Addressing previous widely diverging national standards endangering competition, art. 6 requires minimum capital before incorporation/business commencement to be at least 25,000 ECU. The figure, fitting small and medium-sized companies, was compromised; France wanted lesser, while Italy bigger amount.
Nevertheless, divergence persists. UK, having had no statutory minimum, implemented a much higher 50,000 sterling standard (ss. 117-8 CA 1985), while Spain introduced identical 10,000,000 pesetas. AktG 1965, art. 7 maintained only 100,000 DM. This lack of harmonisation makes certain states more attractive for business establishment.
Art. 9(1) requires payment of minimum 25% of share’s nominal/par value to commence business, which UK implemented in s. 101 CA 1985 and AktG 1965 provides in arts. 36(a), 54(3). Article 9(2) requires non-cash consideration fully within 5 years of issue, with expert independent valuation published accordingly (art. 10(1)-(3)). Any derogation is only allowed in employees’ interests. Continental legal systems were familiar with valuation concept but not UK, so ss. 103-108 CA 1985 provide important more complex than Directive’s safeguards, while single art. 38 LSA 1989 is simpler than Directive, apparently complying more than British implementation. Addressing German ‘disguised contribution in kind’ notion, Meilicke v. ADV/ORGA emphasised that states should not interpret “non-cash consideration” themselves. German post-incorporation law significantly influenced art. 11 extending art. 10 to company’s acquisition of asset from promoter for subscribing him to 10% or more of shares, expressly allowing stricter national measures. Shareholders cannot be released
from obligation to pay their contributions.
Regarding capital maintenance, art. 15(1) states that distribution to shareholders must be from net profits (realised profits less realised losses) and cannot happen when net assets are, or would consequently become, less than subscribed capital (AktG 1965, arts. 57, 58(5)). Implemented in ss. 263-4, 270-6 CA 1985, this fundamentally changed English law, which previously allowed dividends out of any profits. Under art. 16 recipients must return wrongful distribution if they knew/ought to have known about it.
Art. 18 prohibits companies’ acquiring own shares as all member states had done already. Contravention brings personal liability to pay, released only on proving no fault. Prohibition is not absolute because some states prohibited it absolutely, while others permitted narrowly; AktG 1965, art. 71 provides 6 permissible circumstances. Art. 19(1) establishes five conditions for acquiring own fully-paid shares, most importantly general meeting authorisation and 10% of capital threshold. Sections 162-70 CA 1985 unsatisfactorily omitted 10% threshold. Derogation from general meeting is allowed where necessary to prevent serious/imminent harm and for distribution to company’s employees, influenced by German/French employee participation policies. These were not implemented in UK. Art. 20 allows further derogation from all art. 19(1) conditions. Art. 22 imposes minimum conditions on holding acquired shares: no voting rights can be exercised – AktG 1965, art. 71b actually prevents all rights – and acquisition must be informed in company’s annual reports. Shares acquired otherwise must be disposed within a year or cancelled.
Art. 23 prohibits financial assistance to 3rd person to acquire own shares, unless in employees’ interest or normal business course or by investment company (AktG 1965, art. 71d). Sections 151-8 CA 1985 consolidate previous provisions
accommodating new exemptions; s. 153(1) – principal purpose in assistance is not acquisition or acquisition is incidental to larger purpose and assistance is in good faith, which has been restrictively interpreted in Brady v. Brady. A 1992 amending Directive has extended articles 18-24 to companies under control of parent public company entitled to appoint/dismiss board majority or having sole majority voting rights control in them; implemented in s. 258 CA 1985. This provision has, as intended, prevented target companies’ subsidiaries acquiring shares outside 10% limit.
