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A Proposal for the Reform of Group Law in Europe

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Abstract

The legal regime applicable to groups of companies in the European Union has been discussed for many years. National legislations have been adopted in a certain number of Member States, and new initiatives are being considered by the European Commission and in academic writing. The central issues in groups of companies is the relationship between the controlling shareholder, often the parent company and the subsidiaries, and the potential for abuse to the detriment of the latter’s minority shareholders and creditors. Several answers have been formulated, ranging from a duty of the parent to indemnify the subsidiary for the charges imposed by the parent, to the acceptance of these charges provided they result in some benefit to the subsidiary and do not endanger the subsidiary’s solvency. In another approach, these issues may be solved by other common company law, e.g., on the basis of the unfair prejudice provisions. With respect to shareholder and creditor protection, a comparative analysis concludes that there is no need for additional regulatory safeguards. The present approaches indicate that group relations are often characterised by conflicts of interest. Therefore, it is proposed to develop a standard for dealing with these, especially under the form of related party transactions. The specific conditions for dealing with intragroup related party transactions are submitted for further discussion.

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Notes

  1. The 1984 text of this Directive was reprinted in Lutter (1996); first versions of the proposal for a Ninth Directive were considered in 1974: DOK.nr.XI/328.74-D and 1875, DOK.nr XI/593.75-D; the version of 1984, DOK nr III/1639/84, is referred to in Zeitschrift für Unternehmens- und Gesellschaftsrecht (ZGR) 185:444. Amomg the earlier studies Lutter 1996), Lutter and Wiedemann (1998), Hopt (2006, 2007).

  2. Seventh Company Directive 83/349 EEC of 13 June 1983 on consolidated accounts, OJ 1983 L 193, 18 June 1983, replaced by Directive 2013/34/EU of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC.

  3. See Reflection Group on the Future of EU Company Law (2011). The areas where intervention with respect to groups was considered relate in particular to: (i) the transparency of the group’s structure and relations; (ii) the tensions between the interests of the group and of its parts; and (iii) the special problems of pyramid structures.

  4. Communication of 21 May 2003, COM(2003) 284 final. The Commission declared that, while no overall directive was needed, specificprovisions might be needed in the three areas identified by the High Level Group.

  5. See Reflection Group on the Future of EU Company Law (2011).

  6. For details, see Section 6, Recommendation 4.

  7. See http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52012DC0740&from=EN. For a critical evaluation of the Action Plan, see Hopt (2015b), on groups, idem, at p. 178 et seq. For the consultations on the Action Plan, see IP/05/1639 of 20 December 2005 on the future priorities for the Action Plan, and IP/06/574 of 4 May 2006.

  8. See feedback statement of 17 July 2012 and responses received, available at http://ec.europa.eu/internal_market/company/modern/index_en.htm#consultation2012.

  9. See ICLEG (2016).

  10. Relating, respectively, to the organisation and capital requirements for banks, insurance companies and alternative investment fund management companies (AIFM).

  11. Arts. 19 to 26 of Directive 2014/59/EU of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD); Regulation (EU) No 806/2014 of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (SRM).

  12. As for them, see Wymeersch et al. (2012); Ferran et al. (2012); Faia et al. (2015); Huang and Schoenmaker (2015). See also Hopt (2013); Thévenoz and Bahar (2007).

  13. Commission droit et vie des affaires, Faculté de droit de l’Université de Liège, Les groupes de sociétés, U. Liège, 1973; Balzarini et al. (1996). Among the early comparative studies: Lutter (1994).

  14. ZGR (1998) 27:683; for the English version, see: Forum European Corporate Group Law (2000); Windbichler (2000).

  15. Implemented by Directive 2004/25 of 21 April 2004 on takeover bids.

  16. ECFR (2015), pp. 299–306; for the German version, see Zeitschrift für Unternehmens- und Gesellschaftsrecht (ZGR) (2015), p. 507; Forum Europaeum on Company Groups (2015a, b); for the French version, see Revue des sociétés (2015), p. 500; Hommelhoff (2014b); Teichmann (2016); Conac (2016); see also Habersack (2016).

  17. French law requires a plurality of shareholders, i.e., a minimum of seven shareholders (Art. 225-10 Code de commerce). However, with respect to the approval of related party transactions, decisions are approved by the main shareholder, and the six other shares are not taken into account: Art. 225-39 Code de commerce, as modified by Ordonnance n° 2014-863 du 31 juillet 2014 relative au droit des sociétés, prise en application de l’article 3 de la loi n° 2014-1 du 2 janvier 2014 habilitant le Gouvernement à simplifier et sécuriser la vie des entreprises (Hommelhoff 2014a; Weller and Bauer 2015).

  18. See Transparency Directive 2004/109 of 15 December 2004, modified by Directive 2013/50 of 22 October 2013. This regime is only applicable to companies listed on regulated markets.

  19. In German law, this is referred to as the Unternehmensinteresse, including the interests of the shareholders, creditors and employees and, according to some, even the public interest. The ambit of this notion is being discussed in the context of the increasing interest for shareholder value as a criterion for company conduct. See, more generally, Davies et al. (2013). Compare, in Dutch law, Art. 250(2) of the Dutch Civil Code, Book 2, describing the supervisory board’s objective to act in ‘the interest of the company and of the related enterprise’, referring to the continuity of the firm. For an analysis of group relations among different shareholders and stakeholders, see Hopt (2015a), at p. 3 et seq.

