Company and Takeover Law Reforms in Europe: Misguided Harmonization Efforts or Regulatory Competition?

Abstract

Despite recent developments in ECJ case law, the ability of EU firms to choose among different Member State corporate law regimes is quite limited. At the same time, however, Member States have started to show an interest in providing competitive business forms, and firms seem keen to use them. Against this background, the ongoing review of EU company law and takeover law can be seen as an attempt to complete the set of minimum requirements that establish a limit for the ‘race to the bottom’. This paper suggests that, unfortunately, many of the proposed harmonization measures in the Commission’s Action Plan are unlikely to benefit firms and investors and will promote costly bureaucratic uniformity.

Indeed, as currently structured, the proposals regarding disclosure, board structure and director liability have limited merits. Moreover, reforms aimed at the establishment of a permanent structure providing advice on future EU regulatory initiatives and requiring Member States to adopt director disqualification mechanisms are likely to result in excessive regulatory intervention. Similarly, many provisions of the proposed Takeover Bids Directive can be expected to hamper rather than enhance the development of a competitive, cross-border market for corporate control. By contrast, the authors recommend regulatory changes that facilitate private litigation, as this may limit regulatory biases and contribute to disciplining managers and gatekeepers. Finally, the authors endorse a default arrangement for takeovers that would allow firms to choose to be governed either by the proposed Takeover Bids Directive or by existing Member State law. The move towards more choice should challenge regulators to provide more cost-effective rules.