This section is dedicated to an analysis of the EU Company Law Package ("CLP") and its transposition. The CLP, which was proposed by the European Commission in April 2018, is the most significant EU company law initiative since the 2003 Action Plan. It consists of two Directives: one on Digital Tools and Processes in Company Law and one on Cross-Border Conversions, Mergers and Divisions.
This section contains three parts:
1) a brief description of the Company Law Package
2) GoodCorp research relevant to the transposition process
3) materials written by GoodCorp members in 2018 relevant to the CLP legislative process
Description of the Company Law Package
The CLP consists of two Directives, both designed to promote company mobility and the 'freedom of establishment' in the EU:
1) the Digital Tools and Processes Directive (Directive (EU) 2019/1151) requires EU Member States to do the following:
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enable persons from anywhere in the EU to establish certain types of companies online without having to appear in person at a registration authority in that Member State
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enable companies to complete their financial and company law reporting requirements fully online and register branches in "one stop"
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enable registries holding company information to make all information available digitally
A key implication of this Directive is that it will become much easier to establish 'letterbox companies' in any Member State. To try to reduce the potential for corporate abuse, a number of anti-abuse safeguards are included in the Directive. However, the effectiveness of these safeguards will depend on how this Directive is transposed in each Member State.
2) the Cross-border Conversions, Mergers and Conversions Directive (Directive (EU) 2019/2121) does the following:
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creates a framework for companies to 'convert' to a company form from another Member State's company law system
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modifies the existing framework for companies from two or more Member States to merge
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creates a framework for companies to divide up into smaller companies in two or more Member States
This Directive also increases the potential for corporate abuse through the strategic use of cross-border reorganization to avoid worker participation, labor standards, taxation, etc. It also contains anti-abuse safeguards which might however be implemented in different ways in different Member States.
Anti-Abuse Provisions in the CLP
The Digital Tools and Processes Directive contains a number of provisions which in theory should help reduce the potential for corporate abuse:
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electronic identification (eID) of firm founders - since founders will not be required to appear in person before a registration authority, it is important that Member States require their identification through systems registered with the EU (eIDAS) with the 'highest' level of assurance
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disqualified directors - as persons who have been disqualified to become company directors (due e.g. to criminal activity) may try to found a company in another Member State, it is important to have clear criteria for disqualification, an up-to-date list of disqualified directors, and a rapid and effective means for a registration authority to check disqualification lists in other Member States
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beneficial owners - as corporate abuse often involves hiding the identity of true ultimate owners, it is important to have an effective and transparent registry for ultimate beneficial owners (UBO) which does not simply rely on management affidavit as to the identity of these persons; furthermore the UBO registry should be checked when founding a firm
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real checks rather than 'checking the list' - in general, the registration authority should go beyond a 'checklist' approach which simply verifies if the necessary documents are provided, to a real check for (potential) corporate abuse. This may involve an upgrade in the personnel capacity of registration authorities
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communication between national authorities - the development of a capacity for rapid communication and response to queries is crucial, as cross-border corporate abuse is easier if national authorities do not effectively communicate with each other. This is even more important given that registration authorities must approve company foundations within either 5 or 10 days (depending on type of foundation)
The Cross-border Conversions, Mergers and Divisions Directive also contains anti-abuse provisions:
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national authorities are required to check that a number of requirements are fulfilled before giving preliminary approval to the cross-border reorganization (issuance of pre-conversion/pre-merger/pre-divison certificates). They may utilize 'independent experts' to check if the reorganization is being used for corporate abuse
