European Law Report - Transfer of company seat
A company must be free to transfer its operational headquarters from the member state of incorporation to another without undergoing liquidation procedures, Advocate General (AG) Poiares Maduro has recently opined. Any restrictions to the contrary...
A company must be free to transfer its operational headquarters from the member state of incorporation to another without undergoing liquidation procedures, Advocate General (AG) Poiares Maduro has recently opined. Any restrictions to the contrary would be in breach of the fundamental right of freedom of establishment as enshrined in the EC Treaty.
This opinion goes a long way in laying down some guidance at a community level in so far as the transfer of a company's seat is concerned. To date, different member states embrace different principles as to which company law applies in relation to a company. Thus, while certain member states ascertain that a company should be governed by the law of the country where it is registered, others maintain that it is the law of the country where the company has its headquarters or principle place of business that should regulate that company. Such conflicting views have led to different conclusions as to whether a company should be permitted to transfer its head office or registered office to another member state without being dissolved.
Over the years, the European Court of Justice has, through its rulings, sought to clarify the situation and to lay down clear rules as to when a company can rely on the freedom of establishment in order to secure its right to transfer its head office from one member state to another. The recent opinion of AG Maduro militates in favour of giving a broad interpretation of the concept of freedom of establishment in such a way as to ensure that the right of a company to transfer its operational headquarters from one member state to another without being dissolved is safeguarded.
This particular case concerned a Hungarian company, Cartesio, which wanted to transfer its operational headquarters to Italy while at the same time retaining its legal status as a company governed by Hungarian law. Hungarian law does not offer companies the possibility of transferring their operational headquarters to another member state without being struck off the Hungarian company register. For a company to be incorporated under Hungarian law and remain subject to Hungarian company law, its operational headquarters must be in Hungary. This meant that for Cartesio to change its operational headquarters, it must first be dissolved in Hungary and then re-registered as a company under Italian law.
The issue was brought to the attention of the European Court of Justice by way of a preliminary reference by the Hungarian courts. In his opinion, the advocate general has now clearly opined that the fundamental freedom of establishment can be invoked in such a scenario. In fact, Hungarian law is, by imposing such restrictions, discriminating between companies that want to operate cross-border and those that merely transfer their operational headquarters within Hungary itself and which continue to be regulated by Hungarian law. The AG noted that particularly in the case of small- and medium-sized companies, an intra-community transfer of operational headquarters may well be a simple and effective form of taking up genuine economic activities in another member state without having to face the costs and the administrative burdens inherent in first having to wind up the company in its country of origin and then having to re-register it in another member state. Furthermore, the process of winding up a company in one member state and then reconstituting it under the law of another member state can take considerable time, during which the company may be impeded from operating altogether. The AG hence concluded that preventing a company from transferring its operational headquarters from one member state to another amounts to a restriction on the right of establishment as enshrined in the EC Treaty. Furthermore, in this particular case, Hungarian law did not even give any justification for precluding such a transfer of operational headquarters. Therefore, the restriction imposed could not even be justified on certain grounds which are admissible at law, such as grounds of general public interest or the protection of the interests of creditors, minority shareholders, employees or the tax authorities.
It is important to note that the AG's opinion is not binding on the European Court of Justice. However, it is interesting to note that the European Court of Justice follows the AG in 80 per cent of cases. The adoption by the said court of the AG's line of reasoning in this particular case, would serve to provide further guidance to companies in an area of law which is to date still unharmonised at community level.
mariosa@vellacardona.com
• Dr Vella Cardona is a freelance consultant in EU, intellecual property and competition law.
This opinion goes a long way in laying down some guidance at a community level in so far as the transfer of a company's seat is concerned. To date, different member states embrace different principles as to which company law applies in relation to a company. Thus, while certain member states ascertain that a company should be governed by the law of the country where it is registered, others maintain that it is the law of the country where the company has its headquarters or principle place of business that should regulate that company. Such conflicting views have led to different conclusions as to whether a company should be permitted to transfer its head office or registered office to another member state without being dissolved.
Over the years, the European Court of Justice has, through its rulings, sought to clarify the situation and to lay down clear rules as to when a company can rely on the freedom of establishment in order to secure its right to transfer its head office from one member state to another. The recent opinion of AG Maduro militates in favour of giving a broad interpretation of the concept of freedom of establishment in such a way as to ensure that the right of a company to transfer its operational headquarters from one member state to another without being dissolved is safeguarded.
This particular case concerned a Hungarian company, Cartesio, which wanted to transfer its operational headquarters to Italy while at the same time retaining its legal status as a company governed by Hungarian law. Hungarian law does not offer companies the possibility of transferring their operational headquarters to another member state without being struck off the Hungarian company register. For a company to be incorporated under Hungarian law and remain subject to Hungarian company law, its operational headquarters must be in Hungary. This meant that for Cartesio to change its operational headquarters, it must first be dissolved in Hungary and then re-registered as a company under Italian law.
The issue was brought to the attention of the European Court of Justice by way of a preliminary reference by the Hungarian courts. In his opinion, the advocate general has now clearly opined that the fundamental freedom of establishment can be invoked in such a scenario. In fact, Hungarian law is, by imposing such restrictions, discriminating between companies that want to operate cross-border and those that merely transfer their operational headquarters within Hungary itself and which continue to be regulated by Hungarian law. The AG noted that particularly in the case of small- and medium-sized companies, an intra-community transfer of operational headquarters may well be a simple and effective form of taking up genuine economic activities in another member state without having to face the costs and the administrative burdens inherent in first having to wind up the company in its country of origin and then having to re-register it in another member state. Furthermore, the process of winding up a company in one member state and then reconstituting it under the law of another member state can take considerable time, during which the company may be impeded from operating altogether. The AG hence concluded that preventing a company from transferring its operational headquarters from one member state to another amounts to a restriction on the right of establishment as enshrined in the EC Treaty. Furthermore, in this particular case, Hungarian law did not even give any justification for precluding such a transfer of operational headquarters. Therefore, the restriction imposed could not even be justified on certain grounds which are admissible at law, such as grounds of general public interest or the protection of the interests of creditors, minority shareholders, employees or the tax authorities.
It is important to note that the AG's opinion is not binding on the European Court of Justice. However, it is interesting to note that the European Court of Justice follows the AG in 80 per cent of cases. The adoption by the said court of the AG's line of reasoning in this particular case, would serve to provide further guidance to companies in an area of law which is to date still unharmonised at community level.
mariosa@vellacardona.com
• Dr Vella Cardona is a freelance consultant in EU, intellecual property and competition law.