The ECJ went further in the Überseering case. All the directors of Überseering BV, a limited liability company organised under Dutch law, were resident in Germany. As a consequence, in accordance with current thinking on company seats, the German courts decided that, owing to the location of the company’s principal office, German corporate laws apply to the company. The Dutch corporate entity was therefore dismissed from court proceedings in Germany.

In the judgment, the European Court of Justice ruled that it was incompatible with the freedom of establishment guaranteed in Arts. 43 and 48 EC for a member state to deny legal capacity (and standing to sue or be sued in courts) to a company formed in a Member State which moves its central place of administration to another Member State. Against the expectations of many legal commentators and the recommendation of the Advocate General, the ECJ also held that where a company incorporated in another Member State exercises its freedom of establishment in another Member State, that other Member State is required to recognise the company’s legal capacity (and capacity to be a party to legal proceedings) which it enjoys under the laws of its state of incorporation.

Following this ECJ judgment, a company incorporated in a EU Member State is entitled to rely on the principle of freedom of establishment to contest any refusal by a host state to recognise it as a legal entity with the capacity to enter into contracts and be a party to legal proceedings. As a matter of German law, this decision signals the end of the current practice whereby the legal capacity of foreign incorporated companies is not recognised, where the effective seat of administration is in Germany. It is also certain to provoke much academic discussion on the question of whether, and if so the extent to which, the accepted phenomenon of full recognition of the legal capacity of the ‘pseudo-foreign company’ within the single market will be extended to other areas of company law.