Abstract
A wave of company law reform has swept across Europe and has now reached Denmark, where a proposal for a new combined companies act has been put forward and will soon enter the legislative process. In this article, the driving forces behind these reforms are explored. They are: the freedom to choose among the company law regimes of the European Union that follows from the case law of the EC Court of Justice; the demise of the doctrine of protection of capital; and the increasing insignificance of the distinction within company law between public and private limited companies. The main tenets of the Danish reform are: the introduction of a combined companies act to cover both the public and the private limited company; the possibility to choose between the main corporate governance models known in European company law, which, in combination with the possibility to use English at board meetings, the general meeting of shareholders and in public documents and accounts, should cater to the needs of cross-border business and investment; and a relaxation of the capital regime allowing limited companies more freedom in deciding the structure of their share capital and the distribution of control.
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References
For an insider’s view of the 2006 reform, see P. Bovey, ‘A Damn Close Run Thing — The Companies Act 2006’ (Legislative Comment), 29(1) Statute Law Review (2008) pp. 11–25.
Gesetz zur Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen; the law entered into force on 1 November 2008. See M. Beurskens and U. Noack, ‘The Reform of German Private Limited Company: Is the GmbH Ready for the 21st Century?’, 9 German Law Journal,Special Edition, available at http://www.germanlawjournal.com.
Loi de modernisation de l’économie; the law entered into force on 6 August 2008. For a comment on the reform in German, see C. Klein, ‘Frankreichs kleine und mittlere Unternehmen sollen gestärkt werden’, 11 Recht der Internationalen Wirtschaft (RIW) (2008) pp. 770–773.
Act (624/2006) on Companies, which entered into force on 1 September 2006.
Act (2005:551) on Companies, which entered into force on 1 January 2006. For an insider’s view, see R. Skog, ‘The New Swedish Companies Act’, 7 Die Aktiengesellschaft (2006) pp. 238–242.
Communication from the Commission, Financial Services: Implementing the Framework for Financial Markets: Action Plan, COM (1999) 232 final, 11.5.1999.
Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent. Later amended by Directive 92/101/EEC and, more substantially, by Directive 2006/68/EC.
For more on this distinction, see section 3.3 below.
In Norway, in 1997, a contemporary reform of the Act on Private Limited Companies (aktieselskap) took a different route, which led to an act comprising some 250 provisions.
The landmark decision was the judgment of 9 March 1999 in Case C-212/97 Centros Ltd. [1999] ECR I-1459. The judgment relied on previous decisions, notably in Case 270/83 Commission v France [1986] ECR 273 and Case 79/85 Segers [1986] ECR 2375. The judgment in the earlier Case 81/87 The Queen v Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust [1988] ECR 5483, established that a company had no right to transfer its registered office as this was not in accordance with Article 220 of the EEC Treaty (now Article 293 of the EC Treaty). However, in its judgment of 5 November 2002 in Case C-208/00 Überseering BV v Nordic Construction Company Baumanagement GmbH [2002] ECR I-9919, the ECJ pointed out that Centros concerned recognition of foreign companies and the resulting freedom of establishment, whereas Daily Mail concerned a transfer of registered office, cf., paragraph 40. See on this distinction, J. Lau Hansen, ‘A New Look at Centros — From a Danish Point of View’, 13 European Business Law Review (2002) pp. 85–95, at pp. 92–93. With its judgment of 13 December 2005 in Case C-411/03 SEVIC Systems [2005] ECR I-10805, the ECJ has, in effect, made it possible to transfer the registered office by way of a cross-border merger. Although called on to do so by its Advocate General, the EC Court of Justice did not repudiate its decision in Daily Mail in its recent decision of 16 December 2008 in Case C-210/06 Cartesio, probably because the right to transfer the seat of a company must be provided by treaty or secondary legislation. Although it is easy to realise such a transfer of seat by way of merger following the SEVIC decision, it may justify a resurrection of the work on a 14th Company Law Directive abandoned by Commissioner McCreevey in a speech on 3 October 2007 at the European Parliament’s Legal Affairs Committee in Brussels (SPEECH/07/592).
The ‘Delaware effect’ is nowadays used as shorthand for the question of whether the pressure to attract company registration would compel a state to sacrifice legal safeguards regarding the protection of creditors, minority shareholders or others (a race to the bottom) or to enhance its company law to provide a more efficient and trustworthy system (a race to the top). Its name is derived from the original paper by Professor William L. Cary, ‘Federalism and Corporate Law: Reflections upon Delaware’, 83 Yale Law Journal (1974) p. 663, suggesting that Delaware was engaged in a race to the bottom.
On the development of German company law, see J.R. Franks, C. Mayer and H.F. Wagner, The Origins of the German Corporation — Finance, Ownership and Control, European Corporate Governance Institute, Finance Working Paper No 110/2005, August 2005, available at http://www.ssrn.com.
COM (1970) 232 final.
The worry about the lack of start-ups as compared to the US was reflected in the Lisbon Agenda adopted by the European Council in March 2000. A mid-term review carried out by a High-Level Group headed by Wim Kok, Facing the Challenge (November 2004), found that the ambitious goals set out had not been met.
On the Simpler Legislation for the Internal Market (SLIM) expert group and the reform of the Directive in 2006, see a paper by the chairman of the group, E. Wymeersch, Reforming the Second Company Law Directive, Working Paper No WP2006-15, November 2006, available at http://www.ssrn.com.
See supra n. 7.
Proposal for a Council regulation on the statute for a European private company, COM (2008) 396 final.
In fact, Article 19(4) of the Proposal calls for a minimum share capital of EUR 1. As a limited company must have share capital in order to have shareholders, a legal minimum of EUR 1 effectively does away with the requirement for a legal minimum.
