Tagged: freedom of establishment

VALE: a never ending story on free movement of companies within the EU finally ended?

On 12 July 2012 the European Court of Justice (ECJ) ruled in the VALE case (C-378/10) that

“Articles 49 TFEU and 54 TFEU are to be interpreted as precluding national legislation which enables companies established under national law to convert, but does not allow, in a general manner, companies governed by the law of another Member State to convert to companies governed by national law by incorporating such a company.”

The case concerned a cross-border conversion of a company established under Italian law, VALE Construzioni Srl, into a company incorporated under Hungarian law, VