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New impetus into the EU-wide “business code”: French initiative

Eugene Eteris, Latvian Academy of Sciences, senior adviser; BC International Editor, Copenhagen, 20.11.2019.Print version
Ideas of a unified “business code” accepted by all the EU entrepreneurs have been discussed for decades. The ideas are becoming more urgent due to an active harmonization of the EU states’ economic activities. The advantages of the “code” are quite apparent though the legal practitioners need a strong political will.

 

Harmonization of business law at European level is expected to increase by 40 percent the volume of trade among the states and by about 14% the EU average of income per capita. The work on the unified “business code” started some decades ago to overcome the many problems of methodology, criteria limitations and the scope of regulations, to name a few.


Recent efforts deserve a specific attention: in February 2019, French Prime Minister Edouard Philippe asked Valérie Gomez-Bassac to “initiate thoughts” and draft recommendations regarding the idea of a European Business Code. Already in November, a former vice-dean of the Toulon University of Law and presently MEP from France delivered 25 proposals. The “thoughts” are fundamental in approaching the most important for the EU’s corporate community existence; the document is published by the Robert Schuman Foundation.*)


More in: Foundation Robert Schuman/European Issues, nr. 535 /12 November 2019, in:  https://www.robert-schuman.eu/en/doc/questions-d-europe/qe-535-en.pdf


Suggested methods of harmonisation

The author’s approach to the legal harmonisation is through three main aspects: a) legal certainty (including linguistically accessible states’ “standards”); b) national corporate legal modifications, and c) new “tools” in SMEs’ cross-border activities.  These steps are supported by 25 (!) proposals for legal academics and practitioners.

One of the proposals, i.e. nr. 8 specifies the author’s idea of creating a coordination center that will “distribute work between the three committees responsible: firstly, for the compilation work; secondly, for possible modification of the community acquis; and, thirdly for the drafting of the legal status of this European enterprise”.  

It seems that the author suggests the creation of two “parallel legal entities”: a) the EU’s “coordinated” regime, and b) that of the member states; the former “must be acknowledged by each EU state in parallel to national standards”, the author postulates (p.4)


The author suggests the “inter-connection of the EUR-Lex and N-Lex portals to improve accessibility and legibility of European standards in all of the Union’s languages” (p.2).

 

It has to be noted that some steps towards interconnection of the EU states’ business registers have been already done: e.g. from June 2017 business registers in all EU countries are interconnected. That means that all interested can search for information on companies registered in any EU country, Iceland, Liechtenstein and Norway. Besides, the registers can share information on foreign branches and cross-border mergers of companies (in accordance with the Directive 2012/17/EU).  However, not all of the EU states are currently connected, but more will join the system soon: the links to the respective national registers on the "General information and terms and conditions" are in the following web-link:  https://e-justice.europa.eu/content_find_a_company-489-en.do?clang=en

 

There is a new reference system: the Business Registers Interconnection System (BRIS) as a joint effort by EU member states’ governments and the European Commission. For the legal basis see the Directive 2017/1132/EU and Regulation (EU) 2015/884.


References to: 

https://e-justice.europa.eu/content_business_registers_at_european_level-105--maximize-en.do; however the search in the register was available only until 15 November 2019. 

 

Besides, the author suggested three “bodies of experts”: the first would be responsible for compiling European texts, the second would work on codification modification to complete the legislative lacuna, and the third would work on the creation of contracts adapted to the legal form adopted. The mobilization of experts in each EU state would help quell the fears caused by previously failed projects, argued the author.


Background

Attention to the “unified” corporate legislation on the EU institutions’ agenda since the inception of the Common/Single/Internal market transformations. Main idea behind these moves has been the necessity to create a common playing field for the corporate entities within the already established four basic freedoms: people, goods, services and capital.  


However, more fundamental changes occurred in the European corporate legislation after adoption of the new EU basic law, i.e. the Lisbon Treaty (in effect from 2010).

See more in: Eteris E. Modern European Law for Businessmen: Lisbon Treaty in Action. RSU Publish. – 2012. Riga, Latvia. - 202 pp.

