No 14 (October 98/Octobre 98/Oktober 98)

A 29 September 1998 ruling from the European Court of Justice (Case C-191/95) against the Federal Republic of Germany marks a milestone towards increased transparency of German company accounts.

EU legislation (1st and 4thCompany Law Directives - 68/151/EEC and 78/660/EEC) requires these companies to deposit their accounts in a national register.

However, up to now only about 10-15 % of German limited companies have officially deposited their accounts in the company register, mostly because no penalties had to be paid for non-compliance. In its decision the Court states that Germany has failed to correctly implement the relevant Directives and that in particular it must provide appropriate penalties in cases where limited companies fail to publish their accounts.

The problem of non-publication of accounts for limited companies in Germany is a long debated issue. Numerous business organisation and interested persons lodged complaints with the Commission. They asserted that the fact that only 10-15 % of all limited German companies published their accounts was detrimental to the development of the Single Market. In other EU countries the corresponding figure is 80 % or higher. This has meant that German companies have had access to the accounts of companies in other EU Member States whereas companies from other Member States have been denied access to the accounts of German companies.

The major reason for German companies' very low rate of compliance is that when Germany, implemented the appropriate Directives in its legislation, it amended the Commercial Code (Handelsgesetzbuch) so that in the specific case of failure to deposit company accounts with the registry, the penalties procedure could only be invoked by a partner in the company, a creditor or its works council. In practice, this has meant that the penalties procedure for failure to deposit the accounts was hardly ever invoked.

For many years, the Commission tried to persuade the German Government to amend its legislation, but without success. The case was finally referred to the Court of Justice in June 1995.

On the substance of the case, the Court's 29 September ruling referred to its earlier ruling in the Daihatsu case (Case G-97/96 Daihatsu Deutschland 1997 ECR I-6843). In this case the Court said that any interested party - not only the very limited categories of party listed in the Handelsgesetzbuch - had the right to request publication of company and to apply for penalties if this was not accepted. The Court applied the same reasoning in the present case, focussing on the lack of sanctions and resulting absence of effective implementation.

The ruling was also of interest from a broader perspective. First, because it confirmed the fundamental importance of effective, proportionate and dissuasive penalties for violations of Single Market rules (the subject of a Commission Communication and a Resolution of the Council of Ministers in 1995 - see SMN n°1). Second, because the Court confirmed the legality of the procedures followed by the Commission when handling infringement procedures under Article 169 of the EC Treaty. Germany had argued that the case was inadmissible because the procedures followed by the Commission were incorrect, but this was totally rejected by the Court.

The ruling will have important effects in Germany. The German Government will have to amend its legislation to ensure that the Directives are complied with. This will require the establishment of administrative systems to deal with a very large number of company accounts and to ensure that all interested parties can obtain copies of the accounts.

From a Single Market point of view, these changes are very significant. More transparent accounts will make it easier for business partners, potential investors and creditors to obtain a full picture of the results and the standing of German limited companies. This is particularly important in the light of the introduction of the euro and the consolidation of European capital markets.

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