International Corporate Law - Shown on the Cases of Centros, Ьberseering and Inspire Art

University of Applied Sciences Heilbronn, Germany

Studies: International Business & Intercultural Studies

Winter Term 2004/2005

Course International Law

"International Corporate Law

Shown on the Cases of

Centros, Ьberseering and Inspire Art"

Alexandra Klank

Sabrina FÐ'hrmann

IBIS 4

Content

1. Introduction 3

2. Daily Mail and General Trust PLC 4

3. Centros Ltd. 4

4. Ьberseering BV 5

5. Inspire Art Ltd. 6

6. Evaluation and future prospects 6

7. Sources 7

1. Introduction

The European domestic market shall comprise an area without internal frontiers. The contract between the members of the European Community ensures for every citizen of an EU-member state the free movement of goods, services, workers and capital in the European domestic market. This includes as well the freedom of establishment, regulated in art. 43 and 48 ECT.

Article 43:

"Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches, or subsidiaries by nationals of any Member State established on the territory of any Member State."

Article 48:

"Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principle place of business within the Community shall be treated in the same way as natural persons who are nationals of Member States."

Especially the founding of an affiliated company in another member state or the relocation of a company from one member state to another is regulated. But unlike the freedom of establishment for natural persons there is always a conflict with the particular corporate law of the member states. There is no unified corporate base; the corporate law differs from one member state to another.

In its most recent judicature the European Court of Justice (ECJ) continued its tendency of deciding in favour of the freedom of establishment by holding that rules submitting pseudo-foreign companies to the company law of the host state were inadmissible. It clarified that a foreign company is not only to be respected as a legal entity having the right to be a party to legal proceedings, but rather has to be respected as such, i.e. as a foreign company that is subject to the company law of its state of incorporation. Any adjustment to the company law of the host state is, hence, not compatible with European law. In addition to commenting on the decision and its effects, this article points out potential for corporate restructuring in the field of codetermination.

Questions concerning the freedom of establishment of companies have always been both a central and controversial area of Community law. After the previous landmark decisions Daily Mail, Centros and Ьberseering, the ECJ decided in the case Inspire Art once again in favour of the freedom of establishment resulting in a now discernable consistent judicature. The place of incorporation theory, which determines the applicable law according to the statutory seat of a company, seems to be gradually replaced by the real seat theory, which regards the law of that state to be applicable where the actual centre of administration, i.e. headquarters, of the company is located.

2. Daily Mail and General Trust PLC

Case C-81/87 - The Queen versus Daily Mail and General Trust PLC,

27 September 1988

Facts

Daily Mail was founded in Great Britain and wanted to shift it's headquarter to the Netherlands.

British law allows British companies to shift their administrative centre abroad without losing

their legal personality and capacity of a company incorporated under British law. There were no restrictions to this from the Dutch law point of view. The British tax law defines the fiscal headquarter of a company as domicile of the management. The British income and corporation tax law prohibit the transfer of its headquarter with fiscal centre in the UK without authorisation of the Ministry of Finance to prevent tax evasion.

The case

Daily Mail took legal action because the Ministry of Finance refused to give authorisation for shifting headquarter to the Netherlands. In the opinion of the complainant the non-authorisation of the Ministry of Finance is a violation of the freedom of establishment.

Background of the movement to the Netherlands was that Daily Mail had sold great parts of its company assets and due to this value enhancement they would have been forced to pay capital gains tax in the UK.

Decision of the ECJ

"Under those circumstances, Articles 52 and 58 of the Treaty cannot be interpreted as conferring on companies incorporated under the law of a Member State a right to transfer their central management and control while retaining their status as companies incorporated under the legislation of the first Member State." Daily Mail was therefore not allow to shift it's headquarter to the Netherlands while keeping its legal personality and capacity in the UK.

3. Centros Ltd.

Case C-212/97 - Centros Ltd. versus Erhvervs- og Selskabsstyrelsen,

9 March 1999

Facts

Centros has been registered in England with ₤ 100 capital, but not paid in.

The company has never conducted business in the UK. Its founders