the date of the general meeting scheduled to approve the draft terms of merger. Within this one-month period, each merging company must make available free of charge the documents listed below for all members to inspect at its registered office for at least two hours each day: (a) the draft terms of merger; (b) audited annual accounts for the preceding three financial years of the Irish company or, where the Irish company has traded for less than three years, annual accounts for the years in which it was traded; (c) an independent expert’s report; (d) the directors’ report; and

182

Ireland

(e) any accounting statement in relation to the merging companies where the last annual accounts ended more than six months before the date of the draft terms of merger. The draft terms of merger must be approved by the general meeting of each merging company (Art 23(1) Reg.). As explained above, the relevant majority for any participating Irish company is 75% of those shareholders present and voting. 18. The Irish High Court must issue a certificate attesting to completion of the pre-merger acts and formalities (Art. 25(2) Reg.). 19. When an SE formed by merger is to be registered in Ireland (pursuant to Regulation 6) a Form SE1 must be filed with the CRO. This form should contain details of the SE’s name and registered office and the proposed closing date of its financial year. Pursuant to Regulation 33, the Registrar will assign to the SE an annual return date and will have regard, in this context, to the close of its financial year. The following documents must be attached to the Form SE1: (a) Articles of the SE; (b) Office copy of the High Court Order conclusively attesting to completion of the pre-merger acts and formalities in respect of any merging Irish registered company; and (c) A certified copy of the decision of the court, notary or other competent authority attesting to completion of the pre-merger acts and formalities in respect of any Irish registered company. 20. The Form SE1 must also give details of the proposed directors and secretary. Every SE with its registered office in Ireland must have at least two directors, one of whom must be an Irish resident or a bond will have to be filed with the CRO.13 Where a person who has consented to be appointed director of an SE is disqualified under the laws of another Member State from being appointed or acting as a director or secretary of a body corporate or undertaking, that person must complete a Form B74, to be submitted to the CRO with the Form SE1, failing which he or she shall be deemed to be disqualified from acting as director of an Irish SE for the remainder of the period of his or her disqualification. The Form SE1 must also contain details of the subscribers to the articles and of the merger, i.e. confirmation as to whether the merger is by way of acquisition or by the formation of a new SE. Finally, the Form SE1 contains a statutory declaration of compliance with all legal requirements relating to formation by merger. It must be signed by either a lawyer who is forming the SE, a director or the secretary in the presence 13

Pursuant to s 43(3) CA(2) 1999.

183

The European Company

of either a commissioner of oaths, notary public or peace commissioner. The declaration must contain information regarding the general nature of the SE’s activity, the place in Ireland where it proposes to carry out business or where the SE’s central administration will normally be located. (ii)

Opposition to a merger 21. The option contained in the Regulation to allow the Member States to oppose the formation of an SE by merger in order to protect the public interest (Art. 19 Reg.) has been adopted in Ireland.14 The competent authority in Ireland for this purpose is the Registrar. Within 21 days from being informed of the Registrar’s decision to oppose its taking part in the formation of an SE by merger, the SE or public limited company, as appropriate, may appeal the Registrar’s decision to the High Court by way of judicial review.

(iii)

Rights of minority shareholders and creditors 22. Any member or members holding, in the aggregate, at least 10% in nominal value of the issued share capital of an SE who did not consent to, or vote in favour of, the merger resolution may apply to the High Court within 28 days of when the merger resolution is passed in order to either have the decision to merge reversed or to require the SE to acquire their securities for cash or to request any other such remedy as the High Court considers just. 23. Irish legislation has not introduced any additional protection for creditors of an SE in respect of a merger.

B

Formation of a holding SE

24. In Ireland, public and private limited companies may participate in the creation of a holding SE. The management or administrative organ of each participating company must prepare draft terms of formation (Art. 32(2) Reg.). 25. An expert’s report, similar to that described above for the formation of an SE by merger, must be provided by an independent expert. This report, along with the draft terms of formation approved by the general meeting of each company involved, the SE’s articles and copies of the resolutions of the promoting companies approving the draft terms of formation, should be filed at the CRO on a Form SE2. If all conditions for the formation of a holding SE have been fulfilled, a Form SE11 must also be filed at the CRO within fourteen days, and the Registrar must ensure publication of this information in the CRO Gazette (Art. 33(3) Reg.). The Form SE 11 must be signed by a director or the secretary of the Irish promoting company. If an SE or any of its officers fails to comply with these requirements, the SE and every officer who is in default 14

184

Reg. 16 ECR1.

Ireland

shall be found guilty of an offence and liable on summary conviction to a fine not exceeding €3,000. 26. Ireland has not enacted any provisions pursuant to Article 34 of the Regulation, beyond those already applicable under existing company law, to protect the rights of either creditors and employees or minority shareholders who oppose the formation of a holding SE. C

Formation of a subsidiary SE

27. Where it is proposed to register a subsidiary SE in accordance with Article 2(3) of the Regulation, a Form SE3 must be filed with the Registrar, to which the articles of the proposed subsidiary should be attached. This form must be signed by the subscribers to the SE, who should correspond with the subscribers to the accompanying articles. Details of the proposed directors and secretary should be included. The Form SE3 contains a statutory declaration which must be sworn by either a lawyer who is forming the subsidiary SE or the company’s director or secretary in the presence of either a commissioner for oaths, notary public, solicitor or peace commissioner confirming that all other registration requirements have been completed. Where it is proposed to register an SE formed as the subsidiary of another SE in accordance with Article 3(2) of the Regulation, a Form SE5 must be filed with the Registrar, containing the same information as the Form SE3. Reference to an SE whose subsidiary is to be registered in accordance with this paragraph includes an SE with its registered office in another Member State. D

Conversion into an SE

28. In order for an Irish plc to convert into an SE, draft terms of conversion (in line with those required for the formation of a holding SE or an SE formed by merger) must be drawn up (Art. 37(2) Reg.) and an independent expert’s report prepared. The expert must certify that the company has net assets at least equivalent to its capital plus those reserves which cannot be distributed by law or pursuant to the company’s articles. The draft terms of conversion must be approved by the general meeting of shareholders. The option afforded to the Member States to require that the conversion of a public limited company into an SE be subject to a favourable vote of a qualified majority or unanimity in the organ of the company within which employee participation is organised (Art. 37(8) Reg.) has not been adopted in Ireland. 29. A Form SE4 must be filed with the Registrar, together with the SE’s articles, the resolution approving the draft terms, the independent expert’s report and the report explaining and justifying the legal and economic aspects of the conversion pursuant to Article 37(4) of the Regulation. The Form SE4 must also be signed by the subscribers to the SE, who should correspond with the subscribers to 185

The European Company

the accompanying articles. The Form SE4 also contains a statutory declaration confirming that all other registration requirements have been completed.

3

Registration and publication 30. An SE formed in or transferred to Ireland must be registered at the CRO which involves filing the relevant documentation referred to above.

4

Acquisition of legal personality 31. An SE acquires legal personality on the date on which it is registered by the Registrar. A company is deemed a legal entity distinct from its members, capable of enjoying rights and incurring obligations which are not the same as those enjoyed or borne by its members. This principle has been recognised and applied in many Irish court decisions.

III

Organisation and management

1

General remarks 32. Ireland has traditionally only recognised a one-tier management system, and the two-tier system of management described in the Regulation is not used within Irish companies. However, Ireland has taken a flexible approach to these provisions of the Regulation so as to ensure that both forms can be accommodated. In Ireland, as regards the rules governing the internal management of an SE, unless specifically stated in the company’s articles, the articles of association prescribed by the CA (Table A) will serve as a default model. Table A is a set of ‘model’ articles of association contained in the First Schedule to CA 1963. These articles are by no means binding but are applicable unless excluded or varied. 33. In respect of Article 3 of the Regulation and the number of members of an administrative organ, Ireland did not stray from its existing provision which requires a minimum of two directors, even for single-member companies, and imposes no upper limit.15 Model Article 97 in Table A allows a company to vary the number of its directors by an ordinary resolution. There is, however, a requirement that one of the directors be a resident of the State.16 By law, no individual may hold more than 25 directorships. The obligation of every Irish company to appoint a secretary17 is also reflected in the Irish implementing legislation.

15 16 17

186

S 174 CA 1963, which stipulates the requirement of two directors. Section 43 of CA(2) 1999 imposes such a restriction, although permitting a bond to be entered into in the amount of €25,394.76 in the event no director is resident in the State. S 175 CA 1963.

Ireland

2

Shareholders

A

General meeting

(i)

Decision-making process 34. Subject to the rules on general meetings set out in the Regulation, the rules applicable to the convening and conduct of general meetings of an SE are prescribed by the CA. Under Irish law, the board of directors has authority to call a general meeting. Under the ECRs, the first general meeting may be held at any time during the first eighteen months following the formation of an SE (Art. 54(1) Reg.).18 An annual general meeting (AGM) must be held every calendar year, with no more than 15 months between one AGM and the next. With the exception of the statutory AGM, member meetings may be held largely at the company’s discretion.19 35. Shareholders representing 10% of the issued share capital may request that the SE convene a general meeting (Art. 55(1) Reg.). Ireland has not adopted the provisions to allow a lower percentage of shareholders to call an AGM. 36. As with all companies, at least 21 days’ notice of an AGM must be given in writing.20 For an extraordinary general meeting (EGM) of a PLC, at least 14 days’ notice is required. Any provision in a company’s articles of association that provides for a shorter notice period shall be void. However, Section 133(3) CA 1963 provides that a meeting may be held at shorter notice if the consent of all members and the auditors is obtained in advance. 37. The business transacted at an AGM must include a presentation of the audited accounts, the re-appointment of the company’s auditors and the granting of authorisation to the directors to fix the auditors’ remuneration. Depending on the SE’s articles of association, the AGM must also reappoint by rotation directors who retired during the year, declare a final dividend and pass ordinary or special resolutions. 38. At least three (for a public limited company) or two (for a private company other than a single-member private limited company) shareholders of a company must be present to pass a resolution. 39. With a few notable exceptions,21 most resolutions can be passed without holding a members’ meeting by using the written procedure facilitated by section 141(8) CA 1963.

18 19 20 21

Reg. 20 ECR1. An exception is the requirement for directors to convene an EGM if the company has suffered a capital loss, s 40 CA 1983. S 133 CA 1963. Resolutions to appoint or remove auditors or remove directors cannot be passed in writing.

187

The European Company

B

Types of resolutions

(i)

Special resolution 40. A special resolution must be approved by 75% of the members entitled to vote. A special resolution is required to allow an SE to do any of the following: (a) (b) (c) (d) (e)

change its name; permit the grant of financial assistance for the purchase of shares; reduce its share capital; amend the memorandum and/or articles of association; or wind up.

A copy of every special resolution passed must be filed with the CRO on a Form G116. (ii)

Ordinary resolution 41. An ordinary resolution must be approved by a simple majority (50%) of the members entitled to vote. An example of where an ordinary resolution is required is where there is an increase in the company’s authorised share capital. Certain ordinary resolutions must be filed with the CRO relate to attaching, restricting or varying rights on shares. 42. Ireland has chosen not to adopt the option contained in the Regulation allowing the Member States to provide that where at least half of an SE’s subscribed capital is represented at a meeting, a simple majority is sufficient to pass ordinary resolutions (Art. 59(2) Reg.). 43. Ireland has adopted the option contained in Article 12(4) of the Regulation, allowing the Member States to provide that if the articles of an SE require amendment due to a conflict with the new arrangements for employee involvement required by the Directive, the SE’s management or administrative organ is entitled to do so without the approval of the general meeting.22

C

Rights and obligations of shareholders

44. The specific rights and obligations of shareholders are set out in an SE’s articles of association and under domestic law. Primarily, shareholders have a right to speak and vote at general meetings, to inspect the company’s annual accounts and to receive dividends and a share in liquidation proceeds. In addition, certain decisions may only be taken by shareholders. The CA grants shareholders specific rights, such as the right to remove directors by a simple majority of votes cast. Shareholders also have certain statutory obligations under domestic law. For example, Chapter 1 of Part IV of CA 1990 imposes obligations on directors, 22

188

Reg. 15 ECR1.

Ireland

secretaries and their families to disclose their shareholdings in a PLC. Chapter 2 of that part imposes similar obligations on groups and individuals that acquire more than 5% of the issued share capital of a PLC. In addition, Section 53 of CA 1990 requires directors and secretaries to notify the company of any interest they might have in the company’s shares. The concept of an ‘interest’ in shares is defined broadly and includes a contract to purchase or a call option (even if conditional) and, in many circumstances, being a beneficiary of a trust that owns the shares, but not holdings through unit trusts or UCITS or shares held as security in the ordinary course of a lending institution’s or stockbroker’s business Interests are aggregated between spouses, their minor children, companies that they control and parties acting in concert (for which there is an extensive definition). If a person fails to make a required notification within the appropriate number of days or gives false or reckless information, that person shall be guilty of an offence and, amongst other things, may lose any right to enforce his or her rights in the shares in question. (This does not apply for a failure to notify a disposal.)

3

Management and supervision

A

One-tier system/two-tier system

45. An SE may choose either a one-tier or a two-tier system of management. In an SE with a one-tier system, management is entrusted to a board of directors (the ‘administrative organ’). In the two-tier system, management is undertaken by a management board (the ‘management organ’), which is overseen by a supervisory board (the ‘supervisory organ’). Article 47(1) of the Regulation (which allows companies and other legal entities to sit on an SE’s management organ provided the law applicable to public limited companies in the Member State concerned so allows) is not applicable in Ireland. ‘Corporate’ directors are not permitted under Irish law.23 In Ireland, the members of the administrative organ, the management organ and the supervisory organ are treated like directors of an Irish PLC and must discharge the responsibilities of such directors accordingly.24 46. Articles 39(1) and 43(1) of the Regulation (regarding the two-tier and onetier system, respectively) state that the Member States may provide that one or more managing directors shall be responsible for the day-to-day management of an SE under the same conditions applicable to public limited companies registered within that state. However, there is no provision under Irish law requiring Irish public limited companies to have a certain number of managing directors and, as such, there is no obligation for SEs registered in Ireland to 23

S 176(1) CA 1963.

24

Reg. 28(1) ECR1.

189

The European Company

have managing directors, though they may appoint some if they so wish. Article 50 of the Regulation sets out the internal rules on quorums and decision-taking in SE organs. As employee participation is not recognised under Irish law, the derogation permitted by Article 50(3) is not relevant in Ireland. 47. Ireland has opted to extend the scope of the supervisory organ’s powers (pursuant to Art. 41(3) Reg.) so as to allow each member to request from the management organ any information necessary to perform his or her duties.25 48. Ireland has not enacted the options contained in Article 48(1) and (2) of the Regulation, pursuant to which a Member State may provide that: (i) the supervisory organ in an SE with a two-tier system can make certain categories of decisions subject to its approval; and (ii) certain categories of transactions must be indicated in the articles of SEs registered within the territory of that Member State. B

Appointment and removal

49. Under Irish law, directors are appointed by a company’s general meeting of shareholders, and additional directors may be co-opted onto the board. The articles of an SE registered in Ireland may permit the members of the management organ to be appointed and removed by the general meeting in accordance with Article 39(2),26 without prejudice to shareholders’ right under domestic law to remove a director by way of an ordinary resolution. 50. The Irish implementing legislation has introduced a provision whereby a secretary with the same duties and obligations as the secretary of a PLC must be appointed for every SE registered in Ireland (by the administrative organ for an SE with a one-tier system and by the supervisory and management organs for an SE with a two-tier system).27 The secretary’s functions include administration, such as bookkeeping, making the annual return to the Registrar, keeping the minutes of general meetings of the board of directors, notifying the Registrar of any amendments to the memorandum and articles of association, sending notice of meetings to members and handling all required filings with the CRO. It should be noted that the prohibition in Ireland on companies having a body corporate as a director has no parallel in the case of secretaries, and thus many companies appoint corporate secretarial service providers as their named secretary. 51. For the purposes of application to an SE of the provisions of the CA that require a document prepared by a PLC to be signed or certified by the company’s secretary, acting alone or jointly with a director (e.g. documents that must be signed under seal) or, as the case may be, by a specified number 25

190

Ibid., Reg. 18.

26

Ibid., Reg. 17.

27

Ibid., Reg. 28(2).

Ireland

of directors, this requirement shall be deemed satisfied, in the case of an SE, if the document is signed or certified by the SE’s secretary acting alone or, as appropriate, jointly with the requisite number of members of the administrative organ, the supervisory organ or the management organ, as the case may be.28 52. Every member of the supervisory organ is entitled to require the management organ to provide information of any kind necessary to exercise supervision in accordance with Article 40(1).29 53. Ireland has not chosen to stipulate a maximum period of time during which a member of the supervisory board can fill a vacancy on the management board (Art. 39(3) Reg.). C

Liability

54. The liability of directors is governed by the provisions of the CA applicable to directors of Irish companies. These provisions also apply to SEs. The following are examples of situations in which directors may be held liable for breach of the Companies Acts: (a) A director who carries on a business with the intent to defraud creditors or for any fraudulent purpose can be held personally liable for some or all of the company’s debts. This also applies where a director is found guilty of reckless trading or if the company has not maintained proper books of account.30 (b) Any director who misapplies or retains any money or property of the company or is found guilty of any breach of duty or trust in relation to the company may be compelled to repay the money or restore the property or compensate the company.31 (c) It is both a criminal and a civil offence for a person connected with a company, including directors, to deal in the company’s shares on the basis of inside information in relation to the value of these shares. The criminal offence carries a penalty of up to ten years’ imprisonment and fines of up to €253,950. The civil liability extends to compensating any other party to the transaction who was not in possession of the relevant information and accounting to the company for any profit made on the transaction.32

IV

Employee involvment 55. The Directive has been transposed into Irish law through the EEIR.

28 31

29 Ibid., Reg. 18. Ibid., Reg. 28(3). 32 Part 5 CA 1990. Ibid., s 298.

30

S 297 CA 1963.

191

The European Company

1

Special negotiating body (SNB) 56. An SNB must be elected to agree a level of employee involvement in the SE. The allocation of SNB members is by Member State. The competent organs of the participating companies, concerned subsidiaries and establishments shall arrange for these elections. Where the number of seats on the SNB allocated to the State is equal to the number of participating companies with employees in the State, there shall be at least one seat for each participating company, and each member elected to fill such a seat shall be considered as representing the employees of the participating company that elected or appointed him or her.33 Where the number of the seats on the SNB allocated to the State is greater than the number of participating companies with employees in the State, there shall be one seat for each participating company, and additional seats shall be allocated to participating companies by decreasing order of the number of employees they employ in each Member State. The representatives elected or appointed to fill a seat shall be considered to represent the employees of the companies that elected them.34 Where the number of seats on the SNB allocated to the State is less than the number of participating companies, a number of members equal to the number of available seats shall be elected or appointed according to the greatest number of votes, and the representatives so elected or appointed shall between them represent the employees of the participating companies in the State.35 The SNB and the competent organs of the participating companies must negotiate and determine by written agreement arrangements for employee involvement in the SE. With a view to concluding such an agreement, the competent organs of the participating companies shall: (a) convene a meeting with the SNB and inform local management accordingly; and (b) inform the SNB of the plan, expected timetable and actual process of establishing the SE up to its registration.36 The agreement referred to above shall be binding on all companies within the SE’s group, irrespective of the Member State in which it is signed and the location of these companies. The SNB shall take decisions by an absolute majority of its members, with each member having one vote, provided such a majority also represents an absolute majority of the employees.

33

192

Reg. 6(3) EEIR.

34

Ibid., Reg. 6(4).

35

Ibid., Reg. 6(5).

36

Ibid., Reg. 9(2).

Ireland

If negotiations would lead to a reduction in participation rights, the majority required to approve entering into the agreement for employee involvement in the SE shall be two-thirds of the votes cast by SNB members representing at least two-thirds of the total number of employees, including the votes of members representing employees employed in at least two Members States: (a) in the case of an SE to be formed by merger, if participation covers at least 25% of the total number of employees of the participating companies; and (b) in a holding or subsidiary SE, if participation covers at least 50% of the total number of employees of the participating companies.37 The SNB shall bring any decision to the employees’ attention as soon as reasonably practicable and, in any event, no later than 14 days after the decision has been taken.38

2

Employee participation 57. Irish law does not currently recognise the right of employees to participate in the corporate decision-making process or to sit on the board (although they are not prevented from serving as directors). Thus, if formal negotiations for arrangements on employee involvement via the SNB (as set forth in the Directive) fail, then under the standard rules contained in the EEIR,39 an SE formed by an Irish company need only guarantee employee participation to the extent such participation already exists in the other companies forming the SE. Where the standard rules on employee participation apply and if more than one form of participation exists in the participating companies, the SNB shall determine which form should be continued in the SE. Ireland has not made further provision for amending the rules applicable in the absence of any decision on the matter, as permitted by Article 7(2) of the Directive. Ireland has not opted to lay down budgetary rules for the operation of the SNB, as permitted by Article 3(7) of the Directive; nor has it opted to take advantage of the derogation provided in Article 7(3) of the Directive.

3

Protection of employee representatives40 58. SNB members and employee representatives cannot be penalised for the performance of their functions under the EEIR. They are entitled to be paid their wages for any period of absence required to perform their functions as SNB members or employee representatives and should be granted the necessary time-off to do so. In addition, they are protected against unfair dismissal, any 37

Ibid., Reg. 9(3).

38

Ibid., Reg. 9(5).

39

Schedule 1.

40

Reg. 19 EEIR.

193

The European Company

unfavourable changes to their conditions of employment and unfair treatment (including selection for redundancy) by an employer when acting as employee representatives. Employee representatives are further entitled to any relief available under the Unfair Dismissals Acts, 1977–2005.

4

Complaints procedure 59. Any disputes or complaints that arise in connection with the formation of an SNB may be resolved pursuant to the Dispute Resolution Procedure.41 However, such disputes should first be referred to the SE’s internal dispute resolution procedure (if any) and subsequently forwarded to the Labour Relations Commission if resolution is not possible. The Labour Relations Commission may furnish a certificate to the competent labour court stating that it is satisfied that no further efforts on its part will advance resolution of the dispute. Having investigated such a dispute, the labour court may then make a recommendation in writing giving its opinion on the matter. Each of the parties will be given an opportunity to be heard by the labour court and to present any evidence relevant to the dispute, and the court may make a recommendation or a determination in writing in relation to the dispute and communicate this to the parties. Such a determination is binding and may be enforced by the circuit courts.

5

Information and confidentiality42 60. An individual who is, or at any time was, an employee, a member of the SNB or representative body, an employee representative or an expert providing assistance shall not reveal any information concerning the SE which has been expressly provided in confidence. This duty of confidentiality shall continue to apply after cessation of the employment of the individual concerned or the expiry of his or her term of office. A relevant undertaking and the SE may refuse to communicate information to the SNB, a representative body or employees or their representatives in an information and consultation procedure where the nature of that information is such that, by reference to objective criteria, it would: (a) seriously harm the functioning of one or more relevant undertakings of the SE, or; (b) be prejudicial to one or more relevant undertakings of the SE. Ireland has not opted to make this dispensation subject to prior administrative or judicial authorisation (Art. 8 Dir.) and has not laid down provisions that aim to provide ideological guidance with respect to information and the expression of opinions pursuant to Article 8(3) of the Directive. 41

194

Ibid., Reg. 20.

42

Ibid., Reg. 18.

Ireland

6

Existing employee involvement rights 61. The EEIR and the regulations contained therein are without prejudice to (a) the existing rights to employee involvement enjoyed by employees of the SE and its subsidiaries and establishments, other than participation in the SE’s bodies, and (b) the rights to participation conferred on employees by any enactment or instrument hereunder applicable to the subsidiaries of the SE. In this respect, the provisions of the Employees (Provision of Information and Consultation) Act 2006 may apply.

V

Annual accounts and consolidated accounts

1

Accounting principles

A

General remarks

62. The rules governing public limited companies in Ireland also apply to SEs registered in Ireland as regards the preparation, auditing and publication of their annual (and, where applicable, consolidated) accounts (Art. 61 Reg.). B

Annual accounts

63. SEs are required to keep proper books of account which give a true and fair view of their financial affairs. SEs are also required to disclose details of their accounts at their AGM and to attach a copy of these accounts to the annual return filed with the CRO. In addition, they are required to observe certain standards in the preparation of accounts, following specimen formats and disclosing certain information by way of notes to the accounts. Directors of an SE are required to present the following accounts and reports to the company’s members at the AGM: • a profit and loss account (or an income and expenditure account if the company is not trading for profit); • a balance sheet; • a directors’ report; • an auditor’s report. The above documents must be annexed to the annual return of a limited company on delivery to the CRO. In addition, there must be a certificate, signed by both a director and the secretary, certifying that the accounts and reports are true copies of those presented or to be presented to the SE’s AGM. If an SE fails to comply with these requirements, the CRO will reject its annual return. In addition, the company and every officer who is in default will be liable for a fine not exceeding €1,905. 195

The European Company

No accounts are required to be annexed to an SE’s first annual return following incorporation. This return must be prepared up to the date six months after the date of the company’s incorporation. Accounts are required to be attached to all subsequent annual returns filed by the SE, however. C

Consolidated accounts

64. Subject to certain exceptions, consolidated accounts must be prepared if the company in question is the parent company of a group of companies (so SEs formed as subsidiaries will not need to do so). Consolidated accounts are comprised of a consolidated balance sheet detailing the state of affairs for the whole group; a consolidated profit and loss account dealing with the profit and loss of the group as a whole; and notes to the accounts giving additional information. The consolidated accounts must combine in full the information contained in the separate accounts of each undertakings in the group, subject to any adjustments required or committed by the European Community (Companies: Group Accounts) Regulations 1992. Special rules apply to banks and insurance companies. Article 62 of the Regulation states that these rules shall also apply to these types of SEs.

2

Auditors 65. Every SE is required to appoint an auditor(s) at its AGM. The auditor’s or auditors’ term starts at the conclusion of the AGM and runs until the conclusion of the next AGM.43 The appointment of an auditor or auditors is principally a matter for the shareholders in general meeting. Casual vacancies in the office of auditor may be filled by the directors or the company in general meeting. Auditors of an Irish SE must be members of one of the following institutes: • • • • •

The Institute of Chartered Accountants in Ireland The Institute of Chartered Accountants in England and Wales The Institute of Chartered Accountants in Scotland The Institute of Certified Public Accountants in Ireland The Chartered Association of Certified Accountants

Officers, servants and employees of the SE may not be appointed auditors.

VI

Supervision by the national authorities 66. The competent authorities in Ireland for the purposes of Article 68(2) of the Regulation are:44 43

196

S 160(1) CA 1963.

44

Reg. 29 ECR1.

Ireland

(a) The Registrar of Companies, in respect of Articles 8(7) and 8(8); (b) The Director of Corporate Enforcement, in respect of Articles 8(14), (19), (54), (55) and (64); and (c) The High Court, in respect of Articles 25 and 26.

VII

Dissolution

1

General remarks 67. The insolvency and dissolution procedures available to companies in Ireland are: (a) (b) (c) (d) (e) (f)

members’ voluntary liquidation; creditors’ voluntary liquidation; compulsory liquidation; receivership; examinership; schemes of arrangement.

The application of these procedures is governed by the CA, the Rules of the Superior Courts and the case law.

2

Liquidation

A

Members’ voluntary liquidation45

68. In order to initiate a members’ voluntary winding up, the company must be solvent, meaning it must be able to pay its debts in full within one year of commencement of the winding up. The process entails: (i) preparation by a majority of the board of directors of a declaration of solvency; (ii) convening of a shareholders’ meeting; and (iii) the passing of special resolutions to wind up the company and appoint a liquidator. This is the most common means of winding up a company in Ireland. B

Creditors’ voluntary liquidation

69. This occurs when a company is unable to pay its debts and the directors initiate the winding-up process. To this end, the board of directors convenes a shareholders meeting at which ordinary resolutions are passed to wind up the company, by reason of its inability to pay its debts, and to appoint a liquidator. The shareholders’ meeting is normally immediately followed by a creditors’ meeting, usually chaired by a director of the company who is expected to account to the creditors as to the cause of the company’s insolvency. The creditors may appoint an alternative liquidator as a substitute for the company’s appointment and a committee of inspection. 45

Governed by ss 256–264 CA 1963.

197

The European Company

C

Compulsory liquidation46

70. Compulsory or court-ordered winding up is again quite common. Usually this occurs where the company is insolvent or if there is a shareholder dispute which cannot be resolved. Compulsory liquidation will also arise where the High Court is petitioned by a creditor, contributor or the company itself to have the company involuntarily wound up. Where the court is of the view that the company should be wound up, it will issue an order to this end and appoint a liquidator for the purposes of effecting the winding-up and realising the company’s assets. The liquidator’s powers are subject to judicial review.

3

Receivership 71. The most common type of receivership occurs where a secured creditor (usually a lending institution) appoints a receiver pursuant to contractual powers granted by the company in the debenture or charge under which a loan was given if a company has defaulted on repayments. Where there is no such contractual power in the debenture, the creditor can petition the court to have the company wound up. The appointment of a receiver does not change the status of the company. Although the directors cease to control the assets over which the receiver has been appointed, their normal powers and duties continue in respect of the company’s other assets and liabilities. In practice, most receiverships result in the dissolution of the company. A receiver and liquidator may act concurrently in respect of the same company, but a liquidator is unable to deal with assets under a receiver’s control.

4

Examinership 72. Where a company is, or is likely to be, unable to pay its debts and has not been wound up, a petition may be presented to the High Court seeking protection and the appointment of an examiner.47 Such a petition may be presented by the company itself, its directors, any creditor or shareholders representing 10% or more of the company’s paid-up capital. When appointing an examiner, the court must be satisfied that there is a reasonable prospect for the company’s survival in the whole or any part of its undertaking as a going concern. For a period of seventy days from the date of the petition, the company is protected from any action which might be taken by creditors. Accordingly, winding-up proceedings or the appointment of a receiver are not allowed. The examiner’s principal duty is to prepare a report for the court on the viability of the company. The proposals are then put to the shareholders and to the 46

198

Ibid., s 213.

47

CA(A)(No. 2)A 1999.

Ireland

various classes of creditors and shall be deemed to have been accepted by a class of creditors or of members when approved by a majority in number and three-quarters in value of the claims present. Once the members and creditors have voted on the examiner’s proposals, the examiner must report back to the court on the outcome of those meetings. If the court decides to confirm the proposals, it can fix a date for their implementation. If the court does not confirm the proposals, it can issue such an order as it deems fit, which is likely to be an order to wind up the company.

5

Schemes of arrangement 73. Section 201 CA 1963 provides inter alia that where a compromise or arrangement is proposed between a company and its creditors, the court may, on the application of the company or of any creditor or member, order a meeting of creditors or members, as the case may be, to be summoned in such a manner as the court directs. If the majority of creditors or members representing at least three-quarters of the value of that class votes in favour of the resolution agreeing to a compromise arrangement, the compromise shall, if sanctioned by the court, be binding on all creditors. This procedure is mentioned for the sake of completeness only, as it is very rarely used and has effectively been superseded by the process of examinership. 74. Irish law does not provide for procedures applicable in the event of insolvency or cessation of payments, other than those mentioned above. 75. In the event any winding up, liquidation or insolvency procedure is initiated or terminated, the SE is obliged to publicise the date on which this event occurred and file a Form SE 15 with the CRO.

VIII

Tax treatment

1

Introduction 76. Broadly speaking, an SE is treated for tax purposes like any other Irish company, subject to a number of provisions necessary to recognise and cater for transactions that an SE can be involved in which a regular Irish company cannot, such as cross-border mergers. An SE registered in Ireland is treated as a resident of Ireland for tax purposes. Irish tax law has recently been amended (by the Finance Act 2006) to accommodate certain tax aspects relating to SEs. In particular, changes were introduced to address the formation of an SE by merger. The merger aspects of Directive 90/434/EEC (commonly referred to as 199

The European Company

the ‘Merger Directive’) were not specifically transposed into Irish law because it is not possible for an Irish company to carry out a cross-border merger. As it is possible under the SE regulations to carry out a merger in the context of forming a SE, provisions were introduced to deal with the tax aspects of such a transaction. In particular, a new section (section 633A) was inserted into the Taxes Consolidation Act 1997, setting out rules covering the situation where an SE is formed by merger and, following its formation, assets remain in Ireland. This section provides for tax neutrality where the assets transferred to an SE in the course of a merger to form an SE remain chargeable to tax in Ireland afterwards.

2

Income tax 77. Under Irish taxation rules, corporation tax is charged on the profits of a company resident in Ireland for tax purposes. Profits are defined as a company’s income and chargeable gains. In certain situations, a company may be subject to income tax or to capital gains tax rather than corporation tax. In order to calculate a company’s taxable income, its trading profit from its profit and loss account is adjusted for tax purposes. This will involve adding back disallowed debited expenditures and deducting expenditures which are allowed for tax purposes but not debited in the profit and loss account. Irish tax law disallows the deduction of certain specific types of expenditures in computing a company’s taxable trading income. For an expenditure to be deductible it must be incurred wholly and exclusively for the purposes of the company’s trade and not be of a capital nature. 78. Corporation tax is charged at a rate of 12.5% on all corporate trading profits, with the exception of mining and petroleum activities and dealings in land. The latter income and all other corporate income is taxed at a rate of 25%. The effective tax rate on chargeable gains is 20%. An SE whose registered office is in Ireland is deemed, for the purposes of the Tax Acts, to be a tax resident of Ireland48 (subject to the same exceptions applicable to other Irish companies). An SE that transfers its registered office out of Ireland in accordance with Article 8 of the Regulation does not cease to be tax resident of Ireland solely by reason of the transfer.49 Like any other company, an SE that is centrally managed and controlled in Ireland will be an Irish resident for tax purposes regardless of its place of registration.

3

Value added tax 79. Value added tax (VAT) is payable on goods and services supplied in Ireland by taxable persons in the course of business. VAT is also payable on goods 48

200

S 23B(1) Taxes Consolidation Act 1997 (TCA).

49

Ibid., s 23B(2).

Ireland

imported into Ireland from outside the EU. The VAT rates range from 0% to 21%. Generally, businesses registered for VAT are entitled to recover VAT paid on their purchases and expenses, including capital expenditures. An SE is treated no differently than any other Irish company for VAT purposes.

4

Other taxes 80. Stamp duty is a once-off tax on documents implementing certain transactions. The principal act governing stamp duty is the Stamp Duties Consolidation Act 1999 (SDCA). Any instrument specified in Schedule 1 to the SDCA which is executed in Ireland or, wherever executed relates to property situated in Ireland or any matter or thing done or to be done in Ireland, is subject to Irish stamp duty. The actual amount of the duty depends on the nature of the instrument created. An instrument evidencing the sale of shares in an Irish registered company, including for this purpose an SE registered in Ireland, for cash consideration will be subject to stamp duty under the ‘conveyance or transfer on sale of any stocks or marketable securities’ head of charge and liable for stamp duty at a rate of 1% of the value of the consideration or, where the transfer constitutes a voluntary disposition, the market value of the shares. Various forms of relief from the charge to stamp duty exist for company restructurings and amalgamations and for transfers of assets between associated companies.

IX

Conclusion 81. The SE has a number of notable advantages: • As an Irish company cannot transfer its registered office to another Member State without first having to wind up its operations in Ireland, the fact that an SE can move its registered office to another Member State without having to wind up its operations and re-register in the second Member State should result in greater financial and administrative efficiency. • There are no special tax provisions applicable to the SE (at the moment). Its tax treatment will thus be determined by the provisions of corporate tax law of each Member State. However, tax considerations could be a driver towards use of the SE, provided the company is established in a Member State that taxes companies on their worldwide income. In this case, it will be considerably easier to offset losses from operations in one country against profits from operations in another. • It was not previously possible for an Irish company to have a two-tier board. The new legislation will allow SEs formed in Ireland to opt for separate management and supervisory boards, if they wish. 201

The European Company

82. Despite the advantages, however, there are certain negative aspects to the SE: • In practice, it may take some time and expense to establish an SE. The procedure for transferring an SE’s registered office is quite complex and subject to extensive safeguards to protect the interests of creditors. • As in the UK, Irish law does not currently provide for high levels of employee involvement on company boards, and Irish boards may not wish to go through the long consultation process with their employees as required by the Directive. This may result in SEs only being used as SPVs where the founding parties do not have any employees. Ireland has no institutionalised system of employee representation, other than for state enterprises. Less than 10% of the Irish work force is employed by a state enterprise, and the related scope for employee involvement at this level has been diminishing with the continued privatisation of this sector. 83. To date, interest in the SE has been limited, but this is, of course, partly to do with the fact that until the Regulation was actually implemented, it was not possible to establish an SE in Ireland. It is therefore hoped that interest in the SE will grow now that the Regulation has been implemented.

202

7 Italy francesco gianni Gianni, Origoni, Grippo & Partners

I II III

Introduction 204 Reasons to opt for an SE 205 Formation 205 1 General remarks 205 A Founding parties 205 B Name 206 C Registered office and transfer 206 D Corporate purpose 209 E Capital 209 2 Different means of formation 210 A Formation by merger 210 B Formation of a holding SE 214 C Formation of a subsidiary SE 214 D Formation by conversion 215 3 Acts committed on behalf of an SE in formation 216 4 Registration and acquisition of legal personality 216 IV Organisation and management 216 1 General remarks 216 2 General meeting of shareholders 216 3 Management 218 A Two-tier system/one-tier system 218 B Appointment and removal 221 C Liability 221 V Group companies 222 VI Employee involvement 223 1 Special negotiating body (SNB) 223 2 Employee participation 223 3 Protection of employee representatives and duty of confidentiality 224 VII Annual and consolidated accounts 224 1 Annual and consolidated accounts 224 2 Auditors 226 VIII Termination 226 1 Winding up 226 2 Liquidation 227 3 Insolvency (Bankruptcy) 227

203

The European Company

IX X

I

4 Composition with creditors Tax treatment 229 Conclusion 230

228

Introduction 1. Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’) has been transposed into Italian law by means of Legislative Decree N◦ 188 of 19 August 2005 (effective 6 October 2005, the ‘Legislative Decree’). As far as Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (the ‘Regulation’) is concerned, no implementing legislation has been adopted in Italy so far. In this respect, though a Council regulation is, in principle, immediately applicable within all Member States, regardless of whether implementing rules have been enacted, in some instances the Regulation seems to refer to national laws to be enacted by each Member States in relation to the SE. Due to the abovementioned lack of implementation of the Regulation, there has been a lengthy debate amongst scholars and notaries in Italy regarding the possibility to form an SE with its registered office in Italy. Although the issue has been somewhat controversial, the prevailing opinion seems to be that an SE can be set up with its registered office in Italy. This interpretation has been, in particular, upheld by the authoritative National Council of Notaries (‘NCN’) in an opinion rendered in March 2006.1 The NCN’s interpretation has – to a certain extent – filled in gaps left by the Italian legislature, in particular with respect to identification of the national authorities in charge of certain formalities in connection with the incorporation of an SE.2 The lack of specific implementing rules and of precise indicators by the Italian legislature renders, to a certain degree, the legal framework in which the SE will operate within Italy uncertain. This uncertainty may, tentatively, be overridden by a combined reading and interpretation of the Regulation with the provisions of Italian law applicable to joint stock companies, relying for support on the NCN’s authoritative opinion, where necessary.

1 2

204

It should be noted that the NCN’s opinion does not have the effect of law and represents only an authoritative interpretation of the applicable law. Article 68(2) of the Regulation provides that ‘[e]ach Member State shall designate the competent authority within the meaning of Articles 8, 25, 26, 54, 55 and 64. It shall inform the Commission and the other Member States accordingly’. There is no evidence, however, that Italy has fulfilled this obligation to inform.

Italy

II

Reasons to opt for an SE 2. The SE certainly presents certain advantages compared to national corporate forms under Italian law. Indeed, the SE is able to operate on a European-wide basis as a corporate vehicle governed, to a certain extent, by a single set of rules adopted at the Community level, directly applicable in all Members States. Indeed, as a result of the introduction of the SE, companies in the EU now have the option to form a European company, operating throughout the EU on the basis of a single set of rules, with a unified management and reporting system, without having to face the obstacles that arise due to differences in, and limited territorial application of, national company law. In practice, this implies that there will be significant reductions in terms of administrative and legal costs as it will no longer be necessary to set up a financially costly and administratively time-consuming complex network of subsidiaries governed by different national laws. In this respect, the Regulation also aims to overcome the difficulties inherent in restructuring operations and transactions involving companies from different Member States due to different national laws, thus permitting and regulating cross-border mergers3 and transfers of registered offices. The possibility to transfer an SE’s registered office to another Member State without affecting legal personality and, following the implementation in all Member States (including Italy) of Council Directive 2005/19/EC of 17 February 2005, without adverse tax consequences, appears particularly advantageous. In the latter respect, SEs with commercial interests in more than one Member State will be able to move across borders at will in response to the changing needs of their business, by transferring their registered office from one Member State to another, without the need to liquidate and form a new company.4 Such a transfer could also be motivated by a change in the law that renders the legislation in other Member States more attractive.

III

Formation

1

General remarks

A

Founding parties

3. The provisions of the Regulation with respect to the requirements that the founders of an SE must meet appear to apply in Italy.

3 4

International mergers are now governed by Directive 2005/56/EC on cross-border mergers of limited liability companies. Currently, the transfer of an Italian company’s registered office (and head office) will trigger, in many cases, its winding up.

205

The European Company

B

Name

4. The name of an SE must be preceded or followed by the abbreviation SE. Only SEs may include this abbreviation in their names, except for companies, firms and other legal entities whose names included this abbreviation before the entry into force of the Regulation (Art. 11 Reg.). Furthermore, if the name of a newly formed SE is identical or similar to the name of another legal entity and such similarity is liable to create confusion in light of the SE’s area of activity or the territory in which its activity is exercised, the SE should modify its name in order to sufficiently differentiate it from that of the other legal entity (Arts. 2564 and 2567 Italian Civil Code, hereinafter ‘ICC’). C

Registered office and transfer

(i)

Registered office 5. Pursuant to the first paragraph of Article 25 of Law 218/1995, Italy applies the incorporation theory to determine the national law applicable to a legal entity. In any event, Italian law will apply if the company’s head office (i.e., its central management and administration) is located in Italy or if its main activity is carried out in Italy. Moreover, pursuant to the third paragraph of Article 25 of Law 218/1995, the transfer of a company’s registered office from Italy to another Member State is allowed to the extent it is carried out in compliance with the laws of the states involved. In many instances, however, the transfer of an Italian company’s registered office (and head office) from Italy will trigger its winding up if the new state does not recognise the transfer and requires that the company first be wound up.5 An SE is, on the other hand, regulated by the laws of the Member State where its registered office is located (rather than by the laws of the state where it is incorporated), subject of course to the provisions of the Regulation. Pursuant to Article 7 of the Regulation, an SE’s registered office shall be located in the same Member State as its head office. Article 6 of the Legislative Decree adds that the registered office of an Italian SE should be located at the same place as its head office.6 The Regulation refers to the national law of the Member State in which the SE has its registered office with respect to the establishment of a judicial remedy to ensure liquidation of an SE whose head office is located outside the territory of such Member State, in violation of Article 7 of the Regulation. Absent any implementing rules in Italy, the NCN has indicated that, under 5

6

206

This will generally occur where the state of destination recognises the head office theory (as opposed to the incorporation theory). Generally speaking, such a transfer will not trigger winding up if the state of destination follows the incorporation theory. The Regulation gives each Member State discretion to require SEs registered on its territory to have their head office and registered office at the same place (Art. 7 Reg.).

Italy

these circumstances, the competent Italian court can: (i) issue an order calling for the dissolution of an SE with its registered office in Italy and its head office outside the Italian territory, to the extent the violation of Article 7 of the Regulation has not been remedied in the meantime; and (ii) convene a general meeting of shareholders to appoint liquidators, or failing such an appointment, directly appoint liquidators pursuant to Article 2487 of the Italian Civil Code. The NCN does not indicate the authority in Italy that shall inform, pursuant to Article 64 of the Regulation, the authorities of the Member State where an SE’s registered office is located should it be ascertained that the SE’s head office is in Italy. (ii)

Transfer of registered office 6. The rules relating to the transfer of an SE’s registered office to another Member State are set out in Article 8 of the Regulation. Such a transfer will not result in the winding up of the SE or in the creation of a new legal person. As to the procedure, the SE’s management or administrative body must prepare a transfer proposal to be filed with and published in the Companies Register of the place where the SE has its registered office. In addition, this body must prepare a report in which it explains and justifies the legal and economic aspects of the transfer as well as the implications of the transfer for shareholders, creditors and employees. The transfer proposal and this report must be made available at the SE’s registered office to shareholders and creditors at least one month before the general meeting scheduled to vote on the transfer. 7. The general meeting of shareholders can vote on the proposed transfer no earlier than two months after the date of publication of the transfer proposal by the competent Companies Register. Since the transfer of an SE’s registered office abroad necessitates an amendment to its articles of association, the general meeting should approve (on first call) the transfer by the greater of: (i) 75% of the votes cast at the meeting;7 or (ii) more than half the SE’s share capital or any higher majority provided for in the company’s by-laws.8 Such a resolution should be adopted before a notary public, who shall then file the text of the resolution with the competent Companies Register within thirty days. Article 8(7) of the Regulation provides that, prior to completion of the transfer, it should be ensured that the interests of creditors and the holders of other rights vis-`a-vis the SE, with respect to any claims arising prior to publication 7

8

Article 59 of the Regulation provides that ‘[a]mendments of the SE’s statutes shall require a decision by the general meeting taken by a majority which may not be less than two-thirds of the votes cast, unless the law applicable to public limited-liability companies in the Members State in which an SE’s registered office is situated requires or permits a larger majority.’ Specific quorum and majority requirements apply on second call under Italian law. It is not clear, however, whether the majority mentioned in Article 59 of the Regulation (see N◦ 7 of this report) should also apply on second call.

207

The European Company

of the transfer proposal, have been adequately protected in accordance with the requirements of the Member State where the SE has its registered office. Absent any Italian implementing rules regarding the protection of creditors, certain commentators have taken the view that an SE with its registered office in Italy cannot transfer this office abroad.9 Such a conclusion would de facto frustrate one of the most obvious advantages of the SE, i.e. the ability to freely transfer its registered office within the Community. Therefore, in order to fill in the legislative gap, the NCN proposes applying by analogy Article 2503 of the Italian Civil Code (relating to the merger procedure), as a result of which creditors and/or bondholders with claims against the SE that exist on the publication date of the transfer proposal in the Companies Register may object to the transfer within a sixty-day period. Although the NCN does not indicate clearly when this sixty-day term should start to run, it is reasonable to assume that it starts upon registration with the Companies Register of the shareholder resolution approving the transfer proposal. Despite creditors’ objections, the competent court may, however, authorise completion of the transfer if it is ascertained that: (i) there is no risk of harm to the objecting creditors and bondholders; or (ii) the SE has provided adequate guaranties. Furthermore, this sixty-day term can be waived in certain cases provided for under Article 2503 of the Italian Civil Code, including but not limited to where the creditors and bondholders consent to the transfer or an amount sufficient to pay the claims of all creditors and bondholders is deposited. 8. As soon as the above formalities are completed, the court, notary or other designated authority in the Member State where the SE has its registered office shall issue a certificate attesting to the completion of all requisite acts and formalities (Art. 8(8) Reg.). Italy has not designated the authority responsible for issuing such a certificate. The NCN is of the opinion that it should be issued by the notary public who notarises the shareholder resolution approving the transfer, to the extent all formalities (including those relating to the protection of creditors’ rights) have been completed. After the issuance of this certificate, the transfer of the SE’s registered office shall be recorded in the companies registry of the new Member State.10 This registry shall notify the Member State where the SE’s registered office was previously located of the new registration. Upon receipt of such notice, the latter will delete the old registration. The transfer of the SE’s registered office will take effect on the date on which the new registration is made.

9 10

208

See G.A. Rescio, in La Societ`a Europea tra diritto comunitario e diritto nazionale, in Rivista delle Societ`a, 2003, p. 984. The SE should also provide the competent authority of the new Member State with proof that all other formalities required to be registered in this state have been completed.

Italy

9. The Regulation also provides that the Member States may adopt appropriate legislation in order to protect the rights of minority shareholders who oppose the transfer abroad of an SE’s registered office. On the basis of this provision, Article 2437 of the Italian Civil Code may apply. This article grants any shareholder who opposes the transfer abroad of an Italian joint stock company (SpA) the right to exit the company,11 as a result of which minority shareholders who oppose the transfer of an SE’s registered office may be able to force the company to redeem their shares. The procedure described above does not apply to the transfer of an SE’s registered office within the same Member State (i.e., Italy). The rules applicable to such a transfer are determined by national law (see vol. 1, chap. 2, N◦ 81). As a result, the transfer of an SE’s registered office within Italy is a matter for the (extraordinary) general meeting, unless the SE’s by-laws have vested the management or administrative body with the power to decide on such a transfer (Art. 2365(2) ICC). D

Corporate purpose

10. The Italian rules on corporate purpose should apply to SEs registered in Italy. This means that an SE’s corporate purpose must be clearly defined in its by-laws and that an SE can only engage in acts that fall within or are incidental to its corporate purpose. Any ultra vires acts carried out by members of an SE’s administrative or management body shall be binding on the company unless it can be established that the third party in question acted with intent to harm the SE (publication of the SE’s corporate purpose in the Companies Register does not constitute sufficient proof of knowledge and intent in this regard). E

Capital

11. The capital of an SE is represented by shares and should be at least equal to €120,000. The subscription and payment of shares are governed by the rules of national law applicable to public limited-liability companies of the place where the SE has its registered office (see vol. 1, chap. 2, N◦ 16). Upon subscription of the share capital, shareholders must pay in at least 25% of any contribution in cash (Art. 2342 ICC); shares subscribed by way of a contribution in kind must be fully paid-in upon subscription. As to the procedure to make a contribution in kind, a shareholder who intends to make such a contribution (upon either incorporation or a capital increase) must obtain a valuation from a court-appointed expert stating inter alia that the 11

Article 2437 of the Italian Civil Code grants such a right to shareholders who do not participate in the resolution approving the transfer abroad.

209

The European Company

value of the assets to be contributed is at least equal to their value for purposes of determining the share capital plus any share premium. The expert shall be appointed by the competent court of the place where the receiving company’s registered office is located, at the request of the contributing shareholder. The SE’s directors shall then verify the values indicated in the expert’s report (Art. 2342 ICC) within 180 days from the filing date with the Companies Register of the instrument of incorporation or from the contribution, in the event of a capital increase.

2

Different means of formation

A

Formation by merger

(i)

Registration and publication 12. Public limited-liability companies from at least two different Member States can form an SE by merger. In order to take part in the merger, each company must have its registered office and head office within the Community. Among the Italian corporate forms, only a societ`a per azioni (SpA) can participate in a merger to form an SE. The societ`a in accomandita per azioni (Sapa) and the societ`a a responsabilit`a limitata (Srl) are, indeed, not listed in Annex I to the Regulation and, therefore, cannot participate in the formation of an SE by merger. They must first be converted in an SpA. Each participating company must contribute to the preparation of draft terms of merger, which shall contain the information set forth in the Regulation (the ‘merger plan’). The management or administrative body is solely competent to prepare this draft. The management or administrative body of each participating company shall prepare a report (the ‘directors’ report’) explaining and justifying the merger plan and its legal and economic grounds. In particular, the directors’ report shall explain the share-exchange ratio and describe the valuation methods used to determine this ratio and highlight any difficulties encountered during the valuation process (see vol. 1, chap. 2, N◦ 26). The merger plan must be examined by one or more experts on behalf of each participating company (the ‘independent expert’), appointed by a judicial or administrative authority in each Member State (see vol. 1, chap. 2, N◦ 27). According to the NCN, the independent expert for an SpA participating in the formation of an SE by merger shall be appointed by the court of the district where the SpA has its registered office.12 This court will also be competent in Italy when the participating companies decide to jointly request the appointment 12

210

Or, if the authors have correctly interpreted the NCN’s opinion, where the new SE will have its registered office in Italy.

Italy

of a single independent expert (rather than one expert for each participating company), as permitted by Article 22 of the Regulation. The independent expert shall draft a report stating whether the share-exchange ratio is fair and describing the criteria followed to determine this ratio as well as any special valuation difficulties (see vol. 1, chap. 2, N◦ 27; Art. 2501sexies ICC). To this extent, the expert can request from each merging company any information considered necessary to carry out its duties (Art. 22 Reg. and Art. 2501sexies para. 5 ICC). An independent expert’s report shall not be required, however, in the event of a merger by absorption where the acquiring company wholly owns the acquired company (Art. 31(1) Reg.; Art. 2505 para.1 ICC). 13. The Merger Plan shall be filed with the Companies Register of the district where the participating SpA has its registered office. The general meeting can vote on the merger plan no earlier than thirty days after its publication date with the competent Companies Register (Art. 2501ter ICC; vol. 1, chap. 2, N◦ 25). The information mentioned in Article 21 of the Regulation (such as the legal form, name and registered office of each participating company as well as the proposed SE’s name and registered office) shall then be published in the Italian official gazzette (Gazzetta Ufficiale).13 Shareholders of the merging companies should be able to consult the following documents at least 30 days before the general meeting scheduled to vote on the merger: (i) the draft terms of merger; (ii) the management report and the independent expert’s report, if required; (iii) the merging companies’ annual accounts and annual management reports for the last three financial years; and (iv) if the latest annual accounts relate to a financial year that ended more than six months before the date on which the merger plan is made available at the participating company’s registered office, a financial statement dated within 180 days preceding this date (Art. 2501septies ICC; vol. 1, chap. 2, N◦ 28) (Art. 2501quinquies ICC). Each shareholder is entitled to receive a copy free of charge of any document made available in accordance with the above provisions. The merger plan must be approved by the general meeting of each merging company by the majority required under national law. As far as Italian law is concerned, a merger14 is approved by the (extraordinary) general meeting, on 13

14

According to certain scholars, the information referred to under Article 21 should be published in the competent Companies Register (rather than in the Gazzetta Ufficiale), considering the repeal of such a formality in the internal merger procedure; see E. Bergamo and P. Tiburzi in Le nuove trasformazioni, fusioni, scissioni 2005, p. 122. On second call, Article 2369 of the Italian Civil Code requires in any case that shareholders representing at least one-third of the company’s share capital approve a resolution to change the corporate form of a SpA. Therefore, this provision could well apply. Specific quorum and majority requirements are provided with respect to companies whose securities are traded on the financial markets, including publicly listed companies.

211

The European Company

first call, by shareholders representing more than 50% of the share capital, unless the company’s by-laws require a higher majority. If the minimum quorum is not reached on first call, the extraordinary general meeting may approve the merger on second call by a two-thirds majority vote of the share capital in attendance, provided at least one-third of the share capital is present or represented.15 14. The minutes of the extraordinary general meeting of an Italian participating company must be notarised by a notary public, who shall control and verify the legality of the merger procedure as far as the Italian company is concerned. The minutes so notarised shall be filed for registration with the competent Companies Register by the notary public within 30 days following the date of the general meeting approving the merger plan (Art. 2502bis ICC). According to the NCN, provisions aimed at protecting creditors of a merging company under Italian law should also apply to the formation of an SE by merger. In its opinion, creditors and/or bondholders with claims against an SpA participating in the formation of an SE by merger that existed on the publication date of the merger plan in the Companies Register may object to the merger within 60 days’ time, starting from the registration date of the shareholder resolution with the Companies Register.16 Despite creditors’ objections, the competent court may nonetheless authorise completion of the merger if it is ascertained that: (i) there is no imminent risk of harm to the objecting creditors and bondholders; or (ii) the SpA participating in the merger has provided adequate guaranties. Furthermore, the abovementioned sixty-day period can be waived in the cases provided for by Article 2503 of the Italian Civil Code, including but not limited to where the creditors and bondholders consent to the merger or an amount sufficient to pay the claims of said creditors and bondholders is deposited with a bank. As soon as the above formalities are completed, a court, notary or other designated authority in the Member State of each participating company shall issue a certificate conclusively attesting to the completion of the requisite pre-merger acts and formalities. (Art. 25(2) Reg.). Italy has not designated the authority responsible for issuing this certificate. However, the NCN deems that it should be issued by the notary public who notarised the shareholder resolution approving the merger plan. Before issuing the certificate, the notary public shall verify 15

16

212

See F. Ambrosiani in Le Societ`a, 2002, p. 1499 et seq., who confirms that a SpA shall approve the merger with the quorum and by the majority required for an extraordinary general meeting. More specifically, Article 2503 of the Italian Civil Code provides that this sixty-day term starts to run on the latest registration date of the two shareholder resolutions (each company participating in the merger must pass a resolution in this regard). Given that one of the participating companies will be from a Member State other than Italy, the question could arise as to whether this sixty-day term starts to run on the registration date of the Italian company’s shareholder resolution or on the later of the two registration dates.

Italy

that all formalities (including those relating to the protection of creditors) have been completed and, in particular, that no objections by creditors have been raised within the aforementioned sixty-day term and that there is the basis for an anticipated merger or, in the alternative, creditors’ objections have been overridden pursuant to the last paragraph of Article 2445 of the Italian Civil Code. 15. Each participating company shall submit to the competent authority in the Member State of the acquiring company (which will eventually become an SE) or the new company (an SE that results from a merger by incorporation) the abovementioned certificate attesting to completion of the requisite pre-merger acts and formalities, within six months from its issuance together with a copy of the approved merger plan. This competent authority (in the Member State where the SE’s proposed registered office will be located) shall then scrutinise the legality of the merger, as regards the completion procedure and formation of the SE. According to the NCN’s interpretation, this authority in Italy shall be held by the notary public who shall (i) scrutinise the legality of the merger as well as formation of the SE17 and, afterwards, (ii) proceed to notarise the merger instrument.18 Within thirty days from execution of the merger instrument, the notary public shall file it for registration with the Companies Register in the district where the SE’s registered office will be located. The merger and simultaneous formation of the SE will take effect on the date on which the SE’s merger instrument is recorded with the Companies Register (Art. 27 Reg. and Art. 2504bis para. 2 ICC). For the participating SpA, completion of the merger shall then be publicised through registration with the Companies Register of the district where its registered office is located. (ii)

Minority shareholders 16. The Member Sates are free to adopt appropriate provisions designed to protect minority shareholders who oppose the formation of an SE by merger. In light of the foregoing, Article 2437 may apply and, as a result, minority shareholders of an SpA who voted against the formation of an SE by merger could exercise their right to exit the company pursuant to this article, assuming the proposed merger entails the conversion of the SpA into an SE.19 17

18 19

In particular, the notary public should ensure that the merging companies have approved the draft terms of merger on the same terms and that arrangements for employee involvement have been determined pursuant to the Directive. The content of the merger instrument is prescribed by Italian law. Article 2437 of the Italian Civil Code provides that shareholders who did not approve the resolution concerning inter alia conversion of the SpA, the transfer abroad of the company’s registered office, etc. have a right to request redemption of their shares.

213

The European Company

(iii)

Acquisition by a company holding 90% or more of the shares in another company 17. Article 31(2) of the Regulation provides that in the event of a merger by absorption by a parent company holding at least 90% of the share capital of a subsidiary, a report by management and/or an independent expert shall be required only to the extent the national law governing either the acquiring company or the acquired company so requires. According to the provisions of Italian law applicable to SpAs, under these circumstances, an independent expert’s report is not required if the subsidiary’s minority shareholders are granted a put option with respect to their shares at a price determined according to the criteria applicable with respect to the redemption right.

(iv)

Avoidance of a merger 18. The merger cannot be declared void after registration of the SE’s merger instrument with the competent Companies Register. However, under Italian law, shareholders and third parties are entitled to be compensated for any damage arising from a merger (Art. 2504quarter ICC). This provision should probably also apply to Italian companies participating in the formation of an SE by merger.

B

Formation of a holding SE

19. In Italy, a societ`a per azioni (SpA), i.e. a public limited-liability company, and a societ`a a responsabilit`a limitata (Srl), i.e. a private limited-liability company, are in principle entitled to participate in the creation of a holding SE (vol. 1, chap. 2, N◦ 36). However, according to the NCN, it appears that the incorporation of a holding SE is currently not possible in Italy. Unlike with the other forms, the Regulation’s provisions on the holding SE entail the introduction of a new and original set of rules into Italian law, which does not currently contain principles of law that may be relied on for, or extended to allow the incorporation of a holding SE in Italy. In this area, therefore, the intervention of the Italian legislature appears necessary. C

Formation of a subsidiary SE

20. The rules on the formation of an Italian societ`a per azioni apply to the formation of a subsidiary SE with its registered office in Italy. If an Italian company participates in the incorporation of an SE (regardless of where the SE will be located), it shall be subject to the rules of Italian law regulating its participation in the incorporation of an SpA. An SE can itself incorporate one or more subsidiaries that take the form of an SE. 214

Italy

D

Formation by conversion

21. In Italy, only a societ`a per azioni can be converted into an SE (Art. 2(4) Reg.). Such conversion will not result in the winding up of the societ`a per azioni or in the creation of a new legal person. The management or administrative body of an SpA shall draw up draft terms of conversion and a report explaining and justifying the legal and economic aspects of the conversion and indicating the implications for shareholders and employees (Art. 37(4) Reg.). The draft terms of the conversion shall be filed for registration with the Companies Register of the district where the SpA’s registered office is located at least one month before the general meeting scheduled to vote on the conversion. Moreover, one or more independent experts shall be appointed to draw up a report on the conversion, certifying that the company has net assets at least equivalent to its capital plus those reserve that may not be distributed by law or pursuant to the company’s articles. According to the NCN, the expert shall be appointed by the court in the district where the SpA’s registered office is located. 22. At the extraordinary general meeting on first call, the draft terms of conversion and the SE’s new articles of association must be approved by shareholders representing more than 50% of the share capital, unless the by-laws require a higher majority. If the required quorum is not reached on first call, the conversion shall be approved by the extraordinary general meeting on second call by a two-thirds majority vote of the share capital in attendance, provided at least one third of the share capital is present or represented.20 The minutes of the SpA’s extraordinary general meeting should be notarised by a notary public. The minutes so notarised shall then be filed for registration with the competent Companies Register by the notary public within thirty days following the date of the general meeting approving the conversion. Subsequently, the conversion shall be registered with the Companies Register of the district where the SE has its registered office. Only after such registration shall the SE be deemed to exist and the resolution of the extraordinary general meeting fully effective.21 Minority shareholders of a SpA who voted against the formation of an SE by conversion could seek to exercise their redemption right pursuant to Article 2437 of the Italian Civil Code, assuming the SpA will be converted into an SE. 20

21

Please note that, on second call, Article 2369 of the Italian Civil Code requires in any case that shareholders representing at least one-third of the share capital approve any change in corporate form of an SpA. This provision could be deemed applicable in the case at hand, assuming the conversion entails a change in corporate form (an SpA to an SE). See A. Zanardo, ‘La trasformazione di SpA in societ`a europea alla luce del Regolamento comunitario 2157/2001’, Contratto e Impresa, 2003 p. 372.

215

The European Company

3

Acts committed on behalf of an SE in formation 23. If acts are performed in an SE’s name prior to its registration, the natural persons or legal entities that committed the acts shall be held jointly and severally liable if the SE does not assume the obligations arising there from. Upon ratification, the acts shall be considered by operation of law to have been entered into by the SE. Therefore, Article 2331 of the Italian Civil Code does not apply.

4

Registration and acquisition of legal personality 24. An SE shall be registered in the Member State in which its first registered office is located. In Italy, the articles of incorporation of an SE should be filed with the Companies Register of the district where the SE’s registered office is located. Filing is only possible if the rules on employee involvement have been fulfilled. Notice of an SE’s registration (or of a change in its registered office) must be published in the Official Journal of the European Communities (Art. 14(1) Reg.). An SE shall acquire legal personality on the date on which it is registered with the Companies Register (Art. 2(4) Reg.). Similarly, public limited-liability companies in Italy enjoy legal personality on the date on which their registration is effected.

IV

Organisation and management

1

General remarks 25. The organisation of the SE complies, in part, with the existing Italian rules applicable to societ`a per azioni. Until very recently, Italy recognised only a traditional corporate governance model (the so-called modello tradizionale or ‘traditional model’) composed of: (a) a board of directors or a sole director responsible for managing the company; and (b) a board of statutory auditors entrusted inter alia with certain surveillance duties regarding compliance of the company’s activities with its by-laws and applicable law. However, since the entry into force of the Corporate Law Reform (i.e. January 1, 2004), a societ`a per azioni can, in addition to the traditional model, opt for either a one-tier or a two-tier management structure. An SE may adopt either a one-tier or a two-tier system. Pursuant to the provisions of the Regulation, there is no modello tradizionale available to the SE.