 

During the last decade several attempts have been made to get closer to the EU-wide “unified” corporate procedures, however without much progress. 

Corporate regulations have been spread out among at least three Commission’s political and socio-economic guidance: a) in business, economy and euro; b) in the EU legislation; and c) in sectoral policies. The latter is important, as the Lisbon Treaty created a division of competences among the EU institutions and the member states into exclusive, shared and supporting “activities”; it means, among other things, that the search for a “common approach” to corporate regulations is bound to be “divided” among the EU and the states’ legal concepts.


For example, the most forward looking development perspective (and cross-sectoral too) concerning sustainable development is concentrated in the EU regional and urban sector.


More in: https://ec.europa.eu/info/eu-regional-and-urban-development_en

 

In “doing business” in the EU, several issues are included to show the ways the EU institutions “coordinate” all-Union’s approach to a “business code”.


More in: https://ec.europa.eu/info/business-economy-euro/doing-business-eu_en 


However, more pertinent is the Commission’s guiding sector on “company law and corporate governance”, where the present EU rules are directed towards: enabling businesses to set up and carry out operations in the EU states; providing protection for shareholders and other parties connected to companies’ interests (e.g. employees and creditors); making business more efficient, competitive and sustainable; and encouraging business-cooperation among the EU countries. Besides, EU company reporting, auditing and transparency rules complement this legal framework.


More in: https://ec.europa.eu/info/business-economy-euro/doing-business-eu/company-law-and-corporate-governance_en

   


On the existing EU company law

First of all, the EU company law rules cover some organizational issues, such as the company’s formation, capital/disclosure requirements as well as internal companies’ operations (e.g. mergers, acquisitions and divisions). Abolition of restrictions on freedom of establishment has been a primary task for the first Council directive in March 1968.


Since 2017, the large part of the EU company law has been codified in the Directive 2017/1132  (of about 60 pages!) relating to certain aspects of “limited liability companies”; it entered into force in June 2017.


Source: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32017L1132

 

The European digital agenda provided ground for corresponding company legislation: e.g. the 2018 proposals covering rules on digital tools and on cross-border mobility of companies, which revised and complemented Directive 2017/1132.


Thus, the Directive 2019/1151 covers provisions on the use of digital tools and processes in company law; the EU states have to transpose the Directive by August 2021 (with longer deadline for some specific provisions). The new rules on cross-border conversions and divisions as well as amended rules on cross-border mergers will enable companies to use digital tools in company law procedures and to restructure and move cross-border, while providing strong safeguards against fraud and to protect stakeholders.


The Directive in: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019L115; On issues to ease company law in: https://ec.europa.eu/info/sites/info/files/company_law_factsheet_2019.pdf

 

Besides, the Directive 2012/17/EU and Commission Implementing Regulation (EU) 2015/884 set out rules on the system of interconnection of business registers (BRIS), which are operational since June 2017. It allows EU-wide electronic access to company information and documents stored in the EU states’ business registers via the European e-Justice Portal. BRIS also enables business registers to exchange between themselves notifications on cross-border operations and on branches.


The Directive 2009/102/EC provides a framework for setting up single-member companies.

 

Besides, two Regulations provide rules on EU legal entities: a) Regulation 2157/2001 sets out a statute for a European Company (Societas Europea or ‘SE’), and b) Regulation 2137/85 sets out a statute for a European Economic Interest Grouping (EEIG).

 

Secondly, the EU company legislation address corporate governance issues, focusing on relationships between a company’s management, board, shareholders and other stakeholders; thus, therefore, regulating the ways the company is managed and controlled.


Shareholders rights in the Directive 2007/36/EC sets out certain rights for shareholders in listed companies. This Directive was amended by Directive (EU) 2017/828, which aims to encourage more long-term engagement of shareholders.

Furthermore, the 2018 Commission Implementing Regulation (EU) 2018/1212 lays down minimum requirements as regards shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights.