  20. This idea was expressed in the Rozenblum case in the following terms: ‘Le concours financier apporté … doit être dicté par un intérêt économique, social ou financier commun, apprécié au regard d’une politique élaborée pour l’ensemble de ce groupe’. See infra n. 60 for the full text: Rozenblum Cass. crim. 4 February 1985, JCP éd G II, 1986, p. 20585, note J. Didier. In the absence of the said common interest, the transfer of funds between different companies would not be justified (Cass. Crim. fr 14 February 1993, Bull Joly, 1993, 225, note Jeantin), and the transaction not exempted from the general principle (Cass. crim. 2 December 1991, n° 90-87563). In other cases, reference was made to at least ‘un lien logique minimal’: CA Paris 14 February 1984, Juris-Data N° 021620; see also Cass. crim. 9 December 1991, Rev Sociétés 1992, 358; Freyria and Clara (1993). A similar approach is followed in other parts of the world: see the Australian case Equiticorp Finance Ltd v. Bank of New Zealand (1993) 11 ACSR 64, where support to ailing subsidiaries was justified on the basis that the financial welfare of the subsidiaries was intimately connected to the interests of the group (Kluver 2000). Compare Art. 233-1 of the French Code de commerce and Art. 11 of the Belgian Companies Code.

  21. Art. 24 B of the Dutch Civil Code, Book 2, states that a ‘group is an economic unit in which legal persons and companies are organically joined’: these are called ‘group companies’. German law uses the more complex notion ‘Verbundene Unternehmen’, among which the ‘Konzernunternehmen’, being the companies which are managed by the parent on a unified basis.

  22. See Basel Committee on Banking Supervision, Revised principles for governance of banks, Principle 5.

  23. In this sense, Guyon (2003), nos. 615 and 616.

  24. Pariente (1996); Freyria and Clara (1993), at p. 251, n° 9.

  25. This subject has been discussed in German literature, but there is general agreement that, legally speaking, there is no Konzernaufsichtsrat. Most of the time, the board of directors of the parent company will be the body ultimately responsible.

  26. The national definitions of control are, in substance, often quite similar and inspired by the wording used in the Directive on consolidated accounts: s. 89 j of Part 43 of the UK Companies Act 2016; Comp. Art. 24a Dutch Civil Code, Book 2; Art. 11 Belgian Companies Code (sociétés liées et associées).

  27. See Directive 83/349 on consolidated annual accounts, replaced by Directive 2013/34.

  28. The identity of the group as such is expressed in accounting terms on the basis of the control criterion. For groups that are fully or partially controlled by a parent company, full consolidation will express the financial position of the group as a whole. For non-controlled minority blocks held in other companies, there will be, according to the ‘equity method of accounting’, no line-per-line consolidation.

  29. See Directive 2009/38/EC on the establishment of a European Works Council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees, OJ 2009 L 122/28. Also: Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees, OJ 2001 L 294/22. German co-determination provisions are based on partial consolidation, excluding non-German subsidiaries. Statutory definitions sometimes exclude 100%-owned subsidiaries from the scope of the group provisions.

  30. IAS 24 (Related Party Disclosures) aims at disclosure, not at determining group conduct or relations between group entities. It is not especially geared to the existence of a group relationship, e.g., by not especially addressing management conflicts. Its violation may trigger specific sanctions for accounting or reporting breaches. The standard does not contain indications regarding the fairness of the reported transactions. Compare under Swedish law: Soogard (2015).

  31. See, e.g., ECJ, C-440/11 P, 11 July 2013 (Commission v. Stichting Administratiekantoor Portielje and Gosselin Group NV); ECJ, General Court, T-543/08, 11 July 2014 (RWE and RWE Dea v. Commission), attributing to a parent activities of a subsidiary that carries out, in all material respects, the instructions of the parent. See: ECJ, 10 April 2014, Joined Cases C-247/11 P and C-253/11 P.

  32. Art. 233-1 of the French Code de commerce defines a subsidiary as a company in which another company holds more than 50% of the shares. But other criteria are also mentioned, e.g., ownership of 40%, without anyone holding a higher percentage, creates a presumption of control.

  33. CA Paris, 12 June 1996, RD bancaire et bourse 1996, p. 233, obs. F.-J Crédot et Y. Gérard; T. corr. Paris, 16 May 1974, arrêt Willot: Gaz. Pal. 1974, 2, jurispr. p. 886; D. 1975, jurispr. p. 37; Rev. sociétés 1975, p. 665, note B.O.

  34. See CA Paris, 20 February 1998, 1re ch., Assoc. Adam c/CGE et SA Havas: JCP G 1998, II, 10096, note J.-J. Daigre; JCP E 1998, p. 705, note A. Viandier; Dr. sociétés 1998, comm. 81, obs. H. Hovasse; Banque et droit, March–April 1998, p. 26, obs. H. de Vauplane; Rev. sociétés, 1998, p. 346, note Bucher; Joly, 1998, p. 622, § 210, note P. Le Cannu; Joly bourse, 1998, p. 233, § 62, note Robineau.

  35. See Company Law of the Czech Republic, s. 71(1), ZOK.

  36. Art. 1(2)(b) of Directive 83/349 EEC of 13 June 1983: ‘managed on a unified basis’; see for the same terminology, Art. 22(2)(b) of Directive 2013/34 replacing Directive 83/349. See also the definition of Konzern in § 18 of the German Stock Corporation Law: ‘under unified direction’ (unter einheitlicher Leitung). For details, see Emmerich and Habersack (2016), §§ 18–19.

  37. These cases are dealt with using the so-called equity method, only aimed at expressing the value of the holding. The provisions on related party disclosures apply; see IAS 24, referring to ‘significant influence’ as used in IAS 28 (Investments in Associates and Joint Ventures).