2

General meeting of shareholders 26. Subject to the provisions of the Regulation, the convocation and organisation of the general meeting of an SE with its registered office in Italy

216

Italy

are governed by the provisions applicable to societ`a per azioni under Italian law.22 The general meeting of an SE shall take decisions according to the so-called collective method (metodo collegiale), which requires that the calling of meetings, discussion at meetings and the adoption of any resolutions during meetings be reported in minutes. The general meeting can be convened by either the board of directors (in the onetier system) or the management or supervisory board (in the two-tier system). In addition, one or more shareholders holding at least 10% of the subscribed capital, or a lower percentage if the company’s by-laws so provide (Art. 2367 ICC), are entitled to request that a general meeting be called with an agenda they propose. If the board of directors or the management or supervisory board or the controlling committee (comitato per il controllo sulla gestione) does not convene a general meeting in due time, and in any event within two months following the submission of such a request, the competent court may order that a meeting be called and designate the chair of the meeting.23 27. The Regulation reserves the following powers to the general meeting of an SE: transfer of the SE’s registered (and head) office to another Member State; amendments to the SE’s articles of association; and the appointment and removal of members of the supervisory board, in the two-tier system, and of the administrative body, in the one-tier system. Other powers are reserved to the general meeting of an SE by the provisions of national law of each Member State applicable to public limited-liability companies (in Italy, the SpA). According to the provisions of Italian law applicable to the SpA, the general meeting in the one-tier system votes to approve the SE’s annual accounts and on any liability actions brought against members of its board of directors. In the two-tier system, Italian law provides that the supervisory body approves the annual accounts24 (rather than the general meeting). However, the SE’s by-laws 22

23

24

Based on this principle, it may be inferred that, as is the case with a SpA, the general meeting of an SE with its registered office in Italy may be either ordinary or extraordinary, depending on the subject matter of the meeting. An extraordinary general meeting is subject to different quorum and majority requirements. Article 2367 of the Italian Civil Code provides that the court shall issue such an order after hearing the management and controlling corporate organs, to the extent the decision not to call a meeting appears unjustified. In addition, the last paragraph of this article specifies that shareholders may not request that a general meeting be called to vote on items placed on the agenda further to a proposal of the company’s directors or on the basis of a report or draft prepared by the latter in accordance with the law. The application of such rules to the calling of an SE’s general meeting appears controversial. Pursuant to Article 54 of the Regulation, the general meeting must meet at least once each calendar year within six months from the close of the company’s financial year. Based on this article, it could be inferred that this general meeting must approve the SE’s annual accounts for the preceding financial year (see vol. 1, chap. 2, N◦ 62). However, such an interpretation must

217

The European Company

may provide that if the annual accounts are not approved, or if one-third of the members of the management or supervisory body so request, the authority to approve the annual accounts can be granted to the general meeting. In the two-tier system, the general meeting is competent for decisions on any liability actions brought against members of the supervisory body. Furthermore, in both the one-tier and two-tier systems, the general meeting shall decide on the distribution of profits. 28. Based on the provisions of Italian law applicable to the SpA, the (ordinary) general meeting of an SE takes decisions on the matters reserved to it (such as approval of the annual accounts, appointment of members of the board of directors or supervisory board, the distribution of profit, etc.) by a simple majority of votes cast or any higher majority specified in the by-laws, provided at least 50% of the share capital is in attendance. No minimum quorum is required, however, on second call. An extraordinary general meeting, on the other hand, is required to approve amendments to an SE’s by-laws. Based on the provisions of Italian law read in conjunction with the Regulation, it may be inferred that, on first call, amendments to the by-laws of an SE must be approved by the higher of: (i) two-thirds of the votes cast at the meeting; or (ii) more than half the share capital or any higher majority provided for in the by-laws. On second call, the extraordinary general meeting can validly take decisions by a two-thirds majority of the share capital represented if more than one third of the share capital is in attendance.25

3

Management

A

Two-tier system/one-tier system

(i)

General remarks 29. The founders of an SE must opt for either a one-tier or a two-tier management system. In the one-tier system, management is entrusted to a board of directors (consiglio di amministrazione). In the two-tier system, management is entrusted to a management body (consiglio di gestione), overseen by a supervisory board (consiglio di sorveglianza).

25

218

be in keeping with the provisions of Italian law granting, in the two-tier system, authority to approve the annual accounts to the supervisory board. Apparently, Article 54 of the Regulation should prevail over the provisions of Italian law requiring that financial statements be approved within a term not to exceed 120 days from the end of the financial year, with a possible extension to 180 if the company is obliged to draft consolidated financial statements or in the event of particular circumstances relating to the company’s structure and purpose. In any event, shareholder resolutions concerning matters such as amendments to the company’s corporate purpose and extension of its term of existence, etc. must be approved by shareholders representing more than one-third of the share capital, even on second call.

Italy

Likewise, the general meeting, the board of directors and the management body take decisions in accordance with the so-called collective method (metodo collegiale), which requires that the calling of meetings, discussions and the adoption of resolutions during such meetings be recorded in minutes. 30. An SE is bound by acts committed by members of its management or administrative body, even if these members exceeded their representative powers or if their actions fall outside the SE’s corporate purpose, unless it can be established that the third party dealing with the SE acted with intent to harm the latter. 31. According to the Regulation, a company or other legal entity may serve as a member of an administrative, management or supervisory body to the extent national law does not prohibit its appointment. Please note that the possibility to appoint a legal entity to the corporate organs of an Italian company is very controversial, particularly given that until quite recently the traditional view of both the Italian courts and commentators was that a legal entity could not sit on a corporate body. This view is now being challenged following a recent ruling of an Italian court allowing a legal entity to serve on the board of directors of a limited-liability company. (ii)

One-tier system 32. In the one-tier system, the board of directors is entrusted with the overall management of the company. Although the Regulation does not expressly provide for a supervisory body in this system, the provisions of Italian law applicable to one-tier SpAs provide for a so-called controlling committee (comitato per il controllo sulla gestione) whose function is to monitor the fitness of the company’s organisational, administrative and accounting systems and, in general, supervise the company’s operations. Members of the controlling committee are appointed by the board of directors and must meet certain requirements in terms of independence, professionalism and integrity. Though such a corporate body is not provided for by the Regulation, it seems that a one-tier SE with its registered office in Italy must establish a controlling committee.26 The management body is validly represented by at least two of its members (forming a board of directors) and may not consist of a sole director. 33. In view of the principles applicable to the SpA, the board of directors of an SE may delegate certain of its functions to one of its members (the managing director) or to an executive committee, specifying the limits of any powers so entrusted, it being understood, however, that certain activities (such as preparation of the financial statements or merger plans) may not be delegated. Delegated members shall ensure that the SE’s organisational, administrative and accounting framework is suitable for its size and nature. Moreover, delegated members have information duties towards the entire management body. 26

See Assonime Circular N◦ 4 [2005], p. 5.

219

The European Company

(iii)

Two-tier system 34. The management body (consiglio di gestione) shall be composed of at least two members (Art. 2409novies ICC). Management of the SE is entrusted solely to the management body, which carries out all activities in furtherance of the SE’s corporate purpose. The management body may delegate certain of its functions to one of its members or to an executive committee in accordance with the principles outlined above with reference to the one-tier system. The supervisory board must have at least three members, unless the SE’s by-laws require a higher number. Members of the management body and the supervisory body may, but need not, be shareholders of the SE. 35. The supervisory board27 shall supervise the work performed by the management body. It may not itself exercise managerial authority. The SE’s articles should list those categories of transactions, if any, that require the authorisation of the supervisory organ. Furthermore, in keeping with the provisions of Article 2409terdecies of the Italian Civil Code, if the by-laws so provide, the supervisory board can take decisions on strategic transactions and industrial or financial plans prepared by the management body. Members of the supervisory board may not serve on the management body (Art. 39 Reg.). However, the supervisory board can appoint one of its members to temporarily fill a vacancy on the management body. During this time, the functions of that person on the supervisory board shall be suspended. Members of the supervisory board are entitled to participate in meetings of the management body and are obliged to attend the general meeting (Art. 2409terdecies, last paragraph). The supervisory board shall meet at least once every ninety days and may not take decisions in writing. 36. Conflicts-of-interest rules for directors of a SpA should apply to members of the management body of an SE. Thus, the latter shall notify the other members of the management body and the supervisory body of any interest that member has, on his or her own behalf or on behalf of a third party, in a given transaction to be undertaken by the SE, clarifying the extent of this interest. If the transaction falls within the authority of a delegated member with a similar interest on his or 27

220

An inconsistency between the provisions of Italian law as to the composition of the supervisory body, on the one hand, and certain principles underlying the governance of SEs should be noted. In particular, according to Article 2409duodecies of the Italian Civil Code, employees or consultants of a SpA may not hold office as members of its supervisory body. In light of this provision, it could be argued that employees of an SE with its registered office in Italy may not be appointed to its supervisory body. However, this position appears to conflict with the rationale of the Directive which could be interpreted as allowing the participation of employees in any corporate body of an SE. The same could be said for members of the comitato per il controllo sulla gestione in the one-tier system, who are subject to a similar restriction under Italian law.

Italy

her own or a third party’s behalf, that member shall abstain from pursuing the transaction and submit the matter to the management organ. In such cases, the management organ’s resolution shall explain in detail the reasons justifying, and the advantages of, the transaction at issue for the SE. Special rules to render void resolutions are provided for breach of the above rules. Furthermore, members of an SE’s management shall be held liable for any damage deriving from breach of their disclosure duties. B

Appointment and removal

37. As far as the two-tier system is concerned, members of the management body are appointed and removed by the supervisory board (Art. 2409terdecies ICC). Members of the supervisory body are, in turn, appointed by the general meeting, which also has the power to remove such members from office, without prejudice to the latter’s right to claim compensation if the removal is not justified (Art. 2409duodecies, para. 5 ICC). As mentioned above, the supervisory board can appoint one of its members to temporarily fill a vacancy on the management body. During this time, the functions of that person on the supervisory board shall be suspended. In the one-tier system, members of the board of directors are appointed by the general meeting. In addition, the general meeting also has the power to remove directors from office, without prejudice to the latter’s right to claim compensation if the removal is not justified (Art. 2383, par. 3 ICC). Members of the controlling committee are, on the other hand, appointed by a resolution of the board of directors, unless the company’s by-laws provide otherwise. C

Liability

38. The liability of members of the board of directors, management organ, supervisory body and controlling committee of an SE is governed by the rules applicable to members of the corresponding corporate organs of a SpA under Italian law. In light of the above rule, members of the board of directors or management board of an SE can be held liable to: (i) the SE for damage sustained by the same as a result of breach of their duties;28 (ii) creditors of the SE due to breach of their obligations with respect to preservation of the ‘integrity of the company’s assets’; and (iii) individual shareholders or third parties, if the individual shareholder and/or third party has suffered damage that results ‘directly’ from negligence or a tortious act on the part of the board of directors or management organ. 28

According to the last paragraph of Article 2392 of the Italian Civil Code, directors who have not been negligent and who formally voice their disagreement in accordance with the formalities set forth in this provision shall not be held liable to the company.

221

The European Company

In the two-tier system, members of the supervisory board can be held jointly liable, together with members of the management body, if they fail to properly carry out their supervisory duties and the damage would not have occurred had they done so (Art. 2409terdecies ICC).

V

Group companies 39. The seventeenth recital to the Regulation states that ‘the rule applicable when an SE is controlled by another undertaking should be specified, and for this purpose reference should be made to the law governing public limited-liability companies in the Member State in which the SE has its registered office’. In addition, the sixteenth recital states that ‘the rules and general principles of private international law should therefore be applied both where an SE exercises control and where it is the controlled company’. Based on these recitals, certain scholars29 have expressed the view that an SE should be treated, as to the legal provisions applicable to corporate groups, as a company (specifically a public limited-liability company) incorporated according to the national law of each Member State. Therefore, the provisions of Italian law on group companies should also apply to SEs. 40. In general, the provisions on ‘direction and coordination activity’ are substantially aimed at protecting minority shareholders and creditors of group companies from actions of the controlling entity (the ‘parent company’) that could have adverse effects on the business of the controlled companies (the ‘group companies’). Such provisions apply to the extent a company exercises ‘direction and coordination activity’ over another company, i.e. a dominant influence is actually exerted by one company over another.30 These rules provide, amongst other things, for specific liability of the parent company to minority shareholders and creditors of its group companies. In particular, the parent company shall be held liable to shareholders and creditors of a group company that takes the form of an SE with its registered office in Italy if, in exercising its ‘direction and coordination activity’, the parent company: (i) acted in its ‘own or in third parties’ business interests’; (ii) breached the principles of fair corporate governance and entrepreneurial management of the group company; and (iii) as a result, caused damage to the profitability and 29 30

222

M. Miola in Rivista delle Societ`a, 2003, p. 371. Determining whether ‘direction and coordination activity’ (i.e., dominant influence) exists thus requires a case-by-case analysis in light of the actual relations amongst the group companies. However, Italian law contains a presumption of ‘direction and coordination’ if certain circumstances are met. In particular, pursuant to Article 2497sexies of the Italian Civil Code, it is presumed, in the absence of proof to the contrary (i.e., evidence that no dominant influence is exercised), that direction and coordination are exercised by entities or companies over other entities or companies: (i) which are obliged to consolidate their financial statements; or (ii) which control other companies within the meaning of Article 2359 of the Italian Civil Code.

Italy

value of their shareholding or, as the case may be, impaired the group company’s assets. It should be noted that the provisions on ‘direction and coordination activity’ also set out certain cases in which shareholders of the group company have a redemption right to allow them to exit the company when the risk connected to their shareholding changes due to circumstances that are external to the company and over which they have no control. For instance, shareholders of a group company that takes the form of an SE with its registered office in Italy may exercise their right of redemption under the following circumstances: (i) there is a change in the parent company’s corporate form, if such a change results in a change to its purpose, or a resolution is approved that substantially changes the parent company’s corporate purpose; (ii) a court decision is issued against the parent company and in favour of the shareholders of the SE group company; or (iii) the ‘direction and coordination activity’ starts or terminates, causing a change in the investment risk, provided the shares of the company subject to direction and coordination are not traded on a regulated market and no takeover bid has been launched for that company’s shares. The provisions on direction and coordination activity also set forth special rules with respect to intra-group financing and publicity and the requirements to be fulfilled by group companies in this regard.

VI

Employee involvement

1

Special negotiating body (SNB) 41. With respect to the procedure to elect members of the special negotiating body (SNB), Article 3 of the Legislative Decree provides that the relevant employee representatives shall be appointed by the internal trade union representatives (RSU) and the national trade unions that executed the applicable collective bargaining agreements. Trade union representatives may be elected to the SNB, regardless of whether they are employees of a participating company. Also, where a company participating in the formation of an SE does not have any employee representatives, the national trade union that executed the applicable collective bargaining agreement shall establish means for participation by that company’s employees in the election of SNB members.

2

Employee participation 42. Italian law does not currently recognise a right for employees to sit on the management bodies of a company or an employee participation right. Thus, if formal negotiations fail, the standard rules on employee participation set forth in the Directive and the Legislative Decree shall apply to the extent such participation exists in the other companies forming the SE. 223

The European Company

3

Protection of employee representatives and duty of confidentiality 43. Pursuant to Article 10 of the Legislative Decree, SNB members are protected against dismissal in the same way as works council members under Italian law and the applicable collective bargaining agreements. They are entitled to paid time-off to perform their functions as well as to the reimbursement of travel and accommodation expenses pursuant to the terms and conditions set forth in the applicable collective bargaining agreement. Article 8 of the Legislative Decree provides that SNB members, employee representatives and the experts who assist them are not authorised to reveal information disclosed to them in confidence. This duty of confidentiality continues in effect after expiry of their term of office. Violation of this duty can be sanctioned by an administrative fine ranging from €1,033 to €6,198, as well as by imposition of the disciplinary sanctions set forth in the applicable collective bargaining agreement. Furthermore, the supervisory body or management organ of an SE is not obliged to reveal information whose disclosure could seriously harm the functioning of the SE. A technical conciliation committee must be established by the parties to evaluate questions of confidentiality and determine whether certain information could harm the functioning of the company. The committee must be composed of three members, appointed respectively by: (i) the employee representatives; (ii) the supervisory or administrative bodies of the participating companies; and (iii) the parties by mutual consent. The committee must conclude its activity within fifteen days from receipt of a complaint brought by the employee representatives.

VII

Annual and consolidated accounts

1

Annual and consolidated accounts 44. With respect to the preparation and approval of an SE’s annual and consolidated accounts, the rules governing the SpA will apply to SEs with their registered office in Italy. If the SE adopts a two-tier system, the supervisory board is authorised to approve the annual and consolidated accounts, prepared by the management body. However, the company’s by-laws may provide that the financial statements must be approved by the general meeting if the supervisory board fails to do so or if more than one third of the members of the supervisory board and/or the management board so request. Approval of the SE’s annual accounts, in the one tier-system, falls within the powers of the general meeting, while the board of directors is vested with the authority to approve the consolidated annual accounts, if any. In any event, the

224

Italy

board of directors is entitled to submit the consolidated financial statements to the general meeting for approval. 45. The financial statements must be prepared in accordance with the minimum table of accounts set forth in the Italian Civil Code. In particular, the financial statements must consist of a balance sheet, profit and loss statement, supplementary note and any notes thereto (such as, in particular, a report by the management body or board of directors, as the case may be, prepared according to Article 2428 of the Italian Civil Code and relating to the management of the company, and a report concerning the audited financial statements prepared by the company’s external auditor). The draft financial statements and any notes thereto shall be made available at the company’s registered office at least fifteen days before the general/supervisory board meeting scheduled to approve them. The financial statements must provide a true and fair overview of the company’s financial situation and its economic results at the end of the financial year. Articles 2423 and following of the Italian Civil Code set forth the content of the balance sheet and profit and loss statement as well as the information to be provided by the supplementary note. Moreover, interpretative accounting and auditing guidelines are contained in several recommendations drawn up and approved by the Italian Association of Chartered Accountants (Consiglio Nazionale dei Ragionieri e Dottori Commercialisti). Banks, credit institutions and insurance companies as well as listed companies are subject to specific accounting, reporting and auditing rules which fall outside the scope of this report. Within thirty days following their approval, the financial statements and any notes thereto, as well as the minutes of the general/supervisory board meeting approving them, must be filed with the relevant Companies Register. 46. A parent company is required to prepare consolidated financial statements for itself and all companies it controls if certain thresholds relating to the number of employees, turnover, and asset value are met pursuant to the provisions of Legislative Decree N◦ 127 of 9 April 1991. The minimum content of consolidated financial statements is set forth in the Italian Civil Code and Legislative Decree N◦ 127/91. Consolidated financial statements consist of a balance sheet, profit and loss statement and supplementary note as well as any notes thereto (such as, in particular, a report prepared by the management body or board of directors in accordance with Article 40 of Legislative Decree N◦ 127/91 and a report on the audited consolidated financial statements prepared by the external auditor). Legislative Decree N◦ 127/91 also contains specific rules regarding the audit and publication of consolidated financial statements similar to those provided for the annual financial statements. 225

The European Company

2

Auditors 47. In the absence of specific provisions in the Regulation, the provisions of Italian law on the auditing of a SpA should apply to the SE.31 In both the one-tier and the two-tier systems, accounting control shall be entrusted to an external auditor (a single professional or an accounting firm) appointed by the general meeting after consultation with the supervisory board/controlling committee. The external auditor must be chosen from an official list kept by the Ministry of Justice. The external auditor is appointed by the general meeting for a term of three financial years, which shall expire on the date of the general/supervisory board meeting called to approve the financial statements for the last financial year of the three-year term. The general meeting shall also determine the external auditor’s remuneration for the duration of its term of office. The external auditor cannot be removed from office prior to term, except for cause and upon consultation with the supervisory board/controlling committee. Any shareholder resolution to this effect must be approved by the competent court. The external auditor should be independent, and various rules exist to guarantee such independence. 48. The external auditor’s duties include: verifying the company’s bookkeeping and the correct indication in its accounts of the most important management events; verifying the consistency of the company’s financial statements and consolidated financial statements with its accounts; and drafting a report on the audited financial statements, consolidated financial statements and the accounting review.

VIII

Termination

1

Winding up 49. A company shall be dissolved under those circumstances provided for by law and in its by-laws, if any. Dissolution may be also voluntary. If a company decides to dissolve, the directors shall file with the Companies Register a statement indicating the reasons for the dissolution (Art. 2484 ICC). Simultaneously, unless the general meeting has already voted in this regard or the by-laws provide otherwise, the management or administrative body shall call a general meeting in order to approve, by the majority required to amend the articles of association and by-laws, the appointment of one or more liquidators, their powers and the rules pursuant to which liquidation shall be carried out. If the management or administrative body neglects to arrange for dissolution of the company, any shareholder, director or member of the supervisory board or controlling committee can petition the court to order that the company be 31

226

See G. Rescio in Diritto delle Societ`a, 2005, p. 266.

Italy

dissolved and its registration deleted from the Companies Register. Moreover, if a general meeting to appoint liquidators and establish rules governing liquidation is not called by the management or administrative body, any shareholder, director or member of the supervisory board or controlling committee can petition the court to order that such a general meeting be called. If the general meeting does not take decisions on these matters, the relevant decisions shall be taken by the court.

2

Liquidation 50. In order for a company to be dissolved, it must have sufficient assets to cover its liabilities. If all debts cannot be paid, the company will most likely be declared bankrupt. The provisions governing the corporate liquidation process are set forth in Articles 2487 et seq. of the Italian Civil Code. As stated above, the general meeting is also entitled to vote on liquidation criteria according to which the winding up shall be performed, with particular reference to the transfer of the company’s business or part of a going-concern and certain assets, rights or groups thereof as well as the actions required to protect the company’s value, including temporary management, even of part of a going-concern.

3

Insolvency (Bankruptcy) 51. An insolvent company or commercial entrepreneur (with the exception of small businesses with either a capital investment of less than €300,000 or gross annual turnover for the past three years of less than €200,000) can be declared bankrupt. Insolvency is defined as the inability to meet regularly and with ordinary means payment obligations as they fall due. Only the bankruptcy court can declare a debtor insolvent, and the relevant petition may be filed either by the insolvent debtor itself, one or more creditors or the public prosecutor. Along with the judgment of insolvency and the opening of bankruptcy proceedings, the court will, amongst other things, appoint a bankruptcy judge and a trustee in bankruptcy and set a deadline by which creditors must file proof of their claims against the bankrupt’s estate. As a result of the above judgment, (i) any individual enforcement or precautionary actions against the insolvent entity shall be automatically stayed; (ii) any existing claims against the insolvent entity shall become immediately due; and (iii) interest on unsecured claims shall cease to accrue. The trustee in bankruptcy is entrusted with managing the insolvent entity and the latter’s corporate bodies (i.e. board of directors, supervisory board, etc.) are divested of all authority. The trustee has the power to claw back or set aside certain acts and transactions performed by the insolvent entity during a given period prior to the adjudication in bankruptcy (the so called ‘relation 227

The European Company

back period’). The trustee is also entitled to decide to continue or terminate any contracts entered into by the insolvent entity. Once all creditors’ claims have been ascertained, the trustee shall liquidate all assets on the basis of a liquidation plan and pay off all debts on the basis of the pari passu principle. The ranking of claims is as follows: preferred claims/administrative expenses, secured claims, and unsecured claims. 52. In the alternative, one or more creditors, a third party or the insolvent entity itself may file a proposal for a settlement with creditors (concordato fallimentare) within the framework of bankruptcy proceedings. Such a proposal may provide inter alia for: (i) restructuring of debts and the satisfaction of creditors through any means; (ii) full transfer of the debtor’s assets to a third party; (iii) the division of creditors into classes; and (iv) different recovery ratios for creditors in different classes. The proposal must be approved by the majority of creditors entitled to vote (i.e. unsecured creditors as well as secured creditors that have received only partial satisfaction for their claims or have waived collateral or any other kind of security). Should the proposal provide for different classes of creditors, it must be approved by a majority of creditors entitled to vote in each class. However, the bankruptcy court may approve (‘cram down’) the proposal, even against an opposing vote by one or more classes, if: (i) creditors representing the majority of claims entitled to vote have approved the proposal; and (ii) the majority of classes have approved the proposal (similar to a cram-down). In the event of a favourable creditors’ vote, the bankruptcy court shall issue a final judgment approving the settlement.

4

Composition with creditors 53. Companies or commercial entrepreneurs that are either insolvent or in a state of crisis (i.e. facing temporary and reversible distress) may file with the bankruptcy court a petition to open proceedings to reach a composition with creditors (concordato preventivo). The petition must be based on a plan which may provide inter alia for: (i) restructuring of debts and the satisfaction of creditors by any means; (ii) full transfer of the company’s assets to a third party; (iii) the division of creditors into classes; and (iv) different recovery ratios for creditors in different classes. The petition must be filed with the court along with an opinion drafted by an independent expert on the feasibility of the plan and the accuracy of the relevant data and information. As from the filing date of the proposal, creditors are automatically prohibited from starting or continuing individual actions against the debtor. The bankruptcy court shall appoint a judge and a receiver, even though the debtor will continue

228

Italy

to manage its own business (i.e. through its corporate organs) with the authorisation of the court for certain acts. The proposal for a composition with creditors must be approved by a majority of creditors entitled to vote (i.e. unsecured creditors as well as secured creditors that have waived collateral or any other kind of security). Fully secured creditors are not entitled to vote, since they are expected to receive payment in full. Should the proposal provide for different classes of creditors, it must be approved by the majority of creditors entitled to vote in each class. However, the bankruptcy court may approve (‘cram down’) the proposal, even against an opposing vote of one or more classes if: (i) creditors representing the majority of claims entitled to vote have approved the proposal; and (ii) the majority of classes have approved the proposal (similar to a cram-down). In the event of a favourable creditors’ vote, the bankruptcy court shall issue a final judgment approving the composition with creditors.

IX

Tax treatment 54. The SE is a tax-favourable vehicle for carrying out cross-border business and investment transactions within the European Union. However, the Regulation does not cover areas of law such as taxation. It should be noted that no specific measures have been passed in connection with the taxation of an SE registered in Italy. As a general rule, companies and entities that are resident of Italy for tax purposes are subject to corporate income tax (IRES). In particular, Italian resident companies and entities include: (i) joint stock companies; (ii) limited liability companies; (iii) partnership limited by shares; (iv) cooperative and mutual insurance companies; and (v) public and private entities (other than companies), regardless of whether their sole or main purpose is to exercise business activities. Currently, the SE is not on this list. Therefore, if Italy wishes to be seen as a viable location to establish SEs, it would be highly desirable for the legislature to enact ad hoc provisions, aimed at clarifying the fact that an Italian SE is subject to the same tax treatment as an Italian resident company. 55. In principle, Italian companies are subject to IRES at a flat rate of 33% as well as a 4.25% regional tax on production activities (limited increases are allowed in each region). The same applies with respect to value added tax (VAT) and other taxes which could apply to Italian SEs on the same conditions applicable to Italian companies. In considering Italy as a location to set up an SE, certain key tax features should be taken into consideration. A recent tax reform introduced into Italian tax law the following provisions, amongst others: (i) group taxation for IRES purposes; (ii) a partial participation exemption for dividends and capital gains 229

The European Company

on the disposal of certain shares; and (iii) new rules on the deductibility of interest (including a thin capitalisation rule). However, there may be differences between the treatment of an Italian SE and other Italian corporate forms if certain possibilities (e.g. participation exemption or group taxation) are only allowed between certain types of legal entities and not with reference to the SE (which, as mentioned above, is not yet covered in Italian tax law). All Community directives in the field of taxation, recently amended to include the SE in their scope of application, apply to the SE. In this respect, it should be noted that Italy has implemented (through publication in the Italian official gazette) Council Directive 2003/123/EC of 22 December 2003, amending Council Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. Conversely, Italy has not yet implemented Council Directive 2005/19/EC of 17 February 2005, amending Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (the ‘Merger Directive’). In light of the foregoing, as soon as the amended Merger Directive is implemented in Italy, transactions covered by this directive that involve an Italian SE will not trigger tax liability in Italy, subject to certain conditions.

X

Conclusion 56. The SE has been greeted in Italy with moderate enthusiasm. The complexity of the procedure to agree on rules for employee involvement, the lack of implementing legislation for the Regulation and the uncertainties surrounding the SE’s tax treatment in Italy are the main concerns of Italian companies examining the possibility of incorporating an SE. The authors are not aware of any SE that has been incorporated in Italy thus far. However, this should not discourage the establishment of SEs in Italy. Even though the legal framework for incorporation may not be completely defined, this should not prove an obstacle to setting up an SE, if handled correctly with the assistance of competent legal advisors and active involvement by a notary public. In any case, the success of the SE in the European Union will certainly depend on whether European companies and businesses see in it any advantages not offered by national corporate forms.

230

8 Latvia d a c e s i l ava - t o m s o n e , i v e ta m i k e l s o n e a n d j u r g i ta s p i g u l e Lejin´s, Torg¯ans & Partners

I II III

Introduction 232 Reasons to opt for an SE 232 Formation 233 1 General remarks 233 A Founding parties 233 B Name 233 C Registered office and transfer 234 D Corporate purpose 235 E Capital 235 2 Different means of formation 235 A Formation by merger 235 B Formation of a holding SE 238 C Formation of a subsidiary SE 239 D Conversion into an SE 239 3 Acts committed on behalf of an SE in formation 239 4 Registration and publication requirements 240 5 Acquisition of legal personality 241 IV Organisation and management 241 1 General remarks 241 2 General meeting 241 A Decision-making process 242 B Rights and obligations of shareholders 242 3 Management 242 A Two-tier system/one-tier system 242 B Appointment and removal 243 C Representation 243 D Liability 244 V Employee involvement 244 1 Special negotiating body 244 2 Employee participation 245 3 Protection of employee representatives 245 VI Annual accounts and consolidated accounts 245 1 Accounting principles 246 2 The auditor’s role 246 VII Supervision by the national authorities 247

231

The European Company

VIII Termination 247 1 Winding up 247 2 Liquidation 248 3 Insolvency 248 IX Applicable law 249 X Tax treatment 249 1 Income tax 249 2 Value added tax 250 3 Other taxes 250 XI Conclusion 251

I

Introduction The Latvian European Company Act1 (‘SE Act’), implementing Regulation 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (the ‘Regulation’) and Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’), was adopted on 10 March 2005 and entered into force on 7 April 2005. In accordance with the SE Act, SEs in Latvia are subject to the laws applicable to public limited-liability companies (akciju sabiedr¯ıba) and to the legislation governing the Commercial Registry (komercreg‘istrs), insofar as these provisions do not conflict with the SE Act and/or the Regulation. Thus, SEs registered in Latvia shall be subject to general provisions of Latvian commercial, labour and tax law and other general and specific legislation regulating companies incorporated and operating in Latvia. In general, the incorporation and operation of various types of legal entities in Latvia is regulated by a relatively recent law, the so-called Commercial Act (Komerclikums).2 When adopting the Commercial Act, the legislature intended to create an extensive regulatory framework applicable to most types of commercial undertakings. However, even though the Commercial Act could have been amended to accommodate the SE, the legislature decided not to do so and instead enacted new legislation to regulate the SE.3

II

Reasons to opt for an SE The reasons most often cited in the literature to opt for an SE include: (i) the possibility to operate under a single set of management and reporting rules in various jurisdictions; (ii) the ability to transfer the company’s registered office to another jurisdiction (mobility); (iii) the possibility to carry out cross-border mergers; and (iv) the likelihood that companies with a ‘European” identity will be able to attract investors more easily. 1 3

232

2 Komerclikums, effective 1 January 2002. Eiropas komercsabiedr¯ıbu likums. Like the SE, the European economic interest grouping is also regulated by separate legislation.

Latvia

Keeping in mind the SE’s relatively high capital requirement and multinational nature, not to mention the fact that most Latvian businesses are, by and large, still domestic in scope, it is unlikely that this new corporate form will attract a great deal of interest in Latvia in the near future. Due to its favourable tax rules and business climate, Latvia is more likely to host SEs established in other Member States.

III

Formation

1

General remarks

A

Founding parties

The SE Act contains the same incorporation requirements as the Regulation. An SE may be formed: • by a merger of public limited-liability companies from different Member States; • as a holding company by public or private limited-liability companies from different Member States; • through the conversion of an existing Latvian public limited-liability company into an SE; • through the creation of a subsidiary SE. The founding parties, in any case, must be public or private limited-liability companies from at least two different Member States with their registered and head offices in the same Member State. Latvian law does not allow a company whose head office is outside Latvia to participation in the formation of an SE.4 B

Name

The Regulation sets forth certain requirements regarding use of the phrase Societas Europaea and the abbreviation SE in an SE’s name. In Latvia, an SE is referred to as a Eiropas komercsabiedr¯ıba. The abbreviation ‘SE’ must appear at the beginning or end of a Latvian SE’s name. In accordance with the general requirements applicable to undertakings recorded with the Latvian Commercial Registry, a company’s name should be unique and may not be the same as or similar to a pre-existing corporate name. Nor may a company’s name violate general principles of morality or contain misleading information with regard to the company’s activities. All company names must be written in Latvian or Roman letters. In addition, there 4

Art 2(5) Reg.

233

The European Company

are certain restrictions on the use in company names of the words ‘Latvia’, ‘state’, ‘municipal’ and the names of administrative territories or areas.5 C

Registered office and transfer

(i)

Registered office Latvia applies the registered office theory to legal entities, meaning that in order for Latvian law to apply, a company must be registered with the Commercial Registry and have its registered office in Latvia.6 According to the Commercial Act, the registered office of a company shall be in the place where its headquarters are located.7 The above provisions are also applicable to SEs. Article 7 of the Regulation requires that the registered office of an SE be located in the same Member State as its head office and allows the Member States to require that an SE’s head office and registered office be located at the same place. In keeping with the Regulation, Latvia’s SE Act provides that an SE’s registered office must be located at the same place as its head office. The registered office of a company is particularly relevant for tax purposes. According to the Taxes and Duties Act, companies established and registered in Latvia (or which should have been established and registered in Latvia) are considered residents of Latvia for tax purposes.

(ii)

Transfer of registered office The general rules governing the transfer of an SE’s registered office from one Member State to another are set forth in Article 8 of the Regulation. However, details regarding such a transfer are determined by the national laws of the Member States. The SE Act provides that the Latvian State Revenue Service and the Financial and Capital Markets Commission may both oppose the transfer of an SE’s registered office from Latvia. As stated in Article 8(14) of the Regulation, such opposition must be based on grounds of public interest and may be challenged in accordance with the rules of administrative procedure. Minority shareholders who oppose the transfer of an SE’s registered office are entitled, within one month following approval of the transfer by the general meeting of shareholders, to request compensation from the SE which, according to the SE Act, must be equal to that provided for by the relevant provisions of the corporate reorganisation legislation.8 With respect to creditors, the provisions 5 6 7 8

234

Section IV of the Commercial Act (Company Names), Arts 28-29. An exception to this general rule is the taxation of payments to non-resident companies. For further information, see infra Section X (Tax Treatment). Art 139 Commercial Act. With respect to the amount of compensation, see infra Section 2.A.iii.

Latvia

of the Commercial Act on the protection of creditors in the event of a merger shall apply (Art 345 Commercial Act).9 D

Corporate purpose

A company registered in Latvia may freely choose to exercise any commercial activity not prohibited by law. A Latvian company need not indicate its corporate purpose or areas of activity in its articles of association (stat¯uti). The same applies to SEs. Nevertheless, the founders of an SE may choose to define its corporate purpose, in which case the SE’s commercial activity must be described in its articles and a specific reference number must be given for each activity using the Latvian classification schedule of economic activities (NACE). E

Capital

As provided in the Regulation (Art 4(2)), an SE must have minimum capital of at least €120,000 (approximately LVL 79,000). By way of reference, the minimum capital of a Latvian public limited-liability company is only LVL 25,000, while the minimum capital of a private limited-liability company is LVL 2,000. By the filing date of the application to register an SE with the Commercial Registry, at least the minimum required capital (€120,000) and, in any case, no less than 25% of the subscribed share capital, must be paid up. The remainder must be paid up within one year from the signing date of the SE’s instrument of incorporation. In general, share capital can be paid up in cash or in kind. However, capital contributions made prior to filing an application for registration must take the form of cash. The share capital of an SE registered in Latvia must be expressed in euros and in Latvian lats. The annual and consolidated accounts must be denominated in lats.

2

Different means of formation

A

Formation by merger

An SE may be formed through the merger of at least two public limited-liability companies, provided (1) the participating companies have been incorporated in accordance with the laws of a Member State; (2) the participating companies’ registered and head offices are located within the European Union; and (3) at

9

The provisions of the Commercial Act on the protection of creditors are discussed in more detail under Section 2.A.iv (Creditors’ Rights).

235

The European Company

least two of the participating companies are governed by the laws of different Member States. In accordance with the SE Act, the Commercial Registry shall scrutinise the legality of a proposed merger before registering it. For this purpose, the Latvian founding company must submit a certificate attesting to the completion of all requisite pre-merger acts and formalities, as well as all documents required by the Commercial Act for the merger of public limited-liability companies. (i)

Procedure and publication requirements The procedure set forth in the SE Act to form an SE by merger is complex due to the fact that various sets of requirements must be fulfilled simultaneously.10 In addition to those contained in the Regulation, general requirements applicable to company reorganisations, as well as specific provisions of the Commercial Act to form a public limited-liability company, must be observed. The founding company must submit to the Commercial Registry draft terms of merger prepared in accordance with Article 20 of the Regulation. Furthermore, the information required by Article 21 of the Regulation (i.e. details of the merging companies and of the registers where documents are filed and available in respect of each merging party, arrangements to protect creditors’ rights, etc.) must also be filed with the Commercial Registry. The date of registration of the merger, the Commercial Registry’s file number, and the information required by Article 21 must be published in the official national gazette, Latvijas V´estnesis. Each company involved in the formation of an SE or both acting jointly shall prepare a reorganisation agreement and prospectus, which shall include draft terms of merger, information on the legal and financial aspects of the merger, the share-exchange ratio and the amount of compensation due, the methods, if any, used to arrive at this ratio and compensation, and any difficulties encountered in the calculation process. The draft reorganisation agreement must be reviewed by an auditor selected by the companies and approved by the Commercial Registry. The draft reorganisation agreement shall be reviewed, and a decision on the merger taken, by the general meeting of shareholders of each company. At least one month before the general meeting in question, the draft reorganisation agreement, together with the prospectus, the auditor’s report, the companies’ annual reports for the last three financial years and their financial statements for the three months immediately preceding the filing date of the notice of reorganisation with the Commercial Registry, shall be made available for review by shareholders at the company’s registered office. 10

236

Art 4 SE Act.

Latvia

In accordance with the Commercial Act, an application to the Commercial Registry concerning a potential reorganisation can be made no sooner than three months after publication in the official gazette, Latvijas V´estnesis, of the decision to reorganise. (ii)

Right to object to a company participating in a merger According to the SE Act, the State Revenue Service and the Financial and Capital Markets Commission can object to the participation of a Latvian public limited-liability company in the formation of an SE. Such an objection may be appealed to the Latvian administrative courts in accordance with the procedure set forth in the applicable legislation.

(iii)

Minority shareholders Under the SE Act (Art 7), minority shareholders who oppose the formation of an SE by merger have one month following approval of the merger by the general meeting to lodge a request for compensation. Such compensation is customary in the event of a reorganisation under Latvian law. In accordance with the Commercial Act, the compensation due minority shareholders in this case shall be equal to the proceeds the shareholder would have received had the company been liquidated at the time the decision to reorganise was taken. In addition, interest at the statutory rate is charged on this amount from the effective date of the reorganisation (in this case, the formation of an SE) until the date of payment.11

(iv)

Rights of creditors Under Latvian law, companies participating in the formation of an SE must abide by the reorganisation process applicable to public limited-liability companies. As a result, the provisions of the Commercial Act on the protection of creditors’ rights in the event of a reorganisation shall apply. Article 345 of the Commercial Act requires the participating companies to take the following steps: • within fifteen days from the date of the decision to form an SE by merger and before implementing this decision, each participating company must inform all known creditors to this effect in writing; • each participating company must publish a notice in the official national gazette, Latvijas V´estnesis, that a decision to form an SE has been taken, as well as the place and time at which creditors may submit their claims; such a period may not be less than one month from the publication date of the notice; • the company shall secure all claims submitted by the stipulated deadline; 11

Art 353 Commercial Act.

237

The European Company

• creditors of the acquiring company can request security only if they can prove that the merger will jeopardise satisfaction of their claims; • a secured creditor may request security only for the unsecured portion of its claim. (v)

Acquisition by a company holding 90% or more of the shares in another company The Commercial Act provides that if the acquiring company holds 100% of the shares in the target company, the draft terms of merger need not be reviewed by an auditor and certain information can be omitted.

(vi)

Avoidance of a merger Under Latvian law, a court can declare the decision to form an SE by merger null and void if: (i) it was taken in violation of the law or of a participating company’s articles of association; and (ii) it is not possible to rectify the violation or rectification does not occur within the time period specified by the court.12 Any shareholder or member of a participating company’s management or supervisory board can bring an action to set aside the decision to form an SE by merger within three months from publication of the notice in Latvia’s official gazette, Latvijas V´estnesis.

B

Formation of a holding SE

A holding SE can be formed by at least two public or private limited-liability companies that (1) have been incorporated in accordance with the laws of a Member State; (2) have their registered and head offices within the European Union; and (3) are governed by the laws of different Member States or, for at least two years, have maintained a subsidiary or branch governed by the laws of another Member State. (i)

Procedure and publication requirements The management board of the Latvian founding company must submit to the Commercial Registry draft terms of formation for the holding SE, as provided by Article 32 of the Regulation. Furthermore, the date of registration and the file number under which these draft terms may be consulted must be published in Latvijas V´estnesis. The founding companies must present proof of compliance with the provisions of Article 33 of the Regulation. A notice to this effect should also be published in Latvijas V´estnesis.

(ii)

Minority shareholders and creditors Although Article 34 of the Regulation allows the Member States to adopt provisions designed to protect minority shareholders who oppose the formation of 12

238

Ibid., Art 346.

Latvia

an SE, the SE Act does not contain any special provisions to protect minority shareholders, creditors or employees. Since, in accordance with the Regulation, a company promoting the formation of a holding SE continues to exist, it need not go through the reorganisation procedure described above for the formation of an SE by merger. Thus, various special provisions on the protection of minority shareholders and creditors shall not apply. C

Formation of a subsidiary SE

A subsidiary SE can be formed by at least two companies or other legal entities (1) governed by public or private law; (2) incorporated in accordance with the laws of a Member State; (3) having their registered and head offices in a Member State; and (4) which are subject to the laws of different Member States or have maintained for at least two years a subsidiary or branch subject to the laws of a different Member State. With regard to the formation of a subsidiary SE, the SE Act does not stipulate any other conditions in addition to those set forth under Articles 35 and 36 of the Regulation. As a result, the general rules applicable to the formation of a national public limited-liability company shall apply.13 D

Conversion into an SE

A public limited-liability company which (1) has been incorporated in accordance with the laws of a Member State; (2) has its registered office and head office within the EU; and (3) for at least two years, has had a subsidiary subject to the laws of a different Member State, may be converted into an SE. In the event an existing public limited-liability company is converted into an SE, the company’s management board must prepare and file draft terms of conversion with the Commercial Registry. The date of registration of the draft terms and the Commercial Registry’s file number must be published in Latvijas V´estnesis, Latvia’s official gazette. The SE Act does not provide any further details on the conversion of an existing public limited-liability company into an SE.

3

Acts committed on behalf of an SE in formation The SE Act does not contain any specific provisions on acts committed on behalf of an SE in formation. However, in accordance with general provisions of Latvian corporate law,14 a founder acting on behalf of a company in formation prior to its incorporation shall be held liable for any obligations incurred as a 13

Ibid., Arts 140–144.

14

Ibid., Art 163.

239

The European Company

result. The company shall be deemed to assume liabilities incurred on its behalf prior to incorporation if its management board or shareholders representing at least 5% of the company’s share capital do not object within three months from the date of the company’s registration with the Commercial Registry. If objections have been raised, the issue shall be submitted to the general meeting for a vote. However, the assumption of liability by the company shall not release the founders from their liability.

4

Registration and publication requirements In accordance with Article 12 of the Regulation, an SE shall be registered in the Member State in which it has its registered office. Consequently, if an SE is established in Latvia, the participating public limited-liability companies must submit an application to register the SE with the Commercial Register. If an SE is established in another Member State, the founding public limited-liability company with its registered office in Latvia must petition the Commercial Registry to delete its entry and present a certificate attesting to the registration of the SE in another Member State. In order to register an SE with the Commercial Registry, a standard application form,15 which can be downloaded from the Commercial Registry’s website,16 must be submitted along with the following documents: • • • • • • • • • • • •

draft terms signed by the founding companies’ representatives; the SE’s articles, signed by all founding parties; a bank statement confirming deposit of the share capital; documents confirming the value of any investments in kind; a statement of consent by the proposed members of the supervisory and management boards to serve on these bodies; the auditor’s written consent to audit the SE’s accounts; sample signatures of all management board members; documents confirming the existence of related companies or branches in other Member States; official confirmation from the commercial registries where the participating companies are registered that all formalities related to formation of the SE have been fulfilled; the management board’s notification of its legal address; an agreement on arrangements for employee involvement; receipts for any duties and publication fees paid.

An entry in the Commercial Registry shall be made upon receipt of the completed application form and all required documents. An application for 15

240

Regulation No. 344 as of 17 May 2005.

16

www.ur.gov.lv.

Latvia

registration is usually processed within four (4) business days. However, in more complex cases, the Commercial Registry has the right to extend this period by up to thirty (30) days. As for all new recordations with the Commercial Registry, a notice of registration of the new SE shall be published in the official gazette, Latvijas V´estnesis.

5

Acquisition of legal personality According to the Commercial Act, a company acquires legal personality on the date it is registered with the Commercial Registry.

IV

Organisation and management

1

General remarks The management of an SE is not discussed in detail in the SE Act. Therefore, provisions of Latvian law regarding the management of public limited-liability companies shall apply to the organisation and management of an SE. However, while a public limited-liability company incorporated under Latvian law can have only a two-tier management structure, an SE can have either a one-tier or a two-tier system.

2

General meeting In accordance with the Article 53 of the Regulation, without prejudice to the rules contained in the Regulation, the organisation and conduct of general meetings shall be governed by the provisions of Latvian law applicable to public limited-liability companies. A general meeting can be either ordinary or extraordinary. An ordinary general meeting must be called by the board of directors at least once a year in order to approve the annual report, decide on the distribution of profits and elect an auditor. If the management board fails to convene the general meeting, the supervisory board (if there is one), the Commercial Registry or the liquidator (if the company is in liquidation) can do so. An extraordinary general meeting can be convened by the management board at its own initiative and must be convened if the supervisory board, the company’s auditor or shareholders representing at least 5% (1/20) of the company’s share capital (unless a lower percentage is specified in the articles) so request. According to the Commercial Act (Art 268), the powers of the general meeting are limited, the most important being the power to appoint the supervisory board, to take decisions with respect to the distribution of profits, to approve capital increases and decreases, and to decide to wind up the company. 241

The European Company

The general meeting is not allowed to take decisions that fall within the scope of authority of the company’s supervisory or management board. A

Decision-making process

In general, the general meeting takes decisions by a majority of votes cast by those shareholders present or represented. However, decisions regarding amendments to the company’s articles; changes to its share capital; the issuance of convertible bonds; reorganisation; entering into, amending or terminating a ‘group of companies’ agreement; and inclusion of the company in or consent to inclusion in and termination or continuation of operations must be approved by at least three-quarters of the votes cast. If there are several categories of shares, a decision must be approved by a majority of shareholders from each category affected present at the general meeting. Unless the SE’s articles provide otherwise, the general meeting is entitled to take decisions irrespective of the share capital present or represented. B

Rights and obligations of shareholders

Each shareholder is entitled to participate in and vote at general meetings, receive dividends and liquidation proceeds, if any, and request information from the management board about the company’s financial situation. Each par-value voting share carries one vote at the general meeting. If the general meeting is scheduled to vote on issues related to winding-up, reorganisation, a capital increase or decrease or amendments to the company’s articles, the holders of preferred shares (who normally have preference in relation to dividends and liquidation proceeds but are not entitled to vote) shall also be allowed to vote if their interests are liable to be affected.

3

Management

A

Two-tier system/one-tier system

According to the Regulation, an SE can have either a two-tier or a one-tier system of management. In the two-tier system, the SE is managed by a supervisory board (padome) and a management board (valde). In the one-tier system, it is managed by a management board alone. Under Latvian law, only natural persons can serve as members of the supervisory board and the management board. Overlapping membership on both boards is allowed. Latvian law does not set forth any nationality or residency requirements for members of the management and supervisory boards. However, the supervisory board must have at least three members (five if the company is listed) and may 242

Latvia

have no more than twenty. The minimum and maximum number of members of the management board is not specified, unless the company is listed, in which case the board must have at least three members. B

Appointment and removal

(i)

Supervisory board Members of the supervisory board are elected for a maximum term of three years. Any shareholder or group of shareholders representing at least 5% of the voting rights present or represented at a general meeting is entitled to nominate candidates. All candidates shall be included on the election list. Voting shall take place by ballot. Shareholders can vote for one or more candidates in any combination of whole numbers. Those candidates who receive the most votes shall be elected to the supervisory board, taking into account the maximum number of members specified in the articles. Supervisory board members may be removed from office at any time by the general meeting. Moreover, members of the supervisory board may resign from office at any time by giving notice to this effect.

(ii)

Management board In an SE with a two-tier management structure, members of the management board are appointed by the supervisory board for a maximum term of three years, unless the company’s articles provide for a shorter term. The supervisory board shall appoint the chair of the management board from amongst the latter’s members. Members of the management board can be removed from office by the supervisory board for just cause, including, for example, gross abuse of authority, failure to perform or to appropriately perform their duties, inability to manage the company and harming the company’s interests or pursuant to a no-confidence vote by the general meeting. Members of the management board may resign at any time. In the one-tier system, members of the board of directors are appointed and removed by the general meeting of shareholders.

C

Representation

Under the Commercial Act, the general rule is that management board members represent and manage the company jointly. Nevertheless, the company’s articles may provide otherwise. For instance, each member of the management board can be granted authority to represent the company individually (separately) or the articles may state that the company shall be represented by any two directors acting jointly. In the event of joint representation, the management board may authorise one or more of its members to conclude specific transactions or types of transactions. 243

The European Company

D

Liability

The Commercial Act requires members of the management and supervisory boards to perform their duties as ‘honest, careful managers’.17 Members of an SE’s management board and supervisory board shall be jointly and severally liable for any losses they cause the company, unless they can prove that they acted as honest, careful managers. Members of the management and supervisory boards shall not be liable for losses incurred as a result of actions taken pursuant to a lawful decision of the general meeting. However, the fact that the supervisory board has approved the actions of the management board shall not release the members of the management board from liability. Approval of the company’s annual report at its annual general meeting shall not be interpreted as a release of the members of the management and supervisory boards from liability for activities undertaken during the past year. The general meeting may release members of the management or supervisory board from liability, or decide to enter into a settlement, only with respect to specific actions disclosed to the general meeting and as a result of which the company sustained a loss.

V

Employee involvement The Directive has been transposed into Latvian law by the SE Act, which contains provisions on employee involvement in Section IV.

1

Special negotiating body The SE Act includes provisions on a special negotiating body (SNB) formed to represent the employees of all participating companies. When nominating representatives to the SNB, the employees of Latvian participating companies may decide that their interests would be best represented by their incumbent representatives elected under the general employee representation rules or they may decide to elect new representatives. As long as the general ‘10% – one member’ rule is not violated, each Latvian participating company is entitled to appoint one representative to the SNB. However, if the number of Latvian participating companies is greater than the number of seats allocated to Latvian representatives on the SNB, the employees of the Latvian companies shall agree on a common representative(s) to represent their interests or (if no agreement can be reached) the representatives of the companies with the most employees shall be nominated. The SNB shall take decisions by a simple majority of votes cast. Each member has one vote. 17

244

Art 169 Commercial Act.

Latvia

The purpose of the SNB is to reach an agreement with the representatives of the participating companies’ management organs on employee information, consultation and participation in the SE. The agreement must be in writing.

2

Employee participation Under Latvian law, employees do not have a right to participate in management. According to the Directive and the SE Act, if none of the participating companies were subject to employee participation rules prior to registration of the SE, they will not be required to establish provisions for employee participation. Thus, employee participation will only be an issue if companies from other Member States in which employee participation rules apply are involved in the formation of an SE.

3

Protection of employee representatives Members of the SNB and other employee representatives within an SE shall be afforded protection and guarantees at least equivalent to those provided to employee representatives under Latvian law. Under Latvian law, the fact that an employee is an employee representative cannot serve as a basis for refusing to enter into or terminating an employment contract with, or otherwise discriminating against, that employee. The SE Act provides that members of the SNB and of the employee representative body, as well as other employee representatives, shall be granted paid time-off to fulfill their information and consultation duties. In addition, members of the employee representative body are entitled to paid vacation for training purposes in order to gain the knowledge necessary to perform their duties.

VI

Annual accounts and consolidated accounts Article 61 of the Regulation provides that the preparation, auditing and publication of an SE’s annual accounts and, where appropriate, its consolidated accounts shall be governed by the national laws of the Member States applicable to the public limited-liability companies. In Latvia, the main requirements for financial reporting are set out in the Annual Reports of Undertakings Act,18 the Consolidated Accounts Act,19 the Accountancy Act,20 the Commercial Act and a number of regulations passed by the cabinet. Pursuant to the Commercial Act, a company must prepare annual accounts at the end of each financial year and submit them to its auditor for review as well 18 19 20

Annual Reports of Undertakings Act (Par uzn,e¯ mumu gada p¯arskatiem), effective 1 January 1993. Consolidated Accounts Act (Par konsolid¯etajiem gada p¯arskatiem), effective 1 January 2000. Accountancy Act (Par gr¯amatved¯ıbu), effective 1 January 1993.

245

The European Company

as to its supervisory board (if there is one). The annual report covers a twelvemonth period which usually coincides with the calendar year, but an SE may specify in its articles a financial year corresponding to another twelve-month period. The financial year may be changed upon the presentation of reasonable grounds for doing so. The annual accounts are approved at the general meeting of shareholders called by the management board after receipt of the auditor’s opinion and (if the SE has a two-tier system) the supervisory board’s report. Once approved, the annual accounts are submitted to the Commercial Registry. Within 30 days after the general meeting, the company must file its annual tax return. Under the SE Act, an SE’s annual and consolidated accounts must be denominated in Latvia’s national currency, the lat (LVL).21 Unless otherwise provided in the legislation governing the annual accounts of financial and credit institutions, parent companies registered in Latvia are usually required to prepare a consolidated annual report including the financial reports of all related undertakings, drafted in accordance with the procedure set forth in the Consolidated Annual Accounts Act. Even though parent companies registered in Latvia are obliged to include in their consolidated financial reports subsidiaries registered abroad, losses of such subsidiaries not be offset against profits earned by the parent company in Latvia.

1

Accounting principles The Accountancy Act provides that any entity engaged in economic activity in Latvia must keep accounts in such a way that a qualified third party can obtain a clear and truthful view of the company’s financial situation. The information should be truthful, comparable, timely, significant, understandable and complete. Accounts must be drafted in Latvia’s official language and, together with supporting documents, kept on the Latvian territory. If a foreign legal entity participates in the company’s economic activities in Latvia, a second language may also be used in the accounts. All accounting entries must be supported by adequate documentation. All accounting registers, supporting documents, inventory lists, annual reports and other documents must be archived after the close of the financial year. Documents must be kept for 10 years, with the exception of personnel files, which must be kept for 75 years.

2

The auditor’s role An SE, like any other public limited-liability company, must name an auditor upon its establishment. The auditor is appointed or re-appointed at the SE’s annual general meeting. 21

246

Art 15 SE Act.

Latvia

The auditor renders an opinion on the SE’s annual report and is liable for any damage sustained by the company due to negligence on its part. The auditor shall not be liable for any losses caused as a result of violations committed by the company’s management or administrative bodies, unless it knew or should have known of such violations and failed to indicate them in its opinion. In the latter case, the auditor shall be held jointly and severally liable with the members of the relevant management or administrative body.22

VII

Supervision by the national authorities The formation and activities of an SE are supervised by various national authorities in Latvia. The main supervisory institutions are the Commercial Registry of the Company Register, the State Revenue Service and the Financial and Capital Markets Commission. The Commercial Registry not only records all relevant information related to the incorporation and functioning of an SE, but also reviews the legality of actions taken by an SE’s supervisory and management bodies. The State Revenue Service administers the tax laws and supervises the financial aspects of an SE’s activities in Latvia. Moreover, the State Revenue Service and the Financial and Capital Markets Commission, pursuant to Section 8 of SE Act, which is based on Article 19 of the Regulation, can object to the participation of a Latvian public limited-liability company in the formation of an SE and to the transfer of an SE’s registered office to another Member State. These decisions can be appealed to the Administrative Court, however.

VIII

Termination According to the Article 63 of the Regulation, as regards winding-up, liquidation, insolvency, cessation of payments and similar procedures, an SE shall be governed by the provisions of national law applicable to public limited-liability companies formed in accordance with the laws of the Member State in which its registered office is located.

1

Winding up In accordance with the Commercial Act (Art. 312), an SE can be wound up either voluntarily or involuntarily. In the event of voluntary winding up, the company should have sufficient assets to cover its debts. In this case, the SE will cease to exist either following a decision by the general meeting to wind up the company, upon expiry of the time period specified in its articles (if the SE was established for a definite duration) or once it has achieved the objectives set forth in its articles (if the SE was founded to achieve a specific purpose). Alternatively, an SE can be wound up (involuntarily) by court order or through 22

Arts 176–178 Commercial Act.

247

The European Company

the commencement of bankruptcy proceedings. Finally, the company may cease its operations in other cases specified by law or in its articles.

2

Liquidation If an SE ceases its operations, it shall be liquidated. One or more liquidators may be appointed to conduct the liquidation process.23 Once a decision to liquidate has been taken, it must be submitted to the Commercial Registry for recordation within three days. In order to protect creditors, a decision to liquidate an SE must be recorded by the Commercial Registry and published in Latvijas V´estnesis, Latvia’s official gazette. The liquidator must inform all known creditors of the liquidation. Creditors are then given an opportunity to file their claims. The liquidation process is complete once all claims have been satisfied, the property of the SE realised, and the SE stricken from the Commercial Registry. If an SE has insufficient assets to cover all claims, insolvency proceedings shall be commenced.

3

Insolvency Insolvency proceedings are governed by the Company and Business Entities Insolvency Act.24 Proceedings may be brought by the SE itself, a creditor or a competent authority. The SE shall be required to submit an insolvency petition if it is unable (or, based on proven circumstances, will not be able) to settle its debts within three weeks of their due date and no arrangement with creditors has been made or if the SE’s liabilities exceed its assets. Under these circumstances, the law provides that the officers of an SE can be subject to criminal sanctions if an insolvency petition is not submitted. An insolvency petition is submitted to the competent court for review. If the court finds the SE to be insolvent, it shall appoint a certified administrator based on the recommendation of the Latvian Insolvency Administration. The Insolvency Administration shall select at random an administrator from a list of certified administrators in accordance with pre-approved procedure. Insolvency administrators in Latvia must undergo a specific certification process in order to be able to administer bankrupt estates. On the date the administrator assumes his or her duties, the SE’s management board loses its mandate. The outcome of insolvency proceedings depends on the SE’s financial situation and perspectives, as well as on other considerations underlying a decision by creditors, i.e., the SE’s creditors may decide to settle their claims, to restructure the SE or to commence bankruptcy proceedings. 23 24

248

Liquidation is mainly governed by Section XIV of the Commercial Act (Termination of Operations and Liquidation of Capital Companies), Arts 312–333. Act on the Insolvency of Companies and Business Entities (Par uzn,e¯ mumu un uzn,e¯ m¯ejsabiedr¯ıbu maks¯atnesp¯eju), effective 12 October 1996.

Latvia

IX

Applicable law If an SE is to be incorporated in Latvia, the incorporation shall take place in accordance with Latvian law. Furthermore, an SE incorporated in accordance with Latvian law shall be treated as a Latvian ‘resident’ company unless the SE Act or the Regulation provides otherwise.

X

Tax treatment The general principles of Latvian tax law are set forth in the Taxes and Duties Act,25 which provides for personal income tax, corporate tax, property tax, value added tax, excise tax, customs duties, a natural resources tax, lottery and gambling duties, and social security contributions. All of these taxes and duties are governed by separate laws, such as the Corporate Tax Act, the VAT Act, etc.26

1

Income tax Latvia recently amended the Corporate Tax Act to cover the transfer of an SE’s registered office to Latvia from another Member State. The Corporate Tax Act transposes into national law Directive 2005/19 amending Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States. Aside from specific requirements applicable during the first year following the transfer of an SE’s registered office to Latvia, other taxrelated matters are governed by the general provisions of the Corporate Tax Act applicable to any other legal entity. The current corporate tax rate is 15%. Taxable entities include resident companies and companies with a permanent establishment in Latvia, as well as non-resident companies that derive certain income in Latvia. An entity shall be considered a tax resident if it has (or should have) been established and registered in accordance with Latvian law. Thus, an SE, a subsidiary SE or a branch office established and registered in Latvia shall be deemed a Latvian tax resident subject to corporate tax at a rate of 15% on its worldwide income, subject to the provisions of any applicable treaties on the avoidance of double taxation. For non-resident companies, corporate tax is based on income derived in Latvia and is levied on payments made by resident companies to non-residents. Under 25 26

Taxes and Duties Act (Par nodokl, iem un nodev¯am), effective 1 April 1995. The Personal Income Tax Act and the Social Security Act are not extensively discussed in this report but are nonetheless highly relevant to any company operating (or considering operating) in Latvia. The current effective rate of personal income tax applicable to salaries is 25%. Social security contributions are paid on salaries and other employment-related income at a rate of 33.09%, 9% of which is paid by the employee and 24.09% by the employer.

249

The European Company

the Corporate Tax Act, tax liability for non-residents arises in cases where a Latvian company pays a certain type of remuneration to a non-resident or where a permanent establishment is created as a result of a non-resident’s activities in Latvia. The Corporate Tax Act also provides for withholding tax in certain cases when payments are made by residents and permanent establishments to non-residents. Thus, withholding tax at a rate of 10% is applied to dividends, management and consultancy fees and royalty payments, while a 15% rate applies to royalties for the use of copyright. Royalties for the use of other kinds of intellectual property and in consideration for the use of property situated in Latvia are subject to withholding tax at a rate of 5%, while income from the sale of real property in Latvia is subject to withholding tax at a rate of 2%. Regardless of the foregoing, however, withholding tax at a rate of 15% is levied on all payments or expenses in cash made by a Latvian resident (or the permanent establishment of a non-resident) to legal entities, natural persons and other persons located or established in territories with low tax rates or which are considered tax havens.

2

Value added tax Like any other company operating in Latvia, an SE will be subject to VAT if it carries on activities to which VAT applies (i.e. the delivery or import of goods or the provision of services). An SE must register as a VAT payer within 30 days if it has conducted taxable transactions having a threshold value of at least LVL 10,000 in the preceding twelve months. The VAT rates are 18%, 0% or 5%, as provided in the Value Added Tax Act (transposing the Sixth Company Law Directive). The VAT tax period is one calendar month, thus VAT should be accounted for and paid monthly. The deadline for filing a VAT return is the fifteenth day of the following month. Starting from the date it registers as a VAT payer, a company is entitled to deduct input VAT paid on goods and services received.

3

Other taxes Depending on the types of commercial activity pursued by an SE, it could also be subject to natural resources tax, property tax or excise tax. Natural resources tax at various rates is levied on natural resources acquired as a result of any commercial activity as well as on environmental pollution, packaging activities, the production of radioactive substances, certain means of transport and similar activities. Property tax is levied at a rate of 1.5% on cadastral income from real property. The tax period is one year, but tax for the current year must be paid in four instalments. Cadastral income is determined by the State Land Service, taking

250

Latvia

into account the fair market value of the property in question for the past two years and any registered limitations on its use. Excise tax is levied at various rates on alcohol, tobacco and other goods specified in the Excise Tax Act.