Takeover bids in the Directive 2004/25/EC are regulating minimum standards for takeover bids (or changes of control) involving securities of EU companies.

 

Thirdly, the EU law addressed corporate governance issues, which were identified as an important issue in the context of implementation of the Commission Action Plan on financing a sustainable growth, and in particular its SDG-10.

 

Present EU company law rules also include provisions on corporate governance and transparency for banks and investment firms to curb risks to the financial stability.


The corporate governance and remuneration provisions for financial institutions are included in the Capital Requirements Directive IV (Directive 2013/36/EU or CRD IV), as amended by Capital Requirements Directive V (Directive 2019/878/EU or CRD V) in particular in Chapter 2, Sections II and V, and in Regulation No 575/2013 or CRR, as amended by Regulation No 2019/876 or CRR II in particular in Part VIII.


This legislation is under review through: a) the amendments to the CRD IV/CRR, which aim to make the rules on remuneration more proportionate for smaller banks, and b) through more harmonised across the EU, while ensuring that they still reduce incentives for focusing on short-term profitability and taking excessive risk.


A new, tailor-made corporate governance and remuneration regime for investment firms has been put forward by the Commission in December 2017, as the current CRD IV regime was designed mainly for banks and has been found not to take appropriate account of the different business models, remuneration structures and risks posed by investment firms. Those proposals are currently being negotiated in the Council and the Parliament.


Besides, there are in the EU several expert groups on corporate legislation: e.g. the Informal Company Law Expert Group, which consists of company law professors has been advising the Commission in the preparation of company law initiatives and issued the following reports: - Report on information on groups (845 kB), - Report on digitalisation(2 MB), and - Report on recognition of the interest of the group(1 MB).   

Another informal expert group on “technical aspects of corporate governance” assists the Commission with its work on technical aspects of corporate governance, including the use of modern information and communication technologies in corporate governance.


The online “Platform on Corporate Governance” represents a digital space for information sharing and the exchange of best practices on a number of different corporate governance topics, ranging from investor stewardship to sustainability. The platform encourages a dialogue between companies, investors, private and public stakeholders and aides the Commission in evaluating whether former measures achieve their purpose in practice.


Finally, there are some legal reserah and studies on practical corporate regulations: e.g. Ernst and Young Study on the Cross-border Operations. This study provides an overview of the divergence of approaches across Member States in relation to cross-border conversions and divisions, the problems such fragmentation creates for companies and stakeholders, and the related statistical data.


Besides, there are studies on the impact of digitalisation whch present comparative analysis of paper and online processes used in the context of company registration, company dissolution, filing and disclosure of company information and cross-border merger procedure, and the impacts that the use of digital tools has on legal certainty, socio-economic issues and illegal/fraudulent activities.


https://ec.europa.eu/info/publications/digitalisation-company-law_en 

 

Finally, the “Baltic study on Minority Shareholders Protection” assists the European Commission in assessing the EU policy on minority shareholder protection. The study includes comprehensive analysis and assessment of every EU state’s legal framework and it focuses on all principal categories of minority shareholder rights, namely economic, control, information, litigation, and equal treatment rights. The study strives to enable policymakers to obtain a clearer picture of the EU states’ basic, soft laws and case-law. National legal experts as well as national stakeholders in the states were involved in the preparation of the study to identify both practical and theoretical problems.


The study shows that despite similarities in legal framework for shareholders rights in the EU states, there still exist numerous differences in both regulation and enforcement. In some areas the EU law has a moderate contribution towards the proper functioning of the internal market as well as a limited impact on legal certainty and foreseeability.


References to: https://ec.europa.eu/info/business-economy-euro/doing-business-eu/company-law-and-corporate-governance_en#documents  

 

It shall be mentioned in the conclusion that social and fiscal convergence among the EU member states is desirable in order for the “business code” to be practical. However, it can only occur over the long term. Economic and social realities are too different between the states for there to be a sudden development in this area without damage occurring to those involved. Some international efforts might be useful as well, e.g. International institute for the unification of private law.


More in: https://www.unidroit.org/  






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