  38. For example, a parent company may have a 51% shareholding in a subsidiary (second level). In turn, this subsidiary may have a 51% shareholding in another subsidiary (third level), and finally, the latter may have a 51% shareholding in another company (fourth-level subsidiary). The parent is able to direct the vote and the decisions at all the levels, but in the fourth-level subsidiary, the real economic interest of the parent in the subsidiary is less than 13%, despite having a majority of the votes.

  39. See on this subject, High Level Group of Company Law Experts (2002), Ch. V: Groups and Pyramids, at pp. 94–100; for Italy, see Bianchi et al. (2001).

  40. Known as ‘vorauseilender Gehorsam’ in German legal writing.

  41. There would be no room for instructions, or these would not free the directors to act in the interest of the subsidiary as a separate legal entity.

  42. Taxation, labour relations, local presence, etc.

  43. See Teichmann (2015), at p. 219.

  44. See Tribunal Supremo (Spain), 11 December 2015 (JUR 2015, 302357).

  45. The validity of this technique is generally recognised: see France, where it constitutes an exception to the monopoly of the banks (Code monétaire et financier, Art. L 511-7-1-3). The Rozenblum approach applies to the relationship in the pool: see Guyon (2003), no. 617. Sometimes special conditions apply: see, for Germany, BGHZ 179, 71, comment 13 et seq., Also Hüffer and Koch (2016), § 311, comment 50, with further references.

  46. See Van Schilfgaarde and Winter (2009), at p. 177, referring to Art. 7 of the Dutch Civil Code, Book 2, on the company’s object. Winter (1992), where especially the different factual settings are analysed at p. 258 et seq., possibly leading to liability of the subsidiary’s directors on the basis of ‘grossly negligent management’ (‘kennelijk onbehoorlijk bestuur’, as referred to in Art. 248 Dutch Civil Code, Book 2). In the same sense: Guyon (2003), no. 617, referring to the Rozenblum case; for Austria, see Saurer (2012), § 52, No 86.

  47. E.g., Germany, Austria, Sweden, Norway, the Netherlands and, since 2006, the UK; see Hopt (2011), at p. 28 et seq.; Roth (2013), at p. 332 et seq.

  48. See Roth (2016), pointing to German criminal court cases which refer to the ‘Gesamtkonzerninteresse’ (Federal Supreme Court (BGH) 28.5.2013, 5 StR 551/11, ZIP 2013, 1382, no 42: Gesamtkonzernnutzen).

  49. Under French case law, the court may hold the majority shareholder liable to the subsidiary’s creditors for having sold the company to a notoriously incompetent or insolvent purchaser: this was decided in the context of subsidiary employees suing the former parent companies: CA Paris, 4 September 2012, n° 11-12359; CA Paris, 10 April 2008, n° 07/10060, Sté San Carlo Gruppo Alimentare SPA c/Ancelin et a. - TGI Péronne, 18 August 2009, n° 07/00856, Ancelin et a. c/San Carlo Gruppo Alimentare SPA et a.: JCP S 2009, 1465, note J.-M. Albiol; Semaine sociale Lamy 12 October. 2009, p. 10, chron. G. Auzero.

  50. See the Belgian ‘Renault’ law, law of 13 February 1998, providing for orderly liquidation, such as assistance for laid-off staff and organisation of their re-employment at other employers, supported by financial advantages.

  51. For the second approach, reference can be made to the Rozenblum technique.

  52. And in some jurisdictions (e.g., the UK) a duty towards the creditors to compensate for the damages.

  53. There is extensive case law, but the difficulties and uncertainties are considerable, cf. Hüffer and Koch (2016), § 311, comments 24 et seq. There is extensive reporting on group actions: a report by the auditor, examination by the supervisory board and the possibility of a court investigation. Nevertheless, the efficacy of the system is doubted: see Hopt (2015a), at p. 10.

  54. The Spanish Draft Commercial Code allows shareholders of the subsidiary to request acquisition of their shares, at fair value, if the parent company has not provided adequate compensation to the subsidiary for the damage resulting from following group instructions (Art. 291-17).

  55. § 309 IV 3 of the German Stock Corporation Act.

  56. Though the details are quite complicated: see Emmerich and Habersack (2016), Suppl. (Anhang) to § 138: Abhängige GmbH und ‘faktischer’ GmbH-Konzern.

  57. See Portugal, Hungary, Slovenia, Croatia, Albania, Brazil, Turkey and Austria (without reporting requirements, but with a duty to compensate immediately). The Spanish Draft Commercial Code (2014) also includes a specific regime for corporate groups, inspired by the German system, but with some original solutions. However, it is uncertain whether the new Commercial Code will be adopted by Parliament.

  58. S. 501, codigo sociedades comerciais (Portugal); see for further details: Antunes (2002, 2008); see also: ECJ, C-186/12, 20 June 2013 (Impacto Azul Lda v. BPSA 9 – Promoção e Desenvolvimento de Investimentos Imobiliários SA and others, where the Court held that it was not contrary to the Treaty freedom—Article 54—that national law excludes foreign companies from the said provision, it being only applicable to Portuguese groups).

  59. See for a comparable approach § 15 AktG; also: Roth (2016). According to Polish case law, the company interest includes the group interest, and companies should act in the interest of the group.