Addressing capital increase, art. 25(1) states that shareholders decide this in general meeting under nationally-prescribed procedure – class shareholders vote separately – which must be published (CA 1985, s. 80; AktG 1965, arts. 182(1), 183). Capital increase authorised in company instruments or general meeting decision does not need general meeting approval, as in France and Germany (art. 25(2)). Derogation from general meeting is allowed for employee participation, but public interest in crisis situation does not warrantee derogation. Consideration for shares rules (arts. 26, 27) are same as for formation.
Mandatory pre-emption rights (art. 29), familiar to different legal systems, were principally influenced by AktG 1965, arts. 186-7. Newly issued shares’ offer must be published in writing or in Gazette. Derogation is only for employee participation. In UK, the unfamiliar pre-emption was implemented in s. 89 CA 1985. Pre-emptive rights cannot be restricted or withdrawn by company instruments, only by 2/3 majority in general meeting; Germany requires 75% majority vote, necessity and benefits to outweigh losses.
In capital reduction, general meeting must approve decision – art. 30 – by 2/3
majority or simple majority where half the capital is represented. AktG 1965, art.
222(1) requires irreducible 75% majority, while s. 135 CA 1985 - special resolution and court order. Separate vote for each shareholder class (art. 31), despite reflection in s. 125(2) CA 1985, is not fully implemented in UK due to narrow common law interpretation of rights “variation”, unlike in Germany. Article 32 provides that security rights for creditor with existing claim cannot be denied; reduction is ineffective until claim is satisfied or refused by court. AktG 1965, art. 225 protects creditors strictly. Lastly, arts. 35 and 36, transposable into other laws, accommodate French/Belgian and German laws respectively.
The Second Directive belongs to First Generation Directives with detailed, precise provisions leaving little discretion to states. While original member Germany amended satisfactory existing laws slightly, acceding member UK fitted Directive into one statute for public and private companies, necessitating more exemptions and complicated provisions. Otherwise, implementation has been uncontroversial.
Word count: 1500 words
Bibliography:
Books:
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V. Edwards, EC Company Law, Oxford: Oxford University Press 1999.
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C. Villiers, European Company Law – Towards Democracy?, Ashgate: Dartmouth 1998.
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H. Wurdinger, German Company Law, Oyez Publishing London 1975.
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E. Ercklentz, Modern German Corporation Law, vol. II, Oceana Publications 1979.
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F. Wooldridge, Company Law in the United Kingdom and the European Community: Its Harmonisation and Unification, The Athlone Press 1991.
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J. Maitland-Walker, Guide to European Company Laws, 2nd Ed., Sweet & Maxwell 1997.
Additional Reading:
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D. Keenan, Smith and Keenan’s Company Law, 13th Ed., Pearson Longman 2005 (consulted briefly).
Economic and Social Committee.
see C. Villiers, European Company Law – Towards Democracy?, Ashgate: Dartmouth 1998, at p. 88.
see [1977] O.J. No. L26, pp. 1-13.
ss. 54 and 58, replaced by ss. 159, 160 CA 1985.
Trevor v. Whitworth (1887) 12 App Cas 409; Ooregum Gold Mining Co. v. Roper [1892] AC 125.
supra n. 3, at p. 22; Directive implemented by law of 13 December 1978 (BGBl.1 1959).
Directive implemented through enactment of Companies Act 1980.
see the Fourth Company Law Directive of 25 July 1978, [1978] O.J. No. L22.
see ss. 3(1)(a), 11, 25(1), 27(4), 101, 112, 118 Companies Act 1985 (as amended).
see ss. 25(1), 27(4) CA 1985.
France – sarl.; Italy and Spain – srl.
see V. Edwards, EC Company Law, Oxford: Oxford University Press 1999, at p. 54.
ibid., at pp. 54-55: Boden de Bandt de Brauw Jeantet & Uria, “Report on Possible Extension of the Second Company Law Directive to Private Limited Companies and Limited Partnerships with Shares” (1992).
see Advocate General Tesauro in Case C-83/91, Meilicke v. ADV/ORGA [1992] ECR I-4871.
see Joined Cases C-20/90, Karella and Karellas [1991] ECR I-2691.
see, for example, P. Davies, Gower’s Principles of Modern Company Law, 6th Ed., London: Sweet & Maxwell 1997, p. 303.
art. 7; see s. 99 CA 1985 and art. 36 LSA 1989.
art. 8; see ss. 97, 100 CA 1985.
see, for example, F. Wooldridge, Company Law in the United Kingdom and the European Community: Its Harmonisation and Unification, The Athlone Press 1991, at p. 161 (footnote n. 94).
