COMPANY LAW - European Company Statute - Commission welcomes formal adoption

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Internal Market and Financial Services

Single Market News

No 28 (November 2001/Novembre 2001/November 2001)

COMPANY LAW

European Company Statute
Commission welcomes formal adoption

The European Commission has welcomed the formal adoption by the EU's Council of Ministers on 8th October of the Regulation to establish a European Company Statute (ECS) and of the related Directive concerning worker involvement in European Companies. The European Company (known by its Latin name of 'Societas Europaea' or SE) will now become a reality some 30 years after it was first proposed. The SE will give companies operating in more than one Member State the option of being established as a single company under Community law and so able to operate throughout the EU with one set of rules and a unified management and reporting system rather than all the different national laws of each Member State where they have subsidiaries. For companies active across the Internal Market, the European Company therefore offers the prospect of reduced administrative costs and a legal structure adapted to the Internal Market as a whole. The formal adoption follows the opinion given by the European Parliament in September 2001 on the two amended texts, on which the Council reached political agreement in December 2000 (see SMN 24 and 25). The legislation is due to enter into force on 8 October 2004.

Under the European Company Statute, a European Company can be set up by the merger of companies located in at least two Member States or by the creation of a holding company or a joint subsidiary or by the conversion of an existing company set up under national law.

The SE would also enable groups of companies which have developed activities in different industries in various Member States to restructure by creating one SE for each geographical sector, one SE for each sector of activity and one SE for each product line, thus permitting more efficient and less costly management and leading to productivity gains which, it is estimated, will even surpass the economies of scale achieved.

With the introduction of the euro, the SE is regarded as a necessary instrument within the economic and monetary union in terms of competition for access to capital. In particular, the usefulness of the SE, is often underlined in order to attract investors and to raise the private capital necessary for cross-border projects (in particular, transport, energy and telecommunications infrastructure), with or without the injection of public funds.

SE status will enable companies with commercial interests in more than one Member State to move across national borders within the Community as their business requires without having to comply with the complex and costly procedures of dissolution in their country of incorporation and re-incorporation as a new legal entity in the country to which they wish to move. None of these advantages is currently available under the national laws in force.

The SE will offer companies a "European flag", which some companies interested in the SE value in publicity terms. It will also be a way of removing the psychological obstacle connected with the change of nationality: the company which emerges from the operation will be "European"

Worker involvement

Under the Directive on worker involvement, the creation of a European Company would require negotiations on the involvement of employees with a body representing all employees of the companies concerned. If it proved impossible to negotiate a mutually-satisfactory arrangement then a set of standard principles, laid down in an annexe to the Directive would apply. Essentially these principles oblige SE managers to provide regular reports on the basis of which there must be regular consultation of and information to a body representing the companies' employees. These reports must detail the companies' current and future business plans, production and sales levels, implications of these for the workforce, management changes, mergers, divestments, potential closures and layoffs.
In certain circumstances, where managers and employee representatives were unable to negotiate a mutually-satisfactory agreement and where the companies involved in the creation of an SE were previously covered by participation rules, a European Company would be obliged to apply standard principles on participation of its workers. This would be the case of a European Company created as a holding company or joint-venture when a majority of the employees had the right, prior to the creation of the SE, to participate in company decisions.
In the case of a European Company created by a merger, the standard principles on participation of its workers would have to be applied when at least 25 % of employees had the right to participate before the merger. It is on this element that agreement on the Directive had, until the Nice Summit in December 2000, not proved possible. The compromise was to authorise a Member State not to implement the Directive on participation in the case of SEs created by merger, but in that case the SE could be registered in that Member State only if an agreement was concluded or when no employees were covered by participation rules before the SE was created.
In the case of a transformation of a national company into an SE, the arrangements for worker participation applied by this national company prior to its transformation into a European Company would have to continue to apply

Info
Françoise Blanquet
MARKT-F
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FAX: +32 (0) 22 99 30 81

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