XI

Conclusion Latvia has enacted minimum legislation to allow the formation and operation of SEs on its territory. To date, however, no SEs have been formed in Latvia, and it remains to be seen how well this legislation will work in practice.

251

9 Luxembourg p at r i c i a f e r r a n t e a n d m a r c m e y e r s NautaDutilh

I II III

IV

V

VI

252

Introduction 253 Reasons to opt for an SE 253 Formation 254 1 General remarks 254 A Founding parties 254 B Name 254 C Registered office and transfer 254 D Corporate purpose 257 E Capital 258 2 Different means of formation 258 A Formation by merger 258 B Formation of a holding SE 261 C Formation of a subsidiary SE 262 D Formation by conversion 262 E Acts committed on behalf of an SE in formation 3 Registration and publication 263 4 Acquisition of legal personality 264 Organisation and management 264 1 General remarks 264 2 General meeting of shareholders 265 A Decision-making process 265 B Rights and obligations of shareholders 266 3 Management 266 A One-tier system/Two-tier system 266 B Appointment and removal 268 C Representation 270 D Liability 271 Employee involvement 271 1 General remarks 271 2 Special negotiating body 272 3 Employee participation 275 4 Protection of employee representatives 276 Annual accounts and consolidated accounts 276 1 Accounting principles 276 2 Auditors 278

263

Luxembourg

VII Supervision by the national authorities VIII Dissolution 279 1 Winding up 279 2 Liquidation 279 3 Insolvency 280 4 Cessation of payments 281 IX Applicable law 282 X Tax treatment64 282 1 Income tax 282 2 Other taxes 284 A Net worth tax 284 B Value added tax (VAT) 285 C Capital tax1 285 XI Conclusion 285

I

279

Introduction The Regulation and the Directive were implemented in the Grand Duchy of Luxembourg (‘Luxembourg’) by the Act of 25 August 2006 on the SE (the ‘SE Act’) amending the law of 10 August 1915 on commercial companies (the ‘CCL’), as amended, and an act of the same date supplementing the statute of the SE with regard to employee involvement (the ‘Employee Involvement Act’).

II

Reasons to opt for an SE The main advantage of the SE over national corporate forms undoubtedly lies in its European character, which could prove to be a useful marketing tool for companies active across borders. Indeed, the SE could become an attractive vehicle to allow multinationals to combine their pan-European activities into, for instance, a holding SE, considering that an SE is easier to relocate, if necessary, based on the provisions for the transfer of its registered office. Moreover, until implementation of the Tenth Company Law Directive on crossborder mergers, the SE represents a significantly more flexible vehicle for crossborder transactions than national corporate forms in Luxembourg.

1

The Luxembourg government is currently reviewing the capital tax. Although it seems unlikely that the tax will simply be abolished, the competent minister has announced that plans to reduce the tax burden are currently under review. This could mean that a solution will be implemented before the year end.

253

The European Company

The foreseeable practical difficulties arising from implementation of the provisions on employee involvement could, in certain circumstances, limit the SE’s success.

III

Formation

1

General remarks

A

Founding parties

As a result of enactment of the option in Article 2(5) of the Regulation, companies having their registered office, but not their head office, in a Member State2 can still participate in the setting up of an SE provided they have been incorporated in accordance with the laws of a Member State and they have a continuous link with the economy of a Member State3 (Art. 26bis (4) CCL). Prior to implementation of the Regulation, a Luxembourg public limitedliability company (soci´et´e anonyme or SA) had to have at least two shareholders. Recognition of the single-member SA may facilitate the formation of subsidiary SEs in Luxembourg. B

Name

An SE must be identified by a specific company name or by a designation of its purpose, preceded or followed by the abbreviation ‘SE’. However, any company incorporated before the date of entry into force of the Regulation, i.e. before 8 October 2004, whose name contains the abbreviation ‘SE’ shall not be obliged to change it4 (Art. 25(2) CCL). An SE’s name shall differ from that of other legal entities so as to avoid confusion and mitigate the risk of litigation. C

Registered office and transfer

(i)

Registered office The traditional reference to a company’s principal establishment (si`ege r´eel)5 to determine its domicile, i.e. the lex societatis, and therefore whether it is governed by Luxembourg law has been replaced by a reference to its place of central administration (head office). However, scholars are of the opinion that both concepts should have the same meaning6 and that, therefore, the criteria to determine whether a company is subject to Luxembourg law should remain unchanged. 2 3 4 6

254

References to ‘Member States’ throughout this report shall be construed to mean the Member States of the European Union and of the European Economic Area (EEA). See vol. 1, chap. 2, no. 19 of this book. 5 Arts. 2 and 159 CCL. Ibid., vol. 1, chap. 2, no. 12. The Chambre de Commerce’s comments on the bill from 24 November 2005, p. 21.

Luxembourg

Pursuant to the Regulation, both the head office and the registered office of an SE must be located in the same Member State.7 However, an SE’s head office and registered office may be located at different places within Luxembourg8 (Art. 23(2) CCL). Unless indicated otherwise, a company’s head office shall be deemed to be located at the same place as its registered office. It may be hard to prove that a company’s head office and registered office are not located at the same place if the company’s articles of association allow meetings of its management organ to be held by any means of communication. Assuming there is sufficient proof in this regard, the Luxembourg district court (tribunal d‘arrondissement) for commercial matters (the ‘court’) may, at the public prosecutor’s request, order the dissolution and liquidation of an SE whose registered office is situated in Luxembourg but whose head office is located abroad (Art. 101(1) CCL). The company may, however, be given six months within which to regularise its situation, either by transferring its head office back to Luxembourg or by transferring its registered office abroad pursuant to the procedure described below. When an SE’s head office, but not its registered office, is located in Luxembourg, the public prosecutor shall inform the Member State in which its registered office is situated. (ii)

Transfer of registered office While the CCL remains silent on this point, Luxembourg authors and practitioners agree that an SA may transfer its registered office from Luxembourg without the loss of legal personality, subject to the unanimous consent of both shareholders and bondholders and provided the host Member State provides for a similar set of rules.9 The procedure to transfer an SE’s registered office from Luxembourg is, in all respects, similar to the rules laid down in the Regulation. The board of directors or the management board must draw up a transfer proposal (Art. 101-2 CCL), together with a report underlying the legal and economic aspects of the transfer and its implications for shareholders, creditors and employees (Art. 101-4 CCL). The transfer proposal must be filed with the Luxembourg Trade and Companies 7

8

9

Article 69(a) of the Regulation provides that within five years following its entry into force, i.e. on 8 October 2009 at the latest, the Commission shall report to the Council on inter alia the suitability of allowing SEs to have their registered office and head office in different Member States. The CCL, as amended, does not specify whether both the registered office and head office shall be located at the same place in Luxembourg. However, the legal committee (Commission juridique) is of the opinion that this need not necessarily be the case (Bill 5352/7, p. 10, §3). Luxembourg has thus not enacted the option contained in Article 7 of the Regulation, requiring SEs registered on its territory to have their head office and registered office at the same place. Bill 5357/7, p. 12.

255

The European Company

Register (the ‘Companies Register’) and published in Luxembourg’s official gazette, the M´emorial C, Recueil des Soci´et´es et Associations (the ‘M´emorial’) at least one month before the general meeting scheduled to vote on the transfer. The general meeting may not approve the transfer for two months following the date of publication of the transfer proposal. Since the transfer of an SE’s registered office from Luxembourg does not trigger a change in its nationality, the decision-making rules are slightly different than those applicable to the transfer of an SA, in which case the unanimous consent of shareholders and bondholders, if any, is required. With respect to an SE, the decision must be approved by the quorum and majority needed to amend the company’s articles, i.e. at least half the shareholders must be present or represented and the resolution must be adopted by at least two-thirds of the votes cast.10 If the SE has issued securities, other than shares, which carry preferential rights, the holders of such securities must be granted rights at least equivalent to those they possessed before the transfer, unless they agree otherwise by the quorum and majority required to amend the company’s articles. If no such meeting is convened or if the proposed changes to the preferential securities holders’ rights are rejected, the securities must be redeemed at a price equal to their value as stated in the transfer proposal and confirmed by an independent auditor appointed by the board of directors or the management board (Art. 101-9(3) CCL). Although the Regulation allows the Member States to adopt provisions designed to protect minority shareholders that oppose the transfer of an SE’s registered office, Luxembourg has not enacted this option. Creditors of an SE transferring its registered office are eligible for certain protection. Indeed, the transfer documents shall be made available to them, and to shareholders, at the company’s registered office at least one month prior to the general meeting scheduled to vote on the transfer, and they may request copies of these documents free of charge. They also benefit from the same protection afforded creditors of an SA in the event of a capital decrease by means of either a repayment to shareholders or a waiver of their obligation to pay up their shares. As a result, creditors of an SE whose claims arose prior to publication of the transfer proposal in the M´emorial11 may, within two months following such publication and notwithstanding any agreement to the contrary, petition the competent court, ruling as in summary proceedings, to award collateral (security) for any matured or unmatured debts if the transfer is liable to impair their rights and satisfaction of their claims. A creditor’s request may be 10 11

256

See Section IV.2.A below. These quorum and majority requirements are referred to in this report as ‘the conditions required to amend the articles’. Luxembourg has not enacted the option contained in Article 8(7) of the Regulation extending this protection to liabilities that arise (or which may arise) prior to the transfer.

Luxembourg

refused if the creditor is deemed to have adequate security or if such security is unnecessary, considering the company’s assets following the transfer. If the company is ordered to grant security and fails to do so within the prescribed timeframe, the claim shall become immediately due. The company may also settle claims by paying off creditors, even for term debts. The Regulation provides that the Member States can object to the transfer of an SE’s registered office on grounds of public interest. Although the original bill granted this right to the Ministry of Justice or any applicable financial supervisory authority, Luxembourg ultimately decided not to enact this option. The notary responsible for legalising the minutes of the general meeting approving the transfer shall issue a certificate stating that all formalities to be completed before the transfer have been fulfilled. This certificate is then produced in the Member State where the new registered office will be located for registration purposes. The transfer from Luxembourg is effective on the date the SE’s new registered office is recorded in the appropriate register in the other Member State. The transfer of an SE’s registered office to Luxembourg entails a restatement of its articles by notarial instrument in order to comply with mandatory provisions of the CCL. The transfer is effective upon recordation in the Companies Register. However, recordation with the Companies Register is contingent on the issuance of a certificate by the competent authority of the Member State where the SE’s registered office was located prior to the transfer attesting to completion of the requisite pre-transfer acts and formalities. In the event of a transfer to or from Luxembourg, the new registration or deletion of the old entry, as the case may be, shall be notified to the Companies Register and published in the M´emorial. It should be noted that an SE subject to proceedings for bankruptcy, insolvency, liquidation, a moratorium on payments (sursis de paiement), management control (gestion contrˆol´ee) or any other similar procedure is forbidden from transferring its registered office. D

Corporate purpose

Pursuant to Luxembourg law, the corporate form adopted by a company, and not its purpose, is the criterion used to determine whether it should be treated as a civil or commercial company. Accordingly, a company incorporated as a commercial company will be subject to the provisions of the CCL even if it carries on civil activities. The corporate purpose of Luxembourg companies, including SEs, must be clearly defined in their articles, and the company may be ordered to wind up if its corporate purpose is found to be unlawful or contrary to public policy. 257

The European Company

As a general rule, a company shall not be bound by ultra vires acts committed by its representatives, i.e. directors or members of its management board, as the case may be. The consequences of such a violation are described in more detail under Section IV below. E

Capital

The minimum share capital of an SE is €120,000.12 Even though the share capital of an SA may be expressed in a foreign currency as long as the amount converted into euros is equivalent to the minimum share capital, it can be inferred from Article 4 of the Regulation that an SE’s share capital may only be denominated in euros. The share capital must be fully subscribed,13 and at least one-fourth of each share shall be paid up in cash or in kind14 (contributions in kind must be fully paid up within five years following the date of incorporation).

2

Different means of formation

A

Formation by merger

(i)

Procedure As of the time of writing, Luxembourg law only recognises domestic mergers between companies that take the form of a soci´et´e anonyme. There is currently no national legislation allowing cross-border mergers or mergers between other corporate forms.15 Implementation of the Regulation goes one step further, as SAs set up in different Member States may now merge to form an SE, even if they are newly incorporated and/or have a different corporate purpose. Accordingly, a duly registered SE should also be entitled to merge with another SE, governed by the laws of a different Member State, in accordance with the following procedure. Formation of an SE by merger is contingent on the satisfaction of three cumulative conditions. The merging SAs must each: (i) be incorporated under the laws of a Member State; (ii) have their registered office and head office in the EU; and, (iii) with respect to at least two of them, be governed by the laws of 12 13

14 15

258

Without prejudice to national legislation requiring a higher threshold for companies that conduct specific activities, such as credit institutions and insurance companies. Pursuant to Article 26-3 CCL, the subscribed share capital can only consist of assets capable of being valued in monetary terms. An undertaking to perform work or supply services does not qualify as such. Contributions in kind shall be valued by a r´eviseur d’entreprises (Art. 26-1(2) CCL). The European Court of Justice’s judgment of 13 December 2005, commonly known as the SEVIC decision, clearly states that these types of restrictions violate the principle of freedom of establishment enshrined in Article 43 of the EC Treaty. Luxembourg Bill 4992 widens the scope of recognised restructuring transactions to include cross-border mergers initiated by any type of entity with legal personality.

Luxembourg

different Member States. Accordingly, two Luxembourg SAs cannot form an SE by merger. The formation of an SE by merger shall be carried out by the Luxembourg participating SA in accordance with Articles 26bis (1), 261 et seq. of the CCL. The merger can be realised either by absorption or by the incorporation of a new company. In the former case, the acquiring company takes the form of an SE, and the employees of the acquired company become those of the SE, whereas in the latter case, the SE will be a newly formed entity. The place where the acquiring company is established will therefore be decisive in determining the location of the SE’s registered office and applicable law. The boards of directors or, as the case may be, the management boards of the merging companies shall jointly draw up draft terms of merger including the following information: the address of the registered office of each merging company and of the future SE; the share-exchange ratio; the delivery terms for the shares; the effective date of the merger; and, if the SE is being formed by incorporation of a new company, its articles of association and information on the procedure to determine employee involvement. The draft terms of merger must be published in the M´emorial and in the national gazette of each Member State involved at least one month prior to the date on which the general meeting is scheduled to vote on the merger. The publication shall indicate the SE’s registration number and creditors’ rights. All of the abovementioned documents related to the merger, together with financial statements and the other documents mentioned in Article 267 of the CCL, shall be made available to shareholders at the company’s registered office at least one month prior to the date of the general meeting scheduled to vote on the draft terms of merger. Each merging company shall appoint one or more experts to examine the draft terms, unless the merging companies jointly decide to petition the president of the court in the judicial district in which one of them has its registered office to appoint a single expert. The expert’s report shall state inter alia whether the share exchange ratio is fair and reasonable and shall indicate and assess the suitability of the methods used to determine this ratio. For one month prior to the date of the general meeting scheduled to vote on the draft terms of merger, the reports referred to above, together with other corporate and financial documents,16 shall be made available to shareholders at the companies’ registered offices for inspection (Art. 267 CCL).

16

See Vol. 1, chap. 2, no. 28 of this book.

259

The European Company

The merger must be approved by the general meeting of each merging company, including, where appropriate, the holders of securities other than shares.17 The general meeting must also approve the arrangements for employee involvement and can make registration of the SE subject to its express ratification of these arrangements. The merger must be approved by the quorum and majority required to amend the company’s articles of association.18 It should be noted that, pursuant to Article 264 of the CCL, approval of the merger by the acquiring company is not necessary if certain conditions are met. The minutes of the general meeting, or the draft terms of merger if the merger need not be approved by the general meeting, must take the form of a notarial instrument, the notary being the authority competent by law to scrutinise the legality of the merger. Indeed, the notary will issue a certificate attesting to completion of the relevant pre-merger acts and formalities. For an SE to be registered in Luxembourg, the Luxembourg notary must be provided with the certificate referred to above, duly drawn up by the competent authority in the Member State concerned, within six months of its issuance, together with a copy of the approved draft terms of merger. Failure to comply with the procedure to scrutinise the legality of a merger may be a ground for dissolution of an SE thus formed.19 Luxembourg has not enacted the option contained in Article 19 of the Regulation to forbid a company governed by Luxembourg law from taking part in the formation of an SE by merger if any competent Luxembourg authority objects to its participation before the notary issues the abovementioned certificate. In contrast to the rules applicable to SAs (Arts 272 and 273 CCL), the merger and subsequent formation of an SE are effective between the parties thereto and against third parties as from the SE’s registration date with the Companies Register, which is contingent upon completion of the formalities described above (Art. 273bis CCL). The formation of an SE by merger has consequences similar to those of a traditional merger, i.e. all assets and liabilities of the acquired company are transferred to the acquiring company; shareholders of the acquired company become shareholders in the SE; the acquired company ceases to exist; and the acquiring company takes the form of an SE.

17

18

19

260

The holders of securities other than shares are protected by rules laid down in Article 270 CCL, which are in all respects similar to those set forth in Article 101-9, applicable to such holders in the event of the transfer of an SE’s registered office. According to Bill 4992, which should be enacted shortly, if the share capital of the merging companies is divided into several classes of shares and the decision to merge is liable to affect the rights of the holders of multiple classes, the same majority and quorum requirements must be met in each class. Luxembourg has accordingly enacted the option contained in Article 30 of the Regulation.

Luxembourg

A merger intended to form an SE may only be avoided prior to registration of the SE with the Companies Register. The above procedure also applies to a merger by incorporation of a new company (an SE), in which case the draft terms of merger, containing the SE’s draft instrument of incorporation, must be approved by the general meeting of each company that will cease to exist. (ii)

Protection of creditors and minority shareholders If the merger will jeopardise the rights of the merging companies’ creditors, the latter shall be entitled to the same level of protection as that afforded creditors of a company transferring its registered office abroad (see Section III.1.C (ii), para. 6). It should be noted that Luxembourg has not adopted any specific rules designed to protect minority shareholders who oppose the formation of an SE by merger or by any other means described below.

B

Formation of a holding SE

It should first be mentioned that both SAs and private limited-liability companies (soci´et´e a` responsabilit´e limit´ee or S.`a r.l.) incorporated under the laws of a Member State and having their registered office and head office within the EU, at least two of which are governed by the laws of different Member States or have had a subsidiary or branch in another Member State for at least two years, can form a holding SE. In addition, given that the companies forming a holding SE survive the transaction and that it is not necessary to transfer employees from the participating companies to the SE, the applicable procedure is quite similar to the procedure to form an SE by merger. Management (that is, the board of directors, the management board or the managers) of the Luxembourg promoting company and of the other participating companies shall jointly draw up draft terms for the formation of a holding SE, focusing on the legal and economic aspects of the operation and highlighting the consequences thereof for shareholders and employees. These draft terms shall contain the information set forth in Articles 20(1)(a), (b), (c), (f), (g), (h) and (i) of the Regulation and shall fix the minimum percentage of shares of the participating companies to be contributed to the SE by their shareholders in exchange for shares in the SE, considering that the latter must hold more than 50% of the voting rights in each participating company. The draft terms shall be published in the M´emorial at least one month prior to the date of the general meeting scheduled to vote on them. A report to shareholders prepared by one or more statutory auditors (r´eviseurs d’entreprises) appointed by management shall mention, in addition to the information required by Article 32(5) of the Regulation, whether the share exchange ratio is fair and reason261

The European Company

able (Art. 26sexies (2) CCL). As allowed where an SE is formed by merger, one or more independent experts may draw up the report for all participating companies, in accordance with the procedure described in Section III.2.A.(i) above. The terms of formation, as well as the arrangements for employee involvement, shall be approved by the general meeting of shareholders and by the holders of securities other than shares, if any, of each participating company. As from the date of approval, the shareholders of each participating company shall have three months to decide whether to contribute their shares to the SE. Incorporation can take place only if the 50% threshold set forth in the draft terms of formation is met.20 Shareholders who have not indicated whether they intend to contribute their shares to the SE by the aforementioned deadline shall have an additional month within which to do so (Art. 26octies CCL). A notary’s certificate that all formalities required to incorporate a holding SE, as described in Article 33 of the Regulation, have been complied with must be published. Registration of the SE is contingent upon the fulfillment of this requirement. C

Formation of a subsidiary SE

Any civil or commercial company with legal personality, as well as legal entities governed by public law, is entitled to form a subsidiary SE. The establishment by an SE of a wholly owned (100%) subsidiary SE will be facilitated by the introduction into Luxembourg law of the single-member SA. The participating companies must meet the same conditions as described in the first paragraph of Section III.2.B above. As the Regulation and the CCL are silent on the formation procedure, the incorporation of a subsidiary SE will follow the rules of national law on the incorporation of an SA. D

Formation by conversion

Apart from Article 3 of the CCL, Luxembourg law contained few provisions on conversion until the enactment of the Regulation. Any SA (but not any other corporate form) may be converted into an SE, provided it can prove that it has held for at least two years a subsidiary governed by the laws of another Member State (Art. 3(6) CCL). A branch is thus not sufficient. The conversion of an SA into an SE will not result in the winding up of the company or in the formation of a new legal entity (Art. 3(8) CCL).

20

262

See Vol. 1, chap. 2, nos. 41 and 42 of this book.

Luxembourg

The SA’s management shall draw up draft terms of conversion on the legal and economic aspects of the operation and the potential consequences thereof for the company’s shareholders and employees. The draft terms shall be published in the M´emorial at least one month before the general meeting scheduled to vote on the conversion. An independent auditor appointed by management shall certify that the company’s net assets are at least equal to its share capital plus any reserves not available for distribution according to law or the company’s articles. The draft terms of conversion shall be approved by the general meeting

263

The European Company

of shareholders by the same quorum and majority required to amend the articles. Upon registration of the SE, any agreements (and obligations arising therefrom) entered into by the converted company, including those with employees, shall be transferred to the SE. The registered office of an SA may not be transferred while it is in the process of being converted into an SE. In practice, the SA should first complete the conversion process and then transfer its registered office (Art. 31-3(6) CCL). An SE with its registered office in Luxembourg can be converted into an SA if it has been in existence for two years and has approved two sets of annual accounts. The procedure shall be in all respects similar to the procedure to convert an SA into an SE. In addition, all provisions of Luxembourg law with respect to the incorporation of an SA shall apply (Art. 31-1 CCL). E

Acts committed on behalf of an SE in formation

Any person who commits an act on behalf of an SE in formation, which is therefore without legal personality, shall be personally, jointly and severally liable, subject to any agreement to the contrary, if the SE does not assume the act within two months following its incorporation or if the SE is not incorporated within two years after the commitment was first entered into. Any commitments assumed by the SE shall be deemed to have been entered into by it from the outset (Art. 12bis CCL).21

3

Registration and publication Pursuant to Luxembourg law, any act, instrument or document of any kind that must be published by law shall be filed with the Companies Register within one month of being finalised. Publication shall occur within two months thereafter. Accordingly, any reference in this report to a publication requirement shall be understood to refer to both filing and publication procedures (Art. 9 CCL). An SE shall be incorporated by means of a notarial instrument published in its entirety in the M´emorial. Amendments to the articles must also be published. Pursuant to the fourth paragraph of Article 9 of the CCL, documents that require publication are only valid against third parties as of their publication date in the M´emorial, unless the company can prove that the third party in question knew of the document. Third parties may, however, rely on a document even if it has yet to be published.22 Following publication in Luxembourg, pursuant to Article 14 of the Regulation, a notice of registration of the SE shall be published in the Official Journal of the European Communities for information purposes.23 21 23

264

Ibid., Vol. 1, chap. 2, no. 55. Ibid., Vol. 1, chap. 2, no. 52.

22

Ibid., Vol. 1, chap. 2, no. 53.

Luxembourg

4

Acquisition of legal personality Whereas other Luxembourg private legal entities validly exist as of their date of incorporation, recorded by means of a notarial instrument, an SE only has legal personality upon registration (i.e. the filing of its articles) with the Companies Register.

IV

Organisation and management

1

General remarks Implementation of the Regulation gave the Luxembourg legislature the chance to update national corporate law, going beyond the mere enactment of rules in connection with the SE and the extension of these rules to the SA. Consequently, meetings of the corporate bodies of an SA or an SE may now be validly held by any means of communication and, for general meetings, by way of correspondence, the members’ physical presence no longer being necessary. This welcomed initiative will undoubtedly facilitate the decision-making process in Luxembourg companies as most shareholders/members of management are not Luxembourg residents. Decision-making power has traditionally been divided between the general meeting, endowed with sovereign authority, and the board of directors, which wields residual powers. Implementation of the Regulation led to the introduction of a new organisational model. Indeed, the traditional one-tier system lost its supremacy with the restatement of the CCL, which now allows any SA to opt for either a one-tier or a two-tier management structure. Even though the two-tier system could be considered more in line with today’s corporate governance rules, foreign investors setting up a Luxembourg entity, most often an SPV, may not be overly enthusiastic about it, as they typically seek flexibility and a fast decision-making process. It should be noted that the Luxembourg legislature was influenced by the French legal framework, whose rigidity has prevented the two-tier system from achieving much success.24 Moreover, given that the management organ’s, supervisory board’s and auditors’ respective spheres of influence are not clearly defined in the CCL, practitioners should draft the company’s articles of association carefully. However the two-tier system is likely to meet expectations for large companies (specifically listed ones) and institutional investors, especially those from countries where the two-tier system is the only model available to incorporate in Luxembourg.25

24 25

M´emento Pratique Francis Lef`evre, Soci´et´es Commerciales, 2006, 581, no. 9467. Bill 5352/3, Avis de la Chambre de Commerce, 16-17.

265

The European Company

2

General meeting of shareholders

A

Decision-making process

According to the Regulation, an annual general meeting must be held within six months following the close of the financial year for the purpose of approving the SE’s annual accounts and deciding on the allocation and/or distribution of profits, if any. Since the option contained in Article 54 of the Regulation has been enacted in Luxembourg, the first general meeting of an SE may be held at any time within eighteen months following its incorporation26 (Art. 70 CCL). If the company has only one shareholder, this shareholder shall exercise the powers of the general meeting (Art. 67(1) CCL). Any organ of an SE, including its auditors, can call a general meeting at any time. In fact, a meeting must be held when shareholders representing at least 10% of the share capital so request in writing, indicating the agenda.27 If no general meeting is held within one month’s time, it may be convened by a representative appointed by the president of the competent court (commercial division, ruling as in summary proceedings) at the request of shareholders representing the abovementioned percentage of the share capital (Art. 70 CCL). A meeting must also be held if so requested by shareholders representing at least the above percentage of the share capital: (i) within a period not to exceed two months from the time a loss of half the share capital has been or should have been recorded in order to vote on dissolution of the company; and (ii) within the same time period mentioned in (i) in the event of a loss equal to three-quarters of the share capital, provided, in this case, that dissolution shall be effective if approved by one fourth of the votes cast at the meeting (Art. 100 CCL). Notices of a general meeting shall contain the agenda. One or more additional items may be added to the agenda at the written request of shareholders representing at least 10% of the subscribed capital, sent to the SE’s registered office by registered mail at least five days prior to the date scheduled for the meeting (further to the option contained in Article 56 of the Regulation). Decisions shall be approved by a majority of votes validly cast, unless where the articles or the CCL require a greater majority. Indeed, the obligations of shareholders may be increased only with the unanimous consent of both shareholders and bondholders. Moreover, amendments to the articles require a quorum of at least half the shareholders and must be approved by at least two-thirds of the votes validly cast (including abstentions and blank or spoilt ballots). Despite discussions regarding the introduction of the option in Article 59(2) 26 27

266

This time period should not be confused with the potential eighteen-month term of the first financial year. Enactment of the option provided for in Article 55(1) of the Regulation.

Luxembourg

of the Regulation, the Luxembourg legislature ultimately decided not to allow shareholders to include in the company’s articles a provision allowing amendments thereto by a simple majority. If an SE has different classes of shares and the resolutions to be adopted affect the rights of various classes, they shall be put to a separate vote by each class, respecting the aforementioned quorum and majority requirements. Each shareholder shall be entitled to vote either in person or by proxy. If the articles so provide, votes may be cast by videoconference or any other means of communication allowing for identification of the participants (Art. 67(3) CCL) or even in writing, in which case the form shall be determined in the articles (Art. 67(3bis) CCL). Each share shall carry only one vote at general meetings, i.e. plural voting is not allowed. However, if a capital call has been issued and a shareholder has failed to respond accordingly, that shareholder’s voting rights shall be suspended until the requested payment is made. B

Rights and obligations of shareholders

The rights and obligations of an SE’s shareholders are set forth in the CCL and in the company’s articles. Indeed, shareholders of an SE have rights similar to those of any other corporate form, such as the right to equal treatment, to receive dividends, to exercise pre-emptive rights, to vote and inspect certain corporate documents prior to the general meeting of shareholders, etc. At first sight, implementation of the Regulation could be seen as resulting in increased protection for minority shareholders. However, while the ownership threshold required to request that a general meeting be held has been lowered (from 20% to 10%), undoubtedly a positive development, the threshold for certain other actions by minority shareholders, such as postponement of a general meeting, remains unchanged. In the end, it appears that minority shareholders’ rights were not actually a matter of priority for the Luxembourg legislature, which chose to focus instead on implementation of the Regulation’s mandatory provisions.

3

Management

A

One-tier system/Two-tier system

(i)

General remarks Founders of an SA or an SE may opt for either a one-tier or a two-tier management structure, both at the time of incorporation and at any time during the company’s lifetime. In both systems, an SE is bound by any acts committed by its management organs, members of management with authority to represent the company, and persons entrusted with day-to-day management, even if these 267

The European Company

acts fall outside the scope of the SE’s corporate purpose, unless it can prove that the third party in question was or should have been aware of the ultra vires nature of the act (Arts. 60bis and 60bis-10 CCL). Any member of an SE’s management organ with an interest in a transaction submitted for that organ’s approval which conflicts with the company’s interests shall call the matter to the attention of the organ, except for standard transactions concluded at arm’s length and at market conditions (Arts. 57, para. 4 and 68bis18 CCL). Members of an SE’s organs may not divulge any information in their possession that relates to the company if such disclosure could be prejudicial to the company’s interests, except when required to do so by law or if disclosure would be in the public interest. This duty of confidentiality survives termination of the members’ functions and extends to any persons allowed to attend meetings of an SE’s organs. (ii)

One-tier system In the one-tier system, the board of directors manages the SE and has the power to take any actions necessary or useful to realise the company’s corporate purpose, with the exception of those reserved by law or the company’s articles to the general meeting. Moreover, the articles may specify transactions that must be expressly approved by the board of directors (Art. 53 CCL). The board of directors shall meet at intervals specified in the articles, at least once every three months, to discuss the progress and foreseeable development of the SE’s business (Art. 64(3) CCL). Unless otherwise stated in the articles or the CCL: (i) decisions shall be adopted by a majority of the votes cast by those directors present or represented, the board validly deliberating if at least half the members are present or represented; and (ii) the chair casts the deciding vote in the event of a tie. Practice indicates that resolutions may be adopted by other means if the articles so allow. For instance, resolutions may be adopted by videoconference or by any other means of communication, if the articles so provide (Art. 64bis 3), in which case the meeting shall be deemed to have been held at the SE’s registered office.

(iii)

268

Two-tier system In the two-tier system, the management board manages the SE and wields extensive powers, similar to those of the board of directors in the one-tier system, except that the articles must include a list of transactions whose adoption is subject to the prior authorisation of the supervisory board. However, the Luxembourg legislature opted for flexibility. Accordingly, it did not enact the options contained in Articles 48(1)(2) and 48(2) of the Regulation as the SE Act does not: (i) grant the supervisory board discretionary authority to make certain

Luxembourg

categories of transactions subject to its prior authorisation; or (ii) determine categories of transactions which must be indicated in an SE’s articles. If the supervisory board vetoes a decision taken in connection with a transaction listed in the SE’s articles, the general meeting shall settle the matter, if asked to do so by the management board (Art. 60bis-7 (2) CCL). The management board is permanently monitored by the supervisory board, which, however, may not interfere in the SE’s management without risking recharacterisation as a de facto director (dirigeant de fait) and incurring liability as such. The management board shall: (i) report in writing28 to the supervisory board at least once every three months on the progress and foreseeable development of the SE’s business; (ii) promptly inform the supervisory board of any events likely to have a material effect on the SE;29 and (iii) submit to the supervisory board each year financial statements and a related report,30 which are then submitted to the general meeting together with the supervisory board’s comments thereon (Arts. 60bis-12 and 60bis-13 CCL). The supervisory board may conduct investigations for the purpose of auditing transactions of any kind by: (i) inspecting at the SE’s registered office any corporate or financial document; (ii) undertaking or arranging for any investigation necessary to perform its duties; and (iii) instructing the management organ to provide information of any kind. The board of directors’ internal procedure, detailed in Section IV.3.A.2 §2 above, applies to both the management board and the supervisory board. However, the supervisory board shall meet at the request of its chair, who shall call a meeting when asked to do so by at least two supervisory board members or by the management organ. Members of the management board may be asked to attend meetings of the supervisory board, but in an advisory role only. B

Appointment and removal

Directors (in the one-tier system) and members of the supervisory board (in the two-tier system) are appointed and removed by the general meeting, although 28

29

30

By specifically requiring a written report, the Luxembourg legislature went beyond the requirements of Article 41(1) of the Regulation (although the Regulation could be interpreted as implicitly requiring a written report) in order to avoid discussion as regards the form of the report. Noncompliance with this duty may result in the imposition of criminal sanctions on members of the management organ. As the scope of this obligation is vague, members of the management organ could be tempted to provide the supervisory board with any information, relevant or not, in order to avoid, to the extent possible, liability under Article 173bis CCL (Bill 5352/3, Avis de la Chambre de Commerce, 29). Including all documents listed in Article 72 CCL.

269

The European Company

the first appointments may be made in the company’s articles (Arts. 51 and 60bis-14 CCL). Members of the management board are appointed by the supervisory board, unless the general meeting has been granted exclusive authority to appoint them in the articles (Art. 60bis-3). Members are removed by the supervisory board, together with the general meeting of shareholders if the articles so provide (Art. 60bis-3 and 60bis-5).31 The number of members of each corporate body can be freely determined in the SE’s articles.32 The board of directors and the supervisory board,33 however, must have at least three members34 where employee participation is regulated in accordance with the Directive (Art. 51(2) CCL). It can be inferred from Article 60bis-2(2) CCL that the management board must have at least two members,35 except in the case of a single-member SE or if the company’s share capital does not exceed EUR 500,000. Members of an SE’s organs, regardless of whether they are shareholders, are appointed for a term set forth in the articles not to exceed six years and may be re-appointed and removed from office ad nutum. They may be remunerated, but this is not necessary.36 Natural persons or legal entities can be appointed to an SE’s organs. It should be noted that a legal entity must appoint a natural person to exercise its functions in its name and on its behalf. These personal representatives can incur civil liability as if they act in their own name, notwithstanding their joint liability with the company they represent (Arts. 51bis and 60bis-4 CCL). No one may sit at the same time on both the management board and supervisory board of an SE. In the event of a vacancy on the board of directors, the management board or the supervisory board, the remaining members of the respective body, unless the 31

32 33 34 35 36

270

The Luxembourg legislature discussed the possibility of granting the power to remove members of the management organ to the supervisory board only (Bill 5352/5). However, the Council of State (Conseil d’Etat) emphasised that such a provision would effectively release the members of the management organ from liability to shareholders (Bill No 5352/6). It was finally decided to enact the option granted by the Regulation and to allow shareholders to remove members of the management organ if the articles of the company, be it an SA or an SE, so allow. The board of directors of an SA shall be composed of at least three directors, except for a single-member SA, which can have one director. Art. 60bis-14 cross refers to Articles 51, 51bis and 52 CCL. Enactment of the option contained in Article 40(3) of the Regulation; with respect to the board of directors, Luxembourg law already provided for a minimum of three directors. Enactment of the option contained in Article 39(4) of the Regulation The first bill (Art. 60bis-6) provided for remuneration of members of the management organ. The Council of State did not see any reason to so distinguish between members of the board of directors and of the management organ, however.

Luxembourg

article provide otherwise, shall appoint a temporary replacement. A permanent member shall be named at the next general meeting of shareholders (for directors and supervisory board members) or the next supervisory board meeting or general meeting of shareholders (for management board members) (see Section IV.3.B.2 above). In the event of a vacancy on the management board, a member of the supervisory board can temporarily step in, in which case his or her functions on the supervisory board shall be suspended.37 In any case, the substitute member shall remain in office only until the end of the outgoing member’s term. The board of directors, the management board and the supervisory board shall each select a chair from amongst their members. If half the members of an SE’s organ are appointed by employees, only a member appointed by the general meeting can serve as chair (Art. 64(2) CCL). It should be noted that the chair is not entrusted with the same extensive powers as in France and can in no case be considered a corporate organ. Extracts of any instrument relating to the appointment or removal of any member of an SE’s organs, including the personal representatives of legal entities, shall be filed with the Companies Register and published as required by law. C

Representation

The board of directors in the one tier-system and the management board in the two-tier system represent the SE vis-`a-vis third parties and in legal proceedings, as plaintiff or defendant. Legal documents served on behalf of, or on, an SE shall be validly served if they are in the name of the company alone.38 Any limitations on such powers resulting from either the articles or a decision of the competent corporate organ are not valid against third parties, even if published. However, the articles may authorise one or more directors or members of management to bind the company, either singly or jointly. Such a clause will be effective against third parties, subject to its publication. The rules on the delegation of authority applicable to SAs apply to both the board of directors and the management board of an SE. Thus, day-to-day managerial authority and the power to represent the SE in relation thereto can be delegated to one or more directors or members of the management board or to any other 37 38

Luxembourg law does not stipulate any specific time limit as permitted by Article 39(3) of the Regulation. Such a provision is standard and applied to various Luxembourg corporate forms prior to implementation of the Regulation, as confirmed by the case law, despite a rule of civil procedure to the effect that a summons is validly issued against a company when served on the corporate body authorised to represent it. It would have been worthwhile to amend this provision so as to bring it into line with the spirit of the Regulation, which requires that each legal entity appoint a natural person to represent it.

271

The European Company

person, who need not be a shareholder, acting singly or jointly. Pursuant to implementation of the Regulation, such a delegation of authority is no longer subject to the prior authorisation of the general meeting (Art. 60 and 60bis-8 CCL).39 , 40 In the two-tier system, the supervisory board may set up sub-committees and grant specific powers of attorney, which shall not be deemed a delegation of authority (Art. 60bis-15 CCL). D

Liability

The liability rules applicable to an SA also apply to members of the board of directors, the management board and the supervisory board of an SE, who are liable to the SE, in accordance with general principles of law, for the performance of their duties and for any misconduct in relation thereto, i.e. management of the company’s affairs (for the board of directors and the management board) and supervision (for the supervisory board). Furthermore, they shall be jointly and severally liable to both the SE and third parties for any damage resulting from violation of the CCL or the SE’s articles. Liability can be avoided if it can be demonstrated that the member in question was not a party to the violation, no misconduct can be attributed to him or her, and the member disclosed the violation at the first general meeting after learning of it (Arts. 59, 60bis-10 and 60bis-16 CCL). Members of the management organ may not claim a release from liability on the ground that the decision was adopted with the prior authorisation of the supervisory board (Art. 60bis-10). Members of an SE’s organ may also incur criminal liability.

V

Employee involvement

1

General remarks The structure and content of the Employee Involvement Act mirror those of the Directive, for the most part. The Employee Involvement Act aims at implementing minimum rules to guarantee application of the before/after principle. As a result, an SE is not obliged to introduce rules on employee participation if none of the participating companies was subject to such rules beforehand.41 Indeed, this should be the case when, for example, the company to be converted into an SE does not provide for employee participation.

39

40

272

With respect to the board of directors, such rules could be found in the CCL prior to enactment of the SE Act. Enactment of the option contained in Article 39(1) of the Regulation. 41 Bill 5435/3, p. 7.

Luxembourg

The Employee Involvement Act has, in fact, not introduced any new substantive concepts into Luxembourg labour law, considering that: (i)

The mechanism to create an SNB was first introduced into national law following the transposition of Directive 94/45/CE (the ‘EWC Directive’)42 by the Act of 28 July 2000 on the establishment of a European works council or specific information and consultation procedures in Community-scale undertakings and Community-wide groups of undertakings (the ‘EWC Act’); (ii) Employee participation in SAs with at least 1,000 salaried employees for the past three years and in companies in which the Luxembourg government holds a stake of at least 25% is provided for by the law of 6 May 1974 on works councils (comit´es mixtes) and employee representation in the SA (the ‘1974 Act’). One drawback of the 1974 Act is that it only provides for employee participation in an SA with a board of directors, the two-tier management system being unknown in Luxembourg prior to implementation of the Regulation.43 As a result, there was initially no legal obligation for an SA with a two-tier management structure to provide for employee participation on its supervisory board.44 This has since been amended by the Employee Involvement Act (Arts. 23 and 24); and (iii) The Employee Involvement Act expressly refers to certain provisions of the law of 18 May 1979 on staff delegations (d´el´egations du personnel), as amended (the ‘1979 Act’ or the ‘Staff Delegations Act’).

For the above reasons, the following overview is not a comprehensive guide to employee involvement in the SE, as set forth in the Employee Involvement Act, but rather focuses on the distinctive features in this regard under Luxembourg law.

2

Special negotiating body An SNB shall be established as soon as possible following publication of the draft terms of merger, the intention to set up a holding SE, approval of the draft terms of formation for a subsidiary SE, or the conversion of an SA into an SE, as the case may be (Art. 31 Employee Involvement Act). The rules in the Employee Involvement Act on composition of the SNB closely resemble those set out in the Directive and also provide for additional members 42 43

44

See Vol. 1, chap. 1, p. 17 and chap. 3, no. 50 of this book. In fact, pursuant to Article 44 of the 1974 Act, this rule should apply de facto if a two-tier system is introduced into national law. However, as this provision was a transitional measure, to avoid confusion it has been abrogated by the Employee Involvement Act (Bill 5435/7 p. 2). Bill 5435 no 3, p. 2.

273

The European Company

when an SE is formed by merger.45 However, the Luxembourg legislature has introduced additional provisions designed to take into account changes that are liable to occur after formation of the SNB. Indeed, the functions of SNB members shall come to an end when they cease to represent employees46 as a result of an amendment to the terms of formation of the SE to which they are affiliated. In addition, the composition of the SNB shall be adapted accordingly in the event of substantial changes, such as a transfer of the SE’s registered office, a change in its composition or amendments that may affect the distribution of seats on the SNB in one or more Member States (Art. 3(3) Employee Involvement Act). Representatives of Luxembourg employees to the SNB shall be elected or appointed by the employee delegation, i.e. by central delegations,47 if any, or principal delegations48 created in accordance with the Employee Delegations Act, from amongst either the employees themselves or their trade union representatives.49 Such appointments are subject to quite complex provisions which provide, for instance, for balanced representation of various categories of employees, i.e. white-collar employees and blue-collar workers (Art. 4(2) §2 and (4) Employee Involvement Act). In addition, if the Luxembourg employees come from several entities, each of which has one or more employee delegations, representatives shall be appointed or designated by the delegations in a general meeting, in accordance with a specific procedure (Art. 4 (5) Employee Involvement Act). The Employee Involvement Act specifies that employee representatives for Luxembourg public entities shall be appointed by the employees’ committee 45 46 47

48

49

274

See Vol. 1, chap. 3, nos. 6 to 8 of this book. Unless stated otherwise herein, references to ‘employee(s)’ or ‘worker(s)’ shall mean all categories of employees without distinction. A central delegation shall be formed when more than one establishment forms a single entity, and each constituent establishment employs at least 15 salaried workers. Such a delegation is composed of three effective and three substitute representatives, elected by the principal delegations of the relevant establishments. When the latter have separate delegations representing white-collar employees and blue-collar workers, there must be a central delegation for each category (Art. 3 Staff Delegations Act). Principal delegations are set up in private legal entities employing at least 15 salaried workers and in public legal entities with at least 15 blue-collar workers on a regular basis. A single delegation for both white-collar and blue-collar employees shall be formed in establishments with less than 100 employees. Above this threshold, if the legal entity regularly employs at least 15 employees in each category, there must be a delegation for white-collar employees and one for blue-collar employees. If the number of regular salaried employees falls below 15, a single delegation shall suffice (Art. 1 Staff Delegations Act). This option is granted by Article 3(2)(b)(2) of the Directive and reflected in Article 4(1) of the Employee Involvement Act, the scope of which is limited to trade unions with national or sector-level membership and which have taken part in a collective bargaining agreement applicable within a participating company, relevant subsidiary or establishment.

Luxembourg

mentioned in Article 36 of the law of 16 April 197950 on the general status of state employees. Employee representatives shall include both effective and substitute members, elected by a simple majority of the votes cast. Elections are supervised by the Labour and Mining Inspectorate (Inspection du Travail et des Mines). Once an SNB is formed, negotiations with the competent bodies of the participating companies with a view to reaching an agreement on employee involvement shall continue for six months, which period may be extended up to one year. The final agreement51 should at least mention, for instance, the option of introducing one or more information and consultation procedures rather than having a representative body.52 The parties remain free to broaden the scope of their agreement by providing, for example, that each participating company shall bear: (i) the fees of more than one expert appointed to assist the SNB;53 and/or (ii) fees corresponding to the expert’s participation at more than one meeting. However, the SNB may freely decide not to enter into negotiations or, at a later stage within the abovementioned time period, to break off negotiations. In both cases, the provisions of the ECW Act shall apply, application of the standard provisions being expressly excluded. Alternatively, the SNB can opt to apply the standard rules. It should be noted that the standard rules shall also apply if: (i) the SNB fails to reach an agreement within the time period allotted and the SE has been duly registered; or (ii) the agreement is declared null and void due, for instance, to non-compliance with the before/after principle. Considering that the Luxembourg legislature did not enact the option contained in Article 7(3) of the Directive, the standard rules may also apply when an SE is formed by merger. It is important to note that the rules to appoint members of the representative body to be created in accordance with the standard rules are in all respects similar to the rules applicable to appoint SNB members, except that representatives of national trade unions are not eligible, i.e. members of the representative body shall be elected from amongst the employees only, by either the central or 50

51 52 53

Insofar as a subsidiary SE may be formed by companies and other entities governed by public law, the law shall also cover representation rules for the employee representatives of such entities. See Vol. 1, chap. 3, no. 21 for comments on the additional requirements when an SE is formed by conversion, as set forth in Article 6(3) of the Employee Involvement Act. Art. 6 Employee Involvement Act. Ibid., Arts. 5(4) and (7). Based on the option contained in Article 3(7) of the Regulation, the SE Act provides that, unless otherwise regulated by the agreement on employee involvement, each participating company shall bear the costs of a single expert to assist the SNB, limited to expenses directly related to the expert’s attendance at meetings.

275

The European Company

principal delegations, as the case may be (Art. 10 Employee Involvement Act). The term of office of members of the representative body of an SE with its registered office in Luxembourg is five years. It is important to note that, with respect to the standard rules for information and consultation, Luxembourg has enacted the options contained in Part 2(d) and (h) of the Annex to the Directive, which provide for information and consultation meetings to be chaired by the chairman of the board of directors or of the management board (Art. 11(4) Employee Involvement Act) and, unless agreed otherwise, limit the costs to be borne by the SE in relation to experts to one expert per nine members of the representative body (Art. 11(8) §2 Employee Involvement Act).

3

Employee participation Unlike the EWC Directive, which provides only for consultation and information, the scope of the Directive extends to employee participation. In accordance with Article 13(2) of the Directive, and in order to avoid the concomitant application of two similar systems, the 1974 Act does not apply to SEs with their registered office in Luxembourg.54 In this case, the term of office for employee representatives on the board of directors or the supervisory body shall be equivalent to that of other directors or board members, as the case may be, and shall be renewable. Employee representatives cannot be removed from office by the general meeting of shareholders.55 With respect to the standard rules for participation (regardless of where the SE’s headquarters are located), Luxembourg representatives to the employee representative body shall be appointed by the employees’ committee based on a list system, following the rules on proportional representation amongst employees applicable in the relevant company. The allocation of seats between white-collar and blue-collar employees shall be pro rata to their respective numbers.56 In the event different participation systems exist in the participating companies promoting the formation of a holding or a subsidiary SE, the SNB, applying the standard rules, shall opt for one form of participation within two 54

55 56

276

With respect to the standard rules for employee participation in an SE, Article 12 of the Employee Involvement Act mirrors Part 3 of the Annex to the Directive; see also Vol. 1, chap. 3, no. 51 with respect to the applicable rules and nos. 41 to 49 for further information on the content of the arrangements for employee participation. Arts. 51 paras. 3 to 6, 52 and 60bis-15 of the CCL are not applicable to employee representatives on the board of directors or supervisory board. The R`eglement Grand Ducal of 24 September 1974 on the election of employee representatives to employee delegations and boards of directors shall apply as regards the ballot-related rules.

Luxembourg

months from the time it is requested to do so by the competent organs of the promoting companies (Art. 8(2)(3) SE Act), the latter being otherwise entitled to select the applicable system provided they inform the SNB of their decision.57

4

Protection of employee representatives With a view to ensuring consistency with the existing rules on the protection of employee representatives set forth in the EWC Act, which refers to the 1979 Act, similar protective measures apply to members of the SNB and the employee representative body and to employee representatives on the supervisory or administrative board of an SE (collectively referred to as the ‘representatives’). Indeed, representatives are, for instance: (i) protected against dismissal58 for the duration of their term of office and up to six months following the expiry thereof or the date on which their functions cease (Art. 16(1) Employee Involvement Act); (ii) allowed, with the prior approval of the employer or its representative, to use working time to complete their duties under the Employee Involvement Act without any adverse financial consequences (Art. 16(2) and (3) Employee Involvement Act); and (iii) granted one week off per year to take part in training sessions organised by the trade unions or any other specialised institution on topics liable to improve their economic, labour or technical knowledge and which are deemed useful in the performance of their duties as representatives (cong´e-formation) (Art. 16(6) Employee Involvement Act). Representatives must also abide by certain duties and may not, for instance, reveal trade or commercial secrets or any information received on a confidential basis from the SE. Articles 309 and 458 of the Luxembourg Criminal Code set forth sanctions for violation of this duty of confidentiality.

VI

Annual accounts and consolidated accounts

1

Accounting principles In keeping with the Regulation, the provisions of Luxembourg accounting law applicable to SAs shall apply to SEs with their registered office in Luxembourg. The annual accounts comprise the balance sheet, income statement, in which the necessary depreciation must be taken, and an annex summarising the company’s 57 58

Enactment of the option contained in Article 7(2) of the Directive. According to Article 55 of the EWC Act and Articles 34 and 35 of the 1979 Act, candidates for the employees’ committee shall also benefit from protection for a period of three months as from the date on which submit their candidacy. The employer may, in the event of serious misconduct by one of its employees, ask that employee to leave the company immediately (mise a` pied imm´ediate) and file a petition with the labour court to obtain a favourable decision with respect to termination of the employment contract.

277

The European Company

commitments and the liabilities of its directors, the members of its management organ and supervisory board, and auditors, as the case may be, attached to a list indicating the value of all movable and immovable property, as well as any debts owed to and by, the company. All such financial statements are prepared by management59 (Arts. 72 and 204 CCL). The format of the balance sheet and income statement shall follow that described in Articles 213 or 214 CCL for the former and in Articles 227 to 230 CCL for the latter. However, companies may draw up an abridged balance sheet when, on the closing date of the balance sheet and for two consecutive financial years thereafter, they have not met two of the following three criteria: balance sheet total of €3.15 million, net turnover of €6.25 million and 50 full-time staff members on average during the financial year (Arts. 215 and 216 CCL).60 In addition to the above documents, management shall draft an annual report on the development of the company’s business and its position, which shall be submitted to the company’s auditors (commissaires aux comptes or r´eviseurs d’entreprises, as the case may be) one month prior to the general meeting of shareholders mentioned below. The auditors in turn shall prepare a report setting forth their proposals. Both reports shall be presented to the ordinary general meeting called to approve the annual accounts, which must be held within six months following the close of the financial year, on the date provided for in the company’s articles of association (Arts. 74 and 163 CCL). In the two-tier system, Article 60bis-13 CCL provides that the management board is obliged to submit a management report61 to the supervisory board within the same time period mentioned above (i.e. one month before the annual general meeting). The supervisory board will then provide the general meeting of shareholders with its comments on both this report and the annual accounts. However, some questions remain unanswered as regards, for instance, the form and content of such comments and their impact on the general meeting’s decisions. Members of management may be released from liability (quitus) at the general meeting called to approve the annual accounts. The validity of such a discharge may not be challenged if the balance sheet gives a true and fair view of the company’s financial situation and if the notice of the meeting mentioned any ultra vires acts by management (Art. 14 CCL).

59 60

61

278

References to ‘management’ shall be construed to include both the board of directors (in the one-tier system) and the management board (in the two-tier system). The same holds true for the income statement when the following criteria are met: a balance sheet total of €12.5 million, net turnover of €25 million, and an average of 250 full-time staff members during the financial year (Art. 231 CCL). It is assumed that, in practice, management will submit such a report to the general meeting of shareholders along with its the management report.

Luxembourg

The balance sheet and the income statement, indicating the publication date of the company’s articles of association, shall be published by management within one month following their approval by the general meeting of shareholders (Art. 75 CCL). In a group structure, subject to certain exceptions, the parent company must draw up consolidated accounts and a consolidated management report when: (i) it holds a majority of the voting rights in an undertaking; or (ii) it is entitled to appoint or remove the majority of the members of the management or supervisory bodies of a subsidiary; or (iii) as a result of a shareholders’ agreement, it holds a majority of voting rights in a subsidiary. The auditing and publication rules are similar to those described above for the annual accounts.

2

Auditors An SA must be supervised by statutory auditors, who may but need not be shareholders, except when it meets two of the three criteria set out in Article 215 CCL (see above), in which case an independent auditor shall be appointed instead. In the former case, one or more statutory auditors are appointed by the general meting of shareholders for a term not to exceed six years. They may be removed from office ad nutum, and their liability is governed by the rules applicable to directors and members of the management organ. The auditors are vested with unlimited power to supervise the company’s transactions and audit both the annual accounts and the management report. In this respect, they may inspect the company’s records at any time, and management must provide twice a year a summary of the company’s assets and liabilities. The auditors may be assisted by experts for the purpose of verifying the company’ books and accounts. When the size of an SA justifies the appointment of one or more independent auditors, the general meeting of shareholders must appoint them from amongst the members of the Luxembourg Institute of Chartered Accountants (Institut des R´eviseurs d’Entreprises)62 for a fixed term. Unlike statutory auditors, independent auditors are not considered a corporate organ and their duties are limited to checking the consistency of the management report with the annual accounts for the financial year.

62

In companies referred to in the 1974 Act on works councils and employee participation in SAs, independent accountants are appointed by the general meeting of shareholders further to a proposal from the work council (Art. 256(1)(a)).

279

The European Company

VII

Supervision by the national authorities Application of the Regulation is supervised by various national authorities, depending on the provision in question and the SE’s stage of existence, e.g. the notary for purposes of Articles 8(8) and 25(2) of the Regulation, the Trade and Companies Register for Article 12, and the courts for implementation of the provisions of Article 64(2).

VIII

Dissolution As there are no specific rules applicable to SEs, the following is an overview of the various ways in which a SA, and hence a SE, can be wound up under Luxembourg law.

1

Winding up An SA may be wound up either voluntarily or involuntarily (by court order). First and foremost, a company with a limited term of existence shall be wound up on the date provided in its articles of association, unless its term has been validly extended. In addition, the general meeting of an SA may resolve to wind up the company in accordance with the conditions laid down to amend its articles and in the presence of a notary public. In specific circumstances, shareholders must decide whether to continue the company’s business, e.g. in the event of a loss of half the share capital. Involuntary dissolution can result from a court order issued pursuant to a petition filed either by the Luxembourg public prosecutor, due to a violation of criminal law, important provisions of the Commercial Code, the CCL or other laws governing commercial companies,63 or by a shareholder to force the company to liquidate (Art. 203 CCL).64 A company that has been wound up is deemed to exist for the sole purpose of liquidation.

2

Liquidation In the event of involuntary dissolution, the court shall appoint a supervisory judge (juge-commissaire) and one or more liquidators and determine the method of liquidation. It may also extend the rules governing liquidation in bankruptcy. 63 64

280

For instance, carrying on a commercial activity without a business licence when one is required by law. When, for example, a serious and continuous disagreement between shareholders definitively impairs the proper functioning of the company.

Luxembourg

With respect to voluntary liquidation, the extraordinary general meeting called with a view to winding up the company (thereby putting an end to the managers’ mandate) shall decide to liquidate the company. One or more liquidators shall be appointed, and their powers, duties and remuneration determined. Liquidators may, but need not, be shareholders and can be either natural persons or legal entities. When no liquidator is appointed, the management board or members of the management organ, as the case may be, shall be deemed liquidators (Art. 143 CCL). The liquidators are entrusted with preparing a detailed list of the company’s assets and liabilities, realising the company’s assets, reimbursing the company’s debts and distributing any remaining proceeds to shareholders. Unless provided otherwise in the articles or by the extraordinary general meeting that appoints them, the liquidators shall be vested with certain powers provided for by the CCL, the scope of which may be broadened by the general meeting in order to allow the liquidators, for instance, to continue the company’s business until of the completion of liquidation, borrow money to pay down the company’s debts, pledge the company’s assets, transfer the company’s assets to another company and, under certain conditions, redeem the company’s shares. Once the liquidation procedure is complete, a second general meeting shall be called to allow the liquidator(s) to submit a formal report on their activities to the company’s shareholders. Following the submission of this report, the shareholders shall appoint an auditor (commissaire) to check the liquidators’ performance and the liquidation procedure. In addition, the shareholders must set a date for a third general meeting, at which time the auditor’s report on the liquidation, describing the liquidators’ activities and commenting thereon, shall be submitted for their approval and resolutions shall be passed to close the liquidation. The decisions to wind up the company, appoint liquidators and terminate liquidation (indicating the place where the company’s documents shall be stored and the steps taken in relation to the deposit of undistributed assets belonging to creditors or shareholders) must be published.

3

Insolvency Bankruptcy proceedings are governed by the Luxembourg Commercial Code (‘LCC’) which grants exclusive jurisdiction to the district courts to declare an SA bankrupt once it has been shown that the company has, notably, ceased to pay its debts. Proceedings may be initiated by: (i) the company’s creditors, as is often the case; (ii) the company itself, by filing a petition in bankruptcy with the competent court (faillite sur aveu); or (iii) the public prosecutor’s office. The court will appointment one or more trustees in bankruptcy (curateur) and a supervisory judge (juge commissaire), at which time members of the management 281

The European Company

organ shall be deprived of all managerial authority. The trustees in bankruptcy are responsible for inter alia publishing the adjudication in bankruptcy in at least two national newspapers and the M´emorial B; compiling an inventory of the company’s assets; dealing with creditors’ claims; selling off the remaining assets, if any; and distributing the proceeds to creditors in accordance with the priority of their claims. They also verify the validity of transactions entered into by the bankrupt company during the so-called relation-back period set by the court, i.e. a period of six months and 10 days preceding the adjudication in bankruptcy. Upon the completion of their duties, the trustees in bankruptcy shall file a request to close bankruptcy with the competent court, whose final judgment shall terminate the proceedings. Although rare in practice, the court may grant a discharge (r´ehabilitation) if the bankrupt company so requests and has paid off its debts, including interest and fees.

4

Cessation of payments Controlled management (gestion contrˆol´ee) is a procedure rarely used in practice, instituted when a company is temporarily unable to pay its debts or its business is threatened by difficulties that can lead, over a relatively short period of time, to breach of its payment obligations (i.e., the company has not already been declared bankrupt by a final judgment), and it seems likely, based on its expected profits, that the company will recover, provided it has not committed fraud, gross error or irregularities in the management of its business. The debtor begins the procedure by applying to the competent court. The application must be accompanied by a statement of the company’s assets and liabilities as well as a list of its creditors. The commercial court will order controlled management of the debtor’s business unless it appears that this will not result in an improvement in the company’s financial situation or improve conditions to realise its assets. If the court decides to move forward with the application: (i) a judge will be appointed to investigate, together with one or more experts (e.g., accountants), the debtor’s financial situation and prepare a report to the court; (ii) all legal proceedings against the debtor brought by its creditors, while allowed to begin or continue, as the case may be, shall cease to be enforceable for the duration of the period of controlled management; and (iii) the debtor will be unable to dispose of, pledge or otherwise mortgage any assets without the express authorisation of the court. Upon receipt and consideration of the report from the abovementioned judge, the court may either order controlled management of the debtor’s estate (appointing one or more receivers for this purpose) or dismiss the debtor’s application and declare it bankrupt.

282

Luxembourg

IX

Applicable law An SE registered in Luxembourg shall be governed by the relevant provisions of the CCL (i) applicable to SAs and (ii) enacted specifically for SEs, in accordance with the Regulation, and by its articles when (i) and (ii) so allow.

X

Tax treatment64 The law of 15 August 2006 does not provide for any specific direct or indirect tax measures with respect to SEs, and the tax treatment of such entities remains governed entirely by the rules applicable to any other Luxembourg company (organisme a` caract`ere collectif) or permanent establishment of a non-resident company.

1

Income tax A SE with its registered office or principal establishment in Luxembourg shall be deemed a Luxembourg resident for tax purposes. Although not expressly listed as a joint stock company (soci´et´e de capitaux) in the current version of Article 159 of the Income Tax Code (‘ITC’), a Luxembourg SE should be considered as such and therefore be subject to corporate tax (impˆot sur le revenu des collectivit´es) and municipal business tax (impˆot commercial communal). As a Luxembourg resident company, an SE is taxed on its worldwide income at an aggregate rate of 29.63% (including a solidarity surcharge) if established in the City of Luxembourg, unless an exemption applies under national law or is provided for in a double tax treaty. A non-resident SE is liable for corporate tax (at 22.88%, including a solidarity surcharge) on income realised through any Luxembourg permanent establishment, fixed place of business or permanent representative established in the City of Luxembourg. A Luxembourg permanent establishment, fixed place of business or permanent representative of a non-resident SE is also subject to municipal business tax at a rate of 6.75% if it is established in the City of Luxembourg. Municipal business tax applies to the income of such a permanent establishment, fixed place of business or permanent representative to the extent there is no deduction or exemption available. Similar to any other Luxembourg resident company, an SE residing in the Grand Duchy of Luxembourg for tax purposes also benefits from Luxembourg’s extensive network of double tax treaties and the relevant EU directives (ParentSubsidiary Directive, Merger Directive, etc.). 64

The section was prepared by Jean-Marc Groelly and Emilie Fister from the tax department of NautaDutilh Avocats Luxembourg.

283

The European Company

Dividends received or capital gains realised on shares by an SE or a Luxembourg permanent establishment of an SE now explicitly benefit from the participation exemption under the same rules applicable to qualifying Luxembourg companies. The same holds true for dividends distributed by a Luxembourgresident SE to qualifying shareholders (including another SE). This follows from the law of 17 November 2006, which transposed into Luxembourg law the latest amendments to the Parent-Subsidiary Directive (resulting from Directive 2003/123/EC of 22 December 2003). Under Luxembourg’s current group tax relief system, losses realised by subsidiaries can be set off against the parent’s profits if both the Luxembourg parent company (or the PE of a non-resident joint stock company (soci´et´e de capitaux)) and its subsidiaries are fully subject to tax in Luxembourg. This should also apply to a Luxembourg permanent establishment of an SE (parent company) or to a Luxembourg SE, although the definition of a joint stock company (soci´et´e de capitaux), as used in the ITC, does not expressly refer to the SE (see above). Based on the current provisions, a foreign subsidiary of a Luxembourg SE (the parent) cannot benefit from Luxembourg’s tax consolidation rules, as a Luxembourg parent is not allowed to deduct the losses of its foreign subsidiaries from its worldwide income. According to a decision of the European Court of Justice (ECJ) of December 13, 2005 (Case 446/03, Marks & Spencer), a group tax relief system violates the principle of freedom of establishment if the parent company is not able to use losses incurred by its EU subsidiaries in cases where it is not possible to obtain relief for these losses in the subsidiaries’ countries of residence. Neither the Luxembourg tax authorities nor the government have officially drawn any conclusions from this case. However, in practice, the Marks & Spencer decision should mean that a Luxembourg-resident SE or the permanent establishment of a Luxembourg SE (parent company) should be able to credit the losses of foreign subsidiaries in similar circumstances and under the same conditions. The liquidation of a Luxembourg-resident SE entails taxation at the standard rate of any hidden reserves or unrealised profits. In the hands of shareholders, profits received further to allocation of the company’s net assets are treated as capital gains and are therefore not subject to withholding tax in Luxembourg. For Luxembourg-resident shareholders of an SE, liquidation proceeds may benefit from the participation exemption under the same conditions as dividends (see above). In the absence of a Luxembourg permanent establishment, fixed place of business or permanent representative, non-resident shareholders of a Luxembourg SE are normally not subject to tax in Luxembourg on their liquidation gains unless: (i) they hold or have held a substantial shareholding in the SE (directly or indirectly, more that 10%); (ii) the SE is liquidated within six months following the acquisition of their shares; and (iii) they do not benefit from a double taxation treaty exempting these gains from Luxembourg tax. 284

Luxembourg

One of the major innovations brought about by the Regulation and the SE Act of 25 August 2006 is the possibility for companies to transfer their registered office abroad without losing legal personality. Under Luxembourg tax law, however, transfer of both the registered office and the principal establishment of an SE is treated as liquidation, and any hidden reserves or unrealised profits will be subject to corporate tax and municipal business tax unless they benefit from an exemption (e.g., if the Luxembourg SE is a holding company and its shareholdings benefit from the participation exemption upon transfer). However, since 2002, the immediate taxation of capital gains upon the transfer of a company’s registered office outside Luxembourg can be avoided if the Luxembourg joint stock company (soci´et´e de capitaux), which definition currently includes the SE, maintains a Luxembourg permanent establishment and any assets which could potentially generate capital gains are allocated to this permanent establishment. A Luxembourg public limited-liability company (soci´et´e anonyme) or private limited-liability company (soci´et´e a` responsabilit´e limit´ee) can, under certain conditions, be converted into a Luxembourg resident SE without adverse tax consequences. Upon the merger of two SEs, the merger of a Luxembourg joint stock company into a Luxembourg SE, or the formation by a Luxembourg company and another EU company of a Luxembourg holding SE or subsidiary SE, tax neutrality can be achieved by allowing the beneficiary of the assets to maintain the same cost value in its books for tax purposes. This will result in tax deferral. In this respect, it should be noted that since 2002, tax deferral has to a large extent been available in cross-border mergers within the EU where assets are transferred from a Luxembourg company to a company resident in another EU Member State. Since the wording of these provisions expressly refers to Article 3 of the Merger Directive (which in its current version indirectly refers to the SE), such tax deferral should also be available to SEs.

2

Other taxes

A

Net worth tax

A Luxembourg SE or the Luxembourg permanent establishment, fixed place of business or permanent representative of an SE is subject to an annual net worth tax at a rate of 0.5% based on the net asset value (valeur unitaire) of the company or permanent establishment. In practice, this annual net worth tax can be substantially reduced either by relying on exemptions (e.g. national participation exemption on qualifying shares) or by using debt rather than equity to capitalise the company or permanent establishment.

285

The European Company

B

Value added tax (VAT)

A Luxembourg SE will be subject to VAT under the same conditions as any other Luxembourg-resident company. C

Capital tax

66

Contributions to the share capital of a Luxembourg SE are subject to a oneoff capital tax at a rate of 1%. The tax is levied on the nominal value of the shares issued in consideration for the contribution (including any premium) and the fair market value of the contributed assets. Exemptions are available for qualifying EU mergers (e.g. share-for-share mergers of at least 65%) and certain internal reorganisations. In practice, these reorganisations cover certain types of contributions involving ‘all assets and liabilities’ or a branch of activity to a Luxembourg joint stock company (soci´et´es de capitaux). Although the law of 29 December 1971 on capital tax has not been amended to expressly refer to the SE, the authors believe that the definition of a joint stock company (soci´et´es de capitaux) used in the law should apply to Luxembourg SEs. For the same reason, the conversion of a Luxembourg SA into an SE should not be subject to capital tax, nor should the conversion of a Luxembourg SE into a public limited-liability company (soci´et´e anonyme) or a private limited-liability company (soci´et´e a` responsabilit´e limit´ee). The transfer to Luxembourg of an SE’s registered office is exempt from the 1% capital duty provided the SE has been subject to capital tax in another EU Member State.

XI

Conclusion It is important to note that whereas the rules governing the SE may appear complicated and the formalities on employee involvement burdensome, the Luxembourg legal community was initially more focused on the changes brought about by the SE Act to the rules governing Luxembourg public limited-liability companies (soci´et´e anonyme or SA) and partnerships limited by shares (soci´et´e en commandite par actions or SCA), such as the introduction of: (i) a two-tier management system; (ii) single-member SA; (iii) minority shareholders’ rights; and (iv) changes to the rules on shareholder meetings. As discussed in this report, the SE facilitates cross-border mergers and transfers of companies. However, at the time of writing, the Luxembourg legislature 66

286

The Luxembourg government is currently reviewing the capital tax. Although it seems unlikely that the tax will simply be abolished, the competent minister has announced that plans to reduce the tax burden are currently under review. This could mean that a solution will be implemented before the year end.

Luxembourg

was on the verge of enacting a law broadening the scope of recognised restructurings to include cross-border mergers initiated by any type of Luxembourg company with legal personality, thereby divesting the SE of one of its major advantages. To date, however, no SEs have been set up in Luxembourg, and the extent to which Luxembourg, a politically stable and flexible environment with an open economy and an enviable position as an international financial centre, will succeed in attracting SEs remains to be seen.

287

10 Malta dr. rosanne bonnici and dr. josianne brimmer Fenech & Fenech Advocates

Implementation of Council Regulation 2157/2001 of 8 October 2001 on the Statute for a European company (SE) into Maltese Law Whilst Council Regulation 2157/2001 on the Statute for a European Company (the ‘Regulation’) is applicable in Malta, legislation has not yet been adopted to take into account the various options afforded the Member States by the Regulation. However, Article 425 of the Companies Act (Chapter 386 of the Laws of Malta) has been amended to add a new sub-article (5), granting the competent minister the power to issue regulations pertaining to the formation, constitution and regulation of European companies (SEs). Although work on these regulations has commenced, a final version has yet to be published.

Implementation of Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’) has been implemented into Maltese law by the Employee Involvement (European Company) Regulations (Legal Notice 452 of 2004, the ‘Employee Involvement Regulations’). The Employee Involvement Regulations provide for a system of negotiations with the employee representatives of the companies involved in setting up an SE whose registered offices are in Malta. Specific criteria have been established for setting up a special negotiating body (SNB). SNB members are elected by the employees through special elections held for this purpose. The only eligible candidates are employees of a participating company in Malta or of a subsidiary or establishment of such a company who have completed their probationary period or, if the management of the participating company so permits, trade union representatives who are not employees of the relevant 287

The European Company

participating company or any of its subsidiaries or establishments (Reg. 5(2) Employee Involvement Regulations). Management of the participating companies is responsible for making arrangements for the elections and appointing a scrutineer to inter alia oversee the vote and publish the election results. Provision is furthermore made for the contestation by employees of any aspect of the election of their representatives to the SNB, including eligibility to stand for election or to vote and organisation of the ballot. All expenses relating to the nomination and election of SNB members, including costs relating to the appointment of the scrutineer, shall be borne by the Maltese participating companies. The SNB may be assisted by experts of its choosing, subject, however, to the limitation that the participating companies are only obliged to bear the costs of one expert. Both the competent organs of the participating companies and the SNB are bound to negotiate in a spirit of cooperation with a view to reaching an agreement on employee involvement. The participating companies must provide the SNB with timely information on the progress made in establishing the SE until the latter’s registration. The Employee Involvement Regulations also provide for standard rules on employee involvement in an SE, which are applicable when the parties so agree or where the time period allotted by the Employee Involvement Regulations to reach an agreement on employee involvement has expired and no decision has been taken by the SNB to open or terminate negotiations with the participating companies. The Employee Involvement Regulations impose inter alia a duty of confidentiality on SNB members and on any expert appointed to assist the SNB. SNB members are afforded the same protection as employee representatives in Malta under the Employment and Industrial Relations Act (Chapter 452 of the Laws of Malta) (Reg.13 Employee Involvement Regulations). For example, they are protected against dismissal on the sole ground of SNB membership. The Employee Involvement Regulations also lay down sanctions for failure to comply with any obligations arising there from.

288

11 Portugal margarida pereira barrocas Barrocas Sarmento Neves

Introduction1 290 Reasons to opt for an SE 290 Formation 291 1 General remarks 291 A Founding parties 291 B Name 291 C Registered office and transfer 292 D Corporate purpose 294 E Capital 294 2 Different means of formation 294 A Formation by merger 294 B Formation of a holding SE 296 C Formation of a subsidiary SE 296 D Conversion into an SE 297 3 Acts committed on behalf of an SE in formation 4 Registration and publication 297 5 Acquisition of legal personality 299 IV Organisation and management 299 1 General remarks 299 2 General meeting 299 A Decision-making process 299 B Rights and obligation of shareholders 300 3 Management 302 A Two-tier system/one-tier system 302 B Appointment and removal 303 C Representation 305 D Liability 305 V Employee involvement2 306 1 Special negotiating body (SNB) 306 2 Employee participation 307 3 Protection of employee representatives 307 VI Annual accounts and consolidated accounts 307 VII Supervision by the national authorities 308 VIII Dissolution 308 1 Winding up 308 2 Liquidation 309

I II III

297

289

The European Company

IX X

XI

I

3 Insolvency3 310 4 Cessation of payments 311 Applicable law 311 Tax treatment4 312 1 Income tax 312 A General aspects 312 B Tax issues when forming an SE 313 C Transfer of an SE’s registered office 314 2 Value added tax 314 3 Other taxes 314 Conclusion 314

Introduction1 The European company or Societas Europaea (‘SE’) is a new corporate form introduced into Community law through Council Regulation No 2157/2001 of 8 October 2001 on the Statute for a European company (the ‘Regulation’). The Regulation has direct effect in all Member States and officially entered into force on 8 October 2001. However, the Regulation expressly provides that SEs shall be governed not only by its provisions but also by the national laws of the Member States in many areas (both specific legislation adopted for the purpose of allowing the formation of SEs as well as general legislation applicable to national public limited-liability companies) and by the provisions of their memorandum and articles of association. Portugal has adopted a specific law, Law No 2/2005 of 4 January 2005 (the ‘SE Act’), implementing the Regulation and enacting specific provisions where the Regulation gave the Member States an option to apply or adopt their own national rules. The general rules applicable to national public limited-liability companies (the sociedade an´onima or SA) are mainly contained in the Portuguese Company Code (the ‘Company Code’), which apply to SEs with their registered office in Portugal unless the Regulation and the SE Act provide otherwise. With respect to employee involvement in an SE, Portugal has implemented Council Directive 2001/86/EC of 8 October 2001 (the ‘Directive’) through Decree-Law No 215/2005 of 13 December 2005.

II

Reasons to opt for an SE The main reason to opt for an SE, and also its chief advantage compared to national corporate forms and other types of legal entities, is that companies 1

290

This section was prepared by Margarida Pereira Barrocas, a lawyer in the corporate department of the firm Barrocas Sarmento Neves in Lisbon, Portugal (with the exception of Sections V and X, which were prepared by other lawyers, as identified below).

Portugal

from different Member States with a European dimension can benefit from a uniform set of rules throughout the European Union and, as such, avoid potential obstacles and constraints caused by the application of different national laws. As a result, the undertakings involved can speed up and simplify their formation process and operating procedures and thereby improve their efficiency, competitiveness and flexibility in the market.

III

Formation

1

General remarks

A

Founding parties

Pursuant to Article 1 of the SE Act and Article 1 of its Annex, the rules set forth therein apply to SEs with their registered office in Portugal as well as to the formation of an SE in which companies subject to Portuguese law are involved. In general, pursuant to the Regulation, an SE can only be formed by companies incorporated under the laws of a Member State which have both their head office and registered office in the European Union. Furthermore, at least two of the companies involved must be subject to the laws of different Member States. Under certain circumstances, discussed in the first volume of this book, a company which does not have its head office in the European Union can participate in the formation of an SE. The above criteria, regarding the founders of an SE, have been fully implemented in Portuguese law, which further provides that if an SE has its registered or head office in Portugal, both must be at the same place. If not, the public prosecutor’s office, any other public authority or any interested third party can inform the Justice Department, which shall take the appropriate actions. B

Name

Under Portuguese law, there are no specific provisions regarding the name of an SE and, therefore, Article 11 of the Regulation applies in full. Thus, the name of an SE must be preceded or followed by the abbreviation SE, although it may also contain the full wording Societas Europaea. In any case, the abbreviation must be included as well. Under Portuguese law, the authority competent to approve company names is the Registo Nacional de Pessoas Colectivas (the ‘RNPC’). The proposed name of an SE, as with any other company, must be filed with the RNPC for approval. The RNPC will then issue a certificate attesting to acceptance of the name. This certificate must be presented to the notary upon signing the SE’s instrument of incorporation and to the commercial registry when filing the SE’s final registration. 291

The European Company

Any changes to the name of an SE must also be submitted in advance to the RNPC for approval. C

Registered office and transfer

Pursuant to Article 2(3) and (4) of the SE Act, if an SE has its registered office or head office within the Portuguese territory, they must be at the same place, failing which the public prosecutor’s office, any other public authority or any interested party can inform the Justice Department, which shall take the appropriate action. This follows from Article 7 of the Regulation. If an SE with its registered office in Portugal fails to meet the abovementioned requirement, pursuant to Article 16(1) of the SE Act, the company’s board of directors shall, on its own initiative or at the request of any shareholder, adopt the necessary measures to regularize the situation through (i) re-establishment of the SE’s head office in Portugal or (ii) transfer of the SE’s registered office, pursuant to the procedure set forth in Article 8 of the Regulation, to the Member State where its head office is located. Pursuant to Article 16(4) of the SE Act, as long as the situation has not been duly regularized, any shareholder or creditor of the SE or the public prosecutor’s office can file for involuntary dissolution of the SE. Notwithstanding the foregoing, an SE which has not regularized its situation for a period of one year shall be considered immediately wound up and, in this case, the SE’s directors shall assume the roles and wield the powers usually granted to the liquidators, without the need to accomplish any further formalities. The SE’s directors shall be held liable for any violation of Article 7 of the Regulation. Pursuant to Article 4(1) of the SE Act, the transfer of an SE’s registered office to Portugal, which implies an amendment to its articles of association, is subject to the execution of a public instrument before a notary as well as to registration and publication requirements. Pursuant to Article 4(2)(c) of the SE Act, a proposal to transfer an SE’s registered office from Portugal to another Member State is subject to registration and publication requirements. In this case, the Portuguese authority competent to issue the certificate provided for by Article 8(8) of the Regulation is the notary. The transfer of an SE’s registered office within Portugal or from another Member State to Portugal is also subject to the approval of the RNPC, which shall decide if the SE can maintain its name. A certificate from the RNPC is a 292

Portugal

necessary precondition to amendment of the SE’s articles of association and its registration. Article 13 of the SE Act provides that any shareholder who has voted against the transfer of an SE’s registered office to another Member State has the right to exit the company. Pursuant to Article 7 of the SE Act, such a shareholder must, within 30 days following the SE’s decision to transfer its registered office, issue a written statement informing the company of its decision. Upon receipt of this statement, the company shall acquire or cause a third party to acquire the shareholder’s shares. If a shareholder has exercised this right, before the notary issues the certificate provided for in Article 8(8) of the Regulation, the company must prove that the shareholder’s shares have been redeemed or, if not, that this is through no fault of the company. If the company cannot prove this and express confirmation to this effect is not provided by the shareholder, the company may ask the notary to have the shareholder execute the public instrument for the acquisition of its shares. A shareholder who is responsible for the non-redemption of its own shares will not be allowed to exit the company. If the company is responsible for the lack of redemption, it will not be allowed to transfer its registered office. However, in this case, if the company promotes the execution of a public instrument, it shall be obliged to acquire the shareholder’s shares and pay any applicable damages. The directors shall be held jointly liable with the company. If a shareholder who has voted against the transfer of an SE’s registered office to another Member State does not execute its right to request redemption of its shares, the company shall make this fact known to the notary prior to issuance of the abovementioned certificate, as provided in Article 8(8) of the Regulation. Article 14 of the SE Act provides for the following safeguards with respect to the transfer of an SE’s registered office from Portugal to another Member State. Prior to issuance of the abovementioned certificate, as provided in Article 8(8) of the Regulation, and as a necessary precondition thereto, the company must prove, through the presentation of a certificate, that its tax and social security situation has been duly regularized. Furthermore, with respect to any amounts due employees under their employment contracts or resulting from breach or termination of the same, the company must supply a bank guarantee in order to obtain the aforementioned certificate. In special cases, if an SE transferring its registered office from Portugal to another Member State is subject to supervision and regulation by specific authorities, and the transfer will result in a change in the applicable laws, these authorities must be notified of the intended transfer in advance and are entitled to raise objections. 293

The European Company

D

Corporate purpose

There are no specific provisions under Portuguese law regarding an SE’s corporate purpose and, therefore, the general rules governing public limited-liability companies in this respect shall apply. It should be noted that the proposed corporate purpose of an SE, as with any other company, must be submitted to the RNPC for prior approval. The RNPC shall issue a certificate to this effect. This certificate must be presented to the notary upon signing the SE’s instrument of incorporation and to the commercial registry when filing the SE’s final registration. Any modification to an SE’s corporate purpose is also subject to prior approval of the RNPC. E

Capital

There are no specific provisions under Portuguese law regarding an SE’s share capital. Therefore, the generally applicable rules on the share capital of public limited-liability companies shall apply, taking into account the specificities with respect to SEs set forth in the Regulation (see Volume One of this book).

2

Different means of formation With respect to the general procedure to form an SE and the various means of formation, the provisions of the Regulation, covered extensively in volume one of this book, are not discussed herein. Rather we focus on the specificities of Portuguese law for each means of formation, it being understood that topics not specifically dealt with herein are not foreseen in the applicable Portuguese legislation, namely the SE Act, and, therefore, Community law applies, i.e. the Regulation.

A

Formation by merger

If the company to be formed by merger shall have its registered office in Portugal, the instrument of incorporation must be executed before a notary. Furthermore, in this case, registration and publication are also required. The merger plan is also subject to registration and publication, and the type of merger proposed must be mentioned. Final recordation of an SE formed by merger is also subject to the presentation of a certificate issued by the RNPC (see Section III above). Without prejudice to any other publication requirements that might apply under general provisions of Portuguese company law to specific types of public 294

Portugal

limited-liability companies, the notices mentioned in Article 21 of the Regulation shall be published in the Di´ario da Rep´ublica. The certificate provided for in Article 25(2) of the Regulation shall be issued by the Portuguese notary, mentioning that all acts and formalities required to form an SE by merger have been duly completed and identifying the documentary proof to this effect. Pursuant to the Company Code, creditors of companies involved in a merger can oppose the merger if they feel it will jeopardize the satisfaction of their claims. The time limit to file such opposition is thirty days from the abovementioned publication in the Di´ario da Rep´ublica. Article 7 of the SE Act provides that any shareholder who has expressly voted against a company’s decision to form an SE by merger has the right to exit the company. Within 30 days following adoption of the decision to merge, the shareholder must issue a written statement to this effect. Upon receipt of this statement, the company shall acquire or cause a third party to acquire the shareholder’s shares. If the shareholder is responsible for the failure to redeem its shares, it shall lose the right to exit the company. If the company is responsible for the failure to redeem the exiting shareholder’s shares, the merger cannot go through. However, even in this case, if the company promotes the execution of a public instrument and records the merger, the resulting SE shall be obliged to acquire the shareholder’s stake and pay any applicable damages. The directors of the disappearing company and of the SE shall be jointly liable with the SE. Article 8 of the SE Act provides that a merger which results in the establishment of an SE must be notified in advance to the Portuguese Competition Authority and, if the participating companies are subject to particular supervision and regulation, the specific regulatory authorities. The abovementioned authorities must be notified of the merger plan within seven working days following its approval by the general meeting of shareholders of the participating company. The authorities may oppose the company’s participation in the formation of an SE by merger on grounds of public interest. Any such opposition must be made within thirty days from receipt of the abovementioned notice. In this case, the participating companies shall have at least fifteen days to respond. As soon as the authorities receive an answer from the participating companies or if they do not receive a response within the allotted time period, they shall take a decision within fifteen days. If the authorities fail to act within any of the abovementioned time periods, their silence shall be construed as tacit approval of the merger. If the authorities issue an objection to the merger, the relevant company will not be allowed to participate. The authorities’ decision can be appealed to the courts within one month of notification.

295

The European Company

Pursuant to Article 10 of the SE Act, the abovementioned authorities shall issue a certificate of no objection to the merger within ten days from being notified of the same by the participating companies. This certificate is contingent on the prior issuance by the notary of the certificate referred to in Article 25(2) of the Regulation. B

Formation of a holding SE

If a holding SE is to have its registered office in Portugal, it will be necessary to execute a public instrument before a notary. Furthermore, in this case, registration and publication are also required. The proposal to set up a holding SE is also subject to registration and publication. In accordance with Article 33(3) of the Regulation, fulfillment of the conditions for the formation of a holding SE is also subject to registration (by way of an appendix to the proposal to form a holding SE) and publication. The final registration of a holding SE is also subject to the presentation of a certificate issued by the RNPC (see Section III.1 above). Pursuant to Article 11 of the SE Act, Article 7 of the same (regarding shareholders’ right to request redemption of their shares) shall apply to the formation of a holding SE, with the necessary adaptations. Therefore, reference is made to the above discussion on this issue in the context of the formation of an SE by merger. If a shareholder has exercised its right in this regard and a holding SE is set up without having acquired the shares of the exiting shareholder for reasons that cannot be attributed to the latter, the holding SE shall be jointly and severally liable with the promoting company to perform this obligation, without prejudice to the joint and several liability of the directors of both companies. This right is only available to shareholders of closed companies. With respect to the protection of creditors’ rights, Article 12 of the SE Act provides that when a holding SE acquires, during formation or as a result thereof, assets of any promoting company, it is liable, up to the respective value thereof, for the liabilities of the company whose assets it acquired which were in existence on the date of incorporation of the holding SE. C

Formation of a subsidiary SE

For this means of formation, the provisions of national law on the formation of national public limited-liability companies (sociedad an´onima or SA) shall apply. If the subsidiary SE is to have its registered office in Portugal, a public instrument must be executed before a notary. Furthermore, registration and publication will also be required. 296

Portugal

As is the case with national companies and SEs formed by other means, the proposed name of a subsidiary SE must be filed with the RNPC for approval. The RNPC will issue a certificate of acceptance of the name, which must be presented to the notary upon signing the SE’s instrument of incorporation and to the commercial registry when filing the SE’s final registration. Any amendments to an SE’s name are also subject to prior approval of the RNPC. D

Conversion into an SE

The formation of an SE by conversion of an SA requires the execution of a public instrument before a notary. Furthermore, registration and publication are also required The proposal to form an SE by conversion is also subject to registration and publication. The proposed name of an SE must be submitted to the RNPC for approval. The RNPC will issue a certificate of acceptance of the name, which must be presented to the notary upon signing the SE’s instrument of incorporation and to the commercial registry when filing the SE’s final registration. Any amendments to the name of an SE are also subject to the prior approval of the RNPC.

3

Acts committed on behalf of an SE in formation There are no specific provisions in the SE Act regarding this issue and therefore, the provisions of Article 16 of the Regulation apply in full, as described in more detail in Volume One of this book.

4

Registration and publication The provisions of the Regulation on this issue apply in full, with the specifications discussed above with respect to the various means of formation, as set forth in the SE Act. An SE established in Portugal must be recorded with the commercial registry of the place where its registered office is located. An SE acquires legal personality upon registration. A proposal to form an SE by merger or conversion or a holding SE is also subject to registration. In addition to the formation of an SE, the following acts are also subject to registration: 297

The European Company

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii)

the submission of annual accounts and, if applicable, consolidated accounts; a proposal to transfer the registered office of an SE to another Member State; amendments to an SE’s articles of association; a plan to convert an SE into a Portuguese public limited-liability company (SA); the conversion of a public limited-liability company into an SA; winding-up; the close of liquidation or an SE’s recommencement of corporate activity; any other facts related to SAs which are subject to registration under Portuguese law.

Furthermore, fulfilment of the conditions to form a holding SE is also subject to registration by way of an appendix to the draft terms of formation. The following information, in addition to the company’s name, must be mentioned on an SE’s registration certificate: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)

the address of its registered office; its term of existence, if definite; its corporate purpose; its share capital; its paid-up capital; the number of shares, par value and type; the members of its board of directors; the members of its supervisory board; the means of binding the company; and the means of formation of the SE.

The registration certificate for draft terms of merger or de-merger, as well as for the formation of an SE by merger, must include the following information: the type of merger or de-merger, the name of each participating company and the address of its registered office, and any foreseen amendments to the articles of association of the incorporating company or the company to be split up regarding its name, registered office, corporate purpose and share capital or any references to the same in the articles of the company to be established. The registration certificate for draft terms of formation of a holding SE must include the following information: the name and address of the registered office of each participating company and the proposed articles of association of the SE with a specific mention of its name, registered office, corporate purpose and share capital. The registration certificate for draft terms of conversion of an SA into an SE or vice versa must mention any expected amendments to the articles of association 298

Portugal

of the company to be converted with respect to its name, registered office, corporate purpose and share capital. The registration certificate for the transfer proposal of an SE’s registered office to another Member State must mention the address of the SE’s new registered office as well as any foreseen amendments to the company’s articles with respect to its name, registered office, corporate purpose and share capital.

5

Acquisition of legal personality There are no specific provisions in the SE Act regarding this issue and, therefore, the provisions of Article 1 of the Regulation apply in full, as described in more detail in Volume One of this book. Furthermore, it should be noted that pursuant to Article 5 of the Company Code, an SE acquires legal personality upon final registration of its instrument of incorporation with the relevant commercial registry.

IV

Organisation and management

1

General remarks In accordance with the Regulation, Article 278(1) of the Company Code provides that the founders of an SA (the statutory provisions governing which apply to SEs by default) can select the company’s management and supervisory structure: either an administrative organ and an accountancy body or, alternatively, a management organ, a supervisory board and an official auditor. The general meeting of shareholders is the main corporate body, which shall deliberate on all matters specifically assigned to it by law or by the company’s articles and which are not reserved to other corporate organs. With respect to voting in all corporate bodies, Article 17 of the SE Act provides that, if an SE has its registered office in Portugal, abstentions shall not be counted in determining statutory majorities. Moreover, under no circumstances shall the votes of members of the corporate bodies who are prohibited from voting by law, on either general or specific matters, be taken into account. Finally, voluntarily established voting restrictions, even those legally based, shall not be deemed valid.

2

General meeting

A

Decision-making process

Article 21 of the SE Act provides that the chairperson of the board shall call a general meeting of shareholders when required to do so by law or whenever the administrative or management organ, the supervisory body or one or more 299

The European Company

shareholders holding jointly at least 5% of the company’s share capital so request. The accountancy body, the supervisory board or the courts can call also a general meeting of shareholders if the law so allows and if the chair fails to do so within fifteen days from receipt of a request to this effect. Article 376 of the Company Code provides that an annual general meeting shall be held within three months following the close of the financial year (or within five months for companies that file consolidated accounts or apply the asset equivalence method) in order to deliberate on the following matters: (i) the management report and annual accounts; (ii) the proposed allocation of profits; (iii) the management and supervision of the company and, if applicable, the removal of any directors or managers; and (iv) any other matters within its powers. Article 22 of the SE Act provides that any shareholder or shareholders holding jointly at least 5% of the company’s share capital can request that certain items be added to the agenda of a general meeting. Article 383 of the Company Code provides that, on first call, the general meeting of shareholders can deliberate regardless of the number of shareholders present or represented, subject to the requirements of the company’s articles of association and to the fact that at least one-third of the share capital must be present or represented on first call to amend the articles or take a decision regarding a merger, split-up, conversion, winding-up or any other matter for which an unspecified qualified majority is required by law. On second call, the general meeting can deliberate regardless of the number of shareholders present or represented and the share capital they represent. The general meeting takes decisions by a majority of votes cast, regardless of the percentage of share capital represented by the votes, unless otherwise provided by law or the company’s articles of association. Draft terms of conversion, amendments to the company’s articles of association, and decisions regarding a merger, split-up or winding up must be approved by two-thirds of the votes cast. If shareholders holding at least half the company’s share capital are present or represented at a meeting on second call, resolutions regarding any of the aforementioned matters can be adopted by a majority of votes casts. B

Rights and obligation of shareholders

Pursuant to Article 288 of the Company Code, shareholders have a right to receive certain information from the company. If a shareholder holds at least 1% of the company’s share capital, it has the right to inspect the following documents and receive the following information, for any valid reason, at the 300

Portugal

company’s registered office: (i) the management reports and accounting documents for the past three years, as well as the opinions of the accountancy board and the supervisory board and any reports of the company’s auditor which are subject to publication; (ii) notices for general meetings of shareholders, as well as the minutes of and attendance lists for such meetings; (iii) the total remuneration of members of the administrative or management board and of the supervisory board for the past three years; (iv) the remuneration of the five or ten highest paid employees for the past three years, depending on whether the company has up to or more than 200 employees; and (v) the shareholders’ register. If any of the above information is not provided or is presumed false, incomplete or not self-explanatory, shareholders holding at least 1% of the share capital can petition the courts to investigate the company. Furthermore, at least fifteen days prior to a general meeting, the following information shall be made available to shareholders at the company’s registered office or sent within eight days to the holders of registered or bearer shares corresponding to at least 1% of the company’s share capital who so request: (i) the full names of all members of the administrative or management board, the accountancy board and the board of directors; (ii) any other companies for which members of these corporate bodies perform any other functions; (iii) the proposed resolutions to be submitted to the general meeting by the administrative or management board; (iv) if the election of board members is on the agenda, the names of the proposed candidates to the administrative or management board, their professional qualifications and professional activities for the past five years as well as the number of shares they hold in the company; (v) for the annual general meeting, the management report, accounts and other accounting documents; and (vi) any requests to include certain items on the agenda. Furthermore, during a general meeting, any shareholder has the right to request accurate, complete and self-explanatory information regarding the matters on the agenda. Shareholders holding at least 10% of the company’s share capital can also request, in writing to the administrative or management board, certain information related to any corporate matters. If any of the above information is not produced or is presumed false, incomplete or not self-explanatory, shareholders holding at least 10% of the share capital can petition the courts to investigate the company. Shareholders also have the right to receive profits in accordance with a specific set of statutory provisions, pursuant to Articles 294 to 296 and Article 21(a) of the Company Code. Pursuant to Article 297 of the Company Code, and if the company’s articles so permit, shareholders can receive dividends subject to a specific set of rules. 301

The European Company

Finally, pursuant to Article 21(b) and (d) of the Company Code, shareholders are entitled to participate in the decision-making process and deliberations and to be appointed to the administrative and supervisory boards. Each shareholder is obliged to contribute assets or cash to the company’s share capital, pursuant to Articles 20(a) and 285 of the Company Code. The company’s articles can also provide that all or certain shareholders are obliged to make additional contributions to the company, in addition to their initial contribution, pursuant to Article 287 of the Company Code. Shareholders are obliged to participate in the company’s losses, pursuant to a specific set of rules, namely in proportion to their capital contributions pursuant to Article 20(b) of the Company Code.

3

Management

A

Two-tier system/one-tier system

Article 278(1) of the Company Code provides that the management structure of an SA (and thus of an SE) shall consist of an administrative organ and an accountancy organ (in the one-tier system) or, alternatively, a management body, a supervisory board and an official auditor (in the two-tier system). Pursuant to Article 20 of the SE Act, the administrative body to which Article 43 of the Regulation refers shall be composed of an uneven number of members, with no maximum number. The administrative body is in charge of managing the company’s activities and is subject to the authority of the general meeting of shareholders and the accountancy board if so provided by law or the company’s articles. The administrative body has exclusive and plenary powers to represent the company. The administrative body shall meet when called upon to do so by its chair or any other two members. It shall meet at least once a month, unless the company’s articles provide otherwise. The administrative body can only deliberate if a majority of its members is present or represented. Decisions are passed by a majority of those members present or represented. If the articles so allow, voting by post shall be permitted. The accountancy board or an individual accountant shall be entrusted with supervising the company in the one-tier system. The accountancy board shall have three effective members, but the articles may increase this number to five. It shall meet at least once each quarter. Decisions are taken by a majority of those members present or represented. In the two-tier system, there is a management body, a supervisory board and an official auditor. 302

Portugal

Pursuant to Article 18 of the SE Act, the management body to which Article 39 of the Regulation refers shall be composed of an uneven number of members, with no maximum number. The management body has authority to manage the company’s activities but certain decisions may be made subject to the prior approval of the supervisory board, either by law, the company’s articles or the supervisory board itself. The management body has plenary powers to represent the company before third parties, although the supervisory board has authority to represent the company in its relations with directors. Pursuant to Article 19 of the SE Act, the supervisory board to which Article 40 of the Regulation refers shall be made up of an uneven number of members, to be determined in the articles. There is no maximum number stipulated, but the supervisory board must always have more members than the management body. The supervisory board has, amongst other powers, authority to supervise the activities of the management body. The supervisory board shall meet whenever it is called upon to do so by its chair or any two members. The supervisory board shall meet at least once per quarter. The management board may convene a meeting of the supervisory board if the latter’s chair fails to do so within fifteen days following receipt of a request to this effect from the management body. The official auditor or accounting firm shall examine the company’s accounts and wield the powers and duties attributed by the Company Code to the accountancy board and its members. B

Appointment and removal

Members of the administrative board are appointed in the company’s memorandum of association or elected by the general meeting for the term set forth in the memorandum, which shall not exceed four years. For this purpose, the year in which they are appointed shall count as a full year. If the memorandum is silent on this point, members of the administrative board shall be appointed for a renewable four-year term. If the administrative board is not properly composed, due to the fact that there are not enough effective members, and the vacancies have not been filled for a period of more than 60 days, or if more than 180 days have passed from the end of the members’ term and elections have not been held, any shareholder can petition the courts to appoint a member of the administrative board, who shall remain in office until the next elections. The company’s memorandum may provide that the general meeting, when electing the administrative board, shall appoint the latter’s chair as well. If no provision to this effect is contained in the memorandum, the administrative board shall elect its own chair. The chair shall cast the deciding vote, if the memorandum so provides. 303

The European Company

Members of the administrative board may be removed from office by the accountancy board under certain circumstances or if their term is definitively terminated by the same for reasons of incapacity or incompatibility. Members of the administrative board may also retire. Furthermore, the general meeting of shareholders can remove, at any time, any member of the administrative board who was not appointed by the state or a legally equivalent entity. Finally, members of the administrative board may resign in writing. Members of the accountancy board and the company’s official auditor are appointed by the general meeting of shareholders for the term specified in the company’s memorandum of association, which cannot exceed four years. The first appointments may be made in the memorandum. If the memorandum is silent on this point, the accountancy board members and the auditor shall be appointed for a renewable four-year term. The company’s memorandum or the general meeting also appoints the chair of the accountancy board. The official regulatory body for accountants (Cˆamara dos Revisores Oficiais de Contas) shall appoint an official auditor for the company if the competent corporate body fails to do so within the statutory time limit. Under certain circumstances, the administrative board or any shareholder can also petition the court to appoint members of the accountancy board or an auditor. The general meeting can remove, for cause, members of the accountancy board or the auditor, with the exception of court appointees. The courts can also remove for cause members of the accountancy board or the auditor if requested to do so by the administrative board or by the parties who initially requested their appointment. Directors are appointed either in the company’s memorandum of association or by the supervisory board for the term provided in the memorandum, which cannot exceed four years. For this purpose, the year in which they are appointed counts as a full year. If the memorandum does not specify a term, a renewable four-year term will be implied. The foregoing rules regarding court appointment of members of the administrative board also apply to directors. The chair of the management body is appointed and removed by the supervisory board. The chair casts the deciding vote in the management body’s deliberations. An employment director, in charge of labour relations within the company, shall also be appointed by the supervisory board if there are several directors. The supervisory board may remove any director from office for cause. Directors may also resign. Members of the supervisory board are appointed in the company’s memorandum of association or elected by the general meeting. The supervisory board appoints its own chair. For this purpose, if the number of supervisory board 304

Portugal

members is not sufficient, the management body, any member of the supervisory board or any shareholder can petition the courts to appoint additional supervisory board members. The company’s official auditor or accounting firm is appointed by the general meeting of shareholders for a period not to exceed three years. The Cˆamara dos Revisores Oficiais de Contas shall appoint an auditor if the competent corporate body fails to do so within the specified time period. The general meeting can remove the company’s official auditor or accounting firm from office for cause, with the exception of court appointees. The courts can also remove for cause the official auditor or accounting firm if requested to do so by the management body or by the parties who requested the appointment.

C

Representation

The management body (i.e. the directors) is the corporate organ entitled to represent the company. These representative powers are held jointly by all directors, and the company is bound by any acts performed or ratified by the majority of its directors (or fewer if its articles so provide). The company may enforce against third parties any acts by its directors that fall outside its objects if it can prove that the third party in question knew or should have known of the ultra vires nature of the act and if the company did not subsequently expressly or implicitly assume the consequences of the act.

D

Liability

Directors are liable to the company for any damage resulting from their acts or omissions in violation of any statutory or contractual provision, unless they can prove that they did not act willfully or that they have acted in accordance with reasonable managerial standards. Directors who did not vote in the contested decision or who opposed it will not be held liable. Directors’ liability is joint and several, and directors have the right to recover proportionally from amongst themselves in accordance with who was at fault in performing the acts or omissions under consideration. All other persons exercising administrative powers within the company, including members of the supervisory board and the auditor or accountants, can be held liable in the same way as directors for their acts and omissions. 305

The European Company

V

Employee involvement2 The provisions of Council Directive 2001/86/EC of 8 October 2001 have been transposed into Portuguese law by Decree-Law No 215/2005 of 13 December 2005. Therefore, implementation of the provisions of the statute for a European company with respect to employee involvement is complete in Portugal.

1

Special negotiating body (SNB) The composition of the special negotiating body (SNB) is governed by special rules. The SNB is established to discuss and negotiate with the participating companies the involvement of all employees in the SE. For this purpose, and in order to ensure that all information is passed on to the employees and their representatives, Decree-Law No 215/2005 requires that the following information be provided: the identity and form of each participating company, as well as any subsidiaries and establishments, and the number of employees working for each participating company, subsidiary and establishment. According to Article 39 of Decree-Law No 215/2005, depending on the form(s) of employee representation in the participating companies, subsidiaries or establishments, members of the SNB are appointed either: (i) by the relevant works council(s) together with the relevant trade union(s); or (ii) by the works council(s) alone if there are no unions. SNB members can also be appointed directly by the employees if there are neither works councils nor trade unions or if one-third of the employees request direct elections. Representatives from trade unions that represent the company’s employees can sit on the SNB even if they are not themselves employed by the company. Article 35(1)(a) of Decree-Law No 215/2005 provides that the participating companies must bear the SNB’s costs in relation to negotiations in such a way that the latter can perform its tasks adequately. Article 35(1)(b) further stipulates that the participating companies must provide the necessary material resources for the functioning of the SNB, including installations and a notice board for announcements. According to Article 35(1)(c), the SNB is entitled to funding for ‘at least one expert’. This can be interpreted broadly to mean ‘one or more’ or more narrowly to mean ‘no more than one’. The expert’s expenses are to be divided amongst the participating companies in accordance with the number of employees at each.

2

306

This section was prepared by Jos´e Miguel Oliveira, a lawyer in the employment department of the firm Barrocas Sarmento Neves in Lisbon, Portugal.

Portugal

The SNB can freely select an expert to assist it in its work. It is not expressly stated whether this expert can be a representative of a national and/or Europeanlevel trade union organisation.

2

Employee participation Employees of an SE, its subsidiaries and establishments and/or their representative bodies are entitled to elect, appoint, recommend or oppose the appointment of a certain number of members of the administrative or supervisory organ of an SE. Article 42 of Decree-Law No 215/2005 provides that the appointment or election of employee representatives to the administrative or supervisory organ shall be in accordance – with the necessary modifications – with the procedure set forth in Article 39. Thus, depending on actual worker representation in the participating companies, subsidiaries and establishments, employee representatives to the administrative or supervisory organ shall be appointed: (i) by the relevant works council(s), together with the trade union(s); (ii) by the works council(s) alone if there are no trade union(s); or (iii) directly by the employees themselves if there are neither works councils nor trade unions. Employee participation on the supervisory or administrative board is based on the principle of equality. Employee representatives have the same rights and obligations as others members.

3

Protection of employee representatives According to Article 44 of Decree-Law No 215/2005, employee representatives enjoy special protection. In fact, members of the SNB, the employee representative body and the supervisory or administrative board are entitled: (i) to be excused from their normal duties; (ii) to continue to receive wages during periods of absence taken to perform their duties; and (iii) to protection against disciplinary measures, dismissals or transfer.

VI

Annual accounts and consolidated accounts If the company has a supervisory board, the management body must present its annual report and the annual accounts to the supervisory board and to the auditor at least thirty days before the date of the annual general meeting scheduled to analyse the accounting documents. A supervisory board member who is a chartered accountant or the company’s official auditor or accounting firm, depending on the type of company, shall analyse the management report and examine the accounts in order to certify 307

The European Company

them correct, which entails rendering an opinion as to whether the accounts accurately reflect the company’s financial position and meet the applicable statutory criteria. This opinion can be made with or without reservations, be negative in nature, or simply consist of a waiver (i.e. no opinion is given). The supervisory board must subsequently express its agreement or disagreement with the abovementioned certification, which must be sent to the management board within fifteen days from the date on which it receives all documentation concerned from the official auditor. Finally, the general meeting analyses the annual management report and the management board’s supervision of the company. If the company has both a board of directors and a supervisory board, the management body must present its annual report and the annual accounts to the official accountant and the board at least thirty days before the date of the general meeting scheduled to analyse the accounting documents. The subsequent approval process is the same as that discussed above, with certification of the accounts being done by the official auditor. Approval of annual or consolidated accounts must be recorded with the applicable commercial registry.

VII

Supervision by the national authorities A merger that results in the establishment of an SE must be notified in advance to the Portuguese Competition Authority as well as to the applicable sector regulatory authorities if the entities involved are subject to supervision or regulation. These authorities can oppose the intended merger on grounds of public interest. Furthermore, if an SE’s registered office is being transferred from Portugal to another Member State, thereby resulting in a change in the applicable legislation, such a transfer must also be notified in advance to the applicable regulatory authority if the company is subject to supervision or regulation. Likewise, this authority can oppose the transfer on grounds of public interest.

VIII

Dissolution

1

Winding up A company can be immediately wound up under the following circumstances: • its term of existence, as set forth in its memorandum of association, expires; • its shareholders so request;

308

Portugal

• its corporate purpose has been performed in full; • its corporate purpose turns out to be illegal; • it is declared bankrupt. The courts can also order a company to dissolve (so-called involuntary dissolution) following a formal request to do so or if the company’s shareholders so decide under the following circumstances: • if the law or the company’s memorandum of association states a cause for dissolution; • if, for a period in excess of one year, the number of shareholders is less than the minimum number required by law; • if the activities that constitute the company’s corporate purpose turn out to be impossible to perform; • if the company has not conducted any activity for the preceding two years; • if the company performs any activity not provided for in its corporate purpose. A company can be ordered to dissolve by the applicable registration entities, acting on their own initiative, under the following circumstances: • if, for the two preceding years, the company has not filed its accounting documents and the tax authorities inform the applicable registration authorities that no tax returns have been filed for that same period; • if the tax authorities inform the applicable registration authorities that the company conducts no effective activity under the applicable tax laws; • if the tax authorities notify the applicable registration authorities that the company has ceased all activity. Dissolution must be recorded with the relevant commercial registry.

2

Liquidation Unless the law provides otherwise, a dissolved company is immediately liquidated. A decision to liquidate can be taken by the court or by the company’s shareholders. If the company has no debts on the date of dissolution, its assets can be immediately realised and the proceeds distributed. If there are outstanding debts, these must be settled. Only then can the remaining assets be realised and the proceeds distributed. The proceeds are used first to refund shareholders’ capital contributions. Any remaining profit is subsequently distributed. 309

The European Company

The close of liquidation must be recorded with the relevant commercial registry.

3

Insolvency3 The Portuguese Bankruptcy Act applies when a debtor becomes insolvent, according to the definition contained in Article 3 of the Insolvency and Corporate Recovery Code (the ‘ICRC’), that is, the debtor is prevented from promptly fulfilling its obligations due to the insufficiency of its assets to cover its liabilities. Companies and independent groups of assets and liabilities for which no individual has unlimited personal liability shall also be considered insolvent when their liabilities clearly exceed the value of their assets. The ICRC provides for a single type of proceedings, without distinction between corporate recovery and insolvency. Creditors are required to assess the company’s financial viability and decide jointly whether recovery or liquidation is more appropriate and under what terms. To start proceedings, it must be shown that the debtor is unable to meet its liabilities as they fall due or, if a company or independent group of assets is concerned, that the debtor’s liabilities clearly exceed its assets. As a rule, insolvency proceedings must be brought before the court of the place where the debtor’s registered office or residence is located. The court assumes the key role in ensuring compliance with the relevant statutory provisions and, if it finds that the facts so justify, in declaring insolvency. The court is also responsible for ruling on proof of claims and their ranking and, finally, decides when to close the proceedings. The court appoints an administrator, who is responsible for ensuring payment of the insolvent party’s debts from its assets, protecting the debtor’s rights and allowing it to continue to exercise them, and enabling the company to continue operating, if applicable, so as to avoid, insofar as possible, any further deterioration in its financial position. A creditors’ committee may also be formed pursuant to a decision of the creditors’ meeting. The debtor is obliged to apply for a declaration of insolvency within sixty days from the date on which it first learns of its insolvency or the date on which it should have become aware of this fact, except for individuals who, on the date of insolvency, are not the owners of a company. If the debtor is the owner 3

310

Parts 3 and 4 of Section VIII were prepared by Jos´e Alves do Carmo, a lawyer in the corporate department of the firm Barrocas Sarmento Neves in Lisbon, Portugal.

Portugal

of a company, there is a statutory presumption of knowledge of insolvency three months after a general failure by the company to meet its tax or social security obligations or obligations arising from employment contracts or lease agreements. Creditors are entitled to request that a debtor be declared insolvent and may also withdraw their application or abandon proceedings any time before a final decision is taken. With respect to the debtor’s assets, the effect of a declaration of insolvency is to deprive the debtor immediately of the power to administer and dispose of the assets that make up its estate. As from that time, these powers are vested in the administrator, who assumes the role of the debtor’s representative for all financial matters relating to the insolvency. As a rule, acts undertaken by an insolvent party in violation of these arrangements are ineffectual, and the declaration of insolvency causes all obligations of the insolvent party to immediately fall due. The law stipulates that, as a general rule, all acts taken within four years before the commencement of insolvency proceedings may be declared void if they reduce, frustrate, hinder, threaten or delay the settlement of creditors’ claims.

4

Cessation of payments The ICRC provides for a single type of procedure, without distinction between corporate recovery and insolvency (the former ICRC provided for two different types of procedures, namely bankruptcy/insolvency and recovery). Under Portuguese law, creditors must decide whether satisfaction of their claims should be achieved by liquidating the debtor’s assets or by restructuring the company and keeping it in business, either under the debtor’s ownership or that of a third party. The creditors’ views must be set out in an insolvency plan approved by the creditors’ meeting. If the creditors opt for recovery, they are free to choose the most appropriate measures to achieve this goal.

IX

Applicable law An SE with its registered office in Portugal is subject to the provisions of the Regulation, its articles of association and the SE Act and, in the alternative, the national legislation applicable to public limited-liability companies, in particular the Company Code.

311

The European Company

X

Tax treatment4

1

Income tax

A

General aspects

Portuguese tax law does not contain specific provisions regarding the tax treatment of SEs. From a tax perspective, therefore, a Portuguese SE or a Portuguese branch of a foreign SE will be treated the same as any other Portuguese company or Portuguese branch of a foreign company. For this purpose, companies with their head office or place of effective management in Portugal shall be deemed Portuguese tax residents. A Portuguese SE, as a resident taxpayer, is subject to corporate tax on its worldwide income (including income earned abroad, whether directly or indirectly through a foreign permanent establishment (PE)) at a rate of 25%, to which is added a municipal surcharge (derrama) of up to 10% of the corporate tax rate (i.e. up to 2.5%), meaning the effective corporate tax rate can reach 27.5%. Conversely, a Portuguese branch of a foreign SE (a non-resident entity) will be subject to tax only on the profits imputable to it. The taxable income attributed to a Portuguese PE of a non-resident SE is assessed under the same rules applicable to resident companies (e.g. overhead charged by the SE to its PE may be deducted in accordance with defined criteria and within reasonable limits, taking into account the transfer pricing rules). The general corporate tax rate applies. No further tax on remittances to the head office will be imposed (e.g. no withholding tax is due as such payments are not considered dividend distributions). With respect to the deduction of tax losses, Portuguese companies can deduct losses from their taxable profit for a period of up to six tax years from the time the losses arose, including those generated by a PE located outside Portugal. A Portuguese PE of a foreign SE may also deduct, over this same six-year period, tax losses from the profits imputable to it but may not deduct losses incurred outside Portugal. These rules do not apply if, at the close of the tax year (generally 31 December) in which the deduction is taken, there is a substantial change in the company’s purpose, the nature of its activities or one involving at least 50% of its registered capital or the majority of its voting rights. In special circumstances, the Ministry of Finance may permit, where appropriate, a relaxation of or exception to this restriction. Carry-back of tax losses is not allowed. 4

312

This section was prepared by Joana Neto, a lawyer in the tax department of the firm Barrocas Sarmento Neves in Lisbon, Portugal.

Portugal

Dividends paid by a Portuguese resident company to other EU companies may benefit from the withholding tax exemption under the Parent-Subsidiary Directive (Directive 90/435/ECC, as amended by Directive 2003/123/CE, which includes the SE in its annex). Please note, however, that according to the Corporate Tax Code (IRC), the requirements for the participation exemption must be satisfied in order to benefit from the exemption from withholding tax. Dividends received by a Portuguese SE from companies in other Member States (if the requirements of the Parent-Subsidiary Directive are satisfied) are excluded from taxable income if the Portuguese SE holds a direct stake of at least 10% in the distributing company’s capital or the acquisition value of the shareholding was at least €20,000,000 and it has held this stake for an uninterrupted period of at least one year prior to the dividend distribution or, if this holding period is not satisfied, the time necessary to do so will be completed soon. B

Tax issues when forming an SE

(i)

Conversion into an SE The formation of a Portuguese SE through the conversion of an existing public limited-liability company does not trigger capital gains tax, as the identity of the company has not changed. In these circumstances, tax losses will not be lost, unless the abovementioned conditions are not met.

(ii)

Formation by merger Given that the SE is referred to in the Merger Directive, the creation of an SE by means of a cross-border merger (by formation or absorption) could qualify for the tax-neutral treatment under the IRC if the elements transferred by the Portuguese entity to the foreign SE remain, in practice, in the possession of a Portuguese PE of the SE and are included in the taxable income imputed to that PE. In other words, the assets must remain in Portugal (i.e. the transferred assets and liabilities should be accounted for in the same way and at the same value as they were in the merged entity).

(iii)

Formation of a subsidiary SE The creation of a subsidiary SE can be tax neutral provided the assets to be transferred constitute a branch of activity. When transferred to a foreign SE, the contributed assets and liabilities must remain in Portugal in the form of a Portuguese PE in order to qualify for tax-neutral treatment. In other words, the assets must remain in Portugal (i.e. the transferred assets and liabilities should be accounted for in the same way and at the same value as they were in the transferring company).

(iv)

Formation of a holding The creation of a holding SE by way of an exchange of shares need not necessarily trigger adverse tax consequences (i.e. if the value of the shareholdings for tax purposes does not change). 313

The European Company

C

Transfer of an SE’s registered office

The transfer of a Portuguese SE’s registered office gives rise to a taxable capital gain or loss equal to the difference between the market value of the assets and their net book value, unless the assets and liabilities remain in Portugal within a Portuguese permanent establishment. If a request is filed with the tax authorities, losses relating to tax periods that occurred prior to the transfer of the company’s registered office or place of effective management can be deducted by the surviving PE, provided they relate to assets connected to this permanent establishment.

2

Value added tax The formation of an SE is not subject to Portuguese VAT. A Portuguese SE will be subject to Portuguese VAT at the same terms as other Portuguese companies.

3

Other taxes The tax on capital contributions in Portugal takes the form of stamp duty at a rate of 0.4% of the real value of the contribution (in cash or in kind) upon the: (i) formation of a company or a capital increase; and (ii) the conversion of a non-stock company into a stock company. Exemptions may be available for the: (i) formation or capital increase of a stock company as a result of a merger, division or transfer of assets; (ii) the formation or capital increase of a holding company; (iii) the conversion of a stock company into another corporate form; (iv) the transfer from another Member State to Portugal of a stock company’s place of effective management and/or registered office, etc.

XI

Conclusion The SE is a new type of corporate form in Portugal which has already been implemented in practice, although with moderate enthusiasm due to its apparent legal complexity and to certain particularities of the SE legislation, especially the legislation on employee involvement Notwithstanding the foregoing, we are of the opinion that the SE will be widely accepted in years to come owing to its inherent advantages, as described under Section II above.

314

12 Romania c a r m e n p e l i a n d g e o r g e ta d i n u Nestor, Nestor, Diculescu, Kingston, Petersen

I II

Introduction 315 Formation 316 1 General remarks 316 A Main features 316 B Founding parties 316 C Name 317 D Capital 317 2 Different means of formation 318 3 Acts committed on behalf of an SE in formation 318 4 Registration and publication requirements 319 5 Acquisition of legal personality 320 III Organisation and management 320 1 General meeting 320 A Decision-making process 320 B Rights and obligations of shareholders 322 2 Management and supervision 323 A Two-tier system/one-tier system 323 B Appointment and removal 325 C Representation 325 D Liability 326 IV Employee involvement 326 V Annual accounts and consolidated accounts 327 VI Supervision by the national authorities 328 VII Dissolution 328 1 Winding up – voluntary liquidation 328 2 Insolvency and cessation of payments 330 VIII Tax treatment 332 1 Income tax and dividend withholding tax 332 2 Value added tax 333 3 Other taxes 334 IX Conclusion 335

I

Introduction The main Community legislation governing the European company or Societas Europaea (‘SE’) includes Council Regulation (EC) No 2157 of 8 October 2001 315

The European Company

on the Statute for a European company (the ‘Regulation’) and Council Directive No 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’). The Regulation is directly applicable in all EU Member States (including Romania, starting 1 January 2007, the date of Romania’s accession to the EU), although Romania has not adopted any national legislation implementing the Regulation. As regards the Directive, it was transposed into Romanian law by Government Decision No. 187 of 20 February 2007 on the information and consultation procedures and other modalities of employee involvement in the activities of a European company, effective 7 March 2007. The Romanian legal framework regulating business organisations centres on the Companies Act 31/1990, as amended and republished (the ‘Companies Act’), complemented by the Capital Markets Law 297/2004, as amended (the ‘Capital Markets Law’), and the Trade Registry Law 26/1990, as amended (the ‘Trade Registry Law’), amongst others. Due to the fact that the Regulation has yet to be implemented in Romania, no derogations from the Regulation, as concerns the thirty-two options afforded the Member States to impose certain limitations and restrictions, have been adopted.

II

Formation

1

General remarks The formation of an SE shall be governed by provisions of national law applicable to public limited-liability companies of the Member State where the SE’s registered office is located.

A

Main features

When incorporating a joint-stock company, the paid-up capital must represent at least 30% of the subscribed share capital, and the remainder of the share capital must be paid in within twelve months from incorporation, in the case of shares issued in return for cash contributions, or within no more than two years following incorporation, for shares issued in return for a contribution in kind. B

Founding parties

Romania has not adopted the option expressed in Article 2(5) of the Regulation to allow a company whose head office is located outside the EU to participate in the formation of an SE under certain conditions. 316

Romania

C

Name

The competent trade registry shall verify whether the proposed name of an SE is identical to another name already registered (regardless of the abbreviation indicating the entity’s corporate form). D

Capital

Under Romanian company law, the registered share capital of a company may consist of: (a) contributions in cash, which are mandatory upon the establishment of a company; (b) contributions in kind, which must be valued by an independent expert and, in the case of a joint stock company, by an authorised expert appointed by the competent trade registry judge; (c) contributions of receivables, which must be valued by an independent expert and, in the case of a joint stock company, by an authorised expert appointed by the competent trade registry judge; this type of contribution is not allowed in the case of joint stock companies established through a public offering. (i)

Types of instruments attesting to contribution to a company’s registered capital The shares of a joint stock company are equal and indivisible fractions of its share capital. The Companies Act mentions two types of shares: bearer and registered (actiuni nominative). Registered shares may be issued either in material or dematerialised form. The shares must indicate the name and term of existence of the company, the date of its articles of association, its trade registry incorporation number, the amount of its share capital, the number of shares issued and their registration numbers, the nominal value of the share, any payments made and the privileges granted to the founders. In addition, registered shares must also mention the holder’s first and last name, personal identification number and address, if the holder is a natural person, or, if the holder is a legal entity, its name, the address of its registered office, and it registration number and code. The types of shares issued by a company and their nominal value shall be determined in the articles of association; however, the nominal value of a share cannot be less than RON 0.1 (approximately €0.03). Should the articles of association fail to expressly mention the type of shares issued, the shares shall be presumed to be registered; furthermore, any shares that are not fully paid up will be considered registered shares. 317

The European Company

Bearer shares can be converted into registered shares and vice versa, provided the abovementioned conditions are met, through a decision of the extraordinary general meeting of shareholders. The required quorum is one-quarter of the total voting rights on first call and one-fifth of the total voting rights on second call; the required majority is a simple majority of the voting rights present. The articles of association can provide for higher quorum and majority requirements. The Companies Act provides for the existence of two classes of shares: ordinary (common) shares and shares with a preferred right to dividends but without voting rights (so-called preferred shares). The value of the latter cannot exceed 25% of the total share capital. Shares can be converted from one class to another through a decision of the extraordinary general meeting of shareholders. The quorum and majority required are the same as those mentioned above for the conversion of bearer shares into registered shares. The holders of each class of shares meet at special meetings, in accordance with the terms and conditions set forth in the company’s articles of association. (ii)

Issuance of shares A company may issue shares only after it has been registered with the trade registry. Shares, irrespective of their type, cannot be issued for a value lower than their nominal value. The share capital cannot be increased and new shares cannot be issued until previously issued shares have been fully paid up.

(iii)

Transfer of shares Registered shares are transferred through recordation in the shareholders’ register and a mention on the share certificate itself, signed by the assignor and the assignee or their agents. Bearer shares are transferred through physical delivery of the share certificates. Shares traded on a stock exchange are transferred in accordance with the capital markets legislation. The articles of association may require other formalities to be observed with respect to the transfer of shares.

2

Different means of formation No specific rules regarding the various means of formation have been implemented under Romanian law; therefore, the relevant provisions of the Regulation regarding the formation of an SE by merger, of a holding or subsidiary SE and conversion into an SE shall apply.

3

Acts committed on behalf of an SE in formation The founders, representatives and any other persons who have undertaken various acts during the period of incorporation shall be jointly and severally liable

318

Romania

to third parties in relation to any agreements entered into, if the company, following its incorporation, fails to ratify them. If the company confirms that the agreements have been entered into for the purpose of its incorporation, these agreements shall be binding on the company.

4

Registration and publication requirements Each company in Romania must be registered with the competent trade registry before starting to do business. The articles of association submitted for registration must be drafted in accordance with the statutory requirements applicable to each type of company. An authenticated version is required only upon the contribution of real property to a company’s share capital or upon the establishment of a joint stock company by means of a public offering. The articles of association must include, regardless of the type of company: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o)

identification of the founders, including the general partners, if applicable; the type of company, its trade (company) name and headquarters; the company’s main scope of business; the amount of subscribed, paid-up and, if applicable, authorised share capital; the nature and value of any assets contributed in kind, the type and number of shares granted in exchange, and the name of the contributor; the number and nominal value of any shares issued and whether they are bearer or registered; if there is more than one class of shares, the number of shares, in each class, their nominal value and the rights attached to each class; any restrictions on the transfer of shares; the names of the initial members of the board of directors or of the supervisory board or, if applicable, of the partners representing the company; the powers granted to members of the board of directors or to the managers and the manner in which such powers can be exercised; the names of the first censors or of the company’s auditor, as the case may be; the company’s term of existence; the method for distributing profits and losses; any branches, agencies, representation offices and other such units without legal personality; any provisions regarding the dissolution and liquidation of the company.

Before commencing its activities and no later than fifteen days from the execution date of its articles of association, the company must submit an application for registration to the competent trade registry, along with the following: 319

The European Company

(a) its articles of association; (b) documents proving subscription for, and actual payment of, the share capital, in accordance with the provisions of the articles of association; (c) proof of the address of the company’s headquarters and the availability of its name/logo; (d) if there have been any contributions in kind, documents attesting to ownership and, for real property, any encumbrances on the property; (e) the company’s opening balance sheet, as approved by its shareholders; (f) a sworn statement by the founders, the initial directors and, if applicable, the first members of the directorate, supervisory board and censors, attesting to compliance with the applicable statutory provisions; (g) any other acts or authorisations required by law. Provided the requirements are met, registration should be accomplished within five days from submission of the above documents. The trade registry’s decision approving incorporation of the company shall be published in the Official Gazette. The costs of incorporation include: (a) the registration fee to the trade registry, the cost of publication of documents in the Official Gazette of Romania; (b) fees to obtain tax records; (c) notarisation, translation and legalisation costs, if applicable; (d) related stamp duties.

5

Acquisition of legal personality A newly incorporated company is granted legal personality upon its registration with the trade registry.

III

Organisation and management Joint stock companies may have either a one-tier system of management (with a board of directors and executive officers) or a two-tier system (with a supervisory board and a directorate).

1

General meeting

A

Decision-making process

The ordinary general meeting of shareholders meets at least once a year, no later than five months from the close of the fiscal year. The ordinary general meeting of shareholders has the following powers, as provided for in the Companies Act: 320

Romania

(a) to discuss, approve and/or amend the annual financial statements and determine the dividends to be distributed, if any; (b) to appoint and remove members of the board of directors/ supervisory board and the statutory auditors; (c) if need be, to appoint and remove the company’s auditor and to set the minimum term of the audit agreement; (d) to establish the remuneration of members of the board of directors or supervisory board and of the statutory auditors, if this is not mentioned in the articles of association; (e) to analyse the activities of the board of directors and the directorate and release their members from liability; (f) to adopt a budget for revenue and expenses together with a financial plan for the next fiscal period; (g) to approve the pledge, lease or dissolution of one or more of the company’s units. A quorum of 25% of the voting rights is required for an ordinary general meeting of shareholders to be held, and decisions are passed by a majority of votes cast (unless the company’s articles or by-laws provide for a higher threshold). Where the ordinary general meeting of shareholders is not convened for want of the required quorum, the meeting subsequently called may address those items on the agenda at the first meeting regardless of the registered capital represented by those shareholders in attendance and takes decisions by a simple majority of votes cast. The articles of association cannot provide for a minimum quorum or for a higher majority for an ordinary general meeting on second call. An extraordinary general meeting of shareholders can be called whenever a decision is needed in relation to: (a) (b) (c) (d)

(e) (f) (g) (h) (i) (j) (k) (l)

a change in the company’s corporate form; a change in the location of the company’s headquarters; a change in the scope of the company’s business; the incorporation or liquidation of branches, agencies, representative offices or any other such units without legal personality, unless the company’s articles of association provide otherwise; an extension of the company’s term of existence; an increase or decrease in the registered share capital; the issuance of new shares; a merger with another company; the premature dissolution of the company; the conversion of shares from one category to another; the conversion of bonds from one category to another or the conversion of bonds into shares; the issuance of bonds; 321

The European Company

(m) any amendment to the articles of association and any other decision for which the approval of an extraordinary general meeting of shareholders is required. A quorum of 25% of the share capital is required for an extraordinary general meeting of shareholders to be held on first call, and decisions are taken by a majority of votes cast. Where an extraordinary general meeting of shareholders is not validly convened for want of a quorum, the meeting subsequently convened may address the items on the agenda at the first meeting if 20% of the voting rights are present or represented and shall adopt decisions by a majority of votes cast. The articles of association may provide for higher quorum and majority requirements. The following decisions must be approved by two-thirds of the voting rights held by those shareholders present or represented: amendments to the company’s corporate purpose; share capital increases or decreases; changes to the company’s corporate form; and a merger, spin-off or dissolution. Neither the articles of association nor the resolution may stipulate a lower threshold. Joint stock companies are required to keep a register containing the minutes of their general meetings and mentioning fulfilment of the statutory requirements concerning general meetings of shareholders. B

Rights and obligations of shareholders

Shareholders’ main rights are: (i) the right to receive dividends; (ii) the right to vote at general meetings on specific matters identified by law and in the company’s articles (unless they hold preferred shares, in which case they are not entitled to vote); (iii) a pre-emptive right with respect to any share capital increase; and (iv) a right to share in the proceeds following the voluntary liquidation of the company (in proportion to their shareholdings). Other rights include: (a) the right to be informed of and access certain corporate documents, such as the annual financial statements, the board of directors’ annual report, the internal auditors’ or censors’ reports, proposals related to the distribution of dividends, and any other written materials necessary to form an opinion with respect to items included on the agenda of a general meeting; (b) the right to request that items be added to the agenda of a general meeting (for shareholders representing at least 5% of the share capital); (c) the right to put written questions to the board of directors and to receive answers; (d) the right to request the appointment of experts (for shareholders representing, individually or collectively, at least 10% of the share capital) with a view to analysing certain transactions undertaken by the company’s management; 322

Romania

(e) the right to notify the internal auditors or censors of facts falling within the latter’s powers; (f) the right to request that a general meeting of shareholders be held (for shareholders representing, individually or collectively, at least 5% of the share capital). (g) the right to challenge resolutions of the general meeting before the competent courts; (h) the right to file a claim for damages on behalf of the company against the latter’s directors, founders, managers, censors or auditors (for shareholders representing, individually or collectively, at least 5% of the share capital); (i) the right to exit the company under certain circumstances (including a transfer of the company’s headquarters abroad).

2

Management and supervision

A

Two-tier system/one-tier system

(i)

General remarks Since the reform of the Companies Act in December 2006, shareholders may opt for either a two-tier system, comprising a directorate and a supervisory board, or a one-tier system, comprising a board of directors (in certain cases, with the delegation of certain powers to managers).

(ii)

One-tier system Under the one-tier system, a joint stock company is managed by its board of directors. The number of members must always be uneven and, if the company is subject to the statutory audit obligation, there must be at least three directors. The members of the board of directors can be either natural persons or legal entities. The board of directors generally takes all measures needed and required to achieve the company’s corporate purpose as stated in its articles of association, except for those reserved to the general meeting by law. Unless the articles provide otherwise, at least half the directors must be present in order for the board to validly take decisions. The board meets whenever necessary and must meet at least once every three months. The board of directors may, or if the company is subject to the statutory obligation to be audited, must delegate its administrative duties to managers. The managers, including the general manager, are appointed and removed from office by the board of directors, whose members can also serve as managers. However, a majority of the directors must be non-executive members, i.e. they cannot also be managers. 323

The European Company

The chair (person) of the board of directors can also serve as the general manager if a provision to this effect is contained in the articles of association or in a shareholder resolution. Managers must be natural persons and can also be members of the board of directors. Notwithstanding this, the board of directors must retain certain exclusive authority, such as the power to determine the company’s main areas of activity and development, its accounting and financial oversight systems, approval of the financial plans, and filing of requests to commence insolvency proceedings. Unless the articles of association provide for a higher quorum, at least half the members of the board of directors must be present to validly take decisions. Decisions are adopted by a simple majority of votes cast, unless the articles provide otherwise. A member of the board of directors cannot also serve as a director of more than five Romanian joint stock companies (unless the member in question owns one-quarter of the shares of that company). As a general rule, if a member of management has a conflict of interest with the company, it must inform the other directors, the managers, the censors and/or auditors and may not take part in the deliberations with respect to the operation in question. (iii)

Two-tier system Under the two-tier management system, the company is managed by a directorate and a supervisory board. The directorate takes all measures needed and required to achieve the company’s corporate purpose, as stated in its articles of association, except for those matters reserved to the general meeting of shareholders or the supervisory board by law, and, for this purpose, it shall meet as often as necessary. The supervisory board’s main duty is to oversee the activities of the directorate. This supervisory role mainly consists of: (a) exercising permanent control of the directorate’s management; (b) appointing and removing members of the directorate from office; (c) verifying compliance of management’s decisions with the law, the company’s articles of association and resolutions of the general meeting; (d) providing the general meeting of shareholders with an annual report on its supervisory activities; (e) requesting that the directorate provide any information as it sees fit. The supervisory board cannot undertake measures relating to the management of the company. However, it can be granted, through the articles of association, a veto in relation to certain operations or types of operations. Should the supervisory board refuse to approve an operation following a request from the directorate to do so, the general meeting of shareholders can

324

Romania

approve the operation by a three-quarters majority of those shareholders in attendance. Unless the articles of association provide for a higher quorum requirement, at least half the members of the directorate or the supervisory board must be present to validly take decisions. Decisions are adopted by a simple majority of votes cast, unless the articles provide otherwise. A supervisory board member cannot sit on the supervisory board of more than five other Romanian joint stock companies (unless the member owns onequarter of the shares of that company). As a general rule, if a member of management has an interest contrary to that of the company, it must inform the other members as well as the censors and/or auditors and may not take part in the deliberations on the operation in question. The company may not grant loans to members of its management. B

Appointment and removal

In the one-tier system, members of the board of directors are appointed and removed from office by the general meeting of shareholders. The term of office for a director shall be set forth in the company’s articles of association but cannot exceed four years. A director may serve for an additional term, insofar as this is not prohibited by the articles of association. In the two-tier system, the supervisory board, which must meet at least once every three months, must have between three and eleven members, appointed and removed by the general meeting of shareholders (or by the articles of association, for the first members). Members of the directorate are appointed and removed by the supervisory board, and their number must be uneven. A person cannot sit simultaneously on both the supervisory board and the directorate. C

Representation

In the one-tier system, the board of directors represents the company in relation to third parties and in legal proceedings through its chairperson. If management of the company has been delegated to managers, the power to represent the company lies with the general manager, and the board of directors represents the company in relation to its managers. In the two-tier system, the directorate represents the company in relation to third parties and in court and, unless the articles provide otherwise, members of the directorate can represent the company only by acting unanimously. In the absence of a stipulation to the contrary, a member of the directorate can be authorised unanimously by the other members to represent the company with respect to the conclusion of specific acts or certain types of acts. The name(s) of the person(s) so authorised must be submitted to the trade registry. The supervisory board represents the company in its relations with the directorate. 325

The European Company

D

Liability

Members of the management bodies act on the basis of powers conferred on them by the company. These powers were recently extended to managers as well, who had previously been viewed as employees. In accordance with the OECD 2004 Recommendations, the Companies Act explains in greater detail the abovementioned relationship and introduces concepts that were previously only implied. Thus, it expressly provides that all members of management shall exercise their duties with loyalty and in the company’s interest. Members of management do not breach their duty of loyalty if, when taking a business decision, they are reasonably entitled to believe that they are acting in the company’s best interest and on the basis of adequate information. The standard according to which the liability of management is assessed is that of the prudent business person. Therefore, even slight negligence may give rise to liability. In this regard, as a rule, each management body is liable for failure to fulfil the tasks entrusted to it by higher-ranking corporate bodies or by law.

IV

Employee involvement Romania has transposed the Directive by adopting Government Decision No. 187/2007 on the information and consultation procedures and other modalities of employee involvement in the activities of a European company, effective 7 March 2007 (the ‘Employee Involvement Decision’). Romania has implemented Article 8 of the Directive on confidentiality by closely following the provisions of the Directive, providing that: (i) the duty of confidentiality of members of the special negotiating body (SNB) or the representative body as well as of experts and the employee representatives continues in effect even after expiry of their term of office; (ii) the supervisory/administrative organ need not transmit information if doing so could seriously harm the functioning of the SE (although any such decision must be justified and explained to the employee representatives); and (iii) there is a right of recourse to the competent courts in the event that such a refusal to transmit information is deemed unsubstantiated. Romania has implemented Article 9(2) of the Directive and has consolidated in a single article the relevant provisions of Articles 9(1) and 9(2): the competent organ of an SE, the supervisory or administrative organ of the SE, the representative body or the employee representatives, as the case may be, shall work together in a spirit of cooperation, with due regard for their reciprocal rights and obligations.

326

Romania

Romania has not implemented Article 11 of the Directive on the misuse of procedures, although it does not seem to have been the legislature’s intention not to prevent the misuse of an SE for the purpose of depriving employees of rights to employee involvement or withholding such rights.

V

Annual accounts and consolidated accounts Romanian accounting practice is governed by the provisions of Law No. 82/1991, as amended (the ‘Accounting Law’). Romanian accounting legislation has been significantly modified in recent years with a view to harmonisation with Community directives. Currently, most Romanian entities conduct their accounting in accordance with Ministry of Public Finance Order No. 1752/2005 on the accounting regulations in accordance with Community directives. Simplified measures are available for small enterprises. The accounting regulations, harmonised with Community directives, are applicable to companies which, as of the preparation date of their annual financial statements, meet two of the following three criteria: (i) total assets of €3.65 million; (ii) net turnover of €7.3 million; (iii) 50 employees on average during the year. Simplified measures are available for companies that do not meet two of the abovementioned three criteria. In addition, International Financing Reporting Standards must be observed by certain categories of Romanian companies, such as credit institutions, insurance companies, listed companies, etc.

(i)

Internal audit Companies whose annual financial statements are subject to the statutory audit obligation or who have opted to have their financial statements audited must organise their internal audit in accordance with the norms issued by the Romanian Chamber of Financial Auditors. Any other joint stock company must appoint an odd number of censors to verify the company’s management.

(ii)

External audit The financial statements of commercial companies subject to the statutory audit obligation must be audited by financial auditors, who may be either natural persons or legal entities, as provided by law. All joint stock companies that have opted for the two-tier management system are subject to the statutory audit obligation. Whether a company is subject to this obligation depends on if it meets the criteria set out in Order 1752/2005 of the Ministry of Public Finance. 327

The European Company

(iii)

Special provisions for companies subject to the obligation to have their financial statements audited (‘audited companies’) Audited companies must organise their internal audit in accordance with the provisions adopted by the Romanian Chamber of Financial Auditors. Furthermore, the general meeting of shareholders has the power to fix the minimum length of the audit agreement and to remove the auditor(s) from office. The articles of association of a joint stock company must include, amongst other provisions, the identity of the company’s first auditor if it opts to, or must have, its financial statements audited. The creation of an audit committee within the board of directors is mandatory within all audited companies. This committee is made up exclusively of nonexecutive directors and at least one of its members must be experienced in applying bookkeeping or auditing principles. For audited joint stock companies, delegation of managerial authority by the board of directors to managers is mandatory.

VI

Supervision by the national authorities An SE incorporated in Romania shall be subject to supervision in accordance with the relevant provisions of national law, including, for example, and depending on the scope of its business, stock exchange rules and rules governing financial institutions and banks, electronic communications, employment and environmental legislation, tax and social security laws, and other regulated areas. Moreover, it may be subject to supervision by the national competition authority, the Competition Council, or the European Commission, for the purpose of competition regulation.

VII

Dissolution

1

Winding up – voluntary liquidation As a general rule, the dissolution of a company has the effect of initiating liquidation. Dissolution may occur without liquidation, in the event of the merger or total demerger of the company or under express statutory conditions.

(i)

General dissolution provisions of the Companies Act The Companies Act contains general dissolution provisions that apply regardless of the type of company and specific dissolution provisions applicable to certain types of companies. Thus, the general cases of dissolution under Romanian company law are:

328

Romania

(a) (b) (c) (d)

the company’s term of existence expires; it is impossible to achieve the company’s corporate purpose; the company’s purpose is declared invalid; the general meeting of shareholders passes a resolution to dissolve the company; (e) the court orders the company to dissolve, at the request of any member, for good reason such as a serious misunderstanding between the shareholders that obstructs the proper functioning of the company; (f) insolvency; (g) other cases provided by law or in the company’s articles of association. (ii)

Specific dissolution provisions of the Companies Act A joint stock company shall be dissolved in the following cases: if the company’s net asset value falls below less than half its subscribed capital and the situation is not rectified or the number of shareholders falls below the statutory minimum and no new shareholder is brought in for more than nine months. Following dissolution, a company may not develop any new commercial activities. Dissolution gives any member the right to request the company’s liquidation and must be recorded with the trade registry and published in the Official Gazette.

(iii)

Procedural aspects related to dissolution The dissolution of a company must be recorded with the trade registry and published in the Official Gazette. Registration and publication shall be effected through publication of the general meeting’s resolution amending the articles of association or on the basis of a court order ordering the company to dissolve (in which case, registration and publication must be accomplished within fifteen days from the date on which the court order became irrevocable). Any interested party may challenge the court order within thirty days of its publication.

(iv)

Procedural aspects related to winding up The liquidation of a company shall be coordinated by a liquidator (either a natural person or a legal entity), appointed by the company and supervised by its censors. Any shareholder may request the appointment of a liquidator if the directors have failed to request the competent court to appoint one. The activities performed by the company during liquidation shall be subordinated to the needs of liquidation and are limited to operations in existence at the time of dissolution. 329

The European Company

The liquidators cannot pay members of the company (shareholders) any amounts to which they are entitled by virtue of liquidation before paying the company’s creditors. However, shareholders may request that a cash reserve be formed if the company has sufficient funds to meet all of its obligations and an excess amount of at least 10% of the value thereof exists. Liquidation must be finalised within three years from the dissolution date, although this period may be extended by the competent court.

2

Insolvency and cessation of payments

(i)

Applicable legislation The applicable legislation is Law No. 85/2006 on insolvency proceedings (the ‘Insolvency Law’). For banks and insurance companies, special legislation applies.

(ii)

Competent bodies The bankruptcy judge, the trustee in bankruptcy and/or the liquidator (insolvency practitioners) and the creditors’ bodies are the main parties involved in applying the provisions of the Insolvency Law. (a) The bankruptcy judge • formally opens and closes the proceedings; • confirms the appointment by the creditors bodies of the trustee in bankruptcy and/or the liquidator and replaces such persons; • approves and confirms the reorganisation or liquidation plan, as the case may be; and • rules on claims and objections raised during judicial reorganisation and bankruptcy proceedings. (b) Insolvency practitioners Such practitioners operate either as professional partnerships or individually as independent office holders. Insolvency practitioners are regulated by the National Association of Insolvency Practitioners (‘UNPIR’), an independent regulatory body which also maintains a register with respect to all professional partnerships formed by insolvency practitioners. Foreign practitioners may carry on reorganisation and liquidation activities in Romania in accordance with the provisions of bilateral conventions entered into for this purpose by UNPIR with similar foreign bodies. Insolvency practitioners monitor the debtor’s business activities in general, including: • examining the debtor’s activities and preparing a report on the causes and circumstances of insolvency;

330

Romania

• drafting a reorganisation plan with respect to the debtor’s activity, based on the aforementioned report, as the case may be; • managing the debtor’s business; • concluding transactions; • in the case of liquidation, preparing an inventory of the debtor’s assets and liabilities and maintaining the debtor’s assets in good repair and condition; and • other duties established by the bankruptcy judge. (iii)

Creditors’ bodies During insolvency proceedings, creditors are organised into: (a) the creditors’ meeting which has the power to: (i) accept a reorganisation plan; (ii) propose various measures; (iii) take decisions with respect to the appointment of an insolvency practitioner as the debtor’s trustee or liquidator; and (b) the creditors’ committee, consisting of three to seven creditors holding secured, state-budget or unsecured receivables with the highest value, which may assist the bankruptcy judge during the proceedings and request that the latter enjoin the debtor from managing its estate.

(iv)

Insolvency procedures A debtor may be subject to either the general procedure (involving the possibility of reorganisation) or a simplified procedure (implying immediate commencement of bankruptcy proceedings). The insolvency procedure commences pursuant to a decision of the bankruptcy judge, taken following an application by either the debtor or a creditor with a mature claim that has been due for more than 30 days and with a value of at least RON 10,000 (approximately €3,00). Upon commencement of this procedure, all claims for enforcement, either in or out of court, are suspended, and no interest, penalties or expenses in relation to unsecured debts may be charged against the debtor. The debtor, the trustee in bankruptcy or one or more creditors holding jointly at least 20% of the total value of all receivables may propose a reorganisation plan, which must indicate and describe the means of repayment. The bankruptcy judge may approve a plan that meets the statutory requirements and has an objective chance of success. A reorganisation plan can only be implemented once it has been approved by the debtor’s creditors. Bankruptcy proceedings shall start if the debtor cannot be restructured or if restructuring fails. 331

The European Company

The bankruptcy judge shall declare the debtor dissolved and appoint a liquidator. Following this decision, the liquidator must prepare an inventory of the debtor’s assets and liabilities, verify the existence and value of any receivables incurred after the commencement of bankruptcy, which must be registered with the court, and of receivables whose value has been modified as a result of payments effected after the commencement of bankruptcy, and sell the debtor’s assets either separately or in bulk. The proceeds from the sale of the debtor’s assets subject to security interests shall be distributed amongst the secured creditors, after the deduction of enforcement and maintenance expenses and costs. Any remaining proceeds shall be distributed amongst the creditors, in accordance with their rank as provided by law.

VIII

Tax treatment The Romanian tax system is regulated mainly by Law No. 571/2003 on the Tax Code, as amended (the ‘Tax Code’).

1

Income tax and dividend withholding tax

(i)

Corporate tax Pursuant to Title II (‘Corporate Tax’) of the Tax Code, domestic companies (i.e. those incorporated in Romania) are subject to corporate tax on their profits realised both inside and outside of Romania. Moreover, resident natural persons associated with Romanian companies, through associations lacking legal personality, are subject to corporate tax on income arising both in Romania and abroad, Foreign companies (i.e. those incorporated outside Romania) are subject to corporate tax, as follows: (a) income obtained through a permanent establishment in Romania; (b) income in relation to immovable property located in Romania, including: • income from the rental or use of immovable property located in Romania; • gains from the sale of ownership rights or other rights related to immovable property located in Romania; • gains from the sale of participation rights in a legal entity, if at least 50% of the value of the fixed assets of that legal entity constitutes, either directly or through one or more legal persons, immovable property located in Romania; • income from the exploitation of natural resources located in Romania, including gains from the sale of any right related to such natural resources.

332

Romania

(c) income from the sale of shares in a Romanian legal person. The general corporate tax rate is 16%. Taxable income (profit) is the difference between income from any source and expenses incurred for the purpose of making such income during a given fiscal year, from which non-taxable income is deducted and to which non-deductible expenses are added. (ii)

Dividend withholding tax The distribution of dividends (profits) to domestic companies is subject to a 10% withholding tax. If the distribution is made to a natural person, the tax rate is 16%, and the tax is withheld by the paying company. Since January 2007, dividends paid by one Romanian legal entity to another are not subject to withholding tax, if the beneficiary has held at least 25% of the shares in the paying entity on the date the dividend is paid for a period of at least two years. Dividends distributed to non-resident entities are subject to a 16% withholding tax, unless a treaty for the avoidance of double taxation applies and provides for more favourable rates. In January 2007, the Parent-Subsidiary Directive, which has been transposed into Romanian law, became applicable. This directive provides that if a minimum 15% (10% starting 2009) shareholding has been held for an uninterrupted period of two years, dividend payments will no longer be subject to withholding tax.

2

Value added tax A VAT taxable person is any person who carries on, in an independent manner and irrespective of the place, certain economic activities provided for by law, regardless of the purpose or results of these activities. In this respect, the economic activities indicated include those of manufacturers, traders and service providers, including extraction and agricultural activities and the liberal professions or activities treated as such. The term economic activity also includes the use of tangible or intangible goods for the purpose of obtaining income in a continuous manner. Employees and other persons connected to an employer by means of an employment contract or by any other legal instrument that creates an employer-employee relationship as regards the terms and conditions of employment, remuneration or other obligations of the employer are not considered to act in an independent manner. On 1 January 2007, a new VAT system was implemented in Romania based on the principles set out in the Sixth VAT Directive on the harmonisation of the laws of the Member States relating to turnover taxes. In addition, Romania has 333

The European Company

transposed into national law the provisions of the Eighth and Thirteenth VAT Directives on VAT refunds to EU and non-EU taxable persons. New VAT-related concepts also became applicable in Romania on 1 January 2007, namely intra-Community delivery and acquisition, VAT triangulation, and operations that constitute transfers and non-transfers for VAT purposes. The standard rate of VAT is 19% and applies to any taxable operation that is not exempt from VAT or that is not subject to the reduced rate of VAT. The reduced rate of VAT is 9% and applies to the following supplies of services and/or deliveries of goods: (a) admission to castles, museums, memorial houses, historical monuments, architectural and archaeological monuments, zoos, botanical gardens, fairs, exhibitions and similar cultural events or facilities, cinemas, etc; (b) the delivery of books, newspapers and magazines, school manuals, with the exception of those intended exclusively or substantially for publicity purposes; (c) the delivery of prostheses of any type and accessories to them, with the exception of dental prostheses; (d) the delivery of orthopaedic products; (e) the delivery of medicines for human and veterinary use; (f) the supply of accommodations within the hotel sector or within sectors having a similar function, including the rental of land for camping. The VAT legislation provides for two different kinds of exemptions: those with a deduction right and those without a deduction right. Registered VAT payers may deduct monthly output VAT from their input VAT, but only in relation to goods and services destined for taxable operations. Should their output VAT exceed their input VAT, the difference must be paid.

3

Other taxes

(i)

Local taxes Title IX of the Tax Code mentions the categories of taxes owed to the local authorities by Romanian natural and legal persons. Most of these taxes are levied on goods (e.g. tax on buildings or land, vehicles, etc.). The local authorities have limited authority to create and levy new taxes, such as the tax on equipment or polluting activities and for the use of public property, etc.

(ii)

Excise tax On 1 January 2007, the Community directives setting a general framework for the taxation of products subject to excise duties were transposed into the Tax Code.

334

Romania

Harmonised excise duties are imposed on alcoholic drinks and other alcoholic products, tobacco products, energy products and electric power. (iii)

Registration fees and stamp duties All court actions are subject to a stamp duty at a regressive rate (between 10% and 1% of the value of the object of the litigation). Registration with the competent registries of real property ownership rights, mortgages and security interests are also subject to a registration fee or stamp duty.

IX

Conclusion Even though the Regulation is directly applicable in Romania, the adoption of specific national rules is recommended in order to indicate, for example, Romania’s approach to the options left open by the Regulation. The Directive, which has already been transposed into Romanian law, has not yet found any practical application due its very recent enactment and the novelty of the SE in Romania.

335

13 Republic of Slovenia m at e j a o r g i cˇ , j u r i j d o l zˇ a n a n d e va p e r g a r e c Odvetniki Jurij Dolˇzan, Mitja Vidmar & Igor Zemljariˇc

I II III

IV

V

VI

336

Introduction 337 Reasons to opt for an SE 338 Formation 339 1 General remarks 339 A Founding parties 339 B Name 339 C Registered office and transfer 339 D Corporate purpose 342 E Capital 342 2 Different means of formation 343 A Formation by merger 343 B Formation of a holding SE 344 C Formation of a subsidiary SE 346 D Conversion into an SE 346 3 Acts committed on behalf of an SE in formation 347 4 Registration and publication 347 5 Acquisition of legal personality 348 Organisation and management 348 1 General remarks 348 2 General meeting 348 A Decision-making process 348 B Rights and obligations of shareholders 349 3 Management 350 A Two-tier system/one-tier system 350 B Appointment and removal 351 C Representation 352 D Liability 352 Employee involvement 353 1 Special negotiating body 353 2 Employee participation 354 3 Duty of confidentiality and the protection of employee representatives 355 Annual accounts and consolidated accounts 356 1 Accounting principles 356 2 Auditors 356

Republic of Slovenia

VII Supervision by the national authorities VIII Dissolution 357 1 Winding up 357 2 Liquidation 357 3 Insolvency 358 4 Cessation of payments 359 IX Applicable law 359 X Tax treatment 359 1 Income tax 359 2 Value added tax 360 3 Other taxes 360 XI Conclusion 361

I

356

Introduction The Republic of Slovenia (‘Slovenia’) transposed Council Regulation No 2157/2001 of 8 October 2001 on the Statute for a European company (the ‘Regulation’) into national law with some delay by the new Commercial Companies Act (Zakon o gospodarskih druˇzbah or ZGD), published in the Uradni list (Official Journal RS, No. 42/2006) on 19 April 2006. The ZGD entered into force on 4 May 2006 and provides not only a legal framework for SEs in Slovenia but also amends Slovenian company law in certain important respects, including in previously unregulated areas such as squeeze-outs, shares with no par value, and the introduction of the euro into Slovenian company law. Directive 2001/86/EC supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’) has been transposed into national law by the Law on Employee Participation in the Management of the European Company (SE) (Zakon o sodelovanju delavcev pri upravljanju evropske delniˇske druˇzbe or ZSUEDD; Official Journal RS, No. 28-1126/2006). Implementation of the Regulation appears to have inspired the Slovenian Parliament and, as a result, some of the regulatory concepts in the Regulation have been extended to other corporate forms (e.g. the choice between a one-tier or a two-tier management system). Since the process of registering companies with the competent court register (the ‘Companies Register’) is regulated in detail by the Governmental Decree on Company Registration (Uredba o vpisu druˇzb in drugih pravnih oseb v sodni register) (the ‘Decree’) (Official Journal RS, No. 18/02), the Decree will also need to be amended to reflect the provisions of the new ZGD. As provided in the Regulation and the Directive, the Member States have options with respect to certain issues. Please find below a summary of those options the Slovenian legislature has adopted and those it has decided not to apply. 337

The European Company

Options Slovenia has adopted: Regulation: Articles 8(5), 21, 24(2), 39(1), 39(2), 39(4), 40(3), 41(3), 43(1), 50(3), 55(1) and 59(2). Directive: Article 3(2)b (second paragraph) and 3(7). Options not applied by Slovenia: Regulation: Articles 2(5), 7, 8(7), 8(14), 12(4), 19, 31(2), 34, 37(8), 39(3), 39(5), 43(2), 43(3), 48(1), 48(2), 54(1), 56, 67(1), and 67(2). Directive: Articles 3(2)b (first paragraph), 7(2), 7(3), 8(2), 8(3) and 13(4). Unless indicated to the contrary, references in this report to: • a ‘company’ are to a legal entity established in Slovenia that takes the form of a joint stock company (delniˇska druˇzba), as opposed to other corporate forms (such as the druˇzba z omejeno odgovornostjo or limited-liability company and the komanditna druˇzba or company limited by shares) or entities without legal personality (such as the druˇzba z neomejeno odgovornostjo or unlimited-liability company); • ‘articles’ are to the constitutive document of a company, i.e. its articles of association; • a ‘management board’ are to the corporate body in the two-tier management system, entrusted with managerial functions (referred to as the ‘management organ’ in the Regulation); • a ‘supervisory board’ are to the corporate body in the two-tier management system, entrusted with supervising the company’s management (referred to as the ‘supervisory organ’ in the Regulation); • a ‘board of directors’ are to the corporate body in the one-tier management system, entrusted with both managerial and supervisory functions (referred to as the ‘administrative organ’ in the Regulation); • an ‘administrative body’ are to both the board of directors (in the onetier system) and the management and supervisory boards (in the two-tier system); and • the ‘general meeting’ are to the shareholders’ meeting (skupˇscˇ ina delniˇcarjev) of a company.

II

Reasons to opt for an SE Due to the limited size of the Slovenian market, companies in Slovenia are often forced to expand their business abroad or to cooperate with foreign partners. In order to facilitate cross-border transactions, many Slovenian companies have established subsidiaries in other EU Member States or elsewhere. The SE offers Slovenian companies even greater flexibility to respond to market and business needs, such as the possibility to transfer their registered office to another

338

Republic of Slovenia

jurisdiction within the EU without having to first wind up as well as unified reporting and corporate governance procedures.

III

Formation

1

General remarks

A

Founding parties

There are no special provisions on the founding parties of an SE in the ZGD, meaning that the provisions of the Regulation apply. In accordance with Article 2(5) of the Regulation, Slovenia does not allow a company with its registered office outside the EU to participate in the formation of an SE. B

Name

An SE with its registered office in Slovenia is referred to as an evropska delniˇska druˇzba.1 The name must be followed by the abbreviation ‘d.d.’ (which stands for delniˇska druˇzba or joint stock company). According to Article 11(1) of Regulation, the name of an SE must be preceded or followed by the abbreviation ‘SE’. C

Registered office and transfer

(i)

Registered office According to Article 7 of the Regulation, the registered office of an SE must be in the same Member State as its head office. Slovenia did not enact the option to require an SE’s registered office to be at the same place as its head office; however, based on the general provisions of the ZGD, a company (including an SE, pursuant to Article 9 of Regulation) may register its office only at the place where: (i) it pursues operations; or (ii) conducts business; or (iii) its management is located. Pursuant to the Article 433 of the ZGD, when the management of an SE is transferred to another Member State, it must (if so requested by the Companies Register) re-establish its management in Slovenia within an appropriate timeframe or transfer its registered office to that state pursuant to Article 8 of the Regulation. If the SE does not comply with the Companies Register’s request, the court can order that it be dissolved.

(ii)

Transfer of registered office Slovenia has chosen to adopt additional provisions designed to protect minority shareholders who oppose the transfer abroad of an SE’s registered office (Art. 8(5) Reg.). Pursuant to the Article 434 of the ZGD, in addition to the 1

The literal translation is ‘European joint stock company’.

339

The European Company

information set forth in Article 8 of the Regulation, the transfer proposal shall include an offer to acquire in return for ‘fair monetary compensation’ the shares of those shareholders who voted against the transfer. Any shareholder who did not attend the general meeting due to duress, invalid notice or irregular publication is also entitled to seek compensation. The compensation should be ‘appropriate and just’, and the amount thereof must be audited. The auditor’s report shall include an opinion as to whether the compensation offered is appropriate and just for the shares to be acquired. The SE’s supervisory board is obliged to review the transfer proposal on the basis of the management board’s report and the auditor’s report on the adequacy of the share-exchange ratio and draft a report on the proposed transfer (Art. 436 ZGD). At least two months prior to the date of the general meeting scheduled to vote on the proposed transfer, the transfer proposal must be submitted to the Companies Register and a notice to this effect published. In this notice, the company shall inform: (i) shareholders of their right to receive monetary compensation in return for their shares; and (ii) creditors of their right to request security, as set out below. At least one month prior to the general meeting scheduled to vote on the proposed transfer, various documents must be made available for inspection at the SE’s registered office, including those mentioned in Article 8(4) of the Regulation, the auditor’s report on the adequacy of the share-exchange ratio, the supervisory board’s report on its review of the proposed transfer, and the company’s annual report for the previous year. At the general meeting of shareholders, the board shall explain the content of the transfer proposal. If the company’s articles provide for special rights for certain (classes of) shares, Article 438 of the ZGD requires that the transfer be approved by each class of shareholders, unless their rights will not be affected by the transfer. Shareholders who object to the transfer of the SE’s registered office at the general meeting (and whose objection is recorded in the minutes) are entitled to ask that the company (or any other person obliged to pay compensation, as set forth in the transfer proposal) redeem their shares. The same holds true for shareholders unlawfully prevented from attending the general meeting or who do not attend due to an invalid notice or irregular publication of the agenda. The offer of compensation is valid for one month following publication of the notice of recordation of the new registered office. The payment obligation expires three years after this publication. Pursuant to Article 441 of the ZGD, the following are not grounds for challenging a resolution of the general meeting approving the transfer of an SE’s registered office: 340

Republic of Slovenia

(a) the amount of compensation is not adequate or was not properly offered or no compensation was offered at all; (b) the discussion on the adequacy of the share-exchange ratio in the management board’s report, the auditor’s report or the supervisory board’s report does not meet the requirements of the ZGD. However, shareholders who objected to the resolution (and whose objection is recorded in the minutes of the general meeting) are entitled to request judicial review of the adequacy of the share-exchange ratio (Art. 441 ZGD). Creditors of the SE are entitled to request security for undue, contingent or unascertained claims (Art. 442 ZGD). Such a request must be made within one month following the date of the general meeting approving the transfer. The management board must record the company’s intention to transfer its registered office with the Companies Register (Art. 443 ZGD). The documents required to support such a request for registration include: (a) a statement by the management board that no action has been filed against the general meeting’s resolution approving the transfer; (b) the transfer proposal; (c) the minutes of the general meeting at which the transfer was approved; (d) the SE’s annual report for the previous financial year; (e) proof of publication of the transfer proposal pursuant to the provisions of the ZGD (Art. 437 ZGD); (f) proof that any applicable statutory requirements aimed at ensuring the protection of shareholders and creditors have been met. After having reviewed whether all statutory requirements have been met, in particular those related to the protection of shareholders’ and creditors’ rights, the Companies Register shall record the intention to transfer the SE’s registered office and issue a certificate pursuant to Article 8(8) of the Regulation. Slovenia chose not to enact the option contained in Article 8(14) of the Regulation, allowing the national authorities to oppose the transfer of an SE’s registered office if it would result in a change in applicable law. Upon receipt of a notice that the transfer has been recorded in the competent register of another Member State, the Companies Register shall delete the SE’s entry (Art. 443 ZGD).

(iii)

Transfer of an SE’s registered office to Slovenia If an SE with its registered office outside Slovenia wishes to transfer its registered office to Slovenia it must request permission to do so from the Companies Register. The documents to be submitted in support of such a request include (Art. 444 ZGD): 341

The European Company

(a) (b) (c) (d) (e)

the documents required by the ZGD to register a joint stock company; the transfer proposal; the minutes of the general meeting at which the transfer was approved; the company’s annual report for the previous financial year; a certificate from the competent authority of the Member State from which the SE is transferring its registered office; (f) an excerpt from the competent register of that Member State, dated after the issuance of the certificate referred to in subparagraph (e); and (g) a statement by the management board that no proceedings for winding up, liquidation, insolvency or suspension of payments or similar proceedings have been brought against the SE. After registering the transfer, the Companies Register must notify the competent authority in the other Member State. D

Corporate purpose

Since there are no specific rules regarding the corporate purpose of an SE, the general rules applicable to all Slovenian companies apply. This means inter alia that an SE must set out a framework for its intended activities in its constitutive documents (e.g. its articles of association) and register these activities with the Companies Register. In principle, a company may only conduct activities that fall within the scope of those registered with the Companies Register (Art. 6 ZGD). Nevertheless, a company may engage in activities that are incidental or conducive to its registered activities. An act committed or obligation incurred outside the scope of a company’s registered activities is valid and binding, unless it can be established that the other party was, or should have been, aware of the ultra vires nature of the act. Such knowledge on the part of a contracting party cannot be assumed, even when the company’s activities are registered. Special requirements may apply to certain types of activities (e.g. arms production, media, banking and insurance activities, etc). E

Capital

The minimum share capital for a Slovenian joint stock company is €25,000. The minimum share capital for an SE (Art. 4 Reg.) is significantly higher (i.e. €120,000). Until the end of 2006, the share capital of Slovenian companies had to be denominated in Slovenian tolars (SIT). However, since Slovenia joined EMU and adopted the euro as its national currency on 1 January 2007, share capital must henceforth be expressed in euros (Art. 170 ZGD). Shares can be subscribed for in cash or in kind; however, at least one-third of the share capital must be paid up in cash. Prior to registration of a joint stock 342

Republic of Slovenia

company in the Companies Register, at least 25% of the nominal value of each share subscribed for in cash must be paid in.

2

Different means of formation

A

Formation by merger

Public limited-liability companies can form an SE by merger if at least two of them are from different Member States. In accordance with Article 15 of Regulation, the formation of an SE is governed by the law applicable to public limited-liability companies in the Member State where the SE’s registered office is or will be located. National law shall also apply to matters not covered by Section 2 of the Regulation (Arts. 17–31) and, where a matter is covered only in part by the Regulation, each company involved in the formation of an SE by merger shall be governed by the provisions of national law of the Member State to which it is subject for those aspects not covered (Art. 18 Reg.). For merging companies in Slovenia, the applicable rules are set out in the ZGD (Arts. 580–616). Some differences exist between the Regulation and the ZGD regarding the draft terms of merger, which must be drawn up by the management boards of the merging companies and approved by the general meeting of shareholders of each merging company. In Slovenia, a merger agreement is usually entered into before being submitted to the Companies Register for inspection or to the general meeting for approval. The Slovenian legislature decided to enact legislation to protect shareholders who oppose the formation of an SE by merger (Art. 24(2) Reg.). Therefore, shareholders who object to the merger at the general meeting are entitled to have their shares redeemed in cash. Pursuant to Article 445 of the ZGD, the merger agreement must therefore, in addition to the information required by Article 17 of the Regulation, include an offer to redeem, for fair monetary compensation, the shares of those shareholders who oppose the formation of an SE by merger. Shareholders who do not attend the general meeting retain the right to have their shares redeemed if their non-attendance was due to an invalid convocation or irregular publication or if they were unlawfully prevented from attending. In addition to the merger agreement, each Slovenian merging company shall also prepare: (i) a management board’s report on the proposed merger; (ii) an auditor’s report on the merger; and (iii) a report on the merger by the supervisory board, based on the auditor’s report and the management board’s report. The merger agreement, as reviewed by the supervisory board, shall be submitted to the Companies Register at least one month before the general meeting scheduled to approve the merger and a notice to this effect published in the 343

The European Company

Official Journal RS. In addition to the particulars set out in Article 21 of the Regulation, the notice shall specifically call the attention of shareholders and creditors to their rights under the ZGD to request redemption of their shares or security, as the case may be (Art. 447 ZGD). If the company has only a single shareholder or if all shareholders have waived their right to request redemption of their shares by way of a notarial instrument, no offer of redemption is required (the so called ‘simplified merger’ procedure; Art. 448 ZGD). Pursuant to Articles 450 and 604 of the ZGD, the resolution approving the merger may not be challenged in court if the general meetings of the companies in those Member States that do not provide for special judicial appraisal and review of the share-exchange ratio explicitly agree that the shareholders of a Slovenian merging company can request judicial review of the share-exchange ratio for an SE registered in Slovenia or, subject to certain conditions, for an SE with its registered office in another Member State. Shareholders of an acquired company from another Member State are also entitled to request judicial review of the share-exchange ratio in Slovenia, provided the conditions set out in Article 450 of the ZGD are met. Creditors of a merging company transferring its assets to an SE registered outside Slovenia shall benefit from the same protection afforded to creditors where a Slovenian-based SE transfers its registered office abroad (Art. 442 ZGD), i.e. the right to request security for undue, contingent or unascertained claims. A Slovenian merging company transferring its rights and assets to an SE with its registered office outside Slovenia must notify the Companies Register of its intent to merge. The filing must include a number of documents, the most significant being: (i) the merger agreement; (ii) the minutes of the general meeting approving the merger; (iii) the permission of special authorities, if necessary; (iv) the management board’s report on the merger; (v) the auditor’s report; (vi) the acquired company’s last financial statements; (vii) proof of publication of the notice of intent to merge; and (viii) proof that any statutory requirements designed to protect shareholders’ and creditors’ rights have been met. After having reviewed whether the statutory requirements have been met (especially the provisions of the ZGD regarding the rights of shareholders and creditors), the Companies Register shall issue a certificate pursuant to Article 25(2) of the Regulation. B

Formation of a holding SE

The ZGD specifies that a notarial instrument containing the articles of a holding SE can only be drawn up after expiry of the additional time period mentioned in Article 33(1) of the Regulation, so that all members of the holding SE are known. This additional period starts to run on the date the requirements for 344

Republic of Slovenia

formation of a holding SE are fulfilled and a notice to this effect published. In addition to the particulars set out in Article 32 of the Regulation, the articles must indicate: (i) the minimum share capital needed to form a holding SE; and (ii) the maximum share capital if all shares of the promoting companies are contributed to the holding SE. With respect to the management report and the auditor’s report, publication of the notice of the draft terms of formation, ability to challenge the general meeting’s resolution in court, and judicial review of the share-exchange ratio, the provisions of the ZGD on formation of an SE by merger apply mutatis mutandis. The companies promoting the formation of a holding SE must notify the Companies Register that all formation requirements have been fulfilled. The documents required for this filing include the draft terms of formation, the minutes of the general meeting, the results of the vote approving the formation, the management board’s report on the formation, the auditor’s report on the formation, proof that the draft terms of formation have been submitted to the Companies Register, and a statement by the management board that no legal proceedings have been brought against the resolution approving the formation of a holding SE. The Companies Register shall review whether the shareholders of the promoting companies have actually contributed their shares to the holding SE, as provided in the draft terms of formation. In addition, the Companies Register shall verify if the other conditions for formation of a holding SE have been met and if all procedural requirements have been observed. If all of these requirements are satisfied, the Companies Register shall issue a certificate attesting to the formation of a holding SE in accordance with the ZGD and the Regulation. After registration of the holding SE, the administrative boards of the promoting companies shall notify the competent authorities in their respective Member States of the registration. An excerpt from the holding SE’s registration shall be attached to this notification. If a holding SE is to be registered in Slovenia, the registration application must include: (a) all information required to register a delniˇska druˇzba or joint stock company (Art. 199 ZGD); (b) the draft terms of formation; (c) the minutes of the general meeting approving the formation of a holding SE; (d) the auditor’s report on the formation; (e) proof of fulfilment of the conditions for formation of a holding SE in accordance with Article 33(3) and (5) of the Regulation; 345

The European Company

(f) a certificate from the competent authority that a holding SE has been formed in accordance with the provisions of the ZGD and the Regulation; and (g) for promoting companies with their registered offices outside Slovenia, an excerpt from the companies register or other competent authority. C

Formation of a subsidiary SE

The Slovenian legislature has not enacted any specific rules regarding the formation of a wholly or partially owned subsidiary SE. As a result, the generally applicable rules on the formation of a joint stock company in Slovenia shall apply. D

Conversion into an SE

Only a joint stock company (delniˇska druˇzba) can be converted into an SE and vice versa. The ZGD regulates only certain aspects of conversion, relating to the protection of shareholders’ rights, and provides that shareholders must be comprehensively and accurately informed of the consequences of conversion. In this case, an audit will be required. In order to convert a delniˇska druˇzba into an SE, the company’s management board must prepare draft terms of conversion, including various information such as the name of the existing company, the address of the (future SE’s) registered office, draft articles of association, the envisaged timetable for the conversion, and a management board report on the conversion pursuant to Article 37(4) of the Regulation. The draft terms of conversion must be audited, and the auditors shall draft a report on the conversion, with special attention being paid to whether the company’s net asset value is at least equal to the minimum capital required to form an SE (subject to increase by any reserves the company is obliged to make). At least one month prior to the date of general meeting scheduled to vote on the proposed conversion, the management board must submit to the Companies Register the draft terms of conversion, as reviewed by the supervisory board. A notice to this effect must be published, calling shareholders’ attention to the following: • their right to review the conversion documents, including the draft terms of conversion, the management board’s report on the conversion, the auditor’s report, and the company’s annual accounts for the previous year, which must be made available at the company’s registered office at least one month prior to the date of the general meeting; • their right to request, free of charge, copies of documents prepared with respect to the conversion (to be provided the next business day). 346

Republic of Slovenia

At the general meeting, these same documents must be made available to shareholders, and the management board must explain the justifications for and implications of the conversion. In addition, before putting the resolution to a vote, shareholders must be informed of any possible material changes to the company’s assets from the time the draft terms were prepared until the date of the general meeting. The conversion must be registered with the Companies Register, along with the following documents: • • • • • • •

3

the draft terms of conversion; the minutes of the general meeting approving the conversion; the management board’s report on the conversion; the auditor’s report; the company’s last financial statements; proof of publication of a notice of the intended conversion; approval of the competent authority, if required.

Acts committed on behalf of an SE in formation There are no specific rules regarding acts committed on behalf of an SE in formation. The generally applicable provisions on legal personality shall thus apply. An SE acquires legal personality upon its registration with the Companies Register. If a person acts in a company’s name or on behalf of a company prior to its registration, that person shall be held personally liable for the consequences of his or her actions, up to the value of his or her assets. If more than one person acts on a company’s behalf, they shall be held jointly and severally liable. If, as a result of such actions, shareholders acquire rights of any sort, these rights must be transferred to the company after its registration, unless the company refuses to accept them. Relations between such persons prior to recordation in the Companies Register shall be governed by the rules applicable to civil law partnerships.

4

Registration and publication An SE with its registered office in Slovenia shall be entered in the Companies Register. An SE only exists once it has been registered. The Companies Register shall monitor and ensure compliance with all statutory requirements before deciding whether to register an SE (some of the formalities and documentation required for registration are discussed elsewhere in his report; see the sections on the formation of an SE by merger, the formation of 347

The European Company

a holding SE, etc.). Once an SE has been registered, the Companies Register shall cause a notice of registration to be published in the Official Journal RS.

5

Acquisition of legal personality As outlined above, an SE acquires legal personality upon recordation in the Companies Register.

IV

Organisation and management

1

General remarks According to the Regulation, an SE may choose between a one-tier and a twotier system of management. Following recent changes in Slovenian company law (the new ZGD), all companies may now opt for either a one-tier or a twotier management structure; prior thereto, all joint stock companies (delniˇska druˇzba) incorporated in Slovenia were obliged to have a two-tier structure.

2

General meeting

A

Decision-making process

The general meeting of an SE takes decisions (i) on matters for which it is given authority by the Regulation or by legislation implementing the Regulation and (ii) on matters that fall within the powers of the general meeting of a public limited-liability company under the law of the Member State in which the SE’s registered office is located or pursuant to its articles. In Slovenia, the provisions of the ZGD regulating the general meeting of a delniˇska druˇzba shall apply, unless the Regulation provides otherwise. Slovenian company law distinguishes between annual (regular) general meetings and extraordinary general meetings. Pursuant to Article 295 of the ZGD, a general meeting shall be convened in those cases provided for in the ZGD or in the company’s articles. Since only the general meeting is authorised to decide on the distribution of profits (possibly along with adoption of the annual report, if it has not already been approved by the supervisory board), it must be convened at least once a year. The general meeting may be convened by the management board, the supervisory board and shareholders representing at least one-twentieth of the company’s share capital. (Slovenia has adopted the option set forth in Article 55(1) of the Regulation, as opposed to the one-tenth threshold.) Shareholders must be notified of a general meeting at least one month in advance. The notice must identify the company, indicate the date, time and place of the meeting and provide details of the resolutions on the agenda. The 348

Republic of Slovenia

precise wording of the proposed resolutions must be set out. A notice of the general meeting must be published. General meetings are usually held at the company’s registered office unless otherwise provided in the company’s articles. If the company’s shares are listed on the Ljubljana Stock Exchange, general meetings may be held at the Stock Exchange. Shareholders are entitled to vote in proportion to the face value of their shares. The company’s articles may, subject to certain conditions, provide for restrictions on voting rights (e.g. the number of votes to which an individual shareholder is entitled based on the number of shares held may be limited to a certain number of votes or to a certain percentage). Shares that carry preferential rights (to dividends or liquidation proceeds) need not be allowed to vote. Quorums and other restrictions or requirements with respect to the validity of resolutions are generally set forth in the company’s articles. However, for certain decisions (such as amendments to the articles, changes in capital, etc.), the ZGD stipulates a minimum quorum if a resolution can be passed by a simple majority (e.g. at least half the share capital must be present or represented at the meeting). Resolutions are normally passed by a simple majority (navadna veˇcina or ordinary resolution) unless a special (three-quarters) majority is required either by the ZGD or the company’s articles. The general meeting has sole authority to take decisions on the following matters (which authority may not be transferred to other corporate bodies): • distribution of dividends; • approval of the annual report (unless it has been approved by the supervisory board); • appointment and removal of supervisory board members; • release from liability of management board members; • appointment of auditors; • amendments to the company’s articles; • changes to the share capital; • winding up of the company; • corporate changes (such as conversions, mergers, etc). B

Rights and obligations of shareholders

The most significant rights of shareholders are the right to vote, the right to receive dividends, if declared, and the right to share in liquidation proceeds. Shareholders holding at least 20% of a company’s share capital have the right to cause an item to be placed on the agenda of a general meeting. 349

The European Company

Shareholders have the right to be informed of significant corporate matters. They can request certain information and documents for inspection, which the company may withhold for limited reasons.

3

Management

A

Two-tier system/one-tier system

The ZGD provides that the shareholders of a company can choose either a twotier management structure or a single board. The board of directors (upravni odbor) in the one-tier system exercises both managerial and supervisory functions. In the two-tier system, these functions are split between a management board (uprava) and a supervisory board (nadzorni svet). (i)

One-tier system Members of the board of directors are appointed by the general meeting of shareholders. Members of the board of directors cannot sit at the same time on the supervisory or management board of five or more other companies. One member of the board of directors may be an employee representative (see the section on employee representation). The board of directors may appoint executive directors from amongst its members (Art. 290 ZGD, implementing the option contained in Art. 43(1) Reg.). Subject to certain statutory conditions, the executive directors need not be board members, however. All members of the board of directors, both executive and non-executive, have the same powers. However, if executive directors are appointed, they jointly represent and act on behalf of the company, unless the company’s articles provide otherwise. The board of directors may also give authority to executive directors to run the company on a day-to-day basis. Executive directors shall abide by the instructions and limitations set forth in the company’s articles or which emanate from the board of directors or the general meeting as well as any standing orders. The board of directors may appoint one or more committees (e.g. an audit committee, appointments committee, remuneration committee, etc.) to prepare proposals for its consideration and supervise the implementation of resolutions. Employees may appoint representatives to these committees. The ZGD regulates in more detail the audit committee which must be formed if employees exercise their right to board representation, unless agreed otherwise.

(ii)

350

Two-tier system Before adoption of the new ZGD, joint stock companies (delniˇske druˇzbe) could only have a two-tier management structure, comprised of a management board and a supervisory board. This structure is still an option.

Republic of Slovenia

The supervisory board is generally responsible for long-term planning and policy, while the management board handles the company’s day-to-day business. The supervisory board does not have power to act on behalf of the company (the articles may provide that it is only required to approve certain types of transactions). The number of members of the management board or supervisory board shall be set forth in the SE’s articles. For certain types of companies (such as banks, insurance companies, management companies and the like) the law may stipulate a minimum number of members. B

Appointment and removal

Members of the administrative bodies (i.e. the board of directors or management board and supervisory board) may be appointed for a term of up to six years, subject to any limitations set forth in the company’s articles. Members may be reappointed. Subject to certain specific statutory requirements, an administrative board must have at least three members, one of whom shall be named the chair. If the number of members is not sufficient, members may be appointed by the competent court at the request of an interested party (including shareholders, members of other corporate organs, etc.). In the two-tier system, members of the management board are appointed by the supervisory board. Members may be removed from office under the circumstances set forth by law (e.g. for material breach of their obligations, inability to run a business, no discharge granted by the general meeting, and other businessrelated reasons). Members of the supervisory board are appointed by the general meeting. If registered shares are issued which can only be transferred with the company’s consent, these shares shall entitle their holders to appoint up to one-third of the supervisory board members representing shareholders. In addition, according to the Act on Employee Participation in Management (Zakon o sodelovanju delavcev pri upravljanj, Official Journal RS, Nos. 42/1993 and 56/2001, hereinafter the ‘ZSDU’) and the ZSDUEDD, the articles of a company with a supervisory board and the arrangements for employee involvement shall specify the number of employee representatives on the supervisory board. Members of the supervisory board appointed by shareholders can be removed from office by a majority of at least three-quarters of the votes cast at a general meeting; employee representatives are removed by the works council. Members of the supervisory board can also be removed from office for good reason pursuant to a court order at the request of the remaining supervisory board members or at least 10% of the shareholders. The principles outlined above in respect of the supervisory board apply mutatis mutandis to the board of directors of an SE. The board of directors may appoint 351

The European Company

executive directors from amongst its number. Subject to certain statutory conditions, the executive directors need not be members of the board of directors. There is no general limitation on the number of executive directors on the board of directors. However, public companies with shares listed on the Ljubljana Stock Exchange must appoint at least one executive director, subject to the rule that no more than half the board members can be executive directors. The board of directors may also recall executive directors; to this end, no specific conditions are required by law. C

Representation

In the two-tier system, members of the management board are empowered to jointly represent and act on behalf of the company, unless the company’s articles provide otherwise. In general, two members of the management board can be authorised to represent and bind the company (for certain types of companies, e.g. banks, insurance companies, etc., this is mandatory). The signatures of all members of the management board must be registered with the Companies Register. Although the power of management board members to represent and bind the company may be restricted by the company’s articles, the supervisory board or the general meeting, such limitations are not effective or enforceable against third parties. In the one-tier system, the company is represented either by the members of its board of directors acting jointly (provided there are no specific rules to the contrary in the company’s articles) or by its executive directors. The company may also be represented by one or more proxies (prokuristi), appointed by the shareholders or the administrative body subject to the provisions of the company’s articles. Proxies may be authorised to represent the company either severally or jointly along with an executive director or another proxy. D

Liability

Pursuant to Article 263 of the ZGD, members of a company’s administrative bodies are required to act in the interests of the company, in good faith and with the skill and care expected of a prudent business person. They are obliged to keep the company’s business information confidential. Administrative body members shall be jointly and severally liable to the company for damage caused as a result of breach of their duties, unless they can prove that they acted with due care in performing their obligations. No obligation to make good the damage exists if the action was based on a valid and binding shareholder resolution. Members of the administrative body shall be obliged to indemnify the company for any damage caused, even if the supervisory board or the board of directors 352

Republic of Slovenia

approved the act concerned, if, amongst other things, contrary to the provisions of the ZGD: • contributions are returned to shareholders; • interest or dividends are paid to shareholders; • the company’s own shares or the shares of another company are subscribed to, acquired, taken in pledge or withdrawn; • shares are issued before the par value, or a higher amount, is paid in; • the company’s assets are divided up; • payments are made after the company has become insolvent or debtridden; • in the event of a conditional capital increase, shares are issued in violation of the company’s corporate purpose or prior to the full payment of their value. Any claim against a member of the administrative body can only be waived or set off by the company after three years have passed, subject to the approval of the general meeting, and if no objections have been raised by minority shareholders. A claim for compensation brought by a company against the members of its administrative body may also be pursued by the company’s creditors if the company is unable to repay its debts.

V

Employee involvement As mentioned in the introduction, the provisions of the Directive have been transposed into Slovenian law by the ZSDUEDD. This law regulates, amongst other items, the special negotiating body, the conduct of negotiations between employees and the companies participating in the formation of an SE, and the consequences of successful or failed negotiations.

1

Special negotiating body Pursuant to the ZSDUEDD, a special negotiating body (‘SNB’) shall be created to represent employees in negotiations with the administrative boards of the companies participating in the creation of an SE. The SNB represents all employees of the participating companies, subsidiaries and establishments with the aim of reaching an agreement on employee participation in the SE’s management. For the purpose of creating an SNB, the administrative boards of the participating companies should, as soon as possible, start negotiations with the employee representatives. For that reason, the ZSDUEDD provides that the employees and their representatives shall be informed of the identity and structure of the participating companies and their subsidiaries and establishments, the number of 353

The European Company

their employees, the number of employee representatives in each, and the number of employees entitled to take co-decisions in these companies’ corporate organs. The number of members of the SNB shall be in proportion to the number of employees employed by the participating companies and concerned subsidiaries and establishments in each Member State. Employees from each Member State are allocated one seat per portion of employees employed in that Member State equalling 10% of the number of employees employed by the participating companies and concerned subsidiaries or establishments in all Member States taken together. According to Article 3(2)(b) of the Directive, Slovenian members of an SNB are elected by the employee representative body. Trade union representatives may also appoint a member of the SNB. Slovenia did not enact special measures to ensure that an SNB in Slovenia shall include at least one member from each Slovenian participating company. All expenses related to the SNB shall be borne by the participating companies. The law also allows the SNB to appoint an expert of its choosing to provide assistance. Pursuant to Article 3(7) of the Directive, Slovenia has limited the number of experts whose expenses shall be borne by the participating companies to one. With respect to the decision-making process, Slovenian law requires a quorum of at least half the members of the SNB, which must represent collectively more than half the entire number of employees. In the event a decision is taken not to open or to terminate negotiations, it must be approved by two-thirds of members representing at least two-thirds of the employees, including members representing employees in at least two Member States. Two years after such a decision, the SNB shall be reconvened at the written request of at least 10% of the SE’s employees, subsidiaries and establishments, unless the parties agree to reopen negotiations sooner. The provisions regulating the content of the agreement and the duration of negotiations have been faithfully transposed into Slovenian law from the Directive with no significant changes.

2

Employee participation In accordance with Article 7 of the Directive, the ZSDUEDD provides that the standard rules on employee involvement shall apply for SEs registered in Slovenia if the parties so agree or if, at the end of six months, no agreement has been reached and the competent body of each participating company decides to accept the standard rules, provided a decision to proceed with registration is also taken.

354

Republic of Slovenia

For the purposes of informing the employees and in order to start the consultation process, a works council (svet delavcev) shall be established, representing the employees of the SE, its subsidiaries and establishments. Employees from each Member State are allocated one seat per portion of employees employed in that Member State which equals 10%, or a fraction thereof, of the number of employees employed by the participating companies and concerned subsidiaries or establishments in all Member States. Members of the works council are elected by the employee representatives in non-public elections. After four years, the works council shall pass a resolution on whether to commence negotiations in order to reach an agreement on employee involvement. If no agreement can be reached, the standard rules shall continue to apply. The law further provides that if no agreement is reached, the works council shall verify once a year whether there have been changes in the SE, its subsidiaries or establishments that require the establishment of a works council.

3

Duty of confidentiality and the protection of employee representatives The administrative body and the works council are obliged to work together in a spirit of cooperation with due regard for their reciprocal rights and obligations. The same holds true for the management or supervisory board and the employee representatives regarding the procedure for the information and consultation of employees. A duty of confidentiality shall apply in respect of information provided in confidence to members of the SNB and the works council and to experts. Slovenia did not specifically transpose the provisions of Article 8(2) of the Directive for the supervisory or administrative organ since such an obligation already existed under the provisions of the (former and new) ZGD. The provisions set out in Article 10 of the Directive concerning the protection of, and guarantees afforded, SNB members, members of the works council and employee representatives are regulated in Slovenia by two laws: (i) the Employee Involvement Act (Zakon o sodelovanju delavcev pri upravljanju, Official Journal RS, Nos. 42/93 and 56/01); and (ii) the Labour Relations Act (Zakon o delovnih razmerjih, Official Journal RS, No. 42/02)) which is also the basic law governing employment and related issues. Pursuant to Article 13(4) of the Directive, the Slovenian legislature specifically decided not to enact measures to guarantee that the structure of employee representation in participating companies that will cease to exist as separate legal entities is maintained after registration of an SE.

355

The European Company

VI

Annual accounts and consolidated accounts

1

Accounting principles According to Articles 61 and 62 of Regulation, the preparation of an SE’s annual accounts shall be subject to the applicable national rules. Basic accounting principles for companies registered in Slovenia are set out in the ZGD (Arts. 53–75). More detailed provisions can be found in the Slovenian Accounting Standards (Slovenski raˇcunovodski standardi, Official Journal RS, No. 67/2003, as amended and supplemented, hereinafter ‘SRS’). SRS are issued by the Slovenian Institute of Auditors (Slovenski inˇstitut za revizijo), subject to approval by the Ministries of Finance and Economy. The law provides that SRS shall reflect the content of Council Directives 78/660/EEC and 83/349/EEC and shall not be contrary to international accounting standards (as defined in Regulation No 1606/02). Certain companies (including banks, insurance companies, companies whose securities are admitted to trading on a regulated market within the EU, etc.) are required to prepare their consolidated accounts in accordance with international accounting standards. Companies are obliged to prepare an annual report within either three months or four months (if they have consolidated accounts) of the close of their financial year (which may differ from the calendar year).

2

Auditors Pursuant to Article 57 of the ZGD, the annual financial statements of the following companies shall be audited: • companies which, according to Article 55 of the ZGD, are considered large or medium sized; • dual companies (dvojna druˇzba); and • companies whose securities are admitted to trading on a regulated market. The annual reports must be submitted to the Agency of the Republic of Slovenia for Public Legal Records and Related Services (‘AJPES’) for publication. Auditors are appointed by the general meeting.

VII

Supervision by the national authorities For purposes of the Regulation, the national supervisory authority differs depending on the subject matter. In principle, the Companies Register, administered by eleven district courts, is entrusted with supervising compliance with the formalities and rules of corporate law necessary to register an SE. Special rules apply to certain types of companies, such as banks, insurance companies, brokerage firms, etc.

356

Republic of Slovenia

VIII

Dissolution

1

Winding up Pursuant to Article 402 of the ZGD, a company shall be wound up: • upon the expiry of its term of existence; • by a resolution of the general meeting, approved by a majority of at least three-quarters of the share capital represented, unless a higher majority (or other requirements/formalities) apply pursuant to the company’s articles; • if the administrative board has been inactive for more than 12 months; • if a court finds that the company’s registration is null and void; • upon bankruptcy; • on the basis of a court order; • when the company is amalgamated (merged) with another company; • if the company’s share capital falls below the legal minimum.

2

Liquidation A resolution to voluntarily liquidate a company must be approved by a special majority of the general meeting. The resolution shall mention the registered name and office of the company; the body that adopted the resolution; the reason for dissolution; the time limit within which creditors and the holders of bearer shares must register their claims (not less than 30 days from the date of publication of the resolution); and the name and address of the liquidator. A liquidation resolution may also contain other information in relation to the liquidation. The resolution must be filed with the competent court in order for the start of liquidation to be recorded with the Companies Register. Liquidation shall be carried out by one or more liquidators after recordation of the start of liquidation with the Companies Register. The liquidators shall be members of the administrative board unless the company’s articles, the general meeting or the liquidation resolution provide otherwise. For good reason, further to a proposal of the supervisory board, the board of directors or shareholders holding one-twentieth of the share capital, a liquidator shall be appointed by the court. The liquidator shall, inter alia, represent the company in liquidation; prepare an opening balance sheet; close any unfinished business; pay off the claims of creditors; publish an invitation to creditors to file their claims within a period of no less than 30 days from the date of publication of the aforementioned invitation; recover the company’s claims; sell off the company’s assets to the extent necessary to pay creditors; prepare a progress report on the liquidation and division of assets; propose that the company’s entry be deleted from the register; and carry out any other tasks connected with the liquidation as laid down in the ZGD, the company’s articles or the liquidation resolution. 357

The European Company

After the repayment of all debts, any remaining assets shall be realised and the proceeds divided amongst the shareholders in proportion to their contributions to the company’s capital. Contributions that have not been paid in must be paid in before this division of proceeds, in accordance with the articles. Once the division of proceeds is complete, the liquidator shall submit to the court a progress report on the liquidation, approved by the general meeting, along with the general meeting’s resolution on the division of assets, and shall declare that all proceeds have been divided in accordance with the resolution and propose that the company’s entry be deleted from the Companies Register.

3

Insolvency Insolvency proceedings are regulated by the law on compulsory settlement, bankruptcy and liquidation (Zakon o prisilni poravnavi, steˇcaju in likvidaciji or ‘ZPPSL’).2 These proceedings may take one of the following forms: (a) bankruptcy (steˇcaj), whereby the debtor’s assets are realised and the proceeds distributed to creditors, following which the debtor ceases to exist; (b) composition with creditors (prisilna poravnava), whereby the debtor’s financial affairs are reorganised to enable it to recover; or (c) (involuntary) liquidation (prisilna likvidacija). Bankruptcy proceedings can only be initiated against debtors with a history of insolvency or that are heavily burdened by debt. Bankruptcy proceedings, subject to certain exceptions cannot be commenced against debtors with only a single creditor. A proposal to commence bankruptcy proceedings may be filed by a creditor, the debtor or a personally liable shareholder (i.e. one who may be held liable to the debtor’s creditors). Insolvent or seriously debt-ridden debtors may suggest a settlement to creditors before the initiation of bankruptcy proceedings. Once bankruptcy proceedings have been initiated, a bankruptcy estate is formed, comprising the whole of the debtor’s property, and a trustee in bankruptcy is appointed by the court to manage the estate. After obtaining the opinions of the creditors’ committee and the trustee in bankruptcy, and on the basis of an expert opinion, the court may proceed to sell off the assets in the estate by public auction. The decision must contain the following information: the mode of sale, the price, the deadline for payment, the amount of and method for paying deposits, the methods of transfer and the payment guarantees (no longer than six months following the conclusion of the sales agreement). 2

358

The government has proposed a new law to replace, in 2007 or 2008, the existing ZPPSL (as amended), which dates back to 1993, to regulate all proceedings and aspects of corporate dissolution.

Republic of Slovenia

All information concerning the initiation and termination of bankruptcy proceedings shall be entered in the Companies Register and published in the Official Journal RS. After the termination of bankruptcy proceedings, the company’s entry in the Companies Register shall be deleted.

4

Cessation of payments Cessation of payments is an act which must be taken by a company in financial difficulty (as defined in the Financial Operations of Companies Act or Zakon o finanˇcnem poslovanju podjetij, Official Journal RS, No. 54/1999, as amended, hereinafter ‘ZFPPod’). The administrative board is obliged to cease payments upon the occurrence of insolvency or over-indebtedness, with the exception of those payments necessary to continue the company’s regular activities. Certain payments made to creditors shortly before the commencement of insolvency proceedings may be challenged as voidable preferences.

IX

Applicable law The Regulation and the provisions of the ZGD (together with secondary legislation) shall govern the formation, organisation and winding up of SEs incorporated in Slovenia.

X

Tax treatment

1

Income tax On 1 January 2007, Slovenian tax law was amended once again. The most relevant changes are outlined below. All legal entities with a registered office in Slovenia (domestic legal entities) and legal entities with a registered office outside Slovenia performing business in Slovenia (foreign legal entities) are subject to corporate tax in accordance with the Corporate Tax Act (Zakon o davku od dohodkov pravnih oseb, (uradno preˇciˇscˇ eno besedilo), Official Journal RS, No. 117/2006, the ‘ZDDPO-2’). The extent of taxation in Slovenia depends on two criteria: (i) the source of the income; and (ii) residency. An entity is a resident of Slovenia if its registered office or place of management (kraj dejanskega upravljanja) is in Slovenia. Residents are subject to corporate tax on income generated in Slovenia as well as on foreign-source income. Non-residents are subject to tax only on income generated in Slovenia. Certain items of income deemed to have their source in Slovenia are listed in Article 8 of the ZDDPO-1 (e.g. gains made on the sale of real property in Slovenia, etc). 359

The European Company

The general corporate tax rate has been reduced from 25% to 23% and shall be further reduced gradually to 20% over the next few years. Corporate tax is levied on taxable income (davËna osnova or net profit). Taxable income in general is defined as gross income minus deductible expenses, meaning expenses a taxpayer is allowed, according to the applicable regulations and accounting standards, to deduct as necessary for conducting a business. The list of benefits has been narrowed (certain investments made in connection with research and development and costs and expenses incurred to employ physically disabled persons); qualifying benefits are deducted from taxable income in a prescribed percentage. The determination and payment of income tax is based on the principle of selftaxation, meaning taxpayers calculate and pay their tax on the basis of their own calculations. Corporate tax is payable during the fiscal year in one- or three-month instalments. Within three months following the close of a given fiscal year, the taxpayer shall submit to the tax authorities its calculation for that year. The difference between the amounts already paid and the tax liability reflected in the year-end calculation must be paid within thirty days following submission of the calculation. Pursuant to ZDDPO-2 and subject to certain exceptions, certain income is subject to a 15% withholding tax, such as dividends and similar income, interest (except for interest on loans to the Republic of Slovenia or securities issued by the Republic of Slovenia, loans between banks or financial institutions, etc.), royalties and lease payments. Withholding tax may be reduced or avoided altogether pursuant to the applicable double taxation treaties.

2

Value added tax VAT is regulated by the Value Added Tax Act (Zakon o davku na dodano vrednost, Official Journal RS, No. 117/2006, hereinafter ‘ZDDV-1’). In principle, goods sold or services provided in or to Slovenia are currently subject to value added tax at a general rate of 20% or a special reduced rate of 8.5%. Legal entities and natural persons that reside in Slovenia who perform an independent activity are subject to VAT, regardless of the purpose and results of such activity, provided their annual turnover exceeds a certain amount (approximately €21,000). When issuing an invoice, a taxpayer whose goods or services are subject to VAT must charge the payer VAT at the appropriate rate. The latter can then deduct the VAT paid from that charged to its clients.

3

Other taxes Other relevant taxes include: (i) a tax on motor vehicles imported from other EU countries; (ii) real property sales tax (currently 2% of the value of the property);

360

Republic of Slovenia

(iii) an insurance policy tax (currently 6.5% of the premium); (iv) payroll tax on gross salary (the rate depends on the level of salary and currently ranges from 0% on salaries of up to approximately €690 to 11.8% on salaries above approximately €3,130); and (v) an excise duty on alcohol, tobacco, fuel and the like.

XI

Conclusion Since the Regulation and the Directive were implemented into Slovenian law only a short time ago, few, if any, steps have been taken towards the formation of SEs. In addition, extensive efforts have not been made so far to analyse the practical implications of the relevant statutory provisions. It thus remains to be seen whether and how the SE will take shape in Slovenia.

361

14 Spain m i g u e l l i r i a p l a n˜ i o l Ur´ıa Men´endez

I II

Introduction 363 Formation 363 1 General remarks 363 A Founding parties 363 B Name 364 C Registered office and transfer 364 D Corporate purpose 365 E Capital 366 2 Different means of formation 367 A Formation by merger 367 B Formation of a holding SE 369 C Formation of a subsidiary SE 370 D Conversion into an SE 370 3 Acts committed on behalf of an SE in formation 370 4 Registration and publication 371 5 Acquisition of legal personality 371 III Organisation and management 371 1 General remarks 371 2 General meeting 371 A Decision-making process 371 B Rights and obligations of shareholders 373 3 Management and supervision 374 A Two-tier system/One-tier system 374 B Appointment and removal 375 C Representation 375 D Liability 376 IV Employee involvement 376 1 Special negotiating body 376 2 Employee participation 377 3 Protection of employee representatives 378 V Annual accounts and consolidated accounts 378 1 Accounting principles 378 2 Auditors 379 VI Supervision by the national authorities 379 VII Dissolution 379 1 Winding up and liquidation 379

362

Spain

2 Insolvency and cessation of payments 380 VIII Applicable law 382 IX Tax treatment 382 1 Income tax 382 A Taxation of shareholders 382 B Losses of foreign branches 384 C General taxation of an SE 385 D Group taxation: two or more companies treated as one for tax purposes 385 2 Value added tax 386 3 Other taxes 386 4 Taxation on the establishment of an SE 386 X Conclusion 388

I

Introduction 1. In Spain, Act 19/2005 of 14 November 2005 on the European public limitedliability company domiciled in Spain (‘Ley 19/2005 de 14 de noviembre, sobre la sociedad an´onima europea domiciliada en Espa˜na’, hereinafter the ‘SE Act’) implemented Council Regulation 2157/2001/EC of 8 October 2001 on the Statute for a European Company by inserting an additional chapter in the Public Limited-Liability Companies Act (Ley de Sociedades An´onimas or ‘LSA’) (Arts. 312–338). The SE Act entered into force on 16 November 2005. 2. The Directive has been implemented by means of Law 31/2006 of 18 October 2006 on the participation of employees in European public limited-liability companies and cooperatives (‘Ley 31/2006 de 18 de octubre sobre implicaci´on de los trabajadores en las sociedades an´onimas y cooperativas europeas’ hereinafter ‘Law 31/2006). Law 31/2006 entered into force on 20 October 2006. 3. This report focuses on the implementation in Spain of the Regulation and the Directive, highlighting the available options for SEs established in Spain.

II

Formation

1

General remarks

A

Founding parties

4. The SE Act does not contain any specific provisions regarding the requirements to be fulfilled by the founders of an SE; therefore, the rules set forth in the Regulation shall apply in this regard. 5. Spain has enacted the option contained in Article 2(5) of the Regulation. Therefore, a company whose head office is not based in a Member State may 363

The European Company

participate in the formation of an SE, provided: (i) the company is domiciled in a Member State; and (ii) it has a real and continuous link with the economy of a Member State (Art. 317 LSA). For these purposes, a real and continuous link shall be understood to mean an establishment from which the company carries out and manages its activities. B

Name

6. The name of an SE must contain the abbreviation ‘SE’. Article 314(4) LSA (as amended by the SE Act) provides that, in order to be duly registered with the commercial registry, the name of an SE cannot be identical to that of any other Spanish company. C

Registered office and transfer

(i)

Registered office 7. Article 312 LSA provides that an SE must be domiciled in Spain if its head office is located within the Spanish territory. In addition, Article 6 LSA provides that a company must have its registered office within the Spanish territory at the place where its effective management and administration, its principal place of business or its main centre of operations are located. If the address of an SE’s registered office is different from that of an office that meets these requirements, third parties may take either to be the company’s registered office. 8. Article 313 of the LSA states that an SE established in Spain which ceases to have its management in Spain must regularise its situation within one year by either transferring its registered office to the Member State where its management is located or transferring its head office back to Spain. If the SE fails to do so, it shall be wound up and liquidated in accordance with the general rules set forth in the LSA (Art. 260 et seq.). In this case, the government shall appoint a liquidator to oversee the liquidation process and ensure compliance with the relevant laws.

(ii)

Transfer 9. The management body of an SE that wishes to transfer its registered office abroad must draft a transfer proposal pursuant to Article 8 of the Regulation. The proposal shall be filed with the commercial registry and published in the latter’s official gazette (Art. 316 (2) and (3) LSA). The transfer of an SE’s registered office to another Member State must be approved by the general meeting of shareholders and recorded with the competent commercial registry (Arts. 149 and 150 LSA and Art. 160 of the Commercial Registry Regulation).1 Once adopted, the resolution must be published 1

364

Royal Decree 1784/1996 of 19 July 1996.

Spain

in the commercial registry’s official gazette and in two major newspapers circulated in the province where the company’s registered office is located. 10. The Spanish government, further to a proposal of the Ministry of Justice or the relevant regional government (Comunidad Aut´onoma), can oppose the transfer abroad of an SE’s registered office on grounds of public interest (Art. 316 LSA). In addition, if the SE is subject to a specific supervisory authority (such as the Spanish Securities Exchange Commission or the Energy Commission), this authority may also oppose the transfer. The objection must be voiced within two months following publication of the transfer proposal in the official gazette. Moreover, the objection can be challenged before the competent courts. 11. Shareholders of a Spanish SE who vote against the transfer of its registered office to another Member State are entitled to request a redemption of their shares (Art. 315 (1) LSA). This right must be exercised within one month following publication of the resolution in the commercial registry’s official gazette. If any shareholder exercises this right, the company’s share capital shall be reduced accordingly. A notice to this effect must be published in the official gazette and in two major newspapers circulated in the province where the company’s registered office is located. The capital decrease must be recorded with the competent commercial registry simultaneously with the transfer. 12. Creditors of an SE whose claims arose prior to publication of the transfer proposal are entitled to oppose the transfer until they receive a guarantee from the company for any claims that are not yet due and payable (cr´editos no vencidos) as of the publication date (Art. 315 (1) LSA). This right must be exercised within one month following the final publication in the commercial registry’s official gazette of the shareholder resolution approving the transfer (see no. 9 of this report). The SE Act contains no provisions with respect to the option set forth in Article 8(7) of the Regulation. Therefore, creditors may not challenge the transfer with respect to any claims against the SE that arise after publication of the transfer proposal. 13. The commercial registry of the place where the SE’s registered office is located is competent to issue the certificate attesting to completion of the requisite pre-transfer acts and formalities (Art. 315(2) LSA). D

Corporate purpose

14. The general rules contained in the LSA apply to SEs. These rules provide that the company’s activities must be clearly identified and defined in its corporate purpose. A company is only entitled to carry out activities that fall within or are incidental to its corporate purpose. With respect to the content of a 365

The European Company

company’s corporate purpose, specific rules may apply to certain sectors (such as banking). Listing illegal activities or activities that are contrary to public policy in a company’s corporate purpose can render the incorporation process void and result in the company’s liquidation. E

Capital

15. Pursuant to Article 12 LSA, at least 25% of an SE’s share capital (a minimum of €120,000, according to Article 4(2) of the Regulation) must be paid-up upon incorporation. 16. According to Article 4(3) of the Regulation, if an SE carries out any of the following activities, its minimum share capital must be higher than the threshold set forth in the Regulation and the payment requirements will vary: • For banking activities (credit institutions), the minimum share capital is €18,030,363.13, which must be paid-up in full. • For insurance activities, the minimum share capital is either €2,103,542.37, in certain areas, or €3,005,060.52 or €9,015,181.57 in others. In all cases, 50% of the capital must be paid-up upon incorporation. • For variable capital investment companies (sociedades de inversi´on de capital variable or SICAVs), the minimum share capital is €2,400,000, which must be paid-up in full. 17. According to Article 5 of the Regulation, contributions in kind to an SE established in Spain, made either upon its incorporation or pursuant to a capital increase, are governed by Article 38 et seq. of the LSA. One or more independent experts, appointed by the commercial registrar of the place where the SE’s registered office is located, shall issue a valuation report on any contribution in kind, containing a description thereof, the recordation details (if any), the valuation criteria used, and an indication of whether the determined value corresponds to the number and par value of the shares issued in return plus any premium on the same. This report must be appended to the notarial instrument formalising the incorporation or capital increase. If listed securities are contributed to the company, the governing body (Sociedad Rectora) of the relevant stock exchange can be named an expert by the commercial registrar and shall issue a certificate on the value of the shares contributed, which shall be considered an integral part of the aforementioned valuation report. The contributor shall be held liable to the company in accordance with the following general rules: (i) if personal or real property, or any rights attached thereto, is contributed, the contributor must deliver the contribution free of any defects in title in accordance with the rules set forth in the Spanish Civil Code on sale and purchase contracts, and the provisions of the Commercial Code on the transfer of risks shall apply; (ii) if the contribution consists of creditor’s 366

Spain

rights, the contributor shall be liable for their authenticity and for non-payment by the debtor; (iii) if a business or establishment is contributed, the contributor shall be liable for any defect in title that affects the business as a whole or any element essential to its normal operation, as well for any defect in title relating to material assets of the business. When a contribution in kind is made, in whole or in part, the notarial instrument must state the value of the contribution and, in the event of partial payment, whether future payments are to be made in cash or in kind. If future payments are to be made in kind, the instrument shall indicate the nature, value and content of the future contributions as well as the procedure and period for tender, which shall not exceed five years as from the date of incorporation or the relevant capital increase.

2

Different means of formation

A

Formation by merger

18. Pursuant to Article 2 of the Regulation (and Annex I thereto), only public limited-liability companies, i.e. the Spanish SA (sociedad an´onima), can take part in the establishment of an SE by merger. (i)

Procedure and publication requirements 19. To start the merger process, the directors of the merging companies must draft a so-called merger plan (proyecto de fusi´on), the content of which is defined in Article 20(1) of the Regulation. The merger plan, duly executed by the directors of each company involved in the merger, must be filed with the commercial registry of the place where the registered office of the Spanish company involved in the merger is located. Within five days following the filing date, provided the merger plan meets the relevant statutory requirements and has been duly executed, the commercial registrar will acknowledge receipt thereof. The merger plan will then be published in the commercial registry’s official gazette. Notices of a general meeting to approve the merger may only be published after this. In addition, the directors of the merging companies must draft a report explaining and justifying, from both a legal and economic standpoint, the merger plan, the share exchange ratio (ecuaci´on de canje) and any assessment difficulties that may exist (Art. 237 LSA). Under Spanish law (Art. 236 LSA), one or more independent experts for each merging company must be appointed by the competent commercial registry. Notwithstanding the foregoing, the merging companies may request the appointment of a joint expert or experts. In this regard, pursuant to Article 319 LSA, the commercial registrar of the place where the registered office of the Spanish merging company, or of the resulting SE, is or shall be located is the 367

The European Company

competent authority to appoint a joint expert(s) to draft the report referred to in Article 22 of the Regulation, provided the registrar receives a joint request from the merging companies in this regard. The independent experts must draw up a report reviewing the share exchange ratio proposed in the merger plan. The merging companies must also issue a so-called merger balance sheet (balance de fusi´on), which can be the company’s last annual balance sheet provided it has been prepared within six months prior to the date of the shareholders’ meeting called to approve the merger. Otherwise, a special balance sheet drawn up within the three-month period immediately preceding the date of the merger plan shall be used (Art. 239 LSA). The balance sheet must be audited if the relevant merging company is obliged to audit its annual accounts (see no. 67 of this report). Once a general meeting has been called, the merging companies must make available to their shareholders the following documents: (i) the merger plan; (ii) the directors’ reports; (iii) the independent experts’ report(s); (iv) the merging companies’ merger balance sheets; (v) a copy of the last three annual accounts and management reports of the merging companies, including their respective audit reports (if applicable); (vi) the draft public instrument of incorporation of the resulting company (if applicable) or the draft amendments to the articles of association of the resulting company; (vii) a copy of the current articles of association of the merging companies; and (viii) a list of the current directors of the merging companies and of the directors to be appointed for the resulting company (Art. 238 LSA). 20. The general meeting of shareholders of each merging company must approve the merger plan and balance sheet. The resolution passed by the general meeting to this effect must be published three times in the commercial registry’s official gazette and once in two major newspapers circulated in the province(s) where the merging companies’ registered offices are located. Under Spanish law, in order to be effective against third parties, a merger must be recorded by a notarial instrument of merger with the competent Spanish commercial registry (Art. 245 LSA). In addition, the registration must be published in the latter’s official gazette. 21. The competent authority to issue the certificate attesting to completion of the pre-merger acts and formalities is the commercial registrar of the place where the registered office of the Spanish merging company is located (Art. 321 LSA). (ii)

368

Opposition on grounds of public interest 22. The Ministry of Justice, the autonomous region where the company’s registered office is located and, as the case may be, the relevant supervisory authorities are the competent authorities for the purposes of Article 19 of the

Spain

Regulation. Pursuant to Article 318 LSA, they must be informed immediately of the filing of the merger plan and must voice any objections thereto prior to the issuance by the commercial registrar of the certificate referred to in Article 25(1) of the Regulation, i.e. prior to recordation of the notarial instrument of merger with the competent Spanish commercial registry (Art. 321 LSA). (iii)

Protection of minority shareholders and creditors 23. According to Article 320 LSA, shareholders who voted against the formation by merger of an SE with its registered office outside Spain are entitled to request redemption of their shares. This right must be exercised within one month following publication of the merger resolution in the commercial registry’s official gazette (see no. 11 of this report). 24. According to Article 243 LSA, creditors and bondholders of the merging companies can object to the merger within one month from final publication of the merger resolution (see nos 12 and 20 of this report).

(iv)

Mergers involving group companies 25. In the event of a merger between a holding company and a wholly owned subsidiary (or vice-versa) or between two group companies directly or indirectly owned by a third company, some of the abovementioned requirements will not apply (Art. 250 LSA and Art. 31 Reg.) (e.g. with respect to the directors’ report, the shares exchange ratio and the independent experts’ report). Spain has not adopted any provisions regarding the merger of companies where one holds 90% or more of the other’s share capital. Therefore, under Spanish law, such a merger must take place in accordance with the ordinary procedure described above.

B

Formation of a holding SE

26. The types of Spanish companies that can be involved in the establishment of a holding SE are the sociedad an´onima or SA (a public limited-liability company) and the sociedad de responsabilidad limitada or SL (a private limited-liability company). 27. The draft terms of formation must be filed with the commercial registry and published in the latter’s official gazette (Art. 323 LSA). Notices calling a general meeting of shareholders to approve formation of a holding SE can only be sent or otherwise made public following publication of the draft terms. 28. An independent expert or experts must be appointed, to draw up a report on the draft terms of formation for the shareholders of the promoting companies (Art. 32 (4) Reg.), (i) by the commercial registrar of the place where the registered office of each Spanish company promoting the establishment of the 369

The European Company

holding SE is located; or (ii) if the holding SE will be established in Spain, the commercial registrar of the place where its future registered office will be located (Art. 324 LSA). For the purposes of this appointment, an application must be filed with the commercial registry in accordance with Article 338 et seq. of the Commercial Registry Regulation. 29. Any shareholders of the Spanish promoting companies who vote against the formation of a holding SE shall be entitled to request redemption of their shares (Art. 325 LSA). This right must be exercised within one month following publication of the resolution in the commercial registry’s official gazette. Spain has not adopted any further provisions designed to protect creditors or employees. C

Formation of a subsidiary SE

30. The formation of a subsidiary SE is subject to the general rules governing the incorporation of a public limited-liability company in Spain. The incorporation of a wholly owned subsidiary is permitted under Spanish law. D

Conversion into an SE

31. Only a public limited-liability company (SA) can be converted into an SE under Spanish law. 32. The terms of conversion (Art. 37(4) Reg.) must be filed with the commercial registry and published in the latter’s official gazette (Art. 326 (1) LSA). 33. An independent expert or experts shall be appointed by the commercial registrar (of the place where the registered office of the Spanish company to be converted is located) to issue a certificate with respect to the company’s net assets (Art. 37 (6) Reg. and Art. 326 (2) LSA). For the purposes of this appointment, an application must be filed with the commercial registry (Art. 338 et seq. of the Commercial Registry Regulation) at least twenty days before calling a general meeting to vote on the conversion (i.e., fifteen days to appoint an expert and five days for the latter to accept the appointment, thus with no provision being made for any setbacks such as nonacceptance or a challenge to the appointment). The notice calling the general meeting must be published at least one month prior to the date of the meeting on first call.

3

Acts committed on behalf of an SE in formation 34. In keeping with Article 16(2) of the Regulation, pursuant to Article 15 LSA, individuals who enter into an agreement on behalf of an SE in formation shall

370

Spain

be jointly and severally liable for any obligations arising from such an agreement unless the enforceability of the agreement was made expressly subject to registration of the company. In addition, the company in formation shall be liable up to the value of the assets contributed to it for: (i) any acts related to its incorporation; and (ii) acts carried out by its administrators within the powers granted to them in the public instrument of incorporation; or (iii) by individuals appointed by the company’s shareholders. The company will also be liable for any acts it assumes within three months from its registration.

4

Registration and publication 35. In order to acquire legal personality as an SE in Spain, the establishment of the SE (through merger, conversion or incorporation of a holding company or a subsidiary) must be formalised in a public instrument before a Spanish notary public and then filed with the commercial registry for recordation. A notice of the registration will be published in the commercial registry’s official gazette.

5

Acquisition of legal personality 36. No special rules apply. An SE acquires legal personality upon recordation in the commercial registry (Art. 16(1) Reg.).

III

Organisation and management

1

General remarks 37. The organisation and management of an SE are similar to that of a Spanish public limited-liability company, except that an SE may have a two-tier management structure. Depending on the management structure selected, the rules applicable to calling a general meeting may vary.

2

General meeting

A

Decision-making process

38. Pursuant to the LSA, the general meeting must adopt appropriate resolutions concerning the following matters: approval of the company’s annual accounts and allocation of profits (including the payment of dividends); the appointment and removal of directors and auditors; capital increases and decreases; conversion, merger and split-off; the issuance of bonds, debentures and other debt instruments; authorisation to acquire treasury stock; onerous acquisitions carried out during the first two years following the company’s incorporation, except those conducted within the ordinary course of business or through an official stock exchange or public auction; and amendments to the company’s 371

The European Company

articles of association. The SE Act adds to the foregoing list the decision to form a holding SE. 39. General meetings are called by the management body by means of publication or a notice to this effect in the commercial registry’s official gazette and in one major daily newspaper circulated in the province where the company’s registered office is located, at least one month prior to the date of the first call for the meeting. However, there is no need to call a general meeting if the entire share capital is present or represented and all those in attendance agree unanimously to hold a meeting (a universal general meeting of shareholders). For an SE with a two-tier management structure, according to Article 337 LSA, the general meeting is called by the management board. However, the supervisory board may call a general meeting if it deems it is within the company’s interest to do so or if the management board fails to do so. Apart from this, the remaining provisions of the LSA apply to SEs in this respect. 40. General meetings are held at the company’s registered office. Unless otherwise provided in the articles of association, the chairperson of the board of directors chairs the meeting and leads discussions, with the support of a secretary, who is usually also the secretary of the board of directors. 41. Resolutions passed by the general meeting, as well as any significant oral comments, are transcribed literally in the minutes, which, once read and approved by the general meeting, are signed by the secretary with the approval of the chair. 42. In general, Spanish public limited-liability companies, especially listed companies, must demonstrate good standards of corporate governance and have their own General Meeting Regulations (Reglamento de la Junta General), describing in detail the organization of, and procedure applicable to, the general meeting of shareholders. 43. Shareholders may attend the general meeting and vote in person or grant a proxy in favour of another for such purposes. Moreover, if the company has implemented distance voting procedures, the grant of proxies and the exercise of voting rights may be carried out through remote means (either by e-mail or post). In practice, listed companies that allow such voting procedures usually stipulate the details, including rules of preference with respect to the various ways of casting votes and granting proxies, in their articles of association and in the general meeting regulations. 44. As regards quorum requirements, the general rule in the LSA is that resolutions must be approved by a majority of shareholders present or represented at the general meeting, with the exceptions indicated below. The required quorum depends on the importance or nature of the resolution under discussion: 372

Spain

(i) For ordinary resolutions (Art. 102 LSA), shareholders representing at least 25% of the subscribed voting shares must be either present or represented on first call. On second call, there is no quorum requirement, unless the articles of association provide otherwise. However, any such quorum must be less than that provided for in the company’s articles of association or the LSA for meetings on first call. (ii) For the issuance of bonds, a capital increase or decrease, a conversion, merger or split-off involving the company, and, in general, any amendment to the company’s articles of association (Art. 103 LSA), shareholders representing at least 50% of the subscribed voting shares must be either present or represented on first call. On second call, the quorum requirement is 25% of such share capital. If the shareholders in attendance represent less than 50% of the subscribed voting shares, the resolution may only be validly adopted with the approval of two-thirds of the capital present or represented at the meeting. The articles of association may raise these quorum and majority requirements, as set forth in Article 103 LSA. 45. A general meeting must be called at least once a year to approve the annual accounts and the directors’ management during the preceding financial year and to allocate any profit from that year. Such a mandatory general meeting (an ordinary general meeting) must be held within six months following the close of each financial year. No provisions have been adopted pursuant to Article 54(1) of the Regulation. In addition to an ordinary general meeting, the management board must call an extraordinary general meeting whenever it deems it is in the company’s interest to do so or at the request of shareholders holding at least 5% of the company’s share capital. 46. Previously, Article 97 LSA provided that the management board had to call a general meeting at the request of shareholders holding at least 5% of the company’s share capital, who had to state in their request the items to be placed on the agenda. Article 97 has since been amended by the SE Act in order to allow 5% of shareholders to request that new items be added to the agenda of a general meeting which has already been called. In addition, Article 338 LSA specifies that the rules on the rights of shareholders holding at least 5% of a company’s share capital shall apply to SEs. B

Rights and obligations of shareholders

47. As regards shareholder information rights, the LSA sets forth certain minimum standards which can be increased by the articles of association. Once a general meeting has been called, shareholders must be able to obtain, free of charge and without delay (or via the company’s website, if any), all relevant 373

The European Company

documents relating to the items on the agenda (i.e. annual accounts, management report, audit report, complete text of proposed resolutions submitted by the management board to the general meeting, as well as any report by the management board on such proposals). In addition, from the time a general meeting is first called up to and including the seventh day before the meeting, shareholders may request from the board any reports or clarifications in writing concerning the items on the agenda, which must be duly answered by the board on or before the day of the meeting. During the meeting, shareholders may request that information or clarifications be provided orally or, if an immediate response is not possible, in writing within seven days. Directors are only exempt from this information duty if, in the chair’s opinion, the disclosure of the requested information would adversely affect the company.

3

Management and supervision

A

Two-tier system/One-tier system

48. Spanish law does not provide for a two-tier management structure for public limited-liability companies registered in Spain, with the exception of SEs. Therefore, only an SE can opt for either a one-tier or a two-tier structure when drafting its articles of association (Art. 327 LSA). If the company’s articles provide for a two-tier management system, Articles 329–338 LSA set forth the corresponding rules, developing the content of the Regulation. In any event, if no specific rule is provided in the Regulation or the company’s articles, the provisions of the LSA on one-tier management systems shall apply. 49. Article 333(1) LSA refers to the general rules contained in the LSA for all matters not specifically regulated with respect to an SE’s supervisory board. Therefore, the supervisory board must have at least three members, and there is no maximum number. Article 331(1) LSA provides that if a management board is established, it must have at least three and no more than seven members. 50. The SE Act does not specifically refer to the right of each member of the supervisory board to obtain the information provided by the management board (Art. 41(3) Reg.). However, Article 127(2) LSA requires that all directors of an SA be duly and diligently informed of the company’s activities at all times. The supervisory board and the management board must both comply with a general duty of care, a duty of loyalty and a duty of confidentiality. As part of their duty of care, members of both bodies must be duly informed at all times of the company’s activities. In addition to the provisions of the Regulation (e.g. the management board shall report to the supervisory board every three months on the progress and 374

Spain

foreseeable development of the SE’s business and with respect to any event liable to have an appreciable effect on the SE), Article 333(4) LSA provides that, at the request of the supervisory board, the members of the management board must attend the supervisory board’s meeting (but without the right to vote). B

Appointment and removal

51. Directors are appointed by the general meeting for a maximum term of six years and can be re-elected. However, if a two-tier system is selected, only the members of the supervisory board are appointed by the general meeting. Under Spanish law, a legal entity can be appointed to the management or supervisory board. Spain has not enacted the option to require or permit the SE’s articles of association to provide that members of the management board must be appointed and removed by the general meeting (rather than by the supervisory board) (Art. 39(2) Reg.). 52. The maximum length of time a member of the supervisory board may sit on the management board, in the event of a vacancy on the latter, is one year (Art. 332 LSA). 53. The LSA does not contain any rules allowing minority shareholders or the authorities to appoint members of a governing body. Notwithstanding the foregoing, by way of proportional representation (Art. 137 LSA), shareholders who voluntarily pool their shares to achieve a number of capital greater than or equal to the number derived by dividing the total share capital by the number of members of the board of directors or the supervisory board (as the case may be) – disregarding fractional shares – have the right to appoint a number of members in proportion to their share capital. If this right is exercised, the shares thus pooled may not be voted for the remaining members. The foregoing is without prejudice to implementation of the Directive on the involvement of employees. 54. The directors may be removed from office at any time by the general meeting, even if the decision to do so is not on the agenda. C

Representation

55. The management body or board of an SE (as applicable) represents the company. The supervisory board may make certain decisions of the management board subject to its prior approval. However, lack of prior approval is not effective against third parties, unless the company can prove that the third party in question acted in bad faith or fraudulently against the company’s interests 375

The European Company

(Art. 334 LSA). Moreover, any limitations on the powers of the management board recorded with the commercial registry are not effective against third parties. D

Liability

56. Under Spanish law, directors of an SA can be held liable to the board, to shareholders and to the company itself. Should a derivative suit (acci´on social de responsabilidad) or an individual action (acci´on individual de responsabilidad) be brought against them, the directors can be held liable for any acts they have committed in violation of the law, the company’s articles of association or their general duty of care and which have harmed the company, any of its creditors or an individual shareholder. All members of the board who approved the resolution or performed the act that caused the damage shall be held jointly and severally liable, except for those who can prove that they did not take part in the approval or performance and were unaware of its existence or, if aware, took steps to avoid the resulting harm, or at least expressly opposed the resolution. These general rules of liability are applicable to members of both the management body and board and the supervisory board (as the case may be) (Art. 335 LSA).

IV

Employee involvement

1

Special negotiating body 57. Negotiations on employee participation in an SE begin once the companies involved in the formation of the SE have drawn up an incorporation plan (Art. 5 Law 31/2006). 58. A special negotiating body (‘SNB’) is set up, composed of employees from each applicable Member State, so that for each 10% (or portion thereof) the employees from a given Member State account for the total number of employees involved, they are awarded one seat on the SNB. In the event of a merger, the number of members of the SNB is increased in order to ensure that each disappearing company has at least one seat (Art. 7 Law 31/2006). 59. Negotiations take place over a six-month period, which can be extended for up to one year from the time of incorporation of the SNB (Art. 10 Law 31/2006). 60. The agreement reached by the parties must contain the following provisions, amongst others (Art. 11 Law 31/2006):

376

Spain

(i) the scope of the agreement; (ii) the composition, number and distribution of seats on the works council through which the employees will exercise their information and consultation rights; (iii) the powers of the works council and the information and consultation rules applicable; (iv) the frequency of meetings of the works council and the economic and material resources at its disposal; (v) in the event of employee participation in management, the applicable rules, including but not limited to, the number of members of the managing body or supervisory board the employees have the right to elect, appoint or recommend and which appointments they can oppose; the procedures to oppose, recommend, elect and appoint members, as well as the employees’ rights. 61. If the parties so decide or if an agreement is not reached within the abovementioned six-month period (plus any extension, if applicable), the alternative rules contained in Law 31/2006 (similar to those set forth in the Annex to the Directive) shall apply.

2

Employee participation 62. As a general rule, Law 31/2006 states that employee participation in an SE’s management, including the appointment of employee representatives to the managing body or supervisory board, shall be determined pursuant to an agreement between the employee representatives and management. 63. Law 31/2006 provides that the agreement between the employee representatives and management on employee participation must state which body shall appoint the employee representatives. In the absence of a specific agreement on this matter and in the event the standard rules apply in accordance with the requirements mentioned under no. 61 above, the representative body shall decide on the distribution of seats on the managing body or supervisory board to be held by employees (Art. 20(4) Law 31/2006). 64. Law 31/2006 contains standard rules that apply if the employee representatives and management so agree or in the event the parties do not conclude an agreement within the period set by law (Art. 14 Law 31/2006). Under these rules, employee participation is mandatory: (i)

in an SE formed by conversion, if the former company provided for employee participation prior to registration of the SE; (ii) in an SE formed by merger if, prior to registration of the SE, at least one of the participating companies provided for employee participation covering: 377

The European Company

• at least 25% of the total number of employees in the participating companies; or • less than 25% of the total number of employees in the participating companies if the negotiating body so agrees. (iii) in a subsidiary or holding SE if, prior to registration of the SE, at least one of the participating companies provided for employee participation covering: • at least 50% of the total number of employees in the participating companies; or • less than 50% of the total number of employees in the participating companies if the negotiating body so agrees.

3

Protection of employee representatives 65. According to Article 20(5) of Law 31/2006, members of the managing body or supervisory board elected, appointed or recommended by the employee representative body or by the employees themselves have the same rights and obligations as other members, including the right to vote. Employee representatives in an SE, including those elected to the managing body or supervisory board, enjoy the same rights and protection afforded by Spanish labour law to employee representatives in the performance of their duties (e.g. preference to remain with the company in the event of a collective or objective dismissal, the right not to be dismissed during the performance of their duties, the right not to be hindered in their economic or professional advancement, etc.) (Art. 23 Law 31/2006).

V

Annual accounts and consolidated accounts

1

Accounting principles 66. Pursuant to Article 61 of the Regulation, an SE registered in Spain will be subject to the rules contained in the LSA on the preparation, auditing and publication of the annual and consolidated accounts. The company must draft its annual accounts (balance sheet, income statement, allocation of profit proposal, and management report) in accordance with Article 171 et seq. LSA and Article 34 et seq. of the Spanish Commercial Code, setting forth the applicable accounting principles. The accounts must be drafted by the management body within three months following the close of the financial year (usually 31 December). Once audited, the accounts are submitted to the general meeting within six months following the end of the financial year and filed with the relevant commercial registry within one month of their approval.

378

Spain

2

Auditors 67. An SE must appoint auditors unless two of the following three criteria are met: (i) The value of the company’s assets does not exceed €7,200,000; (ii) The company’s net turnover does not exceed €14,500,000; or (iii) The aggregate number of employees during the relevant financial year does not exceed 250. 68. The auditors must draft a report on the annual accounts, a copy of which must be made available to shareholders prior to the annual general meeting. The report must state whether the accounts provide a true and fair overview of the company’s assets, financial situation and profit and loss.

VI

Supervision by the national authorities 69. The commercial registry with which a Spanish-based SE is recorded based on the address of its registered office is competent with respect to registration matters. The commercial registry is also the authority designated pursuant to Articles 25 and 26 of the Regulation. 70. The commercial court of the place where an SE’s registered office is located is the authority responsible for the matters referred to under Articles 54 and 55 of the Regulation (i.e. the calling of general meetings and the inclusion of new items on the agenda). 71. Other authorities may also be competent to supervise SEs engaged in certain activities or if the company is listed (e.g. the Comisi´on Nacional del Mercado de Valores for listed companies, the Banco de Espa˜na for financial institutions, etc.).

VII

Dissolution

1

Winding up and liquidation 72. With regard to winding up, liquidation and analogous processes, SEs incorporated in Spain will be subject to general rules of Spanish law. As a result and aside from the causes for winding up that may be listed in the company’s articles of association, an SE shall be wound up in the event that: (i) the general meeting passes a resolution to this effect; (ii) the term for which the company was incorporated expires; (iii) the business which constitutes the company’s corporate purpose is completed or cannot be carried out; (iv) the corporate bodies are stayed; (v) as a result of losses, the company’s equity falls below 50% of its share capital, unless the latter is sufficiently increased or reduced; 379

The European Company

(vi) the company reduces its share capital below the statutory minimum (€120,000); (vii) the company is merged or spun off in its entirety. Moreover, Article 313 LSA provides that an SE with its registered office in Spain shall be wound up if its head office is transferred abroad and it does not relocate its head office to Spain or transfer its registered office to the place where its head office is located within one year’s time (see no. 8 of this report). 73. The liquidation process starts once a company is wound up. The LSA does not contain any specific provisions regarding the duration of this process, which shall thus remain open even if the liquidation is challenged before the courts.

2

Insolvency and cessation of payments 74. A single insolvency procedure known as a ‘composition with creditors’ (concurso) is applicable to all insolvent debtors (i.e. those unable to make their payments regularly and in a timely manner or those that foresee such a situation arising). There are two possible outcomes to this procedure: (i) a creditors’ agreement (i.e. the debtor and its creditors reach an agreement on the satisfaction of the latter’s claims in order to allow the debtor to restructure its business); or (ii) liquidation (the debtor’s assets are liquidated in order to pay off its debts). 75. The Insolvency Act2 favours continuity and restructuring during insolvency. Thus, during insolvency proceedings: (i) the enforcement of security interests in assets pertaining to the debtor’s business is prohibited and/or suspended; (ii) agreements with reciprocal obligations are continued; and (iii) credit facilities are reinstated. 76. In order to protect creditors, the Insolvency Act: (i) brings the statement of composition with creditors forward in time so as not to jeopardise the debtor’s estate (i.e. directors’ liability is incurred if an insolvency petition is not filed under certain circumstances); (ii) encourages creditors to apply for a declaration of concurso (i.e. 25% of the unsecured or non-preferred claims of a creditor that files an insolvency petition shall be given priority); (iii) sanctions the debtor for failing to apply for a declaration of concurso; (iv) promotes the payment of creditors through inter-creditor agreements; (v) reduces the privileges and preferences of certain creditors’ claims (i.e. the tax and social security authorities); and (vi) facilitates restructuring with employees. 77. In principle, the Insolvency Act maintains the administrators’ administrative and divestment powers, although the authorisation of professional receivers – a lawyer, an economist and one ordinary creditor – is required. 2

380

Law 22/2003 of 9 July 9 on insolvency (‘Ley Concursal’).

Spain

78. A composition with creditors may provide for a reduction of no more than 50% of the pre-insolvency claims, with a maximum deferral period of five years. It may also include debt-equity swap proposals or the conversion of regular claims into subordinated claims (although creditors are not obliged to accept such proposals). However, the consent of the debtor and its shareholders is required for debt to equity agreements, and the composition cannot include the assignment of assets to creditors in satisfaction of their claims. The debtor can veto the composition approved by its creditors by applying for liquidation. In order to reach a creditors’ agreement, approval by creditors holding 50% of the ordinary claims is necessary. It is also possible to file a pre-arranged proposal for composition between the debtor and those creditors holding jointly 20% of the pre-insolvency claims. 79. The following claims shall be considered subordinated: (i) claims of which the receivers are not notified on time; (ii) claims contractually subordinated to all other claims; (iii) unsecured interests; (iv) penalties; (v) claims held by persons ‘closely related to the debtor’;3 and (vi) claims in favour of third parties arising as a result of the termination of transactions that ended with clawback actions, provided the third party acted in bad faith. The classification of certain claims as subordinated entails the extinction of any security granted in the creditor’s favour. 80. Transactions executed by the debtor during the two-year period immediately preceding the commencement of insolvency proceedings and which are detrimental to the debtor’s estate can be challenged and set aside, even in the absence of fraud. Some transactions shall be presumed detrimental to the debtor’s estate, even if there is no proof to this effect (e.g. the disposal of assets without consideration). With respect to certain other transactions (e.g. the disposal of assets in favour of persons closely related to the debtor; collateral granted to secure pre-existing unsecured obligations, etc.), detriment is presumed, although this presumption is rebuttable. In all other cases, the harm must be evidenced by the party applying for a claw back action.

3

Persons closely related to the debtor, within the meaning of the Insolvency Act, are the following: (i) shareholders holding more than 10% of the debtor’s share capital (5% for listed companies); (ii) directors, liquidators, representatives and de facto and shadow directors of the debtor holding a general power of attorney for at least two years prior to the declaration of concurso; (iii) companies of the same group and their shareholders; and (iv) assignees of any claims held by the above-mentioned persons if the assignment is made within two years prior to the declaration of concurso.

381

The European Company

Obligations assumed by the debtor in the ordinary course of business shall not be subject to claw back.

VIII

Applicable law 81. An SE registered in Spain shall be governed by: (i) the Regulation; (ii) its articles of association, where expressly authorised by the Regulation; (iii) the SE Act and Law 31/2006; (iv) the LSA; and (v) its articles of association under the same conditions applicable to ordinary limited-liability companies. In addition, special rules may apply to companies engaged in certain kinds of activity (insurance, financial services, etc.) (Art. 9(3) Reg.).

IX

Tax treatment

1

Income tax

A

Taxation of shareholders

82. The taxation of shareholders varies depending on the shareholder’s tax status (resident or non-resident) and the type of income arising from the investment. We assume the SE shall be deemed a Spanish resident taxpayer for corporate income tax (‘CIT’) purposes, since its registered office will be in Spain and to the extent it will be effectively managed from Spain. As such, shareholders in the SE will be treated, for CIT purposes, like any other shareholders investing in a Spanish resident entity. Briefly, and in general terms, the main features of the taxation of shareholders are the following: (i)

Resident individuals Dividends received by resident individuals are deemed income from movable capital. As a general rule, the amount to be included in the shareholder’s tax base is 140% of the gross dividend.4 This amount is subject to personal income tax (‘PIT’) at generally applicable progressive rates, ranging from 15% to 45%. A tax credit to prevent double taxation is available to the taxpayer, amounting to 40% of the gross dividend paid. In addition, upon payment of a dividend, the SE will generally withhold 15%5 PIT from the gross amount. The amount withheld is subsequently credited to the taxpayer’s total tax liability. Capital gains on the transfer of shares in an SE will be subject to tax at a fixed rate of 15% (see footnote 5), provided they have been held for more than one year prior to the transfer. Otherwise, the general progressive rates will apply. 4

382

As from 2007, dividends will be taxed at a rate of 18%.

5

18% in 2007.

Spain

In the event of a transfer of shares acquired prior to 31 December 1994, the capital gain can be reduced by applying reduction coefficients (25% for listed shares and 14.28% for unlisted shares) for each year that has passed between the acquisition date and 31 December 1994. (ii)

Resident entities Gross dividends received are subject to CIT at the standard rate of 35%.6 Shareholders are entitled to apply for a tax credit (to prevent double taxation) in the amount of 50% or 100% of the tax due on the dividend (in the latter case, if the shareholder’s stake is greater than 5% of the SE’s share capital and the shares have been held for at least one year). In addition, upon payment of a dividend, the SE will generally withhold 15% CIT from the gross amount. The amount withheld is subsequently credited to the taxpayer’s total tax liability. No withholding tax will be due if the shareholder is entitled to a full tax credit on the dividend, as explained above. Capital gains on the transfer of shares in an SE are subject to tax at a rate of 35% (see footnote 6). A full tax credit is available for the tax due on that portion of the capital gain equal to the retained earnings of the SE generated during the holding period of the transferred shares, provided the shareholder’s stake in the subsidiary is greater than 5% of its share capital and the shares have been held for at least one year. Subject to the fulfilment of certain reinvestment conditions, the capital gain may be eligible for a tax credit, which reduces the applicable tax rate to 15% (see footnote 5). As a general rule, non-resident persons acting through a Spanish permanent establishment (‘PE’) will be subject to CIT in accordance with the same provisions applicable to resident entities.

(iii)

Non-resident persons acting without a PE With respect to non-resident income tax (‘NRIT’), dividends received by nonresidents are subject to withholding tax at a rate of 15% (see footnote 5). However, dividends distributed by Spanish subsidiaries to parent companies residing in other EU Member States may be exempt from NRIT provided the following conditions are met: (a) The parent company holds a direct stake of at least 20% in the subsidiary’s share capital. (b) The aforementioned 20% stake has been held for an uninterrupted period of at least one year prior to the date on which the dividend to be distributed falls due or, if this is not the case, shall be held for at least one year. 6

32.5% in 2007 and 30% from 2008 onwards.

383

The European Company

(c) Both companies are subject to, and not exempt from, a tax on the profits of legal entities in a Member State of the European Union mentioned in Article 2(c) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. (d) The distribution is not the result of the liquidation of the subsidiary. (e) Both companies take one of the forms provided for in the appendix to Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. It should be noted that this exemption shall not apply if the majority of voting rights in the parent company is held, directly or indirectly, by natural persons or legal entities that do not reside in a Member State of the European Union, unless the parent company effectively carries on an entrepreneurial activity directly related to that carried on by its subsidiary or if its corporate purpose is to supervise and manage the subsidiary through the appropriate organisation of material and human resources or if it can prove that it was incorporated for valid economic reasons and not solely in order to unduly benefit from the exemption from NRIT. The 15% withholding tax rate may be reduced within the framework of an applicable treaty for the avoidance of double taxation with Spain. Any capital gain resulting from the transfer of shares in an SE shall be subject to NRIT at the standard rate of 35% (see footnote 5). However, the transfer of shares in an SE by a person residing in the European Union will be exempt from NRIT unless: (i) the assets of the SE consist mainly of real property located in Spain; or (ii) at some time in the twelve months immediately preceding the transfer, the transferor has held, directly or indirectly, at least 25% of the SE’s capital or equity. In addition, the capital gain may be exempt from NRIT within the framework of an applicable treaty for the avoidance of double taxation with Spain. Finally, special tax exemptions may apply to income resulting from a shareholding in a Spanish holding company.

B

Losses of foreign branches

83. Losses recorded by foreign branches of an SE may be used to offset the SE’s taxable income in Spain for CIT purposes. Subject to certain requirements, profits allocated to a foreign branch which constitutes a permanent establishment (PE) of the SE may benefit from an 384

Spain

exemption from Spanish CIT. The exemption will not apply to the extent the PE’s losses have been used by the SE to reduce its own CIT liability. C

General taxation of an SE

84. As a general rule, an SE shall be taxed on its worldwide income as determined by its accounting profit, adjusted in accordance with the CIT Act. The generally applicable tax rate is 35% (see footnote 6). Different rates may apply to specific companies. In particular, the first €120,202.41 of taxable income for small and medium-sized companies (i.e. entities with turnover of less than €8 million) is taxed at a rate of 25%. D

Group taxation: two or more companies treated as one for tax purposes

85. Spanish law allows certain companies in the same group to be taxed on a consolidated basis for CIT purposes. For CIT purposes, a consolidated group consists of a resident controlling company (or a Spanish PE, which must be subject to, and not exempt from, Spanish income tax) and its Spanish resident subsidiaries, in which it must hold an effective direct or indirect stake of at least 75%. In order to request tax consolidation, the controlling company or PE must hold the aforementioned direct or indirect stake of at least 75% in the capital of its Spanish resident subsidiaries on the first day of the tax period in which the rules apply and maintain this stake throughout the tax period. Consolidation is optional, and the tax authorities must be informed accordingly. Consolidated taxable income is determined by: (i) totalling the taxable income of each company in the group; (ii) deducting profits and losses in respect of operations and transactions between group companies, to the extent they are included in the taxable income of the entities that form part of the group; (iii) re-including deductions taken in previous years for transactions carried out with third parties or if the company that carried out an intra-group transaction has left the group; and (iv) offsetting negative taxable income insofar as the sum of (i), (ii) and (iii) is positive. An important aspect of this is the offsetting of losses. Negative taxable income (i.e. tax losses) obtained by the group in a given tax period can be carried forward and offset against taxable income earned by the group in tax periods that end in the next 15 consecutive years. Group companies lose their right to offset tax losses individually as long as they apply for tax consolidation. However, losses that arose prior to their joining the group can be carried forward against group taxable income (excluding dividends and profit shares referred in Article 30(2) CIT), which, for this purpose, is limited to the taxable profit made by the company which generated the losses to be carried 385

The European Company

forward, within the 15 consecutive years immediately following the end of the period in which the losses arose. In our view, and subject to the above mentioned statutory requirements, an SE should be entitled to form part of a Spanish consolidated group, either as the controlling or a controlled company.

2

Value added tax 86. Supplies of goods and services are divided into three categories for VAT purposes: standard rate (16%); reduced rate (7%); and super-reduced rated (4%). In addition, some goods or services are exempt from VAT. 87. An SE is subject to VAT on the sale of goods and the provision of services and must register with the VAT authorities like any other Spanish limited-liability company.

3

Other taxes 88. In principle, and subject to the comments made herein, the incorporation of an SE with its registered office in Spain will give rise to capital tax at a rate of 1% on the face value of the issued shares plus any share premium contributed by the SE’s shareholders. In addition, notarial and registration fees will be levied on the incorporation of an SE (approximately 0.06% of the contributions made). For capital contributions in excess of €6,000,000, registration fees are capped at €2,260, and notarial fees can be negotiated with the notary. 89. An increase in the share capital of an SE will be subject to capital tax at a rate of 1% on the amount of capital increase and any share premium. In addition, a capital increase will be subject to notarial and registration fees (approximately 0.06% of the value of the contributions made). For capital contributions in excess of €6,000,000, registration fees are capped at €2,260 and notarial fees are negotiable.

4

Taxation on the establishment of an SE 90. The tax consequences of the establishment of an SE are the following: (i) Tax consequences for merging (transferring and receiving) companies – requirements for tax neutrality (exemption/deferral), carry-forward of tax-exempt reserves and losses, etc. In this section, we analyse the tax consequences resulting from a merger subject to the general CIT rules.

386

Spain

(a) Formation of an SE by a cross-border merger (inbound-outbound merger of foreign companies with domestic assets/shareholders) In general, the merger or transfer of a Spanish resident company will give rise to CIT on the difference between the fair market value and the book value of the assets transferred. Likewise, the transfer of a Spanish PE by way of a merger shall give rise to NRIT on the difference between the fair market value and the book value of the assets transferred. The receiving company will record the assets received at their fair market value. For tax purposes, tax credits and any losses carried forward by the transferring entity will not be transferred to the receiving company. (b) Formation of a (resident or non-resident) holding SE by means of a share exchange As a general rule, for Spanish tax purposes, a shareholder contributing shares to the capital of an SE must include in its tax base a capital gain equal to the difference between the fair market value and the net book value of the transferred shares. This capital gain will be subject to tax as described under no. 82 above. The tax value for the SE of the shares received will be equal to their fair market value. (c) Formation of a subsidiary SE The formation of a subsidiary SE by means of a contribution in kind is treated, for CIT purposes, as an exchange of shares (which is also a type of contribution in kind). In the event the contribution consists of cash, no specific taxation will arise. (d) Formation of an SE by conversion As a general rule, the conversion of a Spanish entity, such as a sociedad an´onima (public limited-liability company) or a sociedad de responsabilidad limitada (private limited-liability company), into a different legal form such as an SE is not a taxable event. (ii) Tax consequences for shareholders The shareholders of the transferring company will be subject to tax on the difference between the fair market value of the shares in the SE received and the acquisition cost of the transferred shares, subject to the rules set forth under no. 82 above. (iii) Capital duties and transfer taxes 387

The European Company

As a general rule, the abovementioned transactions will be subject to capital tax at a rate of 1% of the face value of the share capital increased plus any share premium. The transfer of assets, other than shares, resulting from mergers or contributions in kind will be subject to VAT unless the assets are transferred as a going concern. Additional local taxes may also be imposed with respect to the transfer of real property. 91. The tax consequences for the transfer of an SE’s registered office (to or from Spain) are as follows: (i) Tax consequences for the SE If the registered office of an SE is transferred abroad, assuming the SE’s head office is also transferred, the SE will be subject to CIT on the difference between the fair market value and the net book value of the transferred assets, unless they are allocated to a PE in Spain. For the transfer of an SE’s registered office to Spain, no specific tax rules apply. The SE will become a Spanish resident for tax purposes, assuming its head office is transferred to Spain as well. (ii) Tax consequences for shareholders The transfer of an SE’s registered office abroad will not trigger Spanish tax for the SE’s shareholders. (iii) Capital duties and transfer taxes The transfer to Spain of an SE’s registered office will be subject to capital tax at a rate of 1% of the SE’s equity, unless the SE was previously subject to a similar tax within the European Union. An exemption will apply once the relevant amendments to Directive 90/434/EEC have been transposed into the Spanish law.

X

Conclusion 92. The incorporation of an SE in Spain will provide the following advantages: (i)

388

SEs are subject to clear rules for cross-border mergers, which are not available to ordinary Spanish companies. In this regard, it should be noted that although Spanish law permits cross-border mergers (Art. 9(11)(2) Spanish Civil Code and Art. 233(1) LSA), it does not contain clear rules describing the applicable process. In addition, it should be noted that SEs will not face problems in merging with other SEs registered in Member States whose national laws forbid cross-border mergers with national companies (such as the Netherlands).

Spain

(ii) Although the transfer of a Spanish company’s registered office abroad was already possible under Spanish law in certain circumstances, an SE will be able to transfer its registered office much more easily. (iii) An SE can have either a one-tier or a two-tier management structure, an option not available to regular Spanish companies. 93. Since Law 31/2006 was adopted relatively recently, no SEs have been incorporated as yet in Spain. Therefore, it remains to be seen whether the advantages of this new corporate form will result in the incorporation of a significant number of SEs in this country.

389

National reports from EEA Member States

15 Liechtenstein andreas schurti and alexander appel Walch & Schurti

I II

III

IV

Introduction 394 Formation 395 1 General remarks 395 A Founding parties 395 B Name 395 C Registered seat 395 D Corporate purpose 396 E Capital 396 2 Different means of formation 396 A Formation by merger 396 B Formation of a holding SE 398 C Formation of a subsidiary SE 398 D Conversion into an SE 398 3 Acts committed on behalf of an SE in formation 398 4 Registration and publication 399 5 Acquisition of legal personality 399 Organisation and management 399 1 General remarks 399 2 General meeting 399 A General remarks 399 B Decision-making process 400 C Rights and obligations of shareholders 401 3 Management and supervision 401 A General remarks 401 B One-tier system 401 C Two-tier system 402 D Appointment and removal 403 E Liability 404 Employee involvement 404 1 General remarks 404 2 Special negotiating body (SNB) 405 A Provision of information for the creation of an SNB B Composition and appointment 405 C Members 405

405

393

The European Company

D Meetings and decisions 405 E Adjournment/resumption of negotiations in the event of substantial changes 406 3 Standard rules 406 A Works council 406 B Information and consultation 406 C Employee participation 407 4 Protection of employee representatives 407 5 Duty of confidentiality 407 V Annual accounts and consolidated accounts 408 1 Accounting principles 408 2 Auditors 408 VI Supervision by the national authorities 408 VII Dissolution 408 1 Winding up, liquidation and insolvency 408 VIII Applicable law 409 IX Tax treatment 409 1 Income tax 409 2 Value added tax 409 X Conclusion 410

I

Introduction Although not a Member State of the European Union, Liechtenstein has ratified the European Economic Area (EEA) Agreement and has been a party thereto since 1995. Consequently, Liechtenstein has had to bring its national laws into line with Council Regulation (EC) No 2157/2001 on the Statute for a European company (the ‘Regulation’). Furthermore, Liechtenstein has transposed into national law Council Directive 2001/68/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’). In November 2005, the Liechtenstein Parliament passed legislation implementing the Regulation, i.e. the SE Act (Gesetz u¨ ber das Statut der Europ¨aischen Gesellschaft or SEG),1 and the Directive, the SE Employee Involvement Act (SEBG).2 Along with this key legislation, which entered into force in February 2006, the Persons and Companies Act (Personen- und Gesellschaftsrecht or ‘PGR’), the Banking Act (Bankengesetz), the Investment Undertakings Act (Gesetz u¨ ber die Investmentunternehmen), and the Insurance Surveillance Act (Versicherungsaufsichtsgesetz) all had to be amended in order to bring them into line with the Regulation and the Directive.

1

394

LGBl 2006 no. 26.

2

Ibid., no. 27.

Liechtenstein

II

Formation

1

General remarks

A

Founding parties

The choice of how to form an SE (i.e. by merger, through the formation of a holding or a subsidiary SE or by conversion of a national company into an SE) will also determine the identity of the founding parties. Unlike many other countries, Liechtenstein has availed itself of the option contained in Article 2(5) of the Regulation, enabling the national legislature to allow a company whose centre of administration is located outside the EEA to participate in the formation of an SE. According to Article 8 SEG, such a company must: (i) have been formed in accordance with the relevant provisions of Liechtenstein company law; (ii) have its registered seat in Liechtenstein; and (iii) maintain an actual, permanent connection with the economy of an EEA member state. B

Name

An SE’s name must comply with the relevant provisions of Liechtenstein law and must include the abbreviation ‘SE’. C

Registered seat

Article 4 SEG is based on the second sentence of Article 7 of the Regulation. Article 4 provides that the registered seat of an SE, unless the company’s articles of association provide otherwise, must be located at the same place as its centre of administration. (In this sense, the SEG reflects the general provisions of Liechtenstein law with respect to the registered seat of a national legal entity.)3 However, an SE’s articles may provide that the company’s registered seat and centre of administration need not be at the same place. Thus, Liechtenstein has not opted to implement the restriction contained in Article 7 of the Regulation. Article 42 SEG further provides that the national rules4 on the transfer of a Liechtenstein company’s centre of administration to another country shall not apply to an SE. Rather Articles 43 and 44 SEG set forth specific rules on the transfer of an SE’s registered seat abroad. The SEG does not contain any provisions regarding the options set forth in Article 8(5), (7) and (14) of the Regulation. Upon request, the Liechtenstein Public Registry(Liechtenstein’s trade register) shall issue a certificate attesting to the legality of a transfer within the meaning of Article 8(8) of the Regulation. However, such a certificate will only be issued if:

3

Art. 113 PGR

4

Ibid., Art. 234 et seq.

395

The European Company

(i)

the claims of all creditors entitled to request adequate security have been satisfied; and (ii) the annual accounts and annual report for the preceding financial year have been filed with the Public Registry together with the auditor’s report; and (iii) the Liechtenstein tax authorities have confirmed in writing that all taxes due in Liechtenstein have been paid. A creditor can only request adequate security as referred to in sub-section (i) above if the claim arose no later than one working day following disclosure of the transfer plan. Moreover, the creditor must prove that satisfaction of its claim would be jeopardised by the contemplated transfer of the SE’s registered seat. If need be, the creditor can assert its claim (as to both its legal basis and amount) within two months following disclosure of the transfer plan. D

Corporate purpose

An SE may choose its corporate purpose within the limits set by Liechtenstein company law. The Regulation refers to national law in this respect (Arts. 9(1)(c)(ii) and 10). E

Capital

According to Article 5 SEG, an SE may denominate its share capital in Swiss francs,5 euros or US dollars (Art. 122(1a) PGR). As Article 4(2) of the Regulation requires that the subscribed capital of an SE be at least €120,000, an SE that denominates its share capital in Swiss francs or US dollars must ensure that the value of its share capital in these currencies is at least equal to the preceding amount. These provisions are in line with Article 67(1) of the Regulation.

2

Different means of formation

A

Formation by merger

Articles 9 through 12 SEG deal with the formation of an SE by merger. These statutory provisions supplement Articles 17 through 31 of the Regulation. Each merging company must ensure publication of the information referred to in Article 21 of the Regulation in the official journal of the state to whose laws it is subject. In Liechtenstein, this notification requirement is discussed in Article 9 SEG, which provides that the information set forth in Article 21 of the Regulation must be submitted to the Public Registry upon the filing of the draft terms of merger. The Public Registry will subsequently arrange for publication in the relevant Liechtenstein official gazettes. In view of 5

396

Due to a monetary union with Switzerland, the Swiss franc is the official currency of Liechtenstein.

Liechtenstein

Article 21 of the Regulation, no additional information need be published under the SEG. A Liechtenstein company involved in the formation of an SE by merger must request a certificate (attesting to completion of the requisite pre-merger acts and formalities) from the Public Registry, in accordance with Article 25(2) of the Regulation (Art. 10 SEG). However, the issuance of such a certificate requires that: (i)

preferred creditors requesting security for their claims have been adequately secured; (ii) the SE’s annual accounts and annual report for the last financial year, as well as its auditor’s report, have been filed with the Public Registry and the necessary arrangements for publication made; and (iii) to the extent necessary, the general meeting of shareholders, when voting on the draft terms of merger, have approved any procedures necessary under Article 25(3) of the Regulation. The SE may ask the Public Registry to submit this certificate to the competent court, a notary public or another administrative authority of the state in which its registered seat is located (Art. 10(3) SEG). In a departure from the corresponding provisions of national law,6 the Liechtenstein legislature deemed it important to provide enhanced protection for creditors in the event an SE is formed by means of a cross-border merger. Furthermore, the legislature considered it important to enact, in addition to Article 24(1)(a) of the Regulation, additional provisions limiting the creditors entitled to request security. Pursuant to Article 11(2) SEG, only creditors of the merging companies who meet the requirements of this article qualify for protection. Once the information listed in Article 21 of the Regulation has been published, eligible creditors must be informed of their entitlement to request security (Art. 11(3) SEG). As Liechtenstein law does not contain any particular provisions for the protection of minority shareholders in a domestic merger, the legislature decided not to enact special provisions to this effect where an SE is formed by means of a cross-border merger. Liechtenstein has furthermore not availed itself of the options contained in Articles 19 and 24(2) of the Regulation. Pursuant to Article 12 SEG, the Public Registry is competent to scrutinise the legality of the formation of an SE by merger, in accordance with Article 26(1) of the Regulation, provided the SE’s registered seat is in Liechtenstein.

6

According to Article 351(i) PGR, which applies to mergers between Liechtenstein companies, it suffices for creditors to be granted security for six months upon publication of a notice of recordation of the merger in the Public Register.

397

The European Company

B

Formation of a holding SE

Article 13 SEG requires that draft terms of formation, drawn up pursuant to Article 32(3) of the Regulation, be filed with the Public Registry. Subsequently, the registry will publish this document in accordance with national law. Article 14 SEG refers to Article 33(3) of the Regulation, which in turn requires that: (i) the parties forming a holding SE have contributed the shares specified in the draft terms of formation; and that (ii) all other conditions for formation of the holding SE be fulfilled. Pursuant to Article 14 SEG, the Public Registry must confirm in writing that the aforementioned conditions have been met. Subsequently, the registry will arrange for publication of a notice to this effect in accordance with Liechtenstein law.7 Liechtenstein decided not to implement additional provisions for the protection of creditors, employees and minority shareholders who oppose the formation of a holding SE. Consequently, there is no counterpart to Article 34 of the Regulation in the SEG. C

Formation of a subsidiary SE

Article 15 SEG defines the types of legal entities that can participate in the formation of a subsidiary SE. Basically, Liechtenstein law allows all legal entities, both private and public, to do so. In addition, partnership-like enterprises which are not separate legal entities may also take part in the formation of a subsidiary SE. This arguably wide circle of potential founders is subject to one significant restriction, however: any founder, regardless of whether it has legal personality, must, according to its articles, pursue a commercial purpose (Erwerbszweck). D

Conversion into an SE

In accordance with Article 10 of the Regulation, Liechtenstein’s national rules on the conversion of an existing Liechtenstein company into an SE apply. Consequently, the SEG contains only one new provision in this respect. Pursuant to Article 16 SEG, draft terms of conversion, required pursuant to Article 37(5) of the Regulation, must be filed with the Public Registry. The registry will then ensure publication of the draft terms in accordance with national law.8 The SEG does not impose any requirements pursuant to Article 37(8) of the Regulation.

