Right of establishment - University of Belgrade

Right of establishment
Doc dr Tatjana Jevremović Petrović
Free movement of goods, capital, services and
Cross-border or inter-State element
All national elements – exclusive competence of
national law
Right of establishment
Art. 43 (now art. 49) “...restrictions on the freedom of
establishment of a national of a MS in the territory of
another MS shall be prohibited. Such prohibition shall
also apply to restrictions on the setting-up of agencies,
branches or subsidiaries by nationals of any MS established
in the territory of any MS. Freedom of establishment
shall include the right ... to set up and manage undertakings,
in particular companies or firms ... under the conditions laid
down for its own nationals by the law of the country
where such establishment is effected ...”
Content of the right of establishment
Economicaly described by ECJ: “...concept of
establishment involves the actual pursuit of an
economic activity through a fixed establishment
in another MS for an indefinite period”
For companies right of establishment means
non discrimination in another country
(treatment in the same way as domestic
company), right for the company to do business
in another country.
Content and scope of the the right of
Discriminate-based reading of the Treaty
provisions (non discrimination)
Restriction-based reading of the Treaty
Non discrimination of the foreign company in other
MS compared to domestic companies
restrictions for domestic companies in connection to
another MS – usually connected to situation of
home country when company wants to leave
Direct effect of the right of establishment?
Right of establishment
Four factors test (Gebhard Case) – restrictions to the
right of establishment:
National measures liable to hinder or make less
attractive the exercise of fundamental freedoms
guaranteed by the Treaty must fulfill four conditions:
Must be applied in a non-discriminatory manner
Must be justified by imperative requirements in the general interest
Must be suitable for securing the attainment of the objective which
they pursue
Must not go beyond what is necessary in order to attain it.
Right to apply national provisions when
discriminatory measures are allowed, on the grounds
of public policy, public security or public health (special
provisions for foreign companies)
Right of establishment
Right of primary establishment
right to set up and manage undertakings
Change of primary establishment
Cross-border transfer of company’s real seat (not registered seat)
Cross-border merger from the point of view of acquired company,
different forms of concentration
Problem of direct effect of this right (exist only from the host
State point of view)
Right of secondary establishment
Setting up branches, subsidiaries or agencies in another MS
Cross-border merger from the point of view of the acquiring
Practical irrelevance of place of secondary establishment after
Primary/secondary establishment
After Centros based on legal (not factual)
character of relationship between place of primary secondary establishment: holding/governing
company – controlled company in external
Place of primary/secondary establishment ≠
right of primary/secondary establishment
Segers Case C-79/85
Mr. Segers, national of Netherlands took over UK
company, registered in the UK. Later founded
subsidiary in Netherlands and there performed all
activities of the primary establishment
Primary concern: the fact that company didn’t perform
any of its activities in the place of the registered seat,
and performed all activities trough a branch in
Questions for the ECJ
Daily Mail Case 81/87
UK company Daily Mail, registered in this
country, wanted to change its residence (real
seat) to the Netherlands for tax purpose. This
right was denied, or tax had to be payed.
Residence in the UK relevant for tax payments.
Relevant First question to the ECJ
Centros Case C-212/97
Danish couple founded a company in the UK,
with a registed office in the UK. Share capital
was 100 GBP (unpaid)
Danish couple were residents of Denmark and
wanted to register a branch in Denmark in order
to perform all its buisiness through this branch.
Registration was refused on the grounds that it
is factualy primary establishment – therefore
minimum capital has to be paid.
Uberseering Case C-208/00
Company formed in Netherlands, afterward acquired
by two German nationals, residing in Germany.
Uberseering wanted to sue other company for not
fulfilling some contractual obligations, but was denied
on the ground that it doesn’t have a legal capacity,
because it moved its real seat to Germany, and under
German law it cannot be considered as being a legal
person, if not reincorporated again.
Insipire Art Case C-167/01
Company formed under UK law, having sole
director with a domicile in the Hague, and also a
branch in the Netherlands.
Netherland’s Law on the Formally Foreign
companies with provisions introducing
responsibility of directors, specification in the
register that a company is formally foreign, and
certain minimum capital requirements.
Sevic Case C-411/03
Established in Germany, wanted to acquire a
company from Luxembourg as a way of crossborder merger.
Operation was denied by preventing registration
on the grounds as not beeing possible under
German law, which regulates only domestic
Cartesio Case C-210/06
Hungarian company, formed under Hungarian
law with its real seat there, and having
Hungarian nationals for its owners and
managers wanted to move its real seat out of
Hungary, to Italy, but still to be regulated by
Hungarian law. Transfer was denied.
Vale Case C-378/10
Cross-border transfer of a company’s seat governed by
Italian law to Hungary
 Removed from Italian register 13 Feb 2006
Change in the applicable law and its reincorporation as
a company governed by Hungarian law which claims to
be the universal successor to the Italian company
 Application for Hungarian registration 19 Jan 2007
Ruling on the extent of a host Member State’s
obligations in the case of the cross-border
reincorporation (conversion) of a limited company –
under the scope of the right of establishment
Direct effect of the right of establishment
Inbound/outbound establishment
Future application of real seat doctrine
Company law issues (creditor protection, employee participation)
Competition and efficiency vs. Protection of interest of certain persons
(ECJ in fact gives primacy to efficiency)
Regulatory competition or “Delaware effect”
Circumvention of laws (fraus legis) – pro forma foreign companies
Race to the top/race to the bottom
Competition vs. Harmonization
Regulatory competition after Centros case
What instruments are possible to prevent circumvention of laws?
Application of the provisions of one legal system unconsistent
(different lex societatis – lex concursus)
Reading materials
Obligatory reading
Dorresteijn/Monteiro/Teichmann/Werlauff “European Corporate Law”
Catherine Barnard “The Substantive Law of the EU: The Four Freedoms”, OUP, 2010.
F. Burrows, Free movement in European Community Law, Clarendon Press, Oxford, 1987.
Anne Looijestijn-Clearie, „Centros Ltd — A complete U-turn in the right of establishment for
companies", International and Comparative Law Quarterly, vol. 49, July 2000.
Luca Cerioni, „The Barriers to the International Mobility of Companies within the European
Community: A Re-reading of the Case Law", The Journal of Business Law, January 1999.
Veronika Korom, Peter Metzinger, „Freedom of Establishment for Companies: the European
Court of Justice confirms and refines its Daily Mail Decision in the Cartesio Case C-210/06“,
European Company and Financial Law Review, nr. 1, 2009.
Manuel Garcia-Riestra, „The Transfer of Seat of the European Company v Free Establishment
Case-Law”, European Business Law Review, nr. 6, 2004.
Werner Ebke, „The European Conflict-of-Corporate-Laws Revolution: Überseering, Inspire Art
and Beyond“, European Business Law Review, nr. 1, 2005.
Justin Borg-Barthet, „European private international law of companies after Cartesio“, International
and Comparative Law Quarterly, vol. 58, nr. 4, 2009.
Robert Drury, „The ‘Delaware Syndrome’: European Fears and Reactions”, Journal of Business Law,
November, 2005.
Further reading

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