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The Second Directive

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Introduction

European Company Law Coursework, Q. 1 - The Second Directive The EC Commission transmitted original Second Council Directive proposal1 to Council in March 1970. ECOSOC2 and European Parliament Opinions followed in May and October 1971 respectively under consultation procedure, European Parliament exercising little influence3. It was amended in October 1972 to accommodate acceding UK, Ireland and Denmark and adopted on 13 December 19764 within European Company Law harmonisation program, art. 54(3)(g) EC Treaty, to coordinate protection of members and others' interests in companies. British lawyers influenced drafting significantly. Provisions on financial assistance for company's purchase of own shares and their redemption5 were modelled on Companies Act 19486, while some capital maintenance provisions experienced UK caselaw influence7. Many provisions originated from continental legal systems, particularly German AktienGesetz 19658 - disclosure for creditors' confidence9, employee participation facilitation10. Controversial UK common law necessitated amendment to rules on minimum capital, public/private company distinction, consideration for shares, distribution, pre-emption rights11. Commission's suggestion to assimilate British private companies with continental public companies, as with accounting12, was ultimately dropped. Villiers argues that not covering private companies - majority enterprises in Europe - achieved little harmony in whole business environment13. The Second Directive's subject is public limited company14 and equivalents - German Aktiengesellschaft - which art. 1(1) requires to identify itself in its name as plc.15 or AG16; art. ...read more.

Middle

Brady53. A 1992 amending Directive54 has extended articles 18-2455 to companies under control of parent public company entitled to appoint/dismiss board majority or having sole majority voting rights control in them56; implemented in s. 258 CA 1985. This provision has, as intended, prevented target companies' subsidiaries acquiring shares outside 10% limit57. Addressing capital increase, art. 25(1) states that shareholders decide this in general meeting under nationally-prescribed procedure58 - 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 Germany59 (art. 25(2)). Derogation from general meeting is allowed for employee participation, but public interest in crisis situation does not warrantee derogation60. 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. 186-761. Newly issued shares' offer must be published in writing or in Gazette62. 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 instruments63, only by 2/3 majority in general meeting64; Germany requires 75% majority vote, necessity and benefits to outweigh losses65. In capital reduction, general meeting must approve decision - art. 30 - by 2/3 majority or simple majority where half the capital is represented66. ...read more.

Conclusion

53 [1989] AC 755; for an account on reform proposals, see V. Edwards, EC Company Law, Oxford: Oxford University Press 1999, at pp. 74-75. 54 Council Directive EEC/92/101 of 23 November 1992. 55 art. 24 - another German law-inspired anti-avoidance measure. 56 exemptions in art. 24a(1). 57 V. Edwards, EC Company Law, Oxford: Oxford University Press, 1999, at p. 77. 58 ibid., at p. 78. 59 see AktG 1965, art. 202 ('genehmigtes Kapital'). 60 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. 61 see Schmitthoff, C., "The Second EEC Directive on Company Law" (1978) CML Rev. 43, at 53. 62 art. 29(3); see C-441/93, Pafitis and Others v. TKE and Others [1996] ECR I-1347. 63 see also C-381/89, Sindesmos tis Eleftheras Evangelikis Ekklisias v. Greek State [1992] ECR I-2111. 64 art. 29(4). 65 AktG 1965, art. 186(3); see also Case C-42/95, Siemens [1996] ECR I-6017, Advocate General Tesauro. 66 art. 40. 67 also 75%. 68 but, see The Final Report of the Company Law Review Steering Group "Modern Company Law for a Competitive Economy", July 2001 (obtainable from www.dti.gov.uk/cld/review.htm). 69 see Re Northern Engineering Industries plc. [1993] BCLC 1511. 70 see arts. 222(2), 229(1) and 237 AktG 1965. 71 'parts de jouissance' (reimbursed shares). 72 'Einziehung' (compulsory amortisation). 73 terminology adopted by C. Villiers, European Company Law - Towards Democracy?, Ashgate: Dartmouth 1998. 1 ...read more.

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