  60. The Rozenblum decision states ‘le concours financier apporté par les dirigeants de fait ou de droit d’une société à une autre entreprise du même groupe dans laquelle ils sont intéressés directement ou indirectement, doit être dicté par un intérêt économique, social ou financier commun, apprécié au regard d’une politique élaborée pour l’ensemble de ce groupe, et ne doit ni être démunie de contrepartie ou rompre l’équilibre entre les engagements respectifs des diverses sociétés concernées, ni excéder les possibilités financières de celle qui en supporte la charge’. See the Rozenblum case, Cass. crim. 4 February 1985, Juris-Data n° 1985-000537; Bull. crim. 1985, n° 54; Juris-Data n° 1985-000537; Bull. crim. 1985, n° 54; Rev. sociétés 1985, p. 688, note B. Bouloc; JCP G 1986, I, 20585, note W. Jeandidier; D. 1985, jurispr. p. 478, note D. Ohl. h. Le Gunéhec, ‘Le fait justificatif tiré de la notion de groupe de sociétés dans le droit pénal français de l’abus de biens sociaux, à propos d’un arrêt de la chambre criminelle du 4 février 1985’, RID pén. 1987, p. 117 et s. The full decision can be found at https://www.legifrance.gouv.fr/affichJuriJudi.do?idTexte=JURITEXT000007064646. The reasoning is, e.g., applied in cases of cash pooling: Cass. com., 10 December 2003: Juris-Data n° 2003-021639; D. 2004, p. 2930, obs. J.-C. Hallouin; Rev. sociétés 2004, p. 669, note J.-J. Daigre; Joly. 2004, p. 503, note J.-M. Moulin; RD bancaire et fin. 2004, comm. 55, obs. F.-J. Crédot et Y. Gérard. See in Belgian case law: Brussels, 15 September 1994, 275, J. Tribunaux, 1993, 312, TRV, 1994, 275, nte A. Francois (Wiskemann case).

  61. See for an exception: Cass. crim., 6 April 2016, n° 15-50.150, FD, Droit des sociétés n° 6, June 2016, comm. 115, R. Salomon.

  62. See Cass. com., 19 November 2013, 12-23.020, Publié au bulletin; Cass. com., 10 February 2015, no 14-11760, SCI Somopi c/Sté Industrias Murtra, D (cassation partielle CA Montpellier, 19 November 2013), BJS 31 May 2015, p. 234, note F. Danos; Gazette du Palais, 28 July 2015, n° 209, P. 26, chron. J.-M. Moulin.

  63. See the following studies: Forum Europaeum Corporate Group Law (2002), High Level Group of Company Law Experts (2002), Reflection Group (2011), mentioned under 1.4. More recently: Conac (2007).

  64. European Commission, Action Plan on European company law and corporate governance, COM(2012) 740 final, 12 December 2012.

  65. Cass. crim. fr. 13 February 1989, Rev Sociétés, 1989, 692, note Bouloc; Cass. Crim. 9 December 1991, Rev Sociétés 1992, 358; see Freyria and Clara (1993), at p. 247. Some resulted in annulment of the transaction. Brussels, 15 September 1994, 275, J. Tribunaux, 1993, 312, TRV, 1994, 275, note A. Francois (Wiskemann case).

  66. ‘Principi di corretta gestione societaria e imprenditoriale’, Art. 2497 Codice civile.

  67. Art. 2497 quinquies, Codice civile.

  68. Concepts like de facto director, wrongful trading and related party transactions are used for similar purposes in the UK and Sweden. See also Hopt (2015a), II A and B, at p. 7 et seq.

  69. See section 994, Companies Act 2006.

  70. Insolvency Act 1986, s 214.

  71. Usually no specific creditor protection measures are mentioned in relation to that case. The Directive on shareholder rights may allow Member States to exclude contracts with a 100%-owned subsidiary from related party rules. See, generally, Enriques (2015).

  72. Art. 225-38 to 225-42 and Art. 225-102-1 French Code des sociétés.

  73. See Art. 524 Belgian Companies Code.

  74. Related party transactions between direct subsidiaries of a parent or of other group companies are outside the scope of the provision. This exception also excludes subsidiaries in which the parent holds less than 100% of the capital.

  75. I.e. , ‘un préjudice financier abusif au bénéfice d’une société du groupe’, Art. 529 Belgian Companies Code. This notion refers to a prejudice that is not only excessive but also derives from an abuse of the position of the parent company.

  76. E.g., because all members are conflicted. Decisions not conforming to this procedure are voidable.

  77. Art. 239(6) Dutch Civil Code, Book 2.

  78. See Monitoring Commissie Corporate Governance (2008). See De Nederlandse Corporate Governance Code, 8 December 2016, 2.7 ‘voorkomen belangenverstrengeling’.

  79. Dutch Civil Code, § III. 6.4, referring to conditions that are usual in the business sector concerned.

  80. See Art. 107a Dutch Civil Code, Book 2. A similar provision in the internal corporate governance statement was considered invalid under Belgian law, the board always being able to change the provision: Trib. Comm. Brussels, 18 November 2008, RPS, 2009, 7011, 486, but overruled by Brussels, 12 December 2008, RPS, 2009, 7010, 432; see also the comment in De Cordt (2009).

  81. Companies Act 2006, s 170(5) (as amended).

  82. Listing Rules 11.1.

  83. Insolvency Act 1986, s. 251.

  84. See the pre-IFRS standard FRS 8: related party disclosures, now s. 33 FRS 102.

  85. See FRS 8, defining a related party as follows: (a) one party has direct or indirect control over the other party; or (b) the parties are subject to common control from the same source; or (c) one party has influence over the financial and operating policies of the other party to the extent that that other party might be inhibited from pursuing at all times its own separate interests; or (d) the parties, in entering a transaction, are subject to influence from the same source to such an extent that one of the parties to the transaction has subordinated its own separate interest.

  86. Disclosure relates to: (a) information on related party transactions; and (b) the name of the party controlling the reporting entity and, if different, that of the ultimate controlling party, whether or not any transactions between the reporting entity and those parties have taken place.

  87. The Austrian situation is similar.

  88. The general principles of the Civil Code on conflicts of interest may be applied in these cases; § 181 BGB. As to the doctrine, case law and legal provisions on conflicts of interest in corporate law and other areas of law, see Kumpan (2014). Dealing with related party transactions under German law, e.g., Vetter (2015).