This is also the case in respect of accounting rules that used to be part and parcel of company law as evidenced by the 4th and 7th Company Law Directive.
Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids. The provisions of the Directive may be questionable on their merits, and the opt-out afforded by Article 12 is difficult to reconcile with the subsidiarity principle of Article 5(2) of the EC Treaty, but that does not alter the fact that, if provided at all, such regulation of corporate governance should be aimed at publicly traded companies. For a criticism of the Directive from a Nordic company law point of view, see J. Lau Hansen, ‘The Nordic Corporate Governance Model — A European Model?’, forthcoming in M. Tison, H. De Wulf, C. Vander Elst and R. Steennot, eds., Perspectives in Company Law and Financial Regulation. Essays in Honour of Eddy Wymeersch (Cambridge, Cambridge University Press 2009).
Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies.
See supra n. 18.
See section 2 above on the law as a standard contract saving shareholders from having to use resources to negotiate their own contracts.
However, such a new company law directive on capital should apply only to companies with limited liability that issue shares. Other vehicles may offer limited liability, e. g., a cooperative society, and should not be covered by the directive but regulated on their own, as is already the case in most jurisdictions and at EU level; see Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE).
The 1996 reform is discussed in section 2 above.
On this argument, see section 3.3 above.
See in general, J. Lau Hansen, Nordic Company Law (Copenhagen, DJØF Publishing 2003) Chapter III.
One small difference is that in Finland, Norway and Sweden the board of managers usually comprises only the CEO, whereas in Denmark and Iceland it is a collective body that can comprise more than one manager.
National corporate governance codes applying the comply-or-explain principle may further emphasise this division between directors and managers. The Danish code recommends that managers do not serve as directors in publicly traded companies. However, even if the CEO is not a director, he or she may attend the meetings of the board of directors unless the board decides otherwise ad hoc.
Report of the Committee on the Financial Aspects of Corporate Governance, 1 December 1992.
See section 3.1 above.
Note that in the Nordic model, all managers may, but do not have to be directors, as in English law, and as such both model A-1 and A-2 are possible as the law now stands.
This one-tier structure also resembles the model known in English law with a single executive body (or administrative body as is the EU expression) and this is possible under the present law, but only for private companies.
Employees may have a right to appoint directors, but such directors must form a minority of no more than 1/3 of the board. On co-determination, see section 4.2.2 below. Although rare in practice, the Articles of Association may provide for the right of others, e. g., the original founder of the company, to appoint directors. Nonetheless, the majority of directors must be appointed by the shareholders in a general meeting which will appoint the whole board if nobody else has a right to appoint.
It is thus not possible for the CEO to chair the board of directors as is in some countries, like France and the United Kingdom in unlisted companies or the United States.
The three Scandinavian languages Danish, Norwegian and Swedish, which are closely related but different, are put on an equal footing in such a way that each speaker may decide which Scandinavian language to speak.
See generally, C. Rose, ‘The Challenges of Employee-Appointed Board Members for Corporate Governance: The Danish Evidence’, 9 EBOR (2008) p. 215 et seq.
A survey conducted by the Danish Ministry of Economic and Business Affairs for a report on corporate governance found that in companies where the employees could have representation on the board, only one in five had such representation, cf., Erhvervsministeriet, Debat om aktivt ejerskab, May 1999, at pp. 166–167. One reason could be that the highly unionised work force prefers to rely on cooperation committees, which are bodies set up by agreement between the unions and the company outside the realm of company law. Participation in such committees does not carry the responsibilities of serving as a director of the company.
This includes the appointment of directors. If votes are being cast for more than two candidates, a simple relative majority will be sufficient. As there is no cumulative voting, a shareholder controlling more than 50 per cent of the votes will be able to appoint all seats on the board available to the general meeting.
This qualified majority is the same in all Nordic countries. The 2/3 is calculated by both votes and capital because shares may not have proportionate voting rights due to the existence of multiple voting shares.
What constitutes super-majority and when it is applicable differs between the Nordic countries, though the trend to rely on super-majority in lieu of unanimity is the same.
The present requirement is DKK 125,000 (EUR 16,775). The abolition of this legal minimum has attracted most of the criticism directed at the Committee’s proposal, but this criticism comes mainly from non-academic observers.
The company would, however, be considered a company limited by shares and as such be covered by the new companies act.
The traditional form of share is a share with a nominal value which effectively reflects the share certificate’s function as a receipt for funds paid upon subscription. However, as many shares are now not issued on paper but merely registered electronically (dematerialised shares), the information about the original payment for the shares, i. e., the nominal value, is only of historical interest. The npv share is valued as a fraction of the total number of shares issued in relation to the value of the company. A share with nominal value is also valued as a fraction of the total share capital, but the share capital has to be calculated by adding together the nominal values and this is then set in proportion to the value of the company. If a company is valued at EUR 1 million and has issued 100,000 shares, each share will be worth EUR 10. This would be the value of an npv share. However, if upon its formation five years ago, the company issued the 100,000 shares with a nominal value of EUR 5 each, the stock exchange quotation of the shares would be 200, even though the value of each share in a transaction would still be EUR 10. Thus, nominal value shares tend to be more confusing for ordinary investors than npv shares.
ISS, Sherman & Sterling and ECGI, Report on the Proportionality Principle in the European Union, 18 May 2007.
See section 4.2.3 above.
See section 4.3.1 above.
On the obligation to disclose major holdings in publicly traded companies, see Article 9 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.
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Hansen, J.L. The Danish Green Paper on Company Law Reform — Modernising Company Law in the 21st Century. Eur Bus Org Law Rev 10, 73–95 (2009). https://doi.org/10.1017/S1566752909000731
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DOI: https://doi.org/10.1017/S1566752909000731