Germany – Aufsichtsrat, see arts. 30, 31 AktG 1965.
First Council Directive EEC/68/151 of 9 March 1968, Art. 3.
approximately, 18,000 sterling.
approximately, 50,000 sterling; see Art. 4 LSA 1989.
approximately, 35,000 sterling.
see C. Villiers, European Company Law – Towards Democracy?, Ashgate: Dartmouth 1998, at p. 166; see Case C-212/97 Centros v. Erhvers-og Selskabsstyrelsen [1999] ECR I-1459 (freedom of movement).
see Re Wragg [1897] 1 Ch. 796.
also French Law of 1966 and Italian Civil Code, art. 2343 not so complex.
for detail, see Villiers, European Company Law – Towards Democracy?, Ashgate: Dartmouth 1998, at p. 138.
Case C-83/91 [1992] ECR I-4871, see Advocate General Tesauro.
art. 52 AktG 1965 (’Nachgründung’).
see V. Edwards, EC Company Law, Oxford: Oxford University Press, 1999, at pp. 64-65.
see, for example, Lee v. Neuchatel Asphalte Co. (1889) 41 Ch. D 1.
see V. Edwards, EC Company Law, Oxford University Press, 1999, at p. 70; ss. 143, 144 CA 1985.
see J. Maitland-Walker, Guide to European Company Laws, 2nd Ed., Sweet & Maxwell 1997, at p. 223.
see ss. 164(4), 166(4) CA 1985.
AktG 1965, art. 71(1) (‘schweren Schaden’).
see V. Edwards, EC Company Law, Oxford: Oxford University Press 1999, at p. 72; see also C. Villiers, European Company Law – Towards Democracy?, Ashgate: Dartmouth 1998, at p. 24.
modelled on s. 54 CA 1948.
[1989] AC 755; for an account on reform proposals, see V. Edwards, EC Company Law, Oxford: Oxford University Press 1999, at pp. 74-75.
Council Directive EEC/92/101 of 23 November 1992.
art. 24 – another German law-inspired anti-avoidance measure.
exemptions in art. 24a(1).
V. Edwards, EC Company Law, Oxford: Oxford University Press, 1999, at p. 77.
see AktG 1965, art. 202 (’genehmigtes Kapital’).
see Joined Cases C-20/90, Karella and Karellas [1991] ECR I-2691; see also C-441/93, Pafitis and Others v. TKE and Others [1996] ECR I-1347.
see Schmitthoff, C., “The Second EEC Directive on Company Law” (1978) CML Rev. 43, at 53.
art. 29(3); see C-441/93, Pafitis and Others v. TKE and Others [1996] ECR I-1347.
see also C-381/89, Sindesmos tis Eleftheras Evangelikis Ekklisias v. Greek State [1992] ECR I-2111.
AktG 1965, art. 186(3); see also Case C-42/95, Siemens [1996] ECR I-6017, Advocate General Tesauro.
but, see The Final Report of the Company Law Review Steering Group “Modern Company Law for a Competitive Economy”, July 2001 (obtainable from ).
see Re Northern Engineering Industries plc. [1993] BCLC 1511.
see arts. 222(2), 229(1) and 237 AktG 1965.
‘parts de jouissance’ (reimbursed shares).
‘Einziehung’ (compulsory amortisation).
terminology adopted by C. Villiers, European Company Law – Towards Democracy?, Ashgate: Dartmouth 1998.