  89. For fear of disclosing company secrets, although recent literature pleads for reform.

  90. See Spanish Companies Act (Ley de Sociedades de Capital, 4 December 2014, 31/2014, Art. 190). These matters include: authorisation to transfer shares, exclusion of a member, granting a right to a member, waiving an obligation, providing financial assistance to a member, and waiving the duty of loyalty. This latter case may be the most important one, since it may include the use of corporate opportunities. For more details, including on the regime in the Corporate Governance Code, see Recalde Castells et al. (2013); Embid (2016).

  91. See Codigo Unificado de Buen Gobierno (2006, updated in 2013), Recommendation No. 2.

  92. See Art. 2391 Codice civile; for a commentary, see Ferrarini et al. (2013).

  93. See Consob Regulation No. 17221 of 12 March 2010, as later amended; Ferrarini et al. (2013), at p. 400 et seq, Enriques (2015).

  94. Statement AMN 2012:05 Swedish Securities Council.

  95. Art. 379 § 1 Polish Commercial Companies Code. Polish law follows the German-style two-tier system of corporate governance, with the management board and the supervisory board as separate corporate bodies (Opalski 2012; Pyzio 2015; Moskała 2016).

  96. Art. 15 § 1 Polish Commercial Companies Code.

  97. Art. 377 Polish Commercial Companies Code.

  98. Art. 355 § 3 Polish Commercial Companies Code.

  99. Polish law has not developed a separate body of rules on groups of companies but relies on court precedents, which, however, are rare.

  100. Art. 413 § 1 Polish Commercial Companies Code.

  101. Rule V.Z.5 WSE Corporate Governance Code.

  102. Rules II.Z.3-4 WSE Corporate Governance Code.

  103. BGE 113 ll 57.

  104. See https://www.admin.ch/opc/fr/federal-gazette/2008/1571.pdf. The proposed article applies to conflicts with members of the management or supervisory board and provides for the supplying of details about the conflict to the chairman, who will inform the full board. The board will adopt the measures necessary to protect the company’s interest, while the conflicted member will be excluded from the decision (Amstutz 2015, 2017). In general, Thévenoz and Bahar (2007).

  105. Davies et al. (2013), at p. 55 et seq., and Davies (2013), at p. 749.

  106. See Art. 524(7) Belgian Companies Code, which states that the annual report of the listed entity should mention the substantial limitations or charges which were imposed by the parent company or whose continuation it requested: this is considered to include corporate opportunities.

  107. See, e.g., in the Netherlands, Corporate Governance Code, II.3.1; on the topic in general, see the comparative analysis by De Wulf (2002), at p. 705 et seq.; Verdam (1995). The group management may be held liable if the decision, without countervailing measures, led to the demise of the subsidiary. In Germany, this is mainly dealt with in – rare – case law, see Merkt (1995).

  108. See Roth (2001), at p. 61.

  109. Art. 229.1d) of the Companies Act (LSC—Ley de Sociedades de Capital).

  110. See Art. 231.2 of the Spanish Companies Act.

  111. See Art. 230 of the Spanish Companies Act.

  112. Proposal for a Directive amending Directive 2007/36 as regards the encouragement of long-term shareholder engagement and Directive 2013/34 as regards certain elements of the corporate governance statement, Council document 15248/16, 13 December 2016. On RPTs according to the directive, see Kumpan (2015).

  113. This would be the case, for instance, if the management of the parent, in agreement with the controlling shareholder, takes the business decision to invest heavily in a risky subsidiary without the shareholders’ consent in the general assembly of the parent corporation. See BGH, BGHZ 83, 122 (1982), Holzmüller case, but see also BGHZ 159, 30 (2004) (Gelatine case).

  114. Therefore, the second Forum Europaeum approach would not apply to such subsidiaries, such as, e.g., service companies. See Section 1.4. In French law, such subsidiaries are often organised as sociétés anonymes simplifiées (SAS) or as EURL (in fact SARL, Arts. 227-1 and 223-1 French Company Law). According to French law, a société anonyme (SA) must have at least seven shareholders. See supra n. 17.

  115. On environmental, social and governance (ESG) information, see Directive 2014/95/EU of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups.

  116. See, e.g., Art. 9(2) Dutch Civil Code, stating that directors are ‘responsible for their maladministration’ (‘onbehoorlijk bestuur’).

  117. See § 266 German Criminal Code (StGB), on ‘embezzlement’, which has been used for abuse of corporate assets, Roth (2016).

  118. In an older English case, the conduct was defined as ‘burdensome, harsh and wrongful’. A buy-out is the normal remedy further to a successful petition for relief under s 994 Companies Act, although the court can grant any remedy it sees fit.

  119. Nicholas v. Soundcraft Electronics Ltd [1993] B.C.L.C. 360 CA (Civ Div); Meyer v. Scottish Cooperative Wholesale Society Ltd [1959] A.C. 324; Gross v. Rackind [2005] 1 W.L.R. 3505.

  120. Cass. com., 18 April 1961, JCP, 1091, 12164. For a comparative overview Conac (2007).

  121. Art. 1833 Code Civil. The Belgian Companies Code takes a similar approach, but the common interest is defined in terms of procuring an ‘economic benefit for the members’.