3

Acts committed on behalf of an SE in formation Liechtenstein law reflects Article 16(2) of the Regulation, which provides for the joint and several liability of persons acting on behalf of an SE in formation before the latter has obtained legal personality. 7

398

Art. 958(2) PGR.

8

Ibid.

Liechtenstein

4

Registration and publication Like any other Liechtenstein company, an SE must be entered in the Public ¨ Register (Offentlichkeitsregister), kept by the Public Registry in Vaduz. In order to arrange for the publication of information about an SE and make new entries, certain documents must be filed with the Public Registry. The registry will subsequently arrange for publication, to the extent required by national law. Unless the SE’s articles provide otherwise, publication shall be via Liechtenstein’s two official gazettes, the Liechtensteiner Volksblatt and the Liechtensteiner Vaterland.

5

Acquisition of legal personality Like most national corporate forms in Liechtenstein, an SE acquires legal personality only upon registration with the Public Registry.

III

Organisation and management

1

General remarks Traditionally, Liechtenstein company law requires companies (Aktiengesellschaft) to have a one-tier management structure. However, to a limited extent, a company’s articles may provide for a two-tier structure. In practice, this usually means that an additional supervisory body (e.g. Aufsichtsrat) is put in place. More commonly, the articles provide for the delegation of various duties and powers of the board of directors to one of its members or to one or more third parties, who make up a so-called ‘directorate’. In the event of such a delegation of authority, the person(s) to whom these tasks are delegated is then responsible for the day-to-day management of the company. However, core powers reserved by law to the board of directors can never be validly delegated.

2

General meeting

A

General remarks

The SEG contains only two provisions regarding the general meeting of shareholders of an SE. This paucity of direct guidance is in line with the Regulation, which states that the provisions of national company law shall apply to an SE’s general meeting to the extent the Regulation itself does not contain specific rules.9 Consequently, the provisions of national law regarding the powers of the general meeting, convocation formalities and the decision-making process shall apply. 9

Art. 52 Reg.

399

The European Company

According to Article 338(2) PGR, the general meeting is in charge of: (i) (ii) (iii) (iv)

appointing members of the board of directors and auditors; approving the annual report and dividend distributions; discharging members of the board of directors from liability; passing resolutions to amend the articles and, unless the articles provide otherwise, to form branches; (v) passing resolutions on matters reserved to the general meeting by law or by the company’s articles or which are submitted to it for resolution by other corporate bodies. The articles may delegate additional authority to the general meeting.10 Moreover, the articles may delegate the abovementioned duties of the general meeting to another corporate organ (e.g. the board of directors),11 although such a delegation of authority is rare in practice. B

Decision-making process

Under Liechtenstein law, the general meeting must convene at least once a year in order to pass key resolutions for the coming year (see Art. 54(1) Reg.). Unless the company’s articles provide otherwise, the board of directors (i.e. the administrative body in the one-tier system) is responsible for calling and convening the general meeting.12 According to Article 40 SEG, the Public Registry shall convene the general meeting of an SE if, in accordance with Article 55 of the Regulation, a shareholder whose stake in the company entitles it to request that the SE convene an extraordinary general meeting pursuant to Liechtenstein law or Article 55 has exercised this right but no general meeting is held within two months’ time. In that case, the Public Registry shall rule on the request in summary proceedings and may also appoint a chairperson for the meeting.13 Under Liechtenstein law, notices of a general meeting must be published at least 20 days in advance. The notice must also mention the possibility to inspect the company’s annual accounts and auditor’s report. Minority shareholders representing at least 10% of the subscribed share capital may request that additional items be placed on the agenda. It is not possible to implement a lower threshold (as provided in Article 56 of the Regulation). The board of directors is responsible for defining the requirements shareholders must fulfil in order to be admitted to the general meeting. With respect to bearer shares (Inhaberaktien), it is usually necessary to submit the original shares or an original certificate of deposit prior to the meeting. Holders of registered shares 10 12

400

Art. 280 PGR. 11 Ibid., Art. 338 et seq. 13 Ibid., Art. 168 et seq. Ibid., Art. 349 et seq.

Liechtenstein

(Namensaktien), however, must usually only identify themselves as their shares are recorded in the company’s shareholders’ register. Liechtenstein has enacted the option contained in Article 59(2) of the Regulation regarding the majority and quorum required to pass valid shareholder resolutions. Hence, Article 41 SEG states that an SE’s articles may provide that resolutions to amend the articles can be passed by a simple majority of votes cast, provided at least 50% of the subscribed capital is present or validly represented. This provision is in line with Liechtenstein company law, which requires a quorum for various shareholder resolutions unless the company’s articles set lower thresholds. Thus, an SE’s articles may derogate from the quorum requirements imposed by law.14 C

Rights and obligations of shareholders

Shareholders of a Liechtenstein company are entitled to receive dividends or a share of the liquidation proceeds (to the extent approved by the general meeting); they are also entitled to vote, as provided in the company’s articles. Furthermore, shareholders are entitled to inspect the annual accounts and the auditor’s report. In practice, the articles define shareholders’ rights with reference to national law in this regard. Under national law, shareholders are only obliged to pay up the subscribed value of their shares15 and cannot be forced to make any further contributions to the company.

3

Management and supervision

A

General remarks

As Liechtenstein law has traditionally favoured a one-tier management structure, the SEG sets forth rules governing the two-tier system applicable to the SE. B

One-tier system

Articles 36 through 39 SEG deal with the one-tier management structure. As Liechtenstein company law is based on a one-tier system, few provisions had to be added in the SEG. Consequently, the option set forth in Article 43(4) of the Regulation was not necessary. An SE with a one-tier structure is represented vis-`a-vis third parties by its administrative organ, i.e. the board of directors (Verwaltungsrat). Article 36(1) SEG states that the board’s powers can be stipulated in the SE’s articles (Satzung) or in separate regulations. 14

Ibid., Arts 174 et seq. and Art. 293.

15

Ibid., Art. 317.

401

The European Company

In accordance with national law, the articles of an SE may provide that its board of directors or general meeting can delegate managerial authority and the power to represent the company to one or more natural persons or legal entities, which need not be directors of or shareholders in the SE. If the delegation of authority is valid, the statutory provisions on directors’ liability shall apply. In the absence of such a delegation, the members of the board of directors remain jointly responsible for the day-to-day management of the SE (Art. 38 SEG), which reflects the option contained in Article 43(1) of the Regulation. If an SE’s subscribed capital exceeds CHF 1 million, the board of directors must have at least three members (Art. 37(1) SEG; see Art. 42(3) Reg.). This requirement, however, does not apply if the SE merely administers assets and has no other business activity in Liechtenstein. For all other aspects of the one-tier system, the relevant rules of national law apply.16 C

Two-tier system

In the two-tier system, a supervisory body oversees the management organ. The SEG refers to the management organ as the Vorstand, while the supervisory body is referred to as the Aufsichtsrat. To the extent the SE’s articles or internal regulations do not provide otherwise, the statutory provisions on the powers of the management organ shall apply. If the SE’s articles so provide, members of the management organ must deposit a certain number of the company’s shares in their own name (Pflichtaktien). The number of such shares shall be determined in the articles (Art. 18(1) SEG). Provided the SE pursues business other than the administration of assets (Art. 19 SEG), its management organ must have at least two members if the company’s subscribed capital is at least CHF 1 million (see the option in Art. 40(3) Reg.). If so permitted by the articles, the general meeting or the management organ, as the case may be, can delegate managerial authority and the power to represent the company to one or more natural persons, who can be members of the management organ or third parties, who need not be shareholders in the SE. If such a delegation of authority is valid, these persons will also be subject to the statutory provisions on directors’ liability. Article 2(3) SEG provides that the aforementioned duties can also be delegated to legal entities, which may then serve as managers. Article 22 SEG thus reflects Article 39(1) of the Regulation. 16

402

Ibid., Arts 180–191 and 341–349.

Liechtenstein

According to Article 23 SEG, the management organ is responsible for: (i) preparing the agenda for the general meeting and executing the latter’s resolutions; (ii) drafting the necessary regulations; (iii) providing necessary instructions for this purpose; and (iv) ensuring that the minutes of the general meeting, as well as the SE’s books, are properly kept, examined and, to the extent necessary, published. Members of the supervisory body are, in many respects, subject to rules similar to those applicable to members of the management organ (e.g. with regard to the deposit of shares in the SE, representation by proxy, etc.). Moreover, the supervisory body can appoint one or more committees for specific tasks, such reporting on important matters, supervising the management organ and overseeing implementation by the latter of the general meeting’s resolutions. Pursuant to Article 32 SEG, the supervisory body is responsible for: (i) supervising those persons entrusted with managerial authority and the power to represent the SE in order to ensure compliance with statutory provisions, the SE’s articles and any internal regulations; and (ii) obtaining information on operating activities and management. In this regard, individual members of the supervisory body may request from the management organ any information required to exercise their functions pursuant to Article 41(3) of the Regulation, provided the SE has not restricted this right in its articles (Art. 33 SEG). Article 34(1) SEG allows the supervisory body to represent the SE vis-`a-vis members of the management organ. In practice, such authority is important in the event of a potential conflict of interest involving a member of the management organ. As an SE is not subject to the requirements set forth in Article 180(a) PGR, Article 35 SEG provides that only the provisions of national law regarding a domestic address for service of process are applicable. D

Appointment and removal

The SEG differentiates between the one-tier and the two-tier management system. For the two-tier system, Article 17(2) SEG permits the SE’s articles to provide that members of the management organ can be appointed by the general meeting rather than by the supervisory body. If the articles so provide, the relevant national rules shall apply (see also the options contained in Article 39(2) and (4) of the Regulation). If the articles stipulate that members of the management organ must hold shares in the SE, these members may start to exercise their functions only after having become shareholders (Art. 17(5) SEG). Article 17(6) 403

The European Company

SEG, which deals with the issue of vacancies on the management organ, does not incorporate the option contained in Article 39(3) of the Regulation. Members of the supervisory body are appointed by the general meeting of shareholders. In the one-tier system, the general meeting appoints the board of directors in accordance with national law. Unless the articles provide otherwise, members of the board of directors or of the management organ and the supervisory body may resign from office. However, such a resignation should not occur at an undue time, as it could trigger liability. It should be noted that if members of the management organ, the board of directors or the supervisory body also have a contractual arrangement with the SE (such as an employment contract), the contractual rules on termination must be followed. E

Liability

Liechtenstein’s statutory provisions on the liability of members of corporate organs apply to SEs.17 According to these provisions, board members and any person involved in the management and/or administration of a company can be held liable for damage resulting from an intentional or negligent breach of their duties. The case law provides that the applicable duty of care is assessed on the basis of objective criteria. If managerial authority has been validly delegated, the delegating body (either the management organ, the board of directors or the supervisory body) remains liable only for its non-delegable duties. Otherwise, only the manager and/or officer to whom the duty was delegated can be held liable (provided the conditions for liability have been met). Depending on the case and provided certain requirements are met, members of the management organs can be held liable not only to the SE but also to creditors and even shareholders.

IV

Employee involvement

1

General remarks The Liechtenstein legislature transposed the Directive by the Gesetz u¨ ber die Beteiligung der Arbeitnehmer in der Europ¨aischen Gesellschaft (SE-Beteiligungsgesetz or ‘SEBG’). The SEBG deals with how employee representatives can influence the decision-making process within an SE and is applicable if the SE: (i) has its registered seat in Liechtenstein; or (ii) to the 17

404

Ibid., Arts. 218 et seq.

Liechtenstein

extent an SE has employees in Liechtenstein (irrespective of the location of its registered seat).

2

Special negotiating body (SNB)

A

Provision of information for the creation of an SNB

Article 3(g) SEBG defines the special negotiating body (SNB) as a body formed to negotiate with management an agreement on employee involvement in an SE. This agreement must be in writing (Art. 6 SEBG). B

Composition and appointment

The companies’ employee representatives or, in the absence thereof, the employees themselves, are in charge of appointing members to the SNB. The relevant management organs must submit a written request to the employee representatives to arrange for the establishment of an SNB. This request must include certain information, such as the intention to form an SE, the identity and structure of each company involved, and the number of employees. According to Article 8 SEBG, the number of SNB members corresponds to the number of employees the companies and their subsidiaries employ in each EEA member state. Article 8 sets out the criteria in greater detail. The Liechtenstein members must be appointed from amongst the companies’ Liechtenstein employees. The SEBG has thus not enacted the option contained in Article 3(2)(b) of the Directive. Elections must be held within 10 weeks from the submission of management’s request, pursuant to Article 7 SEBG. C

Members

Article 10 SEBG requires that the name, address and length of employment of each SNB member be provided without delay to the participating companies’ management organs. This information is then forwarded to local management and to various local employee representative bodies. D

Meetings and decisions

Upon receipt of the information mentioned in Article 10 SEBG, the management organs of the participating companies shall convene, as soon as possible, the first meeting of the SNB. The SNB can draft its own regulations and appoint a chairperson as well as one or more deputy chairs. The SNB is entitled to hold a preparatory meeting with the respective management organ. 405

The European Company

Article 12 SEBG sets out the principles that govern corporation between the SNB and the SE’s respective management organ(s). Special emphasis is placed on mutual trust and fair treatment. Article 14 SEBG deals with the decision-making process within the SNB. In particular, the SNB may approve an agreement that reduces the employees’ participation rights, provided such a decision is supported by a resolution approved by a qualified majority of those employees affected. E

Adjournment/resumption of negotiations in the event of substantial changes

Article 15(1) SEBG allows the SNB to decide not to commence negotiations on an agreement on employee involvement or to terminate negotiations already underway. According to Article 16 SEBG, terminated negotiations may be resumed in the event of structural changes within the SE liable to lead to a reduction in employee participation rights.

3

Standard rules

A

Works council

Liechtenstein has not opted out of application of the standard rules contained in the Annex to the Directive in the event an SE is formed by merger (Art. 7(3) Dir.). According to Article 26(1) SEBG, a representative body must be set up in accordance with Articles 27 and 28 SEBG if no agreement on employee participation is reached within the time limits stipulated in Article 20 SEBG. To the extent such a representative body is made up of Liechtenstein members, the relevant provisions of national law shall apply. Under Liechtenstein law, the representative body for employees is referred to as an employee representative body (Arbeitnehmervertretung) or works council (Betriebsrat). Unless terminated prematurely, the term of a Liechtenstein member of the representative body is four years, commencing upon election or appointment (Art. 39 SEBG). B

Information and consultation

Pursuant to Article 37 SEBG, the employee representative body meets with the SE’s management organ at least once a year in order to obtain information and be heard regarding the development of the SE’s business and its perspectives. The representative body is entitled to receive in advance any information and documents needed to prepare for this meeting. This information must include not only the SE’s annual reports but also copies of all documents submitted to 406

Liechtenstein

the general meeting of shareholders. Broader definitions of the terms ‘business development’ and ‘perspectives’ can be found in Article 37(3) SEBG. The employee representative body is entitled to be notified without delay of any extraordinary circumstances liable to considerably affect the interests of employees (such as the relocation of manufacturing sites or material parts of the undertaking, as well as collective dismissals). If the management organ decides not to act in accordance with the employee representative body’s opinion, the latter is entitled to meet once more with management in order to try to reach an agreement. However, the rights of the management organ shall not be prejudiced by the rights of the employee representative body. The principle of equality set forth in Part 3 of the Annex to the Directive is not fully reflected in Liechtenstein law. In many cases, employee representatives are not granted equal (or even any) voting rights and may only express their views on an informative or consultative basis. C

Employee participation

Pursuant to Article 22 SEBG, employee participation must be ensured by an agreement within the meaning of Articles 22 et seq. SEBG. If no such agreement can be reached, employee participation is defined by the rules set forth in Part IV SEBG.

4

Protection of employee representatives According to Article 51 SEBG, members of the SNB and of other employee representative bodies created within an SE are afforded the same level of protection and the same guarantees as members of other employee representative bodies under national law.

5

Duty of confidentiality Members of the SNB or of any other employee representative body are subject to a strict duty of confidentiality with regard to information they receive in confidence. Article 50(2) SEBG provides that this duty of confidentiality shall continue in effect until termination of the employee’s membership in the representative body. Article 50(1) SEBG contains an exception to the management organ’s duty to inform. If disclosure of the information would considerably jeopardise or restrain the SE’s business activities or those of any other company involved, the management organ is exempt from its duty to inform within the framework of Articles 24, 25, 37 and 38.

407

The European Company

V

Annual accounts and consolidated accounts

1

Accounting principles With regard to the preparation of an SE’s annual accounts, the general accounting principles contained in the PGR apply (relating to Art. 67(2) Reg.). The use of internationally accepted accounting standards is also permissible. An SE’s annual accounts must be prepared within six months from the close of its financial year for approval by the general meeting. The management organ or the board of directors, as the case may be, must submit the annual accounts to the general meeting for approval, along with a proposal for the allocation of profits. Dividends may be distributed only if approved by the general meeting. An SE must file its approved annual accounts and annual report, along with its auditor’s report, with the Public Registry.

2

Auditors Pursuant to national law, a company’s annual accounts and annual report must be examined by a licensed auditor. For some transactions, review by a specialised auditor licensed in accordance with the Certified Accountants and Auditors Act is required. Auditors must meet strict standards of independence at all times and are prohibited from holding a substantial shareholding in a company they audit. Nor may they serve as members of such a company’s management or staff.18

VI

Supervision by the national authorities With regard to all matters pertaining to its registration, an SE is subject to supervision by the Public Registry. Where the law requires judicial oversight, the competent court is the District Court (F¨urstliches Landgericht) in Vaduz.

VII

Dissolution

1

Winding up, liquidation and insolvency Provided it is registered in Liechtenstein, an SE is subject to national provisions regarding winding up, liquidation and insolvency. Consequently, the PGR as well as the Bankruptcy Act (Konkursordnung) and the Judicial Composition Act (Nachlassvertragsgesetz) shall apply if an SE becomes insolvent. 18

408

Ibid., Art. 192.

Liechtenstein

In addition, Article 45 SEG requires that Article 7 of the Regulation be respected at all times. Thus, if an SE no longer has its centre of administration in the same country as its registered seat, this constitutes a material defect in its articles.19 In this case, the Public Registry shall request the SE to remedy the situation within a specified time limit by re-establishing its centre of administration in the place where its registered seat is located or by transferring its registered seat in accordance with the procedure set forth in Article 8 of the Regulation. If the defect is not remedied on time, the registry shall order that the SE be dissolved and liquidated in special summary proceedings.

VIII

Applicable law Within the leeway granted by the Regulation, the Directive and the SEG, an SE may include a choice-of-law clause in its articles. Furthermore, Article 2 SEG provides that, to the extent the Regulation and the SEG do not contain any provisions to this effect, the PGR shall apply. If the SE is a regulated undertaking, such as a bank or an insurance company, additional provisions of national law shall also apply.

IX

Tax treatment

1

Income tax An SE is subject to corporate tax (Kapitalertragssteuer) at a rate of 7.5% to 20% if it pursues business activities in Liechtenstein. If it has only: (i) a holding function in Liechtenstein; or (ii) business activities outside Liechtenstein, the SE may be eligible for a reduced tax rate (a capital tax of 1%). Dividends distributed by a Liechtenstein SE to its shareholders are subject to a coupon tax amounting to 4% of the distribution. This tax qualifies as a withholding tax, as the duty to remit falls on the SE. Shareholders receive the dividend net of tax. In general, an SE is also subject to a 1% issuance levy (Emissionsabgabe) on capital contributions (including any amount above the par value of its shares).

2

Value added tax Provided the relevant thresholds are met, an SE is subject to VAT in Liechtenstein. However, due to a bilateral tax treaty with Switzerland, the VAT rates in Liechtenstein generally mirror the Swiss rates. Currently, the rate of VAT is 7.6% for most goods and services.

19

Ibid., Art. 125 et seq.

409

The European Company

X

Conclusion To date, an SE has yet to be registered in Liechtenstein. This somewhat surprising finding should be viewed in light of the fairly complex rules applicable to SEs. Moreover, Liechtenstein company law provides for more liberal types of legal entities, which may often serve investors’ needs better than an SE. Nonetheless, by adapting its legislation to the Regulation and the Directive, Liechtenstein has made its contribution to the ongoing harmonisation of company law throughout the EU and the EEA.

410

16 Norway lars kristian sande Telenor

I II III

Introduction 412 Reasons to opt for an SE 413 Formation 413 1 General remarks 413 A Founding parties 413 B Name 413 C Registered office and transfer 414 D Corporate purpose 417 E Capital 417 2 Different means of formation 418 A Formation by merger 418 B Formation of a holding SE 420 C Formation of a subsidiary SE 421 D Conversion into an SE 421 3 Acts committed on behalf of an SE in formation 421 4 Registration and publication 422 5 Acquisition of legal personality 422 IV Organisation and management 422 1 General remarks 422 2 General meeting 423 A Decision-making process 423 B Rights and obligations of shareholders 425 3 Management 425 A Two-tier system/one-tier system 425 B Representation 427 C Liability 428 V Employee involvement 428 1 Special negotiating body 429 2 Employee participation 429 3 Protection of employee representatives 429 VI Annual accounts and consolidated accounts 430 1 Accounting principles 430 2 Auditors 430 VII Supervision by the national authorities 431 VIII Dissolution 432 1 Winding up 432

411

The European Company

IX X

XI

I

2 Liquidation 432 3 Insolvency 432 4 Cessation of payments Applicable law 434 Tax treatment 434 1 Income tax 434 2 Value added tax 436 Conclusion 436

433

Introduction 1. Norway has implemented the Regulation of 8 October 2001 on the Statute for a European company (the ‘Regulation’) by Act N◦ 14 of 1 April 2005 on the European company, implementing Annex XXII N◦ 10a of the EEA Agreement1 (the ‘SE Act’).2 The SE Act entered into force on 1 April 2005.3 The king4 was granted powers in the SE Act to enact regulations (forskrift) governing employee involvement in SEs, as set out in the Directive of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’). Accordingly, a national regulation on employee involvement in SEs (the ‘Employee Involvement Regulation’) was adopted on 1 April 2005, along with the SE Act, and entered into force that same day. 2. The Regulation has been incorporated by reference into Norwegian law. Section 1 of the SE Act provides that the Regulation applies as Norwegian law (with the amendments contained in the first protocol of Annex XXII to the EEA Agreement5 and elsewhere therein). The SE Act is quite short and consists of only fourteen brief sections. Apart from incorporating the Regulation, the SE Act mainly contains references to certain provisions of the Norwegian Public Limited Companies Act 45/1997 (the ‘PLC Act’) where there was a need for 1 2

3

4

5

412

Norway is not an EU Member State but is a party to the EEA Agreement between the European Union, Norway, Iceland and Liechtenstein. The SE Act was ratified by the Council of State (made up of the government, i.e. the prime minister’s cabinet, and the King) on 1 April 2005, after the necessary resolutions had been passed in both chambers of the Norwegian parliament. The preparatory works (forarbeid) to the SE Act consist of a consultation paper from the Ministry of Justice of 13 May 2004, White Paper (ot.prp.) N◦ 17 2005–2005, Proposal to the Odelsting (Innst. O.) N◦ 54 2004–2005, and Odelsting Resolution (Besl. O.) N◦ 47 2004–2005. Norway is a parliamentary monarchy. References to the ‘king’ refer to the king and his council, i.e. the Council of State (consisting of the prime minister and other ministers, formally headed by the king). In practice, however, powers are delegated to the relevant ministries, in this case the Ministry of Labour and Social Affairs, although all regulations must be formally ratified by the king in council (i.e. the Council of State). The protocol provides for the addition of the Norwegian allmennaksjeselskap (public limitedliability company) to Annex I of the Regulation and the Norwegian aksjeselskap (private limitedliability company) and allmennaksjeselskap to Annex II of the Regulation

Norway

country-specific regulation. Thus, the SE Act contains very few new rules in addition to the Regulation (see Volume 1, chapter 2 of this book).

II

Reasons to opt for an SE 3. The SE has certain advantages compared to other corporate forms under Norwegian law. The main advantage of an SE is its European nature, i.e. an SE can transfer its registered office (and thus bring about a corresponding change in governing law) without affecting its legal personality and ability to participate in cross-border mergers (for more information, please refer to Volume 1, chapters 1 and 2). An SE that is a resident of Norway for tax purposes will be subject to ordinary Norwegian income tax on its worldwide income, in the same way as any other Norwegian limited-liability company (i.e. an AS or ASA). However, the complete tax treatment of a Norwegian SE is not clear at the time of writing, as the Ministry of Finance has yet to finish a proposal for tax consequences (which is expected to include implementation of the Merger Directive). Please refer to Section X of this report for further details on the tax treatment of Norwegian SEs.

III

Formation

1

General remarks

A

Founding parties

4. The SE Act contains no specific provisions with respect to the requirements the founders of an SE must comply with, and thus the provisions of the Regulation shall apply (see Volume 1, chapter 2, N◦ 18 et seq.). 5. If a merging party does not have its head office within the European Union, it can still take part in the formation of an SE provided it meets the requirements set out under Article 2(5) of the Regulation, i.e. it is formed under the laws of a Member State, has its registered office in that Member State and has a real and continuous link with the economy of a Member State. B

Name

6. In Norwegian, an SE is referred to as a europeisk selskap (European company). The name of an SE must contain the words europeisk selskap or the abbreviation ‘SE’.6

6

Sec. 2-2, para 6. Business Names Act 79/1985.

413

The European Company

C

Registered office and transfer

(i)

Registered office 7. The PLC Act (the provisions of which apply in general to Norwegian SEs)7 is only applicable to Norwegian public limited companies. Under Norwegian law, whether a company is Norwegian or foreign is determined, at least with respect to companies registered in an EU Member State or another EEA country, on the basis of several factors, including the location of the company’s registered office.8 If a (public limited) company registered in an EU Member State decides to transfer its head office to Norway, Norwegian company law will not automatically apply to that company since it will remain subject to the state where it is registered. If the (public limited) company wishes to be registered as a Norwegian (public limited) company, it must abide by the rules of formation (incorporation) set out in the PLC Act. On the other hand, transferring the head office of a Norwegian company abroad will not necessarily result in that company losing its Norwegian status, at least not if it continues to maintain an office in Norway which can provide reasonable services to shareholders, creditors and public authorities.9 Under certain circumstances, however, the transfer of a company’s head office abroad could be considered a violation of Norwegian company law and trigger the winding up of the company, but it is generally assumed that the threshold for this purpose is quite high.10 If an SE no longer meets the requirements with respect to its registered office and head office set out in Article 7 of the Regulation, the competent court shall order the company to be wound up in accordance with the procedure set out in Sections 16-15 through 16-18 of the PLC Act.11 Under the PLC Act, a Norwegian public limited company (and thus an SE) is required to state in its articles the municipality where its registered office is or shall be located.12 A company’s registered office need not be at the same place as its head office, but it must maintain an office at the location of its registered office in order to answer enquiries from third parties (e.g. shareholders, creditors and public authorities). 7

8 9 10

11

414

According to Sec. 2, para. 1 of the SE Act, the provisions of the PLC Act apply to an SE with its registered office in Norway subject to the provisions of the Regulation, the provisions of the SE Act, and the company’s articles of association. Magnus Aarbakke et al., Aksjeloven og allmennaksjeloven, kommentarutgave, 2nd ed., Universitetsforlaget, Oslo, 2004, 66–70, with further references. See footnote 8. See footnote 8. It has been argued that the general meeting of shareholders may have a duty to wind up the company in such cases, and that the courts could have authority to force the company to liquidate if the general meeting fails to do so, see A. Eckhoff and G. Knudsen, ‘Flytting av hovedadministrasjonen til et norsk allmennaksjeselskap eller aksjeselskap til utlandet’ in Festskrift til Finn Berg Jacobsen, Oslo 2000, 151–52. Sec. 8 SE Act. 12 Sec. 2–3, para. 1, N◦ 2 PLC Act.

Norway

(ii)

Transfer of registered office 8. The SE Act provides that the provisions of Sections 16-14 through 16-17 of the PLC Act (on the liquidation of companies) shall apply mutatis mutandis to the transfer of a Norwegian SE’s registered office in accordance with Article 8 of the Regulation (i.e. the transfer of an SE’s registered office from Norway to another Member State).13 In addition, specific rules govern the transfer of financial institutions and insurance companies. Once the transfer resolution has been duly adopted, the Norwegian SE must add the words under flytting (in transfer) to its business name.14 9. The transfer proposal, drawn up in accordance with Article 8(2) of the Regulation, must be filed with the Register of Business Enterprises (the Foretaksregisteret, hereinafter the ‘Business Register’). The Business Register shall then publish the decision to transfer the SE’s registered office and notify the company’s creditors that any objections to the transfer must be submitted to the SE within two months from the date on which the notice first appears in the Business Register’s electronic publication.15 A notice of the transfer must be posted in the Business Register’s electronic publication and published twice, over at least a one-week interval, in a widely read newspaper in the area in which the SE’s registered office is located. The newspaper notice may be in abridged form and refer to the electronic notice. The SE Act contains no specific rules on the drawing up of the report mentioned in Article 8(3) of the Regulation and the making available of this report to shareholders, as required by Article 8(4) of the Regulation (see Volume 1, chapter 2, N◦ 83). 10. If a creditor with an undisputed claim16 which has fallen due objects to the transfer before expiry of the two-month deadline (see N◦ 8 above), the merger cannot go through before the claim has been settled. A creditor with a disputed claim or one that is not yet due may request adequate security. The relevant district court shall hear disputes regarding the existence of claims and the adequacy of security. The court can reject a creditor’s request for security if it is clear that the claim is invalid or that the merger will not jeopardise satisfaction of the claim. 11. The general meeting of shareholders must vote on the transfer of the SE’s registered office. Prior to the meeting, shareholders must receive a copy of the transfer proposal and the report of the board of directors or17 the management board. The transfer of an SE’s registered office is in effect an amendment to the company’s articles of association and, as such, requires the approval of at least 13 16 17

14 Ibid., Sec. 7, para. 1 15 www.brreg.no Sec. 7, para 2. SE Act. For this purpose, only monetary claims are considered ‘claims’ under these provisions (Secs. 13–14 and 13–15 PLC Act); see also Aarbakke et al., op. cit., 823. Depending on whether the SE has a one-tier or a two-tier management structure.

415

The European Company

two-thirds of the votes cast at the general meeting.18 Section 5-18 of the PLC Act requires that the resolution be approved by at least two-thirds of both the votes cast and the share capital represented at the general meeting. Norway has not opted to allow any exceptions to this rule pursuant to Article 59(2) of the Regulation. 12. The Business Register will issue a certificate attesting to the completion of all acts and formalities required to transfer the SE’s registered office from Norway to another Member State.19 13. Norway has enacted the possibility contained in the Regulation allowing the competent authorities to oppose the transfer abroad of an SE’s registered office.20 The king21 may thus prohibit the transfer of an SE’s registered office in the public interest. It is not yet clear which transfers will be considered ‘against the public interest’.22 In addition, SEs that conduct business governed by the legislation mentioned in Section 7, second paragraph, points (a) through (f), must obtain advance approval for the transfer.23 The businesses mentioned in this provision are supervised by the Norwegian Financial Supervisory Authority. The requirement to obtain approval under the various acts must be exercised in accordance with the provisions of the SE Act.24 14. Norwegian law does not yet provide tax exemptions for cross-border mergers. However, exemptions are available for mergers between Norwegian limitedliability companies, i.e. two Norwegian public limited companies can merge without any (Norwegian) tax consequences for their shareholders or the companies themselves. As mentioned above, there is currently no proposal in Norway to implement the Merger Directive or any proposal for SE-related tax issues. Please refer to Section X of this report for further information on the tax treatment of Norwegian SEs. 18 19 22

23

24

416

See Art. 59(1) Reg. and Volume 1, chapter 2, nos. 83 and 66. 20 Cf. Art. 8(14) Reg. 21 Cf. footnote 4. Sec. 7 in fine SE Act. The Ministry of Justice did not include such a provision in its original proposal for the SE Act. A provision to this effect was later added by the parliamentary justice committee in its proposal (Innst. O. N◦ 54 2004-2005) to the Odelsting (the first chamber of the Norwegian parliament), which contains very few arguments justifying the inclusion. It is possible that the committee was concerned about the adverse effects of transferring the headquarters of a company from Norway (i.e. lost jobs, know-how etc). It is highly doubtful that such effects will be considered against the public interest, however, within the meaning of the Article 8(14) of the Regulation. This provision is completely generic, as it does not limit the public interest to certain grounds (see Volume 1, chapter 2, N◦ 85), but it should most likely be interpreted in accordance with the Regulation. The Savings Bank Act of 24 May 1961 (N◦ 1), the Commercial Bank Act of 24 May 1961 (N◦ 2), the Insurance Business Act 39/1988, the Act on Financial Services and Financial Institutions 40/1988, the Stock Exchange Act 80/2000, and the E-Money Act 74/2002. Sec. 2, para. 1 SE Act and White Paper N◦ 17 2004-2005, 16, 26.

Norway

D

Corporate purpose

15. The PLC Act requires25 that a company organised under Norwegian law states the purpose of its business in its articles of association. The articles are recorded with the Business Register and made available to the public. The corporate purpose may be stated in general terms, e.g. the company will engage in industrial activities or be an investment company. Third parties are assumed to be familiar with a company’s corporate purpose as published by the Business Register,26 but this does not mean that they will always be considered to know whether an act of the company’s management or board of directors falls within its corporate purpose, as this could depend on the justification for the transaction.27 Section 6-33 of the PLC Act states that actions taken by any person representing an SE in accordance with Sections 6-30 to 6-32 of the PLC Act28 shall bind the company unless it can establish that the third party in question was aware or should have been aware that the SE acted outside its corporate purpose. E

Capital

16. The share capital of an SE should be at least €120,000. In order to register the share capital, it must be fully paid up (regardless of whether the contributions are made in cash or in kind), and thus registered share capital will always be fully paid in. Norwegian law does not recognise the concept of ‘authorised share capital’ (i.e. share capital which is registered but not yet paid in), but the board of directors may be granted authority to increase the share capital (by up to 50% of the existing amount) by the general meeting of shareholders, which delegation of authority shall be recorded with the Business Register. A Norwegian SE may denominate its share capital in Norwegian kroner (NOK).29 Shares in a Norwegian public limited company must be registered (i.e. it is not possible to issue bearer shares), and the company is obliged to establish and maintain a shareholders’ register with a securities registry established under the Securities Register Act 64/2002.30

25 26 27 28 29

30

Sec. 2-2, para. 1, N◦ 4 PLC Act. Sec. 10-1, para. 1 Business Register Act 78/1985. See e.g. Aarbakke et al., op. cit., 112, 560 et seq. That is, the board of directors, authorised signatories and the managing director. Sec. 12 SE Act. According to Section 3-4 of Accounting Act N◦ 56/1998 (the ‘Accounting Act’) a Norwegian public limited company may denominate its accounts in either Norwegian kroner or the currency with which the business is most connected (i.e. its operational currency), and its annual accounts may be denominated in either Norwegian kroner, euros or its operational currency. These provisions also apply to Norwegian SEs. Sec. 4-4, para. 1 PLC Act. In practice, shareholders’ registers are kept by the Norwegian Central Securities Depository (Verdipapirsentralen or ‘VPS’) in electronic form.

417

The European Company

2

Different means of formation

A

Formation by merger

(i)

Procedure and publication requirements 17. A Norwegian public limited company (allmennaksjeselskap or ‘ASA’), as opposed to a Norwegian private limited company (aksjeselskap or ‘AS’), may participate in a merger to form an SE.31 The merger may be carried out by acquisition (i.e. the acquiring company becomes an SE) or result in the formation of a new SE.32 The formation of an SE by merger is initiated by the board of directors of each participating company, which prepares draft terms of merger in accordance with Article 20 of the Regulation.33 Section 5 of the SE Act states that the provisions of the PLC Act on formation by merger shall apply mutatis mutandi to the formation of an SE by merger, meaning the Norwegian participating company (-ies) must abide by the provisions of Chapter 13 of the PLC Act. It must be assumed that the obligation of the board of a Norwegian participating company to prepare a so-called merger plan (fusjonsplan) in accordance with Section 13-3 of the PLC Act has been replaced by its duty to prepare draft terms of merger. However, the board must still prepare a report on the merger in accordance with Section 13-9 and ensure that a merger statement is prepared in accordance with Section 13-10 of the PLC Act. The merger report shall contain a description of the merger’s effects on the company and explain the reasons for the proposed merger and the significance of the merger for the company’s employees. The statement shall be prepared by one or more independent experts who must be state authorised or registered public accountant(s). The statement must at least indicate the methods used to determine the consideration offered shareholders of the transferring company, whether these methods are appropriate, whether any special difficulties arose in determining the amount of consideration, and whether the consideration is fair and reasonable. The PLC Act requires that the participating companies’ articles of association, annual accounts, directors’ report and auditor’s report for the past three financial years be enclosed with the draft terms of merger, along with an interim balance sheet if the draft terms were prepared and signed more than six months after the date of the last annual accounts. The interim balance sheet must be prepared and audited in accordance with the rules governing annual accounts and must not predate the draft terms of merger by more than three months. 18. The draft terms of merger (including all annexes, i.e. the abovementioned reports, annual accounts, etc. for the past three years for each participating 31 32 33

418

Art. 2(1) Reg.; cf. Annex I (see footnote 5). Please refer to chapter 2, N◦ 23 of volume 1 of this book for a further description. Please refer to chapter 2, N◦ 25 of volume 1 of this book for a further description of the terms.

Norway

company, including an interim balance sheet, if applicable) must be filed with the Business Register at least one month prior to the general meeting scheduled to vote on the merger (Sec. 13-13(1) PLC Act). At that time, this information must also be sent to all shareholders and made available at the company’s head office.34 19. Under Norwegian law, participation by a Norwegian company in a merger (including any amendments to its articles of association necessitated thereby) must be approved by at least two-thirds of the votes cast and the share capital represented at the general meeting. Any resolution to amend the company’s articles of association that reduces the rights of an entire class of shareholders must be approved by the holders of at least two-thirds of the share capital represented by that class and, in addition, by at least half the votes held by shareholders who do not own shares in any other class. The company’s articles may provide for higher majority requirements. Under Norwegian law, the board of directors of the acquiring company may, subject to certain conditions, take a decision on the merger without the approval of the general meeting. However, such authority cannot be used in the formation of an SE by merger due to the wording of Article 23 of the Regulation. The merger resolutions passed by the general meeting shall expire if not filed with the Business Register within one month following approval of the merger. (ii)

Minority shareholders 20. The Member States are free to adopt appropriate provisions to protect minority shareholders who oppose the formation of an SE by merger. Norway has not adopted any specific rules in this regard.

(iii)

Rights of creditors 21. Creditors of Norwegian companies participating in a merger enjoy special protection. The merger may not be completed until two months following registration of the merger resolution with the Business Register (often referred to as the ‘creditors’ period’). Any creditor of a participating company may object to the merger by giving notice to the company within this two-month period. If a creditor with an undisputed and overdue claim objects to the merger within this period, the merger may not go through until the claim is paid in full. A creditor whose claim is disputed or not yet due may object to the merger and seek security for its claim, in which case the merger may not go through until the company has provided adequate security. The courts will decide whether a claim exists and whether the security is adequate. The courts can reject a request for security if they find that the claim does not exist or that the merger will not undermine the creditor’s ability to obtain satisfaction of its claim. 34

Sec 13-12 PLC Act; see also chapter 2, N◦ 28 of Volume 1 of this book.

419

The European Company

(iv)

Acquisition by a company holding 90% or more of the shares in another company 22. Norwegian law does not contain an exception to the reporting requirement for a merger by acquisition of a company holding at least 90% of the shares in another company. However, a simplified procedure for the merger of a wholly owned subsidiary is provided by Section 13-24 of the PLC Act, whereby the boards of the participating companies can decide on the merger. Any shareholder who, directly or indirectly through subsidiaries, acquires more than 90% of the issued share capital and voting rights of a Norwegian PLC (and thus of a Norwegian SE) can force the minority shareholders to sell their shares for cash (and each minority shareholder has the right to oblige the majority shareholder to purchase its shares). Thus, in order for a 90% shareholder to use the simplified procedure, it must acquire full ownership of the company.35 The boards will still be required to draft a merger report and file it with the Business Register. There is also a two-month creditors’ period.

B

Formation of a holding SE

(i)

Procedure 23. In Norway, private limited companies (aksjeselskap) and public limited companies (allmennaksjeselskap) are entitled to participate in the formation of a holding SE. There are no special rules on the protection of minority shareholders,36 creditors or employees applicable to the formation of a holding SE. The incorporation process will thus be the same as for the formation of a public limited company (ASA), i.e. the founders must sign and register with the Business Register a memorandum of incorporation that meets the requirements of the PLC Act. The memorandum of incorporation contains the company’s articles of association which shall state at least: (i) that the company is an SE; (ii) the company’s name; (iii) the municipality in which the company’s registered office will be located; (iv) the company’s business; (v) the share capital; (vi) the par value of the shares; (vii) the number of shares; (viii) the number of board members (or the fewest and highest possible number, if applicable); (ix) whether the company shall have several managing directors or if the board or the corporate assembly (bedriftsforsamling) shall have authority to decide whether the company shall have several managing directors and, if so, whether they should be regarded as a collective organ; and (x) the matters to be dealt with at the annual general meeting. The memorandum shall also contain the company’s opening audited balance sheet. 35 36

420

The shares are transferred to the majority shareholder immediately, and the shareholders subsequently make payment to an escrow account. Minority shareholders need not contribute their shares to the holding SE, in which case they will remain shareholders in the holding SE’s subsidiary.

Norway

Since incorporation entails contributing the shares of the existing companies to the holding SE, an auditor must draft a valuation report for the shares in accordance with Section 2-6 of the PLC Act. All shares must be subscribed for, and all contributions made, prior to registering the company with the Business Register. The auditor shall confirm receipt of the share capital contributions (cash and/or shares). The Business Register must be notified of the incorporation within three months following the signing of the company’s memorandum of incorporation. The company is officially incorporated once it is registered with the Business Register. C

Formation of a subsidiary SE

24. The rules on the formation of a Norwegian public limited company (allmennaksjeselskap) apply to the formation of a subsidiary SE with its registered office in Norway. As with the incorporation of a holding SE, there are no specific national rules relating to the incorporation of a subsidiary SE. D

Conversion into an SE

25. In Norway, only a public limited company (allmennaksjeselskap) can be converted into an SE (Art. 2(4) Reg.). Chapter 15 of the PLC Act contains rules on the conversion of a public limited company (ASA) into a private limited company (AS). These rules apply mutatis mutandis to the conversion of an ASA into an SE (Sec. 6 SE Act). The board of directors shall prepare a draft conversion resolution and the required amendments to the company’s articles of association, stating the reasons for the proposed conversion. The conversion must be approved by the general meeting by the same majority required to amend the articles of association of a Norwegian public limited company, i.e. two-thirds of the votes cast and share capital represented. The Business Register must be informed of the decision within three months following adoption of the resolution.

3

Acts committed on behalf of an SE in formation 26. Prior to registration, a Norwegian public limited company may not incur rights or obligations other than those stated in its memorandum of incorporation or provided for by law.37 A person who incurs obligations on behalf of an SE in formation (i.e. prior to its registration) for which the company is liable in accordance with Section 2-10(1) of the PLC Act shall be held personally and jointly and severally liable for these obligations, which the company shall, in any case, assume upon registration. 37

Sec. 2-20(1) PLC Act.

421

The European Company

4

Registration and publication 27. An SE shall be registered with the Business Register, the central registry for all Norwegian companies. Publication is done electronically via the Business Register’s website (www.brreg.no). Certain information is made publicly available free of charge, such as a company’s name and organisation number, registered address, and the name(s) of its managing director(s). In addition, the main details of all registrations are published. For a small fee, anyone can obtain an extract from a company’s registration certificate, indicating, in addition to the information mentioned above, its registered share capital and the names of its board members and auditor, as well as its articles of association.

5

Acquisition of legal personality 28. Norwegian public limited companies and SEs acquire legal personality upon registration with the Business Register. From this point on, an SE has the capacity to incur obligations (see N◦ 25 of this report).

IV

Organisation and management

1

General remarks 29. According to the SE Act, the rules applicable to Norwegian public limited companies (ASA) apply mutatis mutandis to Norwegian SEs, unless the Regulation provides otherwise. The highest authority in a Norwegian PLC is the general meeting of shareholders, followed by the board of directors and finally by management, headed by a managing director who is in charge of the company’s day-to-day business. The Norwegian system can thus be characterised as more one-tier than twotier. However, in companies with more than 200 employees there must be a supervisory organ, a so-called corporate assembly (bedriftsforsamling), which is elected by shareholders and whose main duties are to supervise and control the board’s and the managing director’s management, elect board members (including the chair), and take certain decisions of material importance to the company, such as those involving significant investments and divestments and reorganisations with a material effect on the company’s workforce. Thus, the management structure of a Norwegian public limited company is in fact a cross between a two-tier and a one-tier system. However, the provisions of the Regulation will take precedence over the PLC Act (with certain exceptions, see N◦ 28 of this report). The SE Act states that for SEs with a two-tier management structure, the provisions of the PLC Act regarding the board shall apply mutatis mutandis to the management organ, and the provisions regarding the corporate assembly shall apply mutatis mutandis to the supervisory organ (Sec. 9, para. 1, second

422

Norway

sentence SE Act). For SEs with a one-tier structure, the provisions of the PLC Act regarding the management of the company shall apply mutatis mutandis to management of an SE, subject to the provisions of the Regulation, and the provisions regarding the board shall apply mutatis mutandis to the administrative organ (Sec. 10, para. 1 SE Act). Certain types of public limited companies, in particular financial institutions (i.e. banks operating under the Commercial Banking Act, insurance companies operating under the Insurance Providers Act, and providers of financial services operating under the Financial Services Act), are required to set up special administrative and supervisory organs. The Ministry of Justice interprets38 Article 9(3) of the Regulation to mean that the requirement to establish such organs take precedence over the organisational requirements contained in the SE Act, provided, however, the employees’ right to elect members of these organs does not apply and employee involvement is regulated in full by the Regulation. The Ministry’s interpretation would seem to be based on application of the lex specialis principle and is supported by the Ministry of Finance and the Norwegian FSA.39 In our opinion, it is unclear whether Article 9(3) of the Regulation should be interpreted to mean that such national requirements40 take precedence over the provisions of the Regulation and that the principle of lex specialis should apply. However, since both the Ministry of Finance and the Norwegian FSA (the supervisory authorities for companies organised under the abovementioned acts) support the Ministry of Justice’s position, the founders of a Norwegian SE who do not wish to adhere to such national rules should, in practice, request an exemption through the courts, pending a formal change in the law. Please refer to Section IV.3 of this report for further information on the onetier/two-tier management structures.

2

General meeting

A

Decision-making process

30. As stated above, the provisions of the PLC Act apply to Norwegian SEs, subject to the rules set forth in the Regulation. At least one general meeting of shareholders must be held each year, no later than six months following the close of the financial year, in order to approve the annual accounts (including any dividend distributions and the remuneration of board members and the company’s auditors) and to deal with other matters 38 40

39 Ibid., 30. Cf. White Paper N◦ 17 2004-2005, 29 et seq. We assume Article 9(3) of the Regulation should be interpreted to mean that national requirements regarding the running of businesses other than organisational requirements (e.g. capital and other qualification requirements) should apply in full to SEs.

423

The European Company

required by law or the company’s articles of association (typically, the election of board members and members of the corporate assembly) (Sec. 5-6(1) PLC Act). The first financial year may last up to 18 months, meaning that if the company is incorporated in the latter half of a calendar year (or less than six months before the end of the financial year), it need not prepare accounts for the period between its incorporation and the end of the year in which it was incorporated (Sec. 1-7, para. 2 Accounting Act). Therefore, an SE incorporated in the second half of a calendar year (i.e. less than six months before the end of the financial year) need not hold an annual general meeting until after the close of the following financial year.41 Thus, Article 54 of the Regulation, which allows an SE to hold its first annual general meeting of shareholders at any time during the first eighteen months of its existence, will apply to Norwegian SEs, as long as there is a corresponding exemption not to prepare annual accounts. 31. The board of directors is responsible for calling the general meeting (Sec. 58 PLC Act).42 If the board fails to convene a general meeting which must be held by law or pursuant to the company’s articles of association or to a decision of the general meeting, the competent court shall call the meeting when requested to do so by a board member or a member of the corporate assembly, the managing director, the auditor or a shareholder. Since the Regulation takes precedence over the PLC Act, it is assumed in the preparatory works to the SE Act that the supervisory organ can also convene a general meeting43 and furthermore that the Norwegian FSA’s authority to call general meetings of companies subject to its authority shall extend to Norwegian SEs.44 As mentioned above, a company is required by law to hold an annual general meeting to approve its annual accounts. In addition, it is obliged to convene an extraordinary general meeting if requested to do so in writing by the board, the corporate assembly (or its chair), the auditor or shareholders representing at least 5% of the company’s share capital, in order discuss a specific issue (Sec. 11, para. 2 SE Act; cf. Sec. 5-7, para. 2 PLC Act). The board is responsible for ensuring that a meeting is held within one month from receipt of a written request. The district court of the judicial district where the SE’s registered office is located can also call a general meeting pursuant to Articles 54(2) and 55(2) of the Regulation (cf. Sec. 11, para. 1 SE Act). The PLC Act requires that written notice of a general meeting be sent to all shareholders whose addresses are known at least two weeks prior to the date of the meeting, unless the company’s articles stipulate a longer period. Any 41 42

43

424

Cf. Aarbakke et al., op. cit., 343. In a Norwegian PLC with a corporate assembly, the articles of association may provide that the chair of the assembly shall call the general meeting. Since an SE does not have a corporate assembly, this provision does not apply. 44 Ibid., 32. Cf. White Paper N◦ 17 2004-2005, 31-2.

Norway

shareholder is entitled to request that an item be placed on the agenda of a general meeting if it informs the board of directors sufficiently in advance so that the matter can be mentioned in the notice of the meeting. (This right thus supersedes the 10% requirement mentioned in Article 56 of the Regulation.) 32. Subject to any provisions to the contrary in a company’s articles of association, the PLC Act provides that each share carries one vote. Treasury shares (i.e. previously issued shares that have been acquired by the company) cannot be voted. (A Norwegian PLC may not issue shares to itself.) In general, decisions that shareholders are entitled to take under the PLC Act or the company’s articles of association may be passed by a simple majority of votes cast. For elections, the candidate who obtains the most votes shall be elected. However, certain decisions, including, but not limited to, resolutions to: (i) authorise an increase or decrease in the company’s share capital; (ii) waive pre-emptive rights in connection with any share issue; (iii) approve a merger or de-merger; and (iv) amend the company’s articles of association, must be approved by at least two-thirds of both the votes cast at the general meeting and the share capital represented. Certain decisions require a greater majority (Secs. 5-19 and 5-20 PLC Act). There are no quorum requirements for general meetings. B

Rights and obligations of shareholders

33. Shareholders may attend the general meeting either in person or by proxy. They are not required to attend, however. According to the PLC Act, all shares in a company carry equal rights. However, the act permits a company’s articles of association to provide for different types of shares (e.g. different classes). In this case, the articles must specify the various rights, preferences and privileges and the total par value for each class.

3

Management

A

Two-tier system/one-tier system

(i)

General remarks 34. The founders of an SE must decide whether to set up a one-tier or a two-tier management structure. The Norwegian system for public limited companies is, to a certain extent, a cross between a one-tier and a two-tier system (see Section IV.1 above). For a general description of the rights and obligations of the various bodies in the one-tier and two-tier systems, please refer to Volume 1, chapter 2, n◦ . 67 et seq. of this book. 425

The European Company

(ii)

One-tier system 35. As mentioned above, for SEs with a one-tier management structure, the provisions of the PLC Act on management shall apply mutatis mutandis, subject to the provisions of the Regulation, and the provisions regarding the board shall apply mutatis mutandis to the administrative organ. The SE Act stipulates that a Norwegian SE shall have a managing director and that the provisions of the PLC Act on the managing director shall apply mutatis mutandis to the managing director of an SE (Sec. 10, para. 2 SE Act; cf. Art. 43(1) Reg.). This means, for instance, that the managing director is in charge of the day-to-day management of a Norwegian SE but may not take unusual decisions or decisions of material importance to the company. Furthermore, the other obligations of the managing director under the PLC Act shall apply to the managing director of an SE, e.g. the managing director must prepare a written or oral report for the board; the board or a board member may demand a written report regarding specific issues from the managing director; and the managing director is responsible for ensuring that the SE’s accounts comply with applicable law. The managing director also has the right, and is in fact obliged, to participate in board meetings and general meetings. The managing director further has the right (but is not obliged) to speak at general meetings. The administrative organ shall have at least three members (Sec. 10, para. 3 SE Act). The articles may stipulate a higher number, however. Members of the administrative organ shall be elected by the general meeting (Sec. 10, para. 3 SE Act; cf. Art. 43(3) Reg.). The provisions of the PLC Act regarding the employees’ right to elect board members shall not apply to the election of members of the administrative organ.45 Since the provisions regarding the board in the PLC Act apply mutatis mutandis to the administrative organ, the managing director may not also serve as chair of the administrative organ (Sec. 6-1(3) PLC Act).

(iii)

Two-tier system 36. As mentioned, the SE Act provides that, for SEs with a two-tier management structure, the provisions of the PLC Act regarding the board shall apply mutatis mutandis to the management organ and the provisions regarding the corporate assembly shall apply mutatis mutandis to the supervisory organ (Sec. 9, para. 1, second sentence SE Act). A Norwegian SE must have a managing director (Sec. 9, para. 1, third sentence SE Act) who is in charge of the day-to-day running of the company (cf. nos. 28 and 34 of this report). There is no minimum number of members for the management organ. The management organ shall supervise and organise the 45

426

Sec. 3 SE Act; cf. White Paper N◦ 17 2004-2005, 31.

Norway

running of the company but shall not participate in daily operations (see N◦ 28 of this report). If the management organ has more than one member, the members are considered to form a corporate body which takes decisions by a simple majority. Members are elected by the supervisory organ (cf. Art. 39(2) Reg.).46 The supervisory organ must have at least five members (Sec. 9, para. 2, first sentence SE Act). The SE’s articles of association may prescribe a higher or minimum number (which may not be less than five) as well as a maximum number of members, the actual number of which can be determined by the general meeting within the parameters set by the articles. Members of the supervisory organ are elected by the general meeting. The supervisory organ supervises the management organ’s and the managing director’s running of the company. The supervisory organ also takes decisions on certain material issues, authority for which is entrusted to the corporate assembly in a PLC, such as material investments and divestments and reorganisations that materially affect the company’s workforce (see N◦ 28 of this report). However, a decision to file for bankruptcy can only be taken by the management organ (Sec. 6-18(1) PLC Act). 37. No person can sit simultaneously on both the management organ and the supervisory organ (Reg. Art. 39(3) and Sec. 6-36(2) PLC Act), and the managing director may not be a member of the supervisory organ. However, the supervisory board can appoint one of its members to temporarily fill a vacancy for up to two months (Sec. 9, para. 3 SE Act). B

Representation

38. In the one-tier system, the board of directors represents the SE in its relations with third parties (Sec. 6-30 PLC Act). The board can delegate this power to certain of its members, the managing director or individual employees, and the articles of association can also provide for such a delegation of authority (cf. Sec. 6-31(1) PLC Act). In the two-tier system, the management organ represents the SE in its relations with third parties (cf. Sec. 9, para. 1 SE Act; Sec. 6-30 PLC Act). Furthermore, the SE’s articles of association may provide that the company can be represented by one or more members of its management organ, its managing director, an individual employee or a specified number and/or combination of the foregoing persons acting jointly. The managing director represents the company with respect to matters of dayto-day management (Sec. 6-32 PLC Act). 46

Cf. White Paper 17 2004-2005, 28.

427

The European Company

If any of the foregoing persons acts beyond his or her authority to represent the company, the company shall not be bound by its representative’s actions if it can prove that the third party in question acted in bad faith, i.e. was aware or should have been aware that the representative did not have authority to bind the company. C

Liability

39. Members of the corporate organs of a Norwegian SE are liable for any damage they cause whether wilfully or by negligence, including damage to the SE itself, its shareholders, creditors and third parties.47 The general meeting decides whether the company should take legal action against these members, although shareholders representing at least 10% of the share capital or, if the company has more than 100 shareholders, 10% of the total number of shareholders, can file suit on behalf of the company. The shareholders shall bear the costs of these proceedings but can claim reimbursement from the damages award, if any. Certain other provisions, regarding release from liability, etc., also apply.

V

Employee involvement 40. Norway has recognised a right for employees to be represented on corporate management and supervisory organs since the mid-70s (Limited Liability Companies Act 1976). The PLC Act contains several provisions regarding employee representation on the board of directors and in the corporate assembly. In brief, if the PLC has a corporate assembly, employees are entitled to elect one-third of its members. If one-third of the members of the corporate assembly so request, one-third of the board members shall be elected from amongst the employees. In practice, this means that corporate assemblies and boards of directors in Norwegian PLCs are composed of one-third employee representatives. In PLCs without a corporate assembly there are rules that guarantee employee representation on the board if the company has more than 30 employees, at which point the employees can appoint one board member and one observer. If there are more than 50 employees, they have a right to appoint one-third of the board members from amongst their number. Taking into account the foregoing, Norwegian PLCs do not have a works council, unlike in many other EU Member States. Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees (the ‘Directive’) was incorporated into Norwegian law as part of the EEA Agreement by the EEA Committee on 25 June 2002 (see Annex XVIII N◦ 32e to the EEA Agreement). In addition, Section 3 of the SE Act stipulates that the king in council shall set 47

428

Cf. White Paper N◦ 17 2004-2005, 27; Chapter 17 PLC Act.

Norway

out further provisions on employee involvement in a regulation (which power was delegated to the Ministry of Labour). The Ministry has adopted Regulation 273/2005 on employee involvement in SEs (the ‘Employee Involvement Regulation’), with a statutory basis in Section 3 of the SE Act, which provides that the Employee Involvement Regulation, rather than the corresponding provisions of the PLC Act, shall govern the employees’ right to be represented on the management organs of an SE. The Employee Involvement Regulation also takes precedence over the special rights granted employees in the Commercial Banking Act and the Insurance Providers Act.48 However, due to the ‘before-after’ principle set forth in the Directive, if the employees of a newly formed SE are taken over from a bank or insurance company and the SE is organised under the Commercial Banking Act or the Insurance Providers Act, the employees will still be entitled to representation in accordance with this legislation pursuant to the ‘best representation principle’.49

1

Special negotiating body 41. The Employee Involvement Regulation reflects the provisions of the Directive on the composition of the special negotiating body (SNB), which is made up of elected members from the participating companies. Please refer to Volume 1, chapter 3 of this book for more information regarding the composition of the SNB (p. 80 et seq.)

2

Employee participation 42. As stated under N◦ 39 of this report, Norwegian law has recognised for quite some time the right for employees to sit on the management bodies of a PLC (both the board of directors and the corporate assembly). If an SE is formed through conversion of a Norwegian PLC, the employees’ right to representation shall continue. The Employee Involvement Regulation contains a standard agreement between employees and the company on employee involvement.

3

Protection of employee representatives 43. Neither the SE Act nor the Employee Involvement Regulation contains specific rules regarding the protection of employee representatives. However, there are several general rules in the Workplace Act (Arbeidsmiljøloven) designed to protect employees against discrimination, as well as in the collective bargaining agreement (CBA) concluded between the Norwegian Labour Organisation (LO) and the Confederation of Norwegian Businesses and Industry, which also contains specific rules on employee representatives.

48

Cf. White Paper N◦ 17 2004-2005, 35.

49

Ibid.

429

The European Company

VI

Annual accounts and consolidated accounts

1

Accounting principles 44. The SE Act does not contain any special provisions regarding an SE’s duty to keep accounts. The SE Act provides that all provisions applicable to Norwegian PLCs by law shall apply to Norwegian SEs (Sec. 2, para. 1, second sentence SE Act). The obligation of a Norwegian SE to keep accounts is contained in Accounting Act N◦ 56/2005 (Sec. 1-2, N◦ 2), which states that a Norwegian PLC is obliged to keep accounts in accordance with the Accounting Act. Under the PLC Act and the Accounting Act, the board of directors of a PLC is responsible for ensuring that the company’s accounts are kept and prepared in accordance with the Accounting Act and made available to shareholders in accordance with the PLC Act. If the SE has a two-tier management structure, this responsibility is vested in the management organ rather than the supervisory organ (Sec. 9, para. 2, second sentence SE Act). In SEs with a one-tier management system, the administrative organ bears this responsibility (Sec. 10, para. 2, second sentence SE Act). The keeping of books, records and accounts is regulated by the Accounting Act and, to a certain extent, the PLC Act. Norway has adopted Council Regulation 1606/2002 on the application of international accounting standards through the EEA Agreement (Annex XXII N◦ 10b) and the Accounting Act (Sec. 3-9). As mentioned above, an SE has a duty to submit its annual accounts to the general meeting of shareholders for approval no later than six months following the close of its financial year. In Norway, the financial year follows the calendar year, but a company can choose another financial year if, due to seasonal activity, this will enhance the informational value of its annual accounts. In addition, if the SE is a subsidiary of a foreign company, it can follow the financial year of its foreign parent. Other exemptions may be granted. The accounts of a Norwegian SE must be filed with the Company Accounts Register (Regnskapsregisteret) within one month of approval (Sec. 8-2, para. 1 Accounting Act). The accounts must be made available to the public (i.e. to all interested third parties) either via the Company Accounts Register or by the company itself (Sec. 8-1, para. 1 Accounting Act).

2

Auditors 45. An SE is obliged to appoint one or more auditors and may elect substitute (deputy) auditors (Sec. 7-1(1) PLC Act). The auditor shall be appointed by the general meeting. It is not common to appoint more than one auditor. The auditor may be a legal entity, e.g. an accounting firm, in which case it will be regarded as a single auditor, even if the auditing tasks are performed by several persons. Only registered or authorised accountants can serve as an SE’s

430

Norway

auditors. The auditor must be independent within the broad meaning of that term, i.e. independent of the company and of other parties that could have an interest in the company. The auditor is not appointed for a specific term and serves until the general meeting elects another (Sec. 7-2(1) PLC Act). According to the literature, this means that it is not possible to include in the company’s articles of association provisions specifying a fixed term for the auditor or for the company and the auditor to agree on a defined term.50 The auditor can resign, but it is assumed that the resignation will only take effect on the date of the next annual general meeting and that the notice period cannot be longer than necessary to replace the auditor.51 In addition, the auditor has a right under Auditing Act N◦ 2/1999 (Sec. 7-1) to resign if material violations of law have been discovered and brought to the company’s attention and the company has not taken appropriate steps to rectify the situation. 46. The auditor’s primary duties are to audit the company’s annual accounts and to draft an audit report on the accounts for the SE’s general meeting of shareholders (Sec. 7-4 PLC Act). The report shall contain a statement that the audit has been carried out in accordance with the law and good accounting practices, and the auditor shall give an opinion as to whether the accounts provide a fair view of the company’s financial situation, in accordance with the applicable accounting standards, if the accounts have been prepared in accordance with the law (and applicable regulations), and if the information contained in the board’s annual report is in accordance with the law and consistent with the accounts. The auditor shall attend general meetings if this is necessary due to the nature of the issues to be discussed at the meeting. In any event, the auditor has a right to attend any general meetings.

VII

Supervision by the national authorities 47. The Norwegian Business Register is the primary authority responsible for registering SEs and approving all filings. Decisions of the Business Register can be appealed to the Ministry of Trade and Industry, whose decisions may in turn be challenged before the civil courts. Violations of the applicable legislation and regulations can, as a general rule, result in criminal liability. A police investigation will be conducted and the public prosecutor’s office can commence proceedings. In certain cases, in the Norwegian Authority for the Investigation and Prosecution of Economic and Environmental Crime (Økokrim) will investigate the matter and bring proceedings.