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national authorities are also required to check if a further set of requirements have been fulfilled (e.g. negotiations over worker information, consultation and participation) before approving the reorganization
In order to inform the transposition process, the ETUI's GoodCorp network started a project entitled "National-Level Corporate Anti-Abuse Measures Relevant to the EU Company Law Package". The goals of this project were to:
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identify the current state of anti-abuse measures at the national level
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identify 'good practices' that appear to be particularly effective and could inform transposition in other Member States
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assess the overall potential for achieving the anti-abuse goals in the CLP
For the project a series of national experts were commissioned to complete questionnaires describing practices in their country regarding:
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Disqualified Directors - codified grounds for disqualification, existence of current list, and transparency of this list (if it exists)
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Electronic Identification (eID) - existence of an eID system registered with the European Commission and its level of assurance
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Ultimate Beneficial Owner registry - existence, system for verifying identity, transparency
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Notary - role in registration process (if any)
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Company Registry - procedures for registration, transparency
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Cross-border Mergers - procedure and anti-abuse checks
The expert questionnaires are available here for download:
Bulgaria (Ekaterina Ribarova, Institute for Social and Trade Union Research, CITUB)
Bulgaria - anti abuse expert questionnaire
Croatia (Hana Horak, University of Zagreb)
Croatia - anti abuse expert questionnaire
Cyprus (Thomas Papadopoulos, University of Cyprus)
Cyprus - anti abuse expert questionnaire
Hungary (Szilvia Borbély, Independent Expert)
Hungary - anti abuse expert questionnaire
Ireland (Alexandros Seretakis, Trinity College Dublin)
Ireland - anti abuse expert questionnaire
Italy (Federico M. Mucciarelli, Università degli Studi di Modena e Reggio Emilia)
italy - anti abuse expert questionnaire
Malta (David Fabri, University of Malta)
Malta - anti abuse expert questionnaire
Portugal (Philippe Lafontaine, Expert Practitioner)
Portugal - anti abuse expert questionnaire
Spain (Mónica Fuentes and Javier Megías, Universidad Complutense de Madrid)
Spain - anti abuse expert questionnaire
GoodCorp Materials from 2018 for the CLP Legislative Process
Policy Brief: 'The EU company law package: how it should be improved to strengthen workers’ rights and avoid abuse through cross-border company mobility'
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The proposed EU company law package, which was published in May 2018 by the European Commission, seeks to encourage cross-border company mobility while at the same time protecting stakeholder interests. The ETUI’s GOODCORP network of company law experts has identified three areas where the package needs to be revised in the interests of protecting workers’ rights and discouraging corporate abuse and makes thirteen specific recommendations for amendment. These areas include: improving worker involvement rights; strengthening procedures for discouraging abusive behaviour such as tax evasion; and reducing the potential for fraud through online company foundations. |
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GOODCORP Briefing Papers on the EU Company Law Package
Worker information, consultation and participation rights
1. Analysis of the proposed Directive on Cross-Border Conversions (CBC), Mergers (CBM) and Divisions (CBD) with respect to the links to the acquis on information and consultation rights (Aline Hoffmann)
2. The company law package from the perspective of the workers’ voice (Jan Cremers)
BP 2. The company law package from the perspective of the workers’ voice
3. Analysis of the company law package from the perspective of employee board level participation (Johannes Heuschmid)
BP 3. Company law package from the perspective of employee board level participation
Anti-abuse provisions
4. Analysis of the Proposed Directive on Cross-Border Conversions, Mergers and Divisions: Artificial Arrangements (Andrew Johnston and Paige Morrow)
BP 4. Proposed Directive on Cross-Border Conversions, Mergers and Divisions: Artificial Arrangements
5. Analysis of the company mobility package from the perspective of procedural rules to prevent corporate mobility for the purpose of labour standards avoidance (Mijke Houwerzijl)
BP 5. Company mobility package from the perspective of procedural rules
6. Analysis of some taxation aspects of the proposed Directive “amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions” (Prem Sikka)
BP 6. Taxation aspects of the proposed company mobility package
Digitalization of company law
7. Analysis of the proposed Directive on “the use of digital tools and processes in company law” (Sig Vitols)
BP 7. Proposed Directive on “the use of digital tools and processes in company law”
Other aspects
8. Analysis of the Proposed Directive on Cross-Border Conversions, Mergers and Divisions: Corporate Governance Implications (Andrew Johnston and Paige Morrow)