  122. Art. 562, Belgian Companies Code.

  123. Cass., 3e civ., 25 March 1998, Bull. Joly, 1998, 635 note Couret.

  124. Cass. com., 29 May 1972, n° 71-11739, D, 1972, Somm. 176, JCP. 1973, II, 17117, note Guyon.

  125. See Cass., 9 March 1993, Bulletin 1993 IV N° 101 p. 69.

  126. Paris, 3 May 2002, RTD Comm, 2002, 482 Obs Champaud and Danet.

  127. This is known as ‘famishing’: see Cass. Civ. 3, 7 February 2012, n° 10-17812, ordering the distribution of the retained dividends, notwithstanding the liability of the majority shareholder. Under certain circumstances, this behaviour may also qualify as a violation of the equal treatment of shareholders. In one case it was held that the majority shareholder had behaved ‘contrary to the company interest by refusing to undertake action in the interest of the company and that of all other shareholders, but exclusively aimed at the controlling shareholder’s purpose’ (Cass. com., 9 March 1993, n° 91-14685). For Spain, see supra n. 91. More controversial is the ‘abuse of minority’ power, as illustrated in a case where a minority shareholder refused to vote in favour of an increase of the company’s capital, which was indispensable to its survival, as this refusal was dictated by his sole wish to hamper the functioning of the company, for purely personal motives and to the benefit of another company, in which the shareholder’s son-in-law held the majority of shares (Cass. com., 5 May 1998, n° 96-15383). Other examples relate to a parent company’s decision to assume all the subsidiary’s liabilities against the company interest, but with the sole intention of covering the failed actions of a shareholder, who was part of the majority. Other cases involve diverting a company’s business to a company created by the majority of the shareholders of that company.

  128. Equal treatment of shareholders is also an important instrument for protecting minority shareholders. It is in part rooted in the former Second Company Law Directive, but is regarded as a general principle of company law, even outside the strict boundaries of that Directive. Being applicable to all companies, listed or not, it is not a specific group law remedy. See now recast Second Directive 2012/30 of 15 October 2012, Art. 46, applicable only ‘for the purpose of the implementation of this Directive’.

  129. Walker v. Wimborne (1976) 137 CLR 1 (High Court of Australia).

  130. See Valzer (2016).

  131. Interestingly, one of the particular rules that gives the minority the right to sell their shares in case of a lack of distribution of dividends (Art. 348 bis Spanish Companies Act) will not be applicable until 31 December 2016.

  132. Sec. 100 et seq. Austrian AktG.

  133. Sec. 195(2) Austrian AktG.

  134. See Hopt (2004).

  135. §§ 76 and 93 German Stock Corporation Act.

  136. § 116 with §§ 76, 93 German Stock Corporation Act.

  137. § 53a German Stock Corporation Act.

  138. Cf. 132 II, 142 II, 147 German Stock Corporation Act.

  139. As to the business judgment rule in German and Swiss corporate law, cf. Hopt (2015c).

  140. About which more below.

  141. Cf., e.g., Sec. 134 et seq. Austrian AktG.

  142. In the UK, the parent company could exceptionally be held liable in tort or in negligence where it is held to a duty of care.

  143. Under German commercial partnership law, a partner may ask the court to exclude another partner if there are serious reasons relating to the person of that partner. He may also terminate his membership for serious reasons. See § 140 German Commercial Law. The details are controversial, cf. Baumbach and Hopt (2016), § 140 by Roth M, comments 3 et seq regarding the two-person commercial partnership (OHG) and § 133, comment 1.

  144. This remedy cannot be used by a company vis-à-vis its own shareholders, nor by a subsidiary with respect to the shareholders of the parent. See Art. 632(2) Belgian Companies Code.

  145. Arts. 636 et seq. and 642 et seq. Belgian Companies Code; in Germany, also for the Offene Handelsgesellschaft (OHG).

  146. For Germany, this follows rather from the fact that the parts of a commercial partnership cannot be listed. For stock corporations other provisions apply. For the GmbH, whose parts cannot be listed either, the exit right is controversial, see, e.g., Fastrich (2016), Anhang to § 34: Ausschluss und Austritt von Gesellschaftern.

  147. In the UK, the most common remedy provided to the minority in unfair prejudice claims is an order that either the majority or the company buy the minority’s shares at a non-discounted price which also reflects the value of the company before the unfair action was taken.

  148. Arts. 15 (squeeze-out rights) and 16 (sell-out rights) of Directive 2004/25 on takeover bids.

  149. See §§ 327a et seq. German Stock Corporation Act.

  150. See Art. 236-6 General Regulation of the Autorité des marchés financiers, requiring controlling persons or shareholders to notify to the regulator at an early stage significant changes to the charter provisions, or intragroup mergers or restructurings. Decisions to cease distributions or make changes in the corporate activity also have to be notified to the regulator. These notifications allow the regulator to consider appropriate action, and ultimately a withdrawal order.

  151. See UNCITRAL, Directors’ obligations in the period approaching insolvency: enterprise groups, Secretariat, 23 February 2016, A/CN.9/WG.V/WP.13.

  152. Cass. com. 12 June 2012, RJDA 11-12. 968, stating that a company cannot be held to the debt of its subsidiary. This may be different if it has actively intervened in the relations of the subsidiary with a creditor and made the latter believe that it would assume liability (see also Cass. com. 9 October 2006, RJDA 1- 07, no. 50).

  153. For a survey on these instruments of creditor protection, see Hopt (2015a), VI, at p. 18 et seq.; Mülbert (2006). Compare on group liability, Lennarts (1999).

  154. See section 214(7) UK Insolvency Act 1986. Note that the definition of a ‘shadow director’ in s 251 of the Insolvency Act does not exclude the case of a parent company giving directions to the subsidiary, as does the Companies Act definition.

  155. See Hopt (2015a), note 97. For the UK, Secretary of State for Trade and Industry v. Deverell [2000] 2 B.C.L.C. 133, CA.

  156. See Hopt (2015a), at p. 20.

  157. See Art. 442-6-I -5° of the French Code de commerce, which provides that a company would be liable for the sudden interruption of business relations: ‘De rompre brutalement, même partiellement, une relation commerciale établie, sans préavis écrit tenant compte de la durée de la relation commerciale et respectant la durée minimale de préavis déterminée, en référence aux usages du commerce…’; comp. Brussels, 3 February 1988, Journal des Tribunaux, 1988, 516 (on the basis of ‘culpa in contrahendo’). Similar ideas were developed in Belgian law, where legitimate anticipation of someone’s behaviour (‘anticipations legitimes d’autrui’) would justify the belief that a renowned group would not suddenly let its subsidiary default, leading to a creditor’s right of action against the parent: Malherbe et al. (2004), no. 1625, with reference to X. Dieux.

  158. Cf. Hopt in Baumbach and Hopt (2016), (7) Bankgeschäfte comments G-28 et seq.: liability for extending credits or stopping extended credits. This applies to banks, but by analogy also to other companies. In the context of group law, the general liability of the parent towards the creditors under § 309 of the German Stock Corporation Act may be applicable, see supra n. 55.

  159. On the ‘devoir de vigilance’ in France, see http://www.assembleenationale.fr/14/ta/ta0501.asp, referring to the requirement for parent companies to prevent breaches of human rights, of anti-corruption prohibitions, and of environmental laws by their subsidiary and, beyond their groups, by all regular business partners. Pietrancosta and Boursican (2015).

  160. A different approach to creditor protection exists in Spanish law, where the claims of the parent company and of other companies belonging to the same group are automatically subordinated (see Art. 92 Ley Concursal).

  161. Art. 651-2. French  Code de commerce; see, under Belgian law, Art. 530, Companies Code; Legros (2015).

  162. See France (Art. 625-2 French Code de commerce) and Belgium (Arts. 409 and 530 Companies Code).

  163. See Art. 530 Belgian Companies Code; Art. 651-2 French Code de commerce, ‘faute de gestion ayant contribué à cette insuffisance d’actif’. Even a slight management error can trigger this remedy. The rule is only applicable in case of judiciary winding up.

  164. See Art. 530 Belgian Companies Code.

  165. See Art. 651-2 French Code de commerce.

  166. See Art. 530(2) Belgian Companies Code; Comm. Mons, 12 November 1979 JT 1980, 265.

  167. Cf. s 214 v. s 213(1) Insolvency Act: ‘Fraudulent trading’ occurs ‘[i]f in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose’, which has the effect of leading to liability of the persons involved.

  168. Under Belgian law, ‘une faute grave et caracterisée’ has to be proven: serious breaches of the tax code will qualify for this criterion (Art. 530(2)); for an application of this Article: comm Mons, 12 November 1979 JT 1980,265.

  169. § 64 Act on the GmbH.

  170. See the comparison between UK and German law by Steffek (2011).

  171. ‘Reliance on outward appearances’ or ‘Konzernvertrauen’ in Swiss law. See Burg and Von der Crone (2010), at p. 417.

  172. See the Swiss cases Swissair, BG 15 November 1994, and Motor Columbus, BG, 16 April 1998, which are based on the factual appearance of the economic unity of the group, leading to Konzernvertrauenshaftung.

  173. See Art. 621-2 French Code de commerce.

  174. See Braeckmans and Houben (2012), nn. 85, 59.

  175. See Art. 621-2. al. 2, French Code de commerce, modified by Art. 16, Ord. 2014-326 of 12 March 2014. Sometimes reference is made to ‘personne morale considérée nulle et extension de la faillite au maître de l’affaire’. It is not a case of extension of the insolvency to the trader behind the company, but of attributing the insolvency directly to him, leading to the recognition of one insolvent estate and one liquidation procedure. Comp. Antwerpen, 1 February 1994, TRV 1996, 62, considering two foreign state-owned companies as parts of a single enterprise. Cass. 6 December 1996, Arr. Cassatie, 1996, 491, recognising the individual personality of Algerian state-owned enterprises.

  176. It may be doubted whether this technique is still available, since the First Company Law Directive restricted the ambit of the ‘nullity of the company’ to very specific cases; see Art. 11, Directive 2009/101, where some exceptions to the principles can be found.

  177. See Geens et al. (2012), at p. 221.

  178. This refers to the famous theory of Aubry and Rau regarding the unity of assets, forbidding the split-up as being prejudicial to creditors.

  179. See De Wulf (1991), III, 5-4, RCJB, at p. 301.

  180. Adams v. Cape Industries plc [1990] Ch. 433 (CA). In Germany, too, it is a rare exception.

  181. See Prest v. Petrodel [2013] UKSC 34.

  182. See DHN Food Distributors v. Tower Hamlets [1976] 1 W.L.R. 852, at p. 860 (Mayson et al. (2005)), where the corporate veil was lifted on the companies forming the group on the basis that they were bound ‘hand and foot’ as in a partnership. The case is considered an outlier.

  183. See ibid., which was a dispute about the division of assets between the partners on divorce.

  184. Connelly v. RTZ Corp Plc [1998] A.C. 854, HL; Lubbe v. Cape Plc [2000] 1 W.L.R. 1545, HL; Chandler v. Cape Plc [2012] EWCA Civ 525.

  185. The right to give instructions to a subsidiary leads to different interpretations in the respective EU jurisdictions: in the states that follow the Rozenblum test, instructions are allowed within the criteria of that test. In the UK, a supermajority is entitled to formally instruct the subsidiary, thus limiting the liability of the directors of the subsidiary. This is also the case in Sweden. The German AG law does not provide for a right of instruction (unless there is a contractual group); this is accepted in the GmbH law only. However, groups often use both types of companies. In Italy, directors acting according to instructions can still be held liable on the basis of the criteria mentioned in the law.