50

Aarbakke et al., op. cit., p. 579.

51

Ibid.

431

The European Company

VIII

Dissolution

1

Winding up 48. The liquidation of a Norwegian SE can be either voluntary or involuntary. Liquidation requires that all of the company’s debts be satisfied (before any distributions to shareholders can be made). If the company’s assets are insufficient to cover its debts, the company must file for bankruptcy or seek a composition with creditors (see below).

2

Liquidation 49. The general meeting can decide to liquidate an SE by the same majority required to amend the company’s articles of association52 (Sec. 16-1 PLC Act). The general meeting shall elect a liquidation committee, which shall replace the board of directors and the managing director. It is not clear whether this means that the liquidation committee also replaces the supervisory board in SEs with a two-tier management structure. However, since the PLC Act does not require the dissolution of the corporate assembly but rather states that the rules governing the latter body shall continue to apply, to the extent possible, during the liquidation process, it can be assumed that the liquidators do not replace the supervisory body. The decision to liquidate the company must be filed with the Business Register immediately, and the company is not allowed to make any distributions, other than regular dividends, for two months thereafter, and even then only provided all debts have been settled in full (or adequate funds have been placed in escrow). In addition, the courts can, in certain cases, order a company to liquidate (Sec. 16-15 PLC Act), e.g., in the event the company has not filed its annual accounts by the prescribed deadline. The courts can also order a company to liquidate if the company’s articles of association so provide and it is requested to do so by a shareholder, and the general meeting has failed to adopt a resolution in this respect, in accordance with Section 16-1 of the PLC Act. If the court orders an SE to liquidate, the company shall be liquidated in accordance with the rules governing estates in bankruptcy (see N◦ 50 of this report).

3

Insolvency 50. In order to place a debtor in bankruptcy in Norway, the court must find that the debtor is insolvent by conducting a two-fold analysis, i.e. the company must display a continuous inability to pay its debts as they fall due (which inability cannot be merely temporary) (a cash-flow test) and have liabilities that 52

432

That is, two-thirds of the votes cast and shares represented at the meeting.

Norway

exceed the value of its assets (a balance-sheet test). Bankruptcy proceedings are commenced by a petition from a creditor or the debtor filed with the court where the debtor’s headquarters are located. The court will request a cash deposit of NOK 42,250 from the creditor (not applicable to debtor) to cover court fees and basic procedural costs. Only the board of directors is entitled to file a petition in bankruptcy on behalf of an SE. In keeping with the provisions of the SE Act, this authority is vested in the management organ if the SE has a two-tier system (Sec. 9, para. 1 SE Act) and in the administrative organ if the SE has a one-tier structure (Sec. 10, para. 1 SE Act). Individual board members can be held liable to the company (the bankruptcy estate) and/or its creditors for any losses incurred due to the late commencement of insolvency proceedings or for failure to commence such proceedings. It is a criminal offence under Norwegian law not to file a petition in bankruptcy if this results in losses to the company’s creditors. Continuing trading, even if insolvent, does not, however, automatically give rise to liability. 51. A company in bankruptcy is controlled by a court-appointed liquidator (generally an advokat, i.e. an experienced lawyer, as opposed to a jurist). The liquidator is often assisted and supervised by a creditors’ committee. The general role of the liquidator is to realise all assets in the manner most profitable to the estate and distribute the proceeds to creditors. All of the company’s assets will, in practice, be confiscated, and the debtor cannot dispose of any assets in any way while bankruptcy proceedings are pending. To give the liquidator sufficient time to realise the estate’s assets in the most profitable way, the Bankruptcy Act provides for a six-month period following the commencement of bankruptcy proceedings during which no secured creditor can carry out any forced sale of the debtor’s pledged assets without the liquidator’s express consent. The liquidator will decide that the business should continue to operate only if this is in the best interest of the estate. Certain transactions conducted prior to the commencement of bankruptcy can be set aside or reversed, e.g. extraordinary payments to certain creditors, security granted for old debts and transactions carried out below market value.

4

Cessation of payments 52. Norwegian insolvency law provides for a moratorium of payments (referred to as ‘debt negotiations’ or gjeldsforhandling). This is an arrangement under court supervision whereby creditors, if negotiations are successful, allow the 433

The European Company

debtor to continue as a going concern. Negotiations may result in a voluntary debt arrangement or a composition with creditors (a form of compulsory reorganisation/settlement). A voluntary settlement requires that all creditors accept the proposal. Compulsory reorganisation (composition) can only be initiated by the debtor, provided there are sufficient funds or, in the alternative, its main creditors guarantee that continuation of the business will not cause additional losses to existing or new creditors. At least 60% of the voting creditors representing at least 60% of the unsecured claims must agree to a composition whereby the debtor agrees to settle at least 50% of its debts. At least 75% of the voting creditors representing at least 75% of the unsecured claims must agree to a composition whereby the debtor agrees to settle less than 50% of its unsecured claims. The court must approve any composition with creditors. At least 25% of unsecured debts must be settled in order to obtain court approval.

IX

Applicable law 53. As mentioned under N◦ 2 of this report, Norway has incorporated the Regulation into national law by reference, and the SE Act states that an SE with its registered office in Norway shall be governed by the provisions of Norwegian law applicable to Norwegian PLCs, provided the Regulation so allows (Sec. 2, para. 1 SE Act).

X

Tax treatment

1

Income tax 54. The introduction of the SE did not require amendments to Norwegian tax law. The relevant issue, however, is whether such amendments will be necessary in future in order to render it commercially interesting to establish SEs in Norway. As mentioned above (see N◦ 3 of this report), at the time of writing, there are no specific provisions of Norwegian law dealing with the tax treatment of SEs registered in Norway. Furthermore, the Ministry of Finance has stated that, at present, it is not planning any specific amendments to Norwegian tax law. However, it is likely that amendments will be made. Until that time, however, the applicable provisions of the Norwegian Tax Code on tax abatement can possibly be relied on in the event an SE is formed by way of a cross-border merger or if a Norwegian SE’s registered office is transferred to another EEA country (see N◦ 55 of this report). As the SE Act states that the statutory provisions applicable to Norwegian PLCs shall apply to Norwegian SEs, a Norwegian SE will be treated as a Norwegian PLC for tax purposes. This means that a Norwegian SE will be subject to Norwegian corporate tax on its worldwide income (the current rate is 28%).

434

Norway

55. Under Norwegian law, several transactions carried out in connection with the establishment or formation by merger of an SE under the SE Act are, in principle, taxable events (such as a realisation of shares) for Norwegian (tax) residents. For instance, an exchange of shares in connection with the establishment of a holding SE (or a subsidiary SE if the company is incorporated with a contribution in kind) will be a taxable event for Norwegian shareholders and, in principle, trigger capital gains tax (at the current rate of 28%). However, Norwegian corporate shareholders are not taxed in Norway on capital gains on the disposal of their shares, and losses related to such a disposal are not tax deductible. Since only limited companies and public limited companies (both legal entities) can participate in the incorporation of a holding SE, the incorporation of such a company will not, under current tax law, trigger tax for Norwegian corporate shareholders. Correspondingly, if a subsidiary SE is incorporated with shares as the only contribution in kind, this will not be a taxable event for Norwegian corporate shareholders. Incorporation of an SE by merger where the surviving entity (the SE) is a foreign corporation (a nonNorwegian SE) will be a taxable event for individual shareholders, but not for corporate shareholders. On 28 August 2006, the Norwegian Tax Directorate (Skattedirektoratet) released a binding advance statement concerning the tax consequences of the conversion of a public limited company into an SE and the subsequent transfer of the SE’s registered office out of Norway.53 The Directorate stated that X ASA (PLC) could be converted into X SE without incurring any Norwegian tax liability and that (individual) shareholder A’s shares in the company would maintain their current value for tax purposes. The Directorate also stated that the transfer of the SE’s registered office to Germany pursuant to the SE Act would not be viewed as a taxable event in Norway. It also concluded that the SE’s withdrawal from Norwegian tax jurisdiction would not trigger taxation of the shares held by shareholder A, who would continue to reside in Norway. The advance ruling also dealt with certain other issues, such as the duty to pay income tax when leaving Norwegian tax jurisdiction. The Directorate’s ruling implies that full liquidation taxation cannot be imposed upon conversion into an SE and subsequent transfer of the SE’s registered office to another EEA country or EU Member State. The Norwegian authorities can only impose Norwegian tax in accordance with the rules set forth in Section 14-64 of the Norwegian Tax Code, when company assets are withdrawn from Norwegian tax jurisdiction (pursuant to which accelerated depreciation is taken for income tax purposes), and in Section 14-48 of the Tax Code on the settlement of certain tax positions in discontinuance of tax liability in Norway. 53

BFU (Binding Advance Statement) 37/06.

435

The European Company

The ruling thus opens the door for a Norwegian SE to relocate to another EEA country with no, or relatively few, tax consequences in Norway. After relocation, the company will be subject to tax in the country to which it has relocated. Relocation will not trigger taxation for the company’s shareholders. It should be mentioned that the Directorate’s statement only concerns the conversion of a Norwegian PLC into an SE, and the subsequent transfer of the SE’s registered office to another EEA country, and does not purport to render an opinion on the tax consequences of establishing an SE by merger, etc. Relocation can be possible for Norwegian companies that control foreign companies domiciled in low-tax countries and which are therefore subject to tax on their share of income generated by these foreign companies, pursuant to the Norwegian CFC (controlled foreign corporation) rules (the so-called NOKUS regulations). Relocation means that the foreign companies will cease to be Norwegian-controlled, so that the basis for application of NOKUS lapses (although indirect ownership can also trigger inspection and application of NOKUS). In addition, relocation to EEA countries with more beneficial tax systems could be possible in future following the Cadbury Schweppes ruling (provided there is an actual establishment and financial activity). Furthermore, relocation may only be possible in order to avoid withholding tax on dividends paid to foreign shareholders.

2

Value added tax 56. A Norwegian SE will be subject to VAT at the same terms and conditions applicable to other Norwegian companies.

XI

Conclusion 57. To the best of our knowledge, only one SE has been established in Norway to date.54 In addition, one company listed on the Oslo Stock Exchange, Prosafe ASA, has announced that its board of directors has decided to start the process of converting the company into an SE. The reason behind the conversion is ‘to achieve flexibility with regards to future localisation of the holding company.’55 There is cause to believe that one of the main reasons for the SE’s lack of ‘success’ in Norway is the current shortage of tax exemptions available upon the incorporation of an SE (which, for Norwegian taxpayers, will usually be a taxable event) and the general insecurity surrounding the tax treatment of other transactions involving an SE. For instance, the participation of an SE in a cross-border merger may not be very attractive if the transaction constitutes 54 55

436

On 1 December 2006, the company notified the Business Register that it intends to transfer its registered office to England. Company press release of 17 November 2006.

Norway

a taxable event under national law. In addition, the SE employee involvement rules are complex and difficult to implement in practice, even if Norwegian law already recognises a significant degree of employment involvement. Not to mention the fact that the Regulation, like any new legislation, leaves many questions unanswered. As long as the SE’s ability to participate in ‘cross-border’ transactions is impeded by national tax laws, there may be little reason to opt for an untested corporate form, such as the SE, over the more familiar Norwegian PLC. However, as discussed above, this situation could create incentives to transfer the company’s registered office to jurisdictions with conditions more favourable to the company and its shareholders.

437

PA RT I II Annexes

Annex Ia Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European Company (SE)

Annex Ib Public limited-liability companies referred to in Article 2(1) of the Regulation EU MEMBER STATES AUS TRIA: die Aktiengesellschaft BELGI UM: la soci´et´e anonyme/de naamloze vennootschap BULGA RY: акционерното дружество CYP RUS :
           
            CZECH REPUBLIC: akciov´a spoleˇcnost’ DENM ARK: aktieselskaber ES TONI A: aktsiaselts F I NLAND: julkinen osakeyhti¨o//publikt aktiebolag F RANCE: la soci´et´e anonyme GERM ANY: die Aktiengesellschaft GREECE :     464

Public limited-liability companies referredto in Article 2(1) of the Regulation

HUN GARY: r´eszv´enyt´arsas´ag, korl´atolt felel´´oss´eg´´ u t´arsas´ag IREL AND: public companies limited by shares public companies limited by guarantee having a share capital ITA LY: societ`a per azioni LATVI A: akciju sabiedr¯ıba LITH UANI A: akcin˙es bendrov˙es uˇzdarosios akcin˙es bendrov˙es’ LUXEM BOURG: la soci´et´e anonyme MALTA : kumpaniji pubbli˙ci / public limited liability companies kumpaniji privati / private liability companies THE NET HER LANDS: de naamloze vennootschap P OLAND: sp´ol
ka akcyjna, sp´ol
ka z ograniczona odpowiedzialno´s´ıa’ P ORTUGA L: a sociedade an´onima de responsabilidade limitada ROMA NIA: societate pe act¸iuni S LO VAKI A : akciov´a spoloˇcnos’, spoloˇcnost’s ruˇcen´ım obmedzen´ym’ S LOV ENI A: delniˇska druˇzba, druˇzba z omejeno odgovornostjo 465

Annex Ib

S P AI N: la sociedad an´onima S WED EN: publikt aktiebolag UNI TED KINGDOM: public companies limited by shares public companies limited by guarantee having a share capital

EEA MEMBER STATES I CELAND : Hlutaf´elag LIECHTENSTEIN: die Aktiengesellschaft die Kommanditaktiengesellschaft; NORW AY : Allmennaksjeselskap.

466

Annex Ic Public and private limited-liability companies referred to in Article 2(2) of the Regulation EU MEMBER STATES AUS TR IA : die Aktiengesellschaft, die Gesellschaft mit beschr¨ankter Haftung BELGI UM : la soci´et´e anonyme/de naamloze vennootschap, la soci´et´e priv´ee a` responsabilit´e limit´ee/besloten vennootschap met beperkte aansprakelijkheid BULGARY: акционерното дружество дружество с ограничена отговорност DENMARK: aktieselskaber, anpartselskaber F IN LAND: osakeyhti¨o aktiebolag F RANCE: la soci´et´e anonyme, la soci´et´e a` responsabilit´e limit´ee GERMA NY: die Aktiengesellschaft, die Gesellschaft mit beschr¨ankter Haftung GREECE:           

467

Annex Ic

I RELAND : public companies limited by shares, public companies limited by guarantee having a share capital, private companies limited by shares, private companies limited by guarantee having a share capital I TALY: societ`a per azioni, societ`a a responsabilit`a limitata LUXEM BOURG: la soci´et´e anonyme, la soci´et´e a` responsabilit´e limit´ee NET HER LANDS: de naamloze vennootschap, de besloten vennootschap met beperkte aansprakelijkheid P ORTU GAL: a sociedade an´onima de responsabilidade limitada, a sociedade por quotas de responsabilidade limitada ROM ANIA: societate pe act¸iuni societate cu r˘aspundere limitat˘a S PA IN : la sociedad an´onima, la sociedad de responsabilidad limitada S WEDEN: Aktiebolag UNI TED KINGDOM : public companies limited by shares, public companies limited by guarantee having a share capital, private companies limited by shares, private companies limited by guarantee having a share capital

EEA MEMBER STATES I CELAND : Hlutaf´elag Einkahlutaf´elag 468

Public and private limited-liability companies referred to in Article 2(2) of the Regulation

LIECHTEN STEIN: die Aktiengesellschaft die Kommanditaktiengesellschaft die Gesellschaft mit beschr¨ankter Haftung NOR WAY: Allmennaksjeselskap Aksjeselskap

469

Annex II Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European Company with regard to the involvement of employees

Annex III List of national laws implementing the Regulation and the Directive

Annex III List of national laws implementing the Regulation and the Directive This Annex contains a list of the national legislation implementing the Regulation and Directive in the countries of which reports are included in this book. For the national legislation of the other EEA member states, please refer to Annex III of the first volume.

BULGARIA Tърговски закон, State Gazette issue No. 48, of 1 July 1991, and the latest amendments, State Gazette issue No. 105, of 22 December 2006. 3АКОНза информиране и консултиране с работниците и служителите в многонационални предприятия, групи предприятия и европейски дружества, State Gazette issue No. 57, of 14 July 2006.

CYPRUS     
         (SE) !   2006, Cyprus Government Gazette 2006, Issue no 4119, Appendix 3, Part I, p. 2303, of 11 August 2006. " 277(I)/2004   # $   !              % &  '$   (        
    (  #    )  *&     +, - %&  .-    /  0

    -     (SE), Cyprus Government Gazette 2004, Issue no 3940, Appendix 1, Part I, page 3940, of 31 December 2004.

CZECH REPUBLIC Z´akon cˇ . 627/2004 Sb., o evropsk´e spoleˇcnosti, Sb´ırce z´akon˚u dne, of 14 December 2004 Vyhl´asˇka Ministerstva spravedlnosti cˇ . 293/2005 Sb., o dokumentech, kter´e je tˇreba pˇredloˇzit not´arˇi k vyd´an´ı osvˇedˇcen´ı pˇri pˇrem´ıstˇen´ı zapsan´eho s´ıdla evropsk´e spoleˇcnosti a pˇri zaloˇzen´ı evropsk´e spoleˇcnosti f´uz´ı, Sb´ırce z´akon˚u dne, of 21 July 2005. 487

Annex III

FRANCE Loi n◦ 2005-842 of 26 July 2005 pour la confiance et la modernisation de l’´economie, Journal officiel n◦ 173, page 12160, text n◦ 2, of 27 July 2005. D´ecret n◦ 2006-448 of 14 April 2006 relatif a` la soci´et´e europ´eenne, Journal officiel n◦ 9.,1 page 5780, text n◦ 12, of 16 April 2006. D´ecret n◦ 2006-1360 of 9 November 2006 relatif a` l’implication des salari´es dans la soci´et´e europ´eenne et modifiant le code du travail (deuxi`eme partie: D´ecrets en Conseil d’Etat), Journal officiel n◦ 261, page 16878, text n◦ 8, of 10 November 2006.

GREECE " 3412/2005: $  '    # +             1! A’276/4.11.2005 [Government Gazette, Bulletin A’ 276], of 4 November 2005.  2 
&  91/2006   $   (          1! A’92/4.5.2006 [Government Gazette, Bulletin A’ 92], of 4 May 2006.

IRELAND Statutory Instrument (Regulation or Order) of 14 December 2006, N◦ 623 of 2006, Iris Oifigi´ul, of 19 December 2006. The European Communities (European Public Limited-Liability Company) Regulations 2007 (No. 21 of 2007). The European Communities (European Public Limited-Liability Company) (Forms) Regulations 2007 (No. 22 of 2007).

ITALY Decreto Legislativo of 19 agosto 2005 nr. 188. Attuazione della direttive 2001/86/CE, GURI N◦ 220, of 21 September 2005.

LATVIA Eiropas komercsabiedr¯ıbu likums of 24 March 2005, Latvijas V¯estnesis, of 24 March 2005. Latvijas Republikas Ministru kabineta noteikumi Nr. 344 par pieteikumu veidlap¯am ierakstu izdar¯ısˇanai komercre‘gistr¯a par Eiropas komercsabiedr¯ıb¯am of 17 May 2005, Latvijas V¯estnesis, of 27 May 2005. 488

List of national laws implementing the Regulation and the Directive

LIECHTENSTEIN Gesetz u¨ ber das Statut der europ¨aischen Gesellschaft (SEG), LGBl. 2006 Nr. 26. Gesetz u¨ ber die Beteiligung der Arbeitnehmer in der europ¨aischen Gesellschaft (SEBG), LGBl. 2006 Nr. 27.

LUXEMBOURG Loi du 25 aoˆut 2006 concernant la soci´et´e europ´eenne (SE), la soci´et´e anonyme a` directoire et conseil de surveillance et la soci´et´e anonyme unipersonnelle, M´emorial A, Recueil de l´egislation, num´ero 152, of 31 August 2006. Loi du 25 aoˆut 2006 compl´etant le statut de la soci´et´e europ´eenne (SE) pour ce qui concerne l’implication des travailleurs, M´emorial A, Recueil de l´egislation, num´ero 152, of 31 August 2006.

MALTA Employee Involvement (European Company) Regulations, 2004, Legal Notice 452 of 2004, of 22 October 2004.

NORWAY Lov om europeiske selskaper ved gjennomføring av EØS-avtalen vedlegg XXII nr. 10a (r˚adsforordning (EF) nr. 2157/2001) (SE-loven), lov nr. 14/2005, 1 April 2005, Norsk Lovtidend Avd. 1, of 4 May 2005. Forskrift nr. 273 om arbeidstakernes rett til innflytelse i europeiske selskaper, 1 April 2005, Norsk Lovtidend Avd. 1, of 4 May 2005.

PORTUGAL Decreto-Lei N◦ 2/2005 of 4 January 2005, Decreto-Lei N◦ 215/2005 of 31 December 2005, Diaro da Republica 237 S´erie I-A.

ROMANIA Hotararea de Guvern nr. 187 din 20 februarie 2007 privind procedurile de informare, consultare s¸i alte modalit˘a¸ti de implicare a angajat¸ilor ˆın activitatea societ˘a¸tii europene (Monitorul Oficial nr. 161 din 7 martie 2007). 489

Annex III

SLOVENIA Zakon o gospodarskih druˇzbah – (ZGD-1), Uradni list RS 42/2006 (Official Journal RS, No. 42/2006), of 19 April 2006. Zakon o sodelovanju delavcev pri upravljanju evropske delniˇske druˇzbe (SE)(ZSUEDD), Uradni list RS 28/2006, of 17 March 2006. Zakon o sodnem registru- (ZSReg –UPB1), Uradni list RS 114/2005, of 19 December 2005. Zakon o prisilni poravnavi, steˇcaju in likvidaciji (ZPPSL), (Uradni list RS 67/1993, 74/1994, 8/1996, 25/1997, 39/1997, 1/1999, 52/1999, 101/2001, 42/2002, 58/2003, 10/2006). Slovenski raˇcunovodski standardi, (Uradni list RS 67/2003, 118/2005,10/2006, 58/2006). Zakon o finanˇcnem poslovanju podjetij (ZFPPod), (Uradni list RS sˇt. 54/1999, 110/1999, 97/2000, 50/2002, 93/2002, 117/2006). Zakon o davku od dohodkov pravnih oseb (ZDDPO-2), Uradni list RS 117/2006, of 16 November 2006. Zakon o davku na dodano vrednost (ZDDV-1), Uradni list RS 117/2006, of 16 November 2006. Uredba o vpisu druˇzb in drugih pravnih oseb v sodni register) (Decree on entry of companies and other legal entities in the court register) (Uradni list RS 18/2002, of 28 February 2002).

SPAIN Ley 19/2005 of 14 November 2005, sobre la sociedad an´onima europea domiciliada en Espa˜na, Bolet´ın Oficial del Estado, of 15 November 2005. Ley 31/2006 of 18 October 2006, sobre implicaci´on de los trabajadores en las sociedades an´onimas y cooperativas europeas, Bolet´ın Oficial del Estado, of 19 October 2006.

490

Index

accounting principles see annual accounts and consolidated accounts acts committed on behalf of SE in formation Bulgaria 32 Cyprus 75 Czech Republic 93 France 129 Greece 160–161 Italy 216 Latvia 239–240 Luxembourg 263 Norway 421 Portugal 297 Romania 318–319 Slovenia 347 Spain 370–371 annual accounts and consolidated accounts 458 accounting principles Bulgaria 47–51 Czech Republic 103–105 Greece 169 Ireland 195–196 Latvia 246 Liechtenstein 408 Luxembourg 276–278 Norway 430 Slovenia 356 Spain 378 auditors Bulgaria 51–52 Czech Republic 105–106 France 145–146 Greece 169–170 Ireland 196 Italy 226 Latvia 246–247 Liechtenstein 408

Luxembourg 278 Norway 430–431 Romania 327–328 Slovenia 356 Spain 379 Bulgaria 47–52 Cyprus 80 Czech Republic 103–106 France 144–146 Greece 169–170 Ireland 195–196 Italy 224–225 Latvia 245–247 Liechtenstein 408 Luxembourg 276–278 Norway 430–431 Portugal 307–308 Romania 327–328 Slovenia 356 Spain 378–379 applicable law Bulgaria 57 Cyprus 83 Czech Republic 108 France 148 Greece 171 Latvia 249 Liechtenstein 409 Luxembourg 282 Norway 434 Portugal 311 Slovenia 359 Spain 382 auditors see annual accounts and consolidated accounts Austria employee involvement 11 SEs created 4, 5

491

Index

bankruptcy see cessation of payments; composition with creditors; examinership; insolvency; liquidation; receivership; schemes of arrangement; winding up banks 8 Belgium number of SEs created 4 Blanke, Thomas 10–11 Bulgaria accession 20 acquis communautaire 20 acts committed on behalf of SE in formation 32 annual accounts and consolidated accounts accounting principles 47–51 auditor 51–52 applicable law 57 capital 25–26 cessation of payments 57 conversion into SE 31–32 corporate purpose 25 corporate tax 58, 60, 62 creditors, protection of 28–29 dissolution 53–57 employee involvement 44–45 collective bargaining agreements 45 independent labour agreements 45 formation acts committed on behalf of SE in formation 32 capital 25–26 conversion into SE 31–32 corporate purpose 25 founding parties 22–23 holding SE 29–30 merger 26–29 name 23–24 registered office 24 subsidiary SE 30–31 transfer of registered office 24–25 founding parties 22–23 general meeting decision-making process 34–36 shareholders’ rights and obligations 36–38 generally 20–22

492

governing law 57 holding SE, formation 29–30 income tax 57–61 insolvency 54–57 laws implementing the Regulation and the Directive 4n, 21, 45–47, 487 legal personality 33–34 liability 43 liquidation 53–54 management appointment and removal 39, 42 generally 38 independence of board members 43–44 liability 43 one-tier system 34, 38–40 prohibited transactions 44 representation 39–40, 42–43 two-tier system 34, 40–43 merger formation by 26–29 protection of creditors 28–29 protection of minority shareholders 27–28 minority shareholders 27–28 name 23–24 public limited-liability companies 22 publication 33 registered office 20, 24 registration 32–33 subsidiary SE, formation 30–31 supervision by national authorities 52–53 tax treatment 57–61, 62 transfer of registered office 24–25, 59–61 value added tax 61 winding up 53 capital Bulgaria 25–26 Cyprus 67 Czech Republic 88–89 France 121 Greece 156–157 Ireland 181 Italy 209–210 Latvia 233, 235 Liechtenstein 396

Index

Luxembourg 258 Norway 417 Portugal 294 Romania 317–318 Slovenia 342–343 Spain 366–367 capital contribution tax Greece 173 capital tax Luxembourg 285 Spain 386 cessation of payments 458–459 Bulgaria 57 Cyprus 81–82 Czech Republic 108 Ireland 199 Luxembourg 281 Norway 433–434 Portugal 311 Romania 330–332 Slovenia 359 Spain 380–382 composition with creditors Italy 228–229 consolidated accounts see annual accounts and consolidated accounts conversion into SE 6, 14, 453–454 Bulgaria 31–32 Cyprus 73 Czech Republic 92–93 France 128–129 Greece 160 Ireland 176–177, 185–186 Italy 215 Latvia 239 Liechtenstein 398 Luxembourg 262–263 Norway 421 Portugal 297, 313 publication of draft terms 7 Slovenia 346–347 Spain 370, 387 tax treatment and 9 conversion of SE into national company Cyprus 82 corporate form Cyprus 66

Ireland 181 Portugal 294 corporate identity see name; registered office corporate purpose Bulgaria 25 Czech Republic 88 France 121 Greece 156 Ireland 181 Italy 209 Latvia 235 Liechtenstein 396 Luxembourg 257–258 Norway 417 Portugal 294 Slovenia 342 Spain 365–366 corporate tax see income tax Council Directive 2001/86/EC (the ‘Directive’) 473–483 compliance 479 content of agreement 477 duration of negotiations 478 information and consultation of employees 479 laws implementing see laws implementing the Regulation and the Directive misuse of procedures 479 negotiating procedure 475–478 operation of representative body 479 protection of employee representatives 479 reservation and confidentiality 478–479 review of application procedure 14 special negotiating body 475–477 standard rules 478, 481–483 transposition by Members States 3 Council Regulation No 2157/2001 (the ‘Regulation’) 443–460 formation conversion to SE 453–454 holding SE 452–453 merger 449–452 subsidiary SE 453 laws implementing see laws implementing the Regulation and the Directive Malta 287–288 report on application 14

493

Index

creditors composition with, Italy 228–229 protection Bulgaria 28–29 Czech Republic 91 France 124 Greece 158 Ireland 181, 184 Latvia 237–239 Luxembourg 261 Norway 419 Spain 369 creditors’ voluntary liquidation Ireland 197 Cyprus acts committed on behalf of SE in formation 75 annual accounts and consolidated accounts 80 applicable law 83 articles of an SE 75–76 amendments 77 capital 67 cessation of payments 81–82 conversion formation of SE 73 of SE into national company 82 corporate form 66 corporate tax 84 definition of an SE 65 employee involvement 67, 68 employee participation 68, 79–80 formation acts committed on behalf of SE in formation 75 capital 67 conversion 73 corporate form 66 generally 67–69 holding SE 71–72 merger 69–71 name 66 registered office 66–67 subsidiary SE 72–73 general meeting amendments to articles 77 organisation 76–77

494

powers 76 quorum 77 voting requirements 77 generally 64–65 holding SE 71–72 insolvency 81–82 laws implementing the Regulation and the Directive 64, 487 legal personality 65, 67 liquidation 81–82 management appointment and removal 78–79 liability 78–79 one-tier system 77–80 powers and functioning 77–78 two-tier system 77–80 merger 69–71 acquisition by parent company holding at least 90 of share capital of subsidiary 70–71 acquisition of wholly owned subsidiary 71 name 66 national company, conversion into 82 public company 65 publication 74–75 registered office 66–67 registration 68, 73–74 special negotiating body 68 subsidiaries 75 formation by incorporation as subsidiary 72–73 termination 81–82 transfer of registered office 80–81 winding up 81–82 Czech Republic acts committed on behalf of SE in formation 93 annual accounts and consolidated accounts accounting principles 103–105 auditors 105–106 applicable law 108 capital 88–89 cessation of payments 108 conversion into SE 92–93 corporate purpose 88 creditors, protection of 91

Index

dissolution 107–108 employee involvement 101 confidentiality 103 employee participation 102–103 special negotiating body 102 formation acts committed on behalf of SE in formation 93 capital 88–89 conversion into SE 92–93 corporate purpose 88 founding parties 86 holding SE 92 merger 89–91 name 86 registered office 86–87 subsidiary SE 92 transfer of registered office 87–88 founding parties 86 general meeting decision-making process 94–96 shareholders’ rights and obligations 96–97 generally 86 holding SE 92 income tax 104, 108–112 insolvency 107–108 laws implementing the Regulation and the Directive 86, 487 legal personality 93 liability 101 liquidation 107 management appointment and removal 100 liability 101 one-tier system 94, 97–99 representation 100–101 two-tier system 93–94, 99–101 merger acquisition by company holding 90 or more of shares in another company 91 avoidance 91 creditors’ rights 91 formation by 89–91 minority shareholders 91 procedure 89–91 publication 91

minority shareholders 91, 92 name 86 publication 91, 92, 93 registered office 86–87 registration 93 subsidiary SE 92 supervision by national authorities 106 tax treatment 108–112 transfer of registered office 87–88 value added tax 112 winding up 107 Directive, the see Council Directive 2001/86/EC dissolution see cessation of payments; composition with creditors; examinership; insolvency; liquidation; receivership; schemes of arrangement; winding up dividend withholding tax Romania 333 employee involvement 10, 473–483 agreement, registration of SE and 11 Austria 11 Bulgaria 44–45 confidentiality 478–479 Czech Republic 103 France 141 Ireland 194 Italy 224 Liechtenstein 407 Malta 288 Romania 326 Slovenia 355 Cyprus 67, 68 Czech Republic 101–103 the Directive and see Council Directive 2001/86/EC employee participation see employee participation France 139–144 Germany 11 information and consultation 479 France 142 Ireland 194 standard rules 481–482 Ireland 191–195

495

Index

employee involvement (cont.) Italy 230 Latvia 244–245 Liechtenstein 404–407 Luxembourg 271–276 Malta 287–288 Netherlands 11 Norway 11, 428–429 Portugal 306–307 registration of SE and 10–11 Romania 326–327 SEs without employees 4–5, 10–12 Slovenia 353–355 Spain 376–378 special negotiating body see special negotiating body standard rules 478 employee participation 482–483 France 142–143 information and consultation 481–482 structural change and 12–13 Sweden 11 works councils France 142 Liechtenstein 406 employee participation 6, 9, 10–14 Bulgaria 68 Cyprus 68, 79–80 Czech Republic 102–103 France 142–143 Greece 168–169 Ireland 193 Italy 223 Latvia 245 Liechtenstein 407 Luxembourg 275–276 misuse of procedures and 12–13, 479 Norway 429 Portugal 307 Slovenia 354–355 Spain 377–378 standard rules 482–483 see also employee involvement; representative body; special negotiating body Estonia SEs created 5

496

European Company (SE) employee participation issues 10–14 European economic interest grouping (EEIG) distinguished 66 implementation of the Regulation and Directive 3–4, 487–490 no activity 4, 10 no employees 4–5, 10–12 numbers created so far 4–5 reasons to opt for 6–9 cross-border mergers 6–7, 8–9 France 116–117 Greece 153–154 Italy 205 Latvia 232–233 Luxembourg 253 Norway 413 Portugal 290–291 Slovenia 338–339 tax considerations 9 transfer of registered office and head office 9 shelf SEs 4, 10 European economic interest grouping (EEIG) SE distinguished 66 European Trade Union Institute (ETUI) 4, 10, 11 examinership Ireland 198–199 excise tax Latvia 251 Romania 334–335 Slovenia 361 Finland SEs created 5 formation see capital; conversion; corporate purpose; founding parties; head office; holding SE; merger; name; registered office; subsidiaries; transfer of head office; transfer of registered office founding parties Bulgaria 22–23 Czech Republic 86 France 117 Greece 154 Ireland 176–177

Index

Italy 205 Latvia 233 Liechtenstein 395 Luxembourg 254 Norway 413 Portugal 291 Romania 316 Slovenia 339 Spain 363–364 France acts committed on behalf of SE in formation 129 annual accounts and consolidated accounts annual accounts 144–145 auditors 145–146 consolidated accounts 145 applicable law 148 capital 121 conversion into SE 128–129 corporate purpose 121 creditors, protection 124 dissolution 147–148 employee involvement confidentiality 141 employee participation 142–143 generally 139 information and consultation 142 protection of employee representatives 141 special negotiating body (SNB) 139–144 standard rules 142–143 works council 142 formation acts committed on behalf of SE in formation 129 capital 121 conversion into SE 128–129 corporate purpose 121 founding parties 117 holding SE 125–127 merger 122–125 name 117 registered office 117–118 subsidiary SE 127 transfer of registered office 118–121 founding parties 117 general meeting

decision-making process 131–132 shareholders’ rights and obligations 132–133 generally 115–116 holding SE 125–127 income tax 148–150 laws implementing the Regulation and the Directive 115–116, 488 legal personality 130, 140 liability 138–139 liquidation 148 management appointment and removal 137–138 generally 133–135 liability 138–139 one-tier system 135–136, 137 representation 138 two-tier system 136–137 merger 122–125 protection of creditors 124 protection of minority shareholders 124 minority shareholders 124 name 117 publication 130 reasons to opt for an SE 116–117 registered office 117–118 registration 129–130 representation 138 SEs created 5 special negotiating body (SNB) 151 complaints procedure 144 composition 140 legal personality 140 negotiations with 141 reconvention/reorganisation in event of substantial changes 143 subsidiary SE 127 supervision by national authorities 146–147 tax treatment 148–150 transfer of registered office 118–121, 151 value added tax 150 winding up 147–148 general meeting 456–458 Bulgaria 34–38 Cyprus 76–77 Czech Republic 94–97

497

Index

general meeting (cont.) decision-making process Bulgaria 34–36 Czech Republic 94–96 France 131–132 Greece 162–164 Ireland 187 Latvia 242 Liechtenstein 400–401 Luxembourg 265–266 Norway 423–425 Portugal 299–300 Romania 320–322 Slovenia 348–349 Spain 371–373 France 131–133 Greece 162–164 Italy 216–218 Latvia 241–242 Liechtenstein 399–401 Luxembourg 265–266 Norway 423–425 Portugal 299–302 Romania 320–323 shareholders’ rights and obligations Bulgaria 36–38 Czech Republic 96–97 France 132–133 Greece 164 Ireland 188 Latvia 242 Liechtenstein 401 Luxembourg 266 Norway 425 Portugal 300–302 Romania 322–323 Slovenia 349–350 Spain 373–374 Slovenia 348–350 Spain 371–374 Germany employee involvement 11 SEs created 4, 5 governing law see applicable law Greece acts committed on behalf of SE in formation 160–161

498

annual accounts and consolidated accounts accounting principles 169 auditors 169–170 applicable law 171 capital 156–157 capital contribution tax 173 conversion, formation of SE 160 conversion into SE 160 corporate purpose 156 creditors’ rights 158 dissolution 170–171 employee involvement 168 employee participation 168–169 protection of employee representatives 169 special negotiating body 168 formation acts committed on behalf of SE in formation 160–161 capital 156–157 conversion 160 corporate purpose 156 founding parties 154 holding SE 159–160 merger 157–159 name 154 registered office 155 subsidiary SE 160 transfer of registered office 155–156 founding parties 154 general meeting decision-making process 162–164 shareholders’ rights and obligations 164 generally 153 holding SE formation 159–160 minority shareholders 160 procedure 159 publication 159 income tax 172–173 insolvency 171 laws implementing the Regulation and the Directive 153, 488 legal personality 162 liability 167–168 liquidation 171 management

Index

appointment and removal 166 liability 167–168 one-tier system 165 representation 167 two-tier system 154, 166 merger acquisition by company holding 90 or more of shares in another company 158–159 avoidance 159 creditors’ rights 158 formation by 157–159 minority shareholders 158 right to object to participating company 158 types of companies involved 157–158 minority shareholders 158, 160 name 154 publication 159, 161–162 reasons to opt for an SE 153 registered office 155 registration 161 representation 167 special negotiating body 168 subsidiary SE 160 supervision by national authorities 170 tax treatment 172–173 transfer of registered office 155–156 value added tax 173 winding up 170–171 group companies Italy 222–223 Spain 369, 385–386 head office transfer 9 holding SE, formation by incorporation as 452–453 Bulgaria 29–30 Cyprus 71–72 Czech Republic 92 France 125–127 Greece 159–160 Ireland 176, 184–185 Italy 214 Latvia 238–239 Liechtenstein 398

Luxembourg 261–262 Norway 420–421 Portugal 296, 313 publication of draft terms 7 Slovenia 344–346 Spain 369–370, 387 Hungary SEs created 5 income tax Bulgaria 57–61, 62 Cyprus 84 Czech Republic 104, 108–112 France 148–150 Greece 172–173 Ireland 200 Italy 229–230 Latvia 249–250 Liechtenstein 409 Luxembourg 282–284 Norway 434–436 Portugal 312–314 Romania 332–333 Slovenia 359–360 Spain 382–386 insolvency 458–459 Bulgaria 54–57 Cyprus 81–82 Czech Republic 107–108 Greece 171 Italy 227–228 Latvia 248 Liechtenstein 408–409 Luxembourg 280–281 Norway 432–433 Portugal 310–311 Romania 330–332 Slovenia 358–359 Spain 380–382 insurance policy tax Slovenia 361 Ireland annual accounts and consolidated accounts accounting principles 195–196 annual accounts 195–196 auditors 196 consolidated accounts 196

499

Index

Ireland (cont.) capital 181 cessation of payments 199 conversion into SE 176–177, 185–186 corporate form 181 corporate purpose 181 creditors, protection 181, 184 dissolution 197–199 employee involvement confidentiality 194 employee participation 193 existing employee rights 195 generally 191 information 194 protection of employee representatives 193–194 special negotiating body 192–194 examinership 198–199 formation capital 181 conversion 176–177, 185–186 corporate purpose 181 founding parties 176–177 holding SE 176, 184–185 merger 176, 181–184 name 177 registered office 178 subsidiary SE 176, 185 transfer of registered office 178–180, 201 founding parties 176–177 general meeting decision-making process 187 ordinary resolution 188 shareholders’ rights and obligations 188–189 special resolutions 188 generally 175 holding SE 176, 184–185 income tax 200 laws implementing the Regulation and the Directive 3, 175, 488 legal personality 186 liability 191 liquidation compulsory liquidation 198 creditors’ voluntary liquidation 197 members’ voluntary liquidation 197

500

management appointment and removal 190–191 liability 191 one-tier system 186, 189–190 two-tier system 186, 189–190, 201 merger creditors’ rights 184 formation by 176, 181–184 minority shareholders 184 opposition 184 procedure and publication 182–184 minority shareholders 180–181, 184 name 177 negative aspects of SEs 202 publication 182–184, 186 receivership 198 registered office 178 registration 186 schemes of arrangement 199 special negotiating body (SNB) 192–193 complaints procedure 194 protection of employee representatives 193 stamp duty 201 subsidiary SE 176 supervision by national authorities 196–197 tax treatment 199–201 transfer of registered office 178–180, 201 value added tax 200–201 winding up 197–199 Italy acts committed on behalf of SE in formation 216 annual accounts and consolidated accounts 224–225 auditors 226 capital 209–210 composition with creditors 228–229 conversion into SE 215 corporate purpose 209 employee involvement 230 confidentiality 224 employee participation 223 protection of employee representatives 224 special negotiating body 223 formation

Index

acts committed on behalf of SE in formation 216 capital 209–210 conversion into SE 215 corporate purpose 209 founding parties 205 holding SE 214 merger 210–214 name 206 registered office 206–207 subsidiary SE 214 transfer of registered office 205, 207–209 founding parties 205 general meeting 216–218 generally 204 group companies 222–223 holding SE 214 income tax 229–230 insolvency 227–228 laws implementing the Regulation and the Directive 204, 488 legal personality 216 liability 221–222 liquidation 227 management appointment and removal 221 liability 221–222 one-tier system 217, 218–219 two-tier system 218–219, 220–221, 222 merger acquisition by company holding 90 or more of shares in another company 214 avoidance 214 minority shareholders 213 registration and publication 210–213 name 206 National Council of Notaries 204 publication 210–213 reasons to opt for SE 205 registered office 206–207 registration 210–213, 216 special negotiating body 223 subsidiary SE 214 tax treatment 229–230 termination 226–229 transfer of registered office 205, 207–209 winding up 226–227

Latvia acts committed on behalf of SE in formation 239–240 annual accounts and consolidated accounts 245–246 accounting principles 246 auditors 246–247 applicable law 249 appointment and removal management board 243 supervisory board 243 capital 233, 235 conversion into SE 239 corporate purpose 235 creditors, protection 237–239 employee involvement 244 employee participation 245 protection of employee representatives 245 special negotiating body 244–245 excise tax 251 formation acts committed on behalf of SE in formation 239–240 capital 235 conversion into SE 239 corporate purpose 235 founding parties 233 holding SE 238–239 merger 235–238 name 233–233 registered office 234 subsidiary SE 239 transfer of registered office 234–235 founding parties 233 general meeting 241–242 decision-making process 242 shareholders’ rights and obligations 242 generally 232 holding SE 238–239 income tax 249–250 insolvency 248 laws implementing the Regulation and the Directive 232, 488 liability 244 liquidation 248 management

501

Index

Latvia (cont.) appointment and removal 243 liability 244 one-tier system 242–243 representation 243 two-tier system 242–243 management board, appointment and removal 243 merger acquisition by company holding 90 or more of shares in another company 238 avoidance 238 creditors’ rights 237–238 formation by 235–238 minority shareholders 237 objection to participating company 237 procedure 236 publication 237 minority shareholders 237, 238–239 name 233–233 property tax 250–251 publication 237, 238, 241 reasons to opt for an SE 232–233 registered office 234 registration 240–241 special negotiating body 244–245 subsidiary SE 239 supervision by national authorities 247 supervisory board, appointment and removal 243 tax treatment 233, 249–251 termination 247–248 transfer of registered office 234–235 value added tax 250 winding up 247–248 laws implementing the Regulation and the Directive 3–4, 13–14 Bulgaria 4n, 21, 45–47, 487 Cyprus 64, 487 Czech Republic 86, 487 France 115–116, 488 Greece 153, 488 Ireland 3, 175, 488 Italy 204, 488 Latvia 232, 488 Liechtenstein 394, 489 Luxembourg 253, 489

502

Malta 489 Norway 14, 412–413, 489 Portugal 290, 489 Romania 3, 315–316, 489 Slovenia 337–338, 490 Spain 363, 490 United Kingdom 14 legal personality Bulgaria 33–34 Cyprus 65, 67 Czech Republic 93 France 130, 140 Greece 162 Ireland 186 Italy 216 Liechtenstein 399 Luxembourg 264 Norway 422 Portugal 299 Romania 320 Slovenia 348 Spain 371 liability of members Bulgaria 43 Cyprus 78–79 Czech Republic 101 France 138–139 Greece 167–168 Ireland 191 Italy 221–222 Latvia 244 Liechtenstein 404 Luxembourg 271 Norway 428 Portugal 305 Romania 326 Slovenia 352–353 Spain 376 Liechtenstein acts committed on behalf of SE in formation 398 annual accounts and consolidated accounts accounting principles 408 auditors 408 applicable law 409 appointment and removal 403–404 capital 396

Index

conversion into SE 398 corporate purpose 396 dissolution 408–409 employee involvement 404–405 confidentiality 407 employee participation 407 protection of employee representatives 407 special negotiating body 405–407 formation acts committed on behalf of SE in formation 398 capital 396 conversion 398 corporate purpose 396 founding parties 395 holding SE 398 merger 396–397 name 395 registered seat 395–396 subsidiary SE 398 founding parties 395 general meeting 399–400 decision-making process 400–401 shareholders’ rights and obligations 401 generally 394 holding SE 398 income tax 409 insolvency 408–409 laws implementing the Regulation and the Directive 394, 489 legal personality 399 liability 404 liquidation 408–409 management appointment and removal 403–404 liability 404 one-tier system 401–402 two-tier system 402–403 merger 396–397 name 395 publication 399 registered seat 395–396 registration 399 special negotiating body adjournment/resumption in event of substantial changes 406

appointment 405 composition 405 information and consultation 406–407 meetings and decisions 405–406 members 405 provision of information for creation of SNB 405 standard rules 406–407 works council 406 subsidiary SE 398 supervision by national authorities 408 tax treatment 409 value added tax 409 winding up 408–409 works council 406 limited-liability companies see public limited-liability companies; public and private limited-liability companies liquidation 458–459 Bulgaria 53–54 Cyprus 81–82 Czech Republic 107 France 148 Greece 171 Ireland 197–198 Italy 227 Latvia 248 Liechtenstein 408–409 Luxembourg 279–280 Norway 432 Portugal 309–310 Romania 328–330 Slovenia 357–358 Spain 379–380 local taxes Romania 334 Luxembourg acts committed on behalf of SE in formation 263 annual accounts and consolidated accounts accounting principles 276–278 auditors 278 applicable law 282 appointment and removal 268–270 capital 258 capital tax 285 cessation of payments 281

503

Index

Luxembourg (cont.) corporate purpose 257–258 creditors, protection 261 dissolution 279–281 employee involvement 271–272 employee participation 275–276 special negotiating body 272–275 formation acts committed on behalf of SE in formation 263 capital 258 conversion 262–263 corporate purpose 257–258 founding parties 254 holding SE 261–262 merger 258–261 name 254 registered office 254–255 subsidiary SE 262 transfer of registered office 255–257 founding parties 254 general meeting decision-making process 265–266 shareholders’ rights and obligations 266 generally 253 holding SE 261–262 income tax 282–284 insolvency 280–281 laws implementing the Regulation and the Directive 253, 489 legal personality 264 liability 271 liquidation 279–280 management appointment and removal 268–270 liability 271 one-tier system 266–267 representation 270–271 two-tier system 266–268 merger formation by 258–261 procedure 258–260 protection of creditors 261 protection of minority shareholders 261 minority shareholders 261 name 254 net worth tax 284

504

publication 263 reasons to opt for an SE 253 registered office 254–255 registration 263 representation 270–271 special negotiating body 272–275 information and consultation 275 negotiations 274 protection of employee representatives 276 subsidiary SE 262 supervision by national authorities 279 tax treatment 282–285 transfer of registered office 255–257 value added tax 285 winding up 279 Malta employee involvement 287–288 laws implementing the Regulation and the Directive 287–288, 489 management 288 special negotiating body 287–288 management appointment and removal Bulgaria 39, 42 Cyprus 78–79 Czech Republic 100 France 137–138 Greece 166 Ireland 190–191 Italy 221 Latvia 243 Liechtenstein 403–404 Luxembourg 268–270 Portugal 303–305 Romania 325 Slovenia 351–352 Spain 375 Bulgaria 38–44 Cyprus 77–80 Czech Republic 93–94, 97–101 Ireland 186, 189–191, 201 Italy 217–222 Latvia 242–243 liability see liability Liechtenstein 401–404

Index

Luxembourg 266–271 Malta 288 Norway 425–428 one-tier system 455–456 Bulgaria 38–40 Cyprus 77–80 Czech Republic 94, 97–99 France 135–136, 137 Greece 165 Ireland 186, 189–190 Italy 218–219 Latvia 242–243 Liechtenstein 401–402 Luxembourg 266–267 Norway 425, 426 Spain 374–375 Portugal 302–305 representation Bulgaria 39–40, 42–43 Czech Republic 100–101 France 138 Greece 167 Latvia 243 Luxembourg 270–271 Norway 427–428 Portugal 305 Romania 325 Slovenia 352 Spain 375–376 Romania 323–326 Slovenia 350–353 Spain 374–376 two-tier system 454–456 Bulgaria 40–43 Cyprus 77–80 Czech Republic 93–94, 99–101 France 136–137 Greece 154, 166 Ireland 186, 189–190, 201 Italy 218–219, 220–221, 222 Latvia 242–243 Liechtenstein 402–403 Luxembourg 266–268 Norway 425, 426–427 Spain 374–375 members’ voluntary liquidation Ireland 197

merger acquisition by company holding 90 or more of shares in another company Cyprus 70–71 Czech Republic 91 Greece 158–159 Italy 214 Latvia 238 Norway 420 acquisition of wholly owned subsidiary, Cyprus 71 avoidance Czech Republic 91 Greece 159 Italy 214 Latvia 238 Bulgaria 26–29 creditors’ rights Bulgaria 28–29 Czech Republic 91 Greece 158 Ireland 184 Latvia 237–238 Norway 419 cross-border mergers 6–7 CBM Directive 6–7, 9 prevention 7 as reason to opt for an SE 6–7, 8–9 ‘rule of reason’ and 7 Cyprus 69–71 Czech Republic 89–91 formation of SE by 9, 14, 449–452 Bulgaria 26–29 Cyprus 69–71 Czech Republic 89–91 France 122–125 Italy 210–213 Latvia 235–238 Liechtenstein 396–397 Luxembourg 258–261 Norway 418–420 Portugal 294–296, 313 Slovenia 343–344 Spain 367–369 France 122–125 Greece 157–159

505

Index

merger (cont.) Ireland 176, 181–184 Italy 210–214 Latvia 235–238 Liechtenstein 396–397 Luxembourg 258–261 minority shareholders see minority shareholders Norway 418–420 objection to participating company Greece 158 Latvia 237 opposition Ireland 184 Spain 368–369 Portugal 294–296, 313 reasons to opt for an SE and 6 Slovenia 343–344 Spain 367–369, 387 minority shareholders, protection of Bulgaria 27–28 Czech Republic 91 France 124 Greece 158, 160 Ireland 184 Italy 213 Latvia 237 Luxembourg 261 Norway 419 Spain 369 name Bulgaria 23–24 Cyprus 66 Czech Republic 86 France 117 Greece 154 Ireland 177 Italy 206 Latvia 233–233 Liechtenstein 395 Luxembourg 254 Norway 413 Portugal 291–292 Romania 317 Slovenia 339 Spain 364

506

national authorities, supervision by see supervision by national authorities national company conversion into, Cyprus 82 net worth tax Luxembourg 284 Netherlands employee involvement 11 number of SEs created 4 Norway acts committed on behalf of SE in formation 421 annual accounts and consolidated accounts accounting principles 430 auditors 430–431 applicable law 434 capital 417 cessation of payments 433–434 conversion into SE 421 corporate purpose 417 creditors’ rights 419 dissolution 432–434 employee involvement 11, 428–429 employee participation 429 protection of employee representatives 429 special negotiating body 429 formation acts committed on behalf of SE in formation 421 capital 417 conversion 421 corporate purpose 417 founding parties 413 holding SE 420–421 merger 418–420 name 413 registered office 414 subsidiary SE 421 transfer of registered office 415–416 founding parties 413 general meeting decision-making process 423–425 shareholders’ rights and obligations 425 generally 412–413 holding SE 420–421 income tax 434–436

Index

insolvency 432–433 laws implementing the Regulation and the Directive 14, 412–413, 489 legal personality 422 liability 428 liquidation 432 management liability 428 one-tier system 425, 426 representation 427–428 two-tier system 425, 426–427 merger acquisition by company holding 90 or more of shares in another company 420 creditors’ rights 419 formation by 418–420 minority shareholders 419 procedure and publication 418–419 minority shareholders 419 name 413 publication 418–419, 422 reasons to opt for an SE 413 registered office 414 registration 422 representation 427–428 subsidiary SE 421 supervision by national authorities 431 tax treatment 434–437 transfer of registered office 415–416 value added tax 436 winding up 432 one-tier management system see management organisation see general meeting; management payroll tax Slovenia 361 Portugal acts committed on behalf of SE in formation 297 annual accounts and consolidated accounts 307–308 applicable law 311 appointment and removal 303–305 capital 294 cessation of payments 311 conversion into SE 297, 313

corporate form 294 corporate purpose 294 dissolution 308–311 employee involvement 306 employee participation 307 protection of employee representatives 307 special negotiating body 306–307 formation 294 acts committed on behalf of SE in formation 297 capital 294 conversion 297, 313 corporate form 294 corporate purpose 294 founding parties 291 holding SE 296, 313 income tax and 313–314 merger 294–296, 313 name 291–292 registered office 292 subsidiary SE 296–297, 313 transfer of registered office 292–293, 314 founding parties 291 general meeting decision-making process 299–300 shareholders’ rights and obligations 300–302 generally 290 holding SE, formation 296 income tax 312–313 formation and 313–314 insolvency 310–311 laws implementing the Regulation and the Directive 290, 489 legal personality 299 liability 305 liquidation 309–310 management appointment and removal 303–305 liability 305 one-tier system 302–303 representation 305 two-tier system 302–303 merger 294–296, 313 name 291–292 publication 297–299

507

Index

Portugal (cont.) reasons to opt for an SE 290–291 registered office 292 registration 297–299 representation 305 special negotiating body 306–307 stamp duty 314 subsidiary SE 296–297 supervision by national authorities 308 tax treatment 312–314 transfer of registered office 292–293, 314 value added tax 314 winding up 308–309 property tax Latvia 250–251 Slovenia 360 public limited-liability companies 12, 461, 464–466 public and private limited-liability companies 462–463, 467–469 publication Bulgaria 33 Cyprus 74–75 Czech Republic 93 France 130 Greece 159, 161–162 Ireland 182–184, 186 Italy 210–213 Latvia 237, 238, 241 Liechtenstein 399 Luxembourg 263 Norway 418–419, 422 Portugal 297–299 Romania 319–320 Slovenia 348 Spain 367–368, 371 receivership Ireland 198 registered office Bulgaria 20, 24 Cyprus 66–67 Czech Republic 86–87 France 117–118 Ireland 178 Italy 206–207

508

Latvia 234 Liechtenstein 395–396 Luxembourg 254–255 Norway 414 Portugal 292 Slovenia 339 Spain 364 registration Bulgaria 32–33 Cyprus 68, 73–74 Czech Republic 93 employee involvement and 10–11 France 129–130 Greece 161 Ireland 186 Italy 210–213, 216 Latvia 240–241 Liechtenstein 399 Luxembourg 263 Norway 422 Portugal 297–299 Romania 319–320 Slovenia 347–348 Spain 371 Regulation, the see Council Regulation No 2157/2001 representation see management representative body 479 composition 481 increasing number of employee after establishment 12–13 misuse of procedures and 12–13 structural change and 12–13 see also employee involvement; special negotiating body Republic of Slovenia see Slovenia Romania accession to EU 20 acts committed on behalf of SE in formation 318–319 annual accounts and consolidated accounts 327 Audited Companies 328 external audit 327 internal audit 327 appointment and removal 325 capital 317

Index

instruments attesting to contribution 317–318 issuance of shares 318 transfer of shares 318 cessation of payments 330–332 dissolution 328–330 dividend withholding tax 333 employee involvement 326–327 confidentiality 326 excise tax 334–335 formation 316 acts committed on behalf of SE in formation 318–319 capital 317–318 founding parties 316 means 318 name 317 founding parties 316 general meeting decision-making process 320–322 shareholders’ rights and obligations 322–323 generally 315–316 income tax 332–333 insolvency 330–332 laws implementing the Regulation and the Directive 3, 315–316, 489 legal personality 320 liability 326 liquidation 328–330 local taxes 334 management appointment and removal 325 liability 326 one-tier system 323–324 representation 325 two-tier system 324–325 name 317 publication 319–320 registration 319–320 registration fees 335 representation 325 stamp duty 335 supervision by national authorities 328 tax treatment 332–335 value added tax 333–334 winding up 328–330

schemes of arrangement Ireland 199 SE see European Company shareholders see general meeting; minority shareholders shelf SEs 4, 10 Slovenia acts committed on behalf of SE in formation 347 annual accounts and consolidated accounts accounting principles 356 auditors 356 applicable law 359 appointment and removal 351–352 capital 342–343 cessation of payments 359 conversion into SE 346–347 corporate purpose 342 dissolution 357–359 employee involvement 353 confidentiality 355 employee participation 354–355 protection of employee representatives 355 special negotiating body 353–354 excise duty 361 formation acts committed on behalf of SE in formation 347 capital 342–343 conversion 346–347 corporate purpose 342 founding parties 339 holding SE 344–346 merger 343–344 name 339 registered office 339 subsidiary SE 346 transfer of registered office 339–342 founding parties 339 general meeting 348 decision-making process 348–349 shareholders’ rights and obligations 349–350 generally 337–338 holding SE 344–346 income tax 359–360

509

Index

Slovenia (cont.) insolvency 358–359 insurance policy tax 361 laws implementing the Regulation and the Directive 337–338, 490 legal personality 348 liability 352–353 liquidation 357–358 management appointment and removal 351–352 liability 352–353 one-tier system 350 representation 352 two-tier system 350–351 merger 343–344 name 339 payroll tax 361 property tax 360 publication 348 reasons to opt for an SE 338–339 registered office 339 registration 347–348 representation 352 special negotiating body 353–354 subsidiary SE 346 supervision by national authorities 356 tax treatment 359–361 transfer of registered office 339–342 to Slovenia 341–342 value added tax 360 winding up 357 Societas Europaea (SE) see European Company Spain acts committed on behalf of SE in formation 370–371 annual accounts and consolidated accounts accounting principles 378 auditors 379 applicable law 382 appointment and removal 375 capital 366–367 cessation of payments 380–382 conversion into SE 370, 387 corporate purpose 365–366 creditors, protection of 369 dissolution 379–382

510

employee involvement employee participation 377–378 protection of employee representatives 378 special negotiating body 376–377 formation acts committed on behalf of SE in formation 370–371 capital 366–367 conversion 370, 387 corporate purpose 365–366 founding parties 363–364 holding SE 369–370, 387 merger 367–369 name 364 registered office 364 subsidiary SE 370, 387 taxation on establishment of an SE 386–388 transfer of registered office 364–365 founding parties 363–364 general meeting decision-making process 371–373 shareholders’ rights and obligations 373–374 generally 363 group companies 369, 385–386 holding SE 369–370, 387 income tax general taxation of an SE 385 group taxation 385–386 losses of foreign branches 384–385 taxation of shareholders 382–384 insolvency 380–382 laws implementing the Regulation and the Directive 363, 490 legal personality 371 liability 376 liquidation 379–380 management appointment and removal 375 liability 376 one-tier system 374–375 representation 375–376 two-tier system 374–375 merger formation by 367–369, 387

Index

group companies 369 procedure and publication 367–368 protection of creditors 369 protection of minority shareholders 369 public interest opposition 368–369 minority shareholders 369 name 364 publication 367–368, 371 registered office 364 registration 371 representation 375–376 subsidiary SE, formation 370, 387 supervision by national authorities 379 tax treatment 382–388 taxation on establishment of an SE 386–388 transfer of registered office 364–365 value added tax 386 winding up 379–380 special negotiating body (SNB) 10, 11 complaints procedure France 144 Ireland 194 content of agreement 477 creation 10, 475–477 Cyprus 68 Czech Republic 102 France 139–144 Greece 168 Ireland 192–194 Italy 223 Latvia 244–245 Liechtenstein 405–407 Luxembourg 272–275 Malta 287–288 misuse of procedures and 12–13 negotiations applicable legislation 478 duration 478 France 141 Luxembourg 274 Malta 288 Norway 429 Portugal 306–307 protection of employee representatives 479 France 141

Greece 169 Ireland 193–194 Italy 224 Latvia 245 Liechtenstein 407 Luxembourg 276 Malta 288 Norway 429 Portugal 307 Slovenia 355 Spain 378 reconvention/reorganisation in event of substantial changes France 143 Liechtenstein 406 Slovenia 353–354 Spain 376–377 standard rules 481–483 France 142–143 Liechtenstein 406–407 structural change and 12–13 see also employee involvement; employee participation; representative body; works councils stamp duty Ireland 201 Portugal 314 Romania 335 statutes see articles subsidiaries formation by incorporation as subsidiary 453 Bulgaria 30–31 Cyprus 72–73 Czech Republic 92 France 127 Greece 160 Ireland 176, 185 Italy 214 Latvia 239 Liechtenstein 398 Luxembourg 262 Norway 421 Portugal 296–297, 313 Slovenia 346 Spain 370, 387 setting-up, Cyprus 75

511

Index

supervision by national authorities Bulgaria 52–53 Czech Republic 106 France 146–147 Greece 170 Ireland 196–197 Latvia 247 Liechtenstein 408 Luxembourg 279 Norway 431 Portugal 308 Romania 328 Slovenia 356 Spain 379 suspension of payments see cessation of payments Sweden employee involvement 11 SEs created 4, 5 tax treatment Bulgaria 57–61, 62 capital contribution tax 173 capital tax 285, 386 conversion into SE and 9 Cyprus 84 Czech Republic 108–112 dividend withholding tax 333 France 148–150 Greece 172–173 insurance policy tax 361 Ireland 199–201 Italy 229–230 Latvia 233, 249–251 Liechtenstein 409 Luxembourg 282–285 net worth tax 284 Norway 434–437 payroll tax 361 Portugal 312–314 property tax 250–251, 360 as reason to opt for an SE 9 Romania 332–335 Slovenia 359–361 Spain 382–388 see also excise tax; income tax; stamp duty; value added tax

512

termination see cessation of payments; examinership; insolvency; liquidation; receivership; schemes of arrangement; winding up transfer of head office 9 transfer of registered office 9 Bulgaria 24–25, 59–61 Cyprus 80–81 Czech Republic 87–88 France 118–121, 151 Greece 155–156 Ireland 178–180, 201 Italy 205, 207–209 Latvia 234–235 Luxembourg 255–257 Norway 415–416 Portugal 292–293, 314 Slovenia 339–342 Spain 364–365 two-tier management system see management United Kingdom laws implementing the Regulation and the Directive 14 value added tax Bulgaria 61 Czech Republic 112 France 150 Greece 173 Ireland 200–201 Latvia 250 Liechtenstein 409 Luxembourg 285 Norway 436 Portugal 314 Romania 333–334 Slovenia 360 Spain 386 winding up 458–459 Bulgaria 53 Cyprus 81–82 Czech Republic 107 France 147–148 Greece 170–171 Ireland 197–199

Index

Italy 226–227 Latvia 247–248 Liechtenstein 408–409 Luxembourg 279 Norway 432 Portugal 308–309 Romania 328–330 Slovenia 357

Spain 379–380 withholding tax Romania 333 worker participation see employee participation works councils France 142 Liechtenstein 406

513