  186. This is the most plausible analysis of the law. The power to give instructions to directors and its impact on directors’ duties is a somewhat underexplored area.

  187. There are many cases where an action apparently disadvantageous to the subsidiary has been justified by reference to the benefit conferred on the group from which the subsidiary has, in turn, benefitted. The group context is just one of a range of situations which may be relevant to the assessment of the director’s duty of care or duty of loyalty. It is not identified for special treatment in the legislation or the courts’ decisions.

  188. For social security purposes, they may be considered independent contractors.

  189. For the French situation, see Pietrancosta (2013), at p. 194.

  190. In French law, see Arts. 225-251 et seq. Code de commerce, declaring the directors and ‘directeur général’ liable towards the company or third parties for breaches of the law or the charter, or for negligent management.

  191. See the references, Wymeersch (2003). In general: Langenbucher (2016).

  192. For these, see supra 2.5, and n. 60 and the references to the Rozenblum decision, Conac (2013); Drygala (2013); Club des Juristes (2015).

  193. See OECD (2012); for an approximation to the measurement of minority protection, see World Bank (2015), at p. 76 et seq. (Protecting minority investors: going beyond related party transactions).

  194. See, e.g., Enriques (2015) (with a critique of the European Commission proposal).

  195. This analysis is based on the document submitted to the Council, dated 13 December 2016, ref 15249/16. For the discussion in the European Parliament, see the Cofferati Report, of 12 May 2015, on the proposal for a Directive of the European Parliament and of the Council amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement (COM(2014)0213 – C7 0147/2014 – 2014/0121(COD)).

  196. See OECD (2012); for the measurement of minority protection, see the World Bank’s ‘Doing Business’ reports, such as World Bank (2016), at p. 47, mentioning the countries where rules on conflicts of interest have been introduced.  Detailed findings and analyses can be found in legal writing analysing the laws and regulations already in force, see especially Enriques (2015), De Wulf (2002).

  197. The enforcement aspects are left to the national judiciary and administrative bodies in charge of applying company law rules to listed companies; see Art. 14b of the Directive.

  198. The proposed Directive did not receive much support from business organisations representing large companies, with ‘Business Europe’ and ‘European Issuers’ warning that ‘prescriptive provisions would slow down corporate decisions, increase costs and inadvertently give sensitive information to competitors’: see Business Europe and European Issuers, at 293_Joint-letter_BusinessEurope-EuropeanIssuers_on_shareholders_rights_to_EP_JURI. In a later statement, the criticism was extended and an exemption for groups of companies in general was proposed. The European Fund and Asset Management Association (EFAMA) welcomes the proposed provisions but states that an exemption should be provided for intragroup transactions where these are part of the normal course of business. The European Banking Federation also published a critical view of the RPT regime, arguing that ‘Member States have already in place today rules to protect minority interests in line with their own individual national company law regime’. See http://www.ebf-fbe.eu/wp-content/uploads/2014/09/EBF_010608-Revision-of-the-Shareholders-Rights-Directive-fnal-draft-EBF-position-paper-on-Chapter-IA-clean.pdf. These opinions contrast with the industry’s supporting statements mentioned in the Commission consultations.

  199. See IAS 24 on ‘related party disclosures’ applicable within the EU on the basis of the endorsement procedure laid down in Regulation 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (OJ L 243, 11.9.2002, p. 1).

  200. See, e.g., Art. 4(15) and (16) of Regulation 575/2013 on prudential requirements for credit institutions and investment firms (CRR), referring, for the definition of parent and subsidiary, to Directive 83/349 on consolidated accounts, which was replaced by Directive 2013/43 of 26 June 2013.

  201. To avoid giving incentives to shareholders to greenmail the company.

  202. These points are dealt with more specifically in OECD (2012). Further important contributions are Enriques (2015) (with a critique of the European Commission proposal); Fleischer (2014); Tröger (2015a, b); Vetter (2015). See also Hopt (2015a), IV, at p. 13 et seq.

  203. In the sense of Regulation No 596/2014 on market abuse and Directive 2014/57/EU on criminal sanctions for market abuse.

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Authors and Affiliations

  1. Böckli Bühler Partners, Basel, Switzerland

    Peter Böckli

  2. University of Oxford, Oxford, UK

    Paul L. Davies

  3. University of Cambridge, Cambridge, UK

    Eilís Ferran

  4. University of Genoa, Law School, Genoa, Italy

    Guido Ferrarini

  5. International Monetary Fund (IMF), Washington (DC), USA

    José M. Garrido Garcia

  6. Max Planck Institute for Comparative and International Private Law, Hamburg, Germany

    Klaus J. Hopt

  7. Faculty of Law and Administration, University of Warsaw, Warsaw, Poland

    Adam Opalski

  8. Sorbonne Law School, Paris, France

    Alain Pietrancosta

  9. University of Gothenburg, Göteborg, Sweden

    Rolf Skog

  10. Komisja Kodyfikacyjna Prawa Cywilnego, Warsaw, Poland

    Stanislaw Soltysinski

  11. University of Amsterdam, Amsterdam, The Netherlands

    Jaap W. Winter

  12. Wirtschaftsuniversitaet, Vienna, Austria

    Martin Winner

  13. Financial Law Institute, Ghent University, Ghent, Belgium

    Markus Roth & Eddy Wymeersch

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  1. Peter Böckli
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  2. Paul L. Davies
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European Company Law Experts (ECLE)

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Correspondence to Eddy Wymeersch.

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European Company Law Experts (ECLE)., Böckli, P., Davies, P.L. et al. A Proposal for the Reform of Group Law in Europe. Eur Bus Org Law Rev 18, 1–49 (2017). https://doi.org/10.1007/s40804-017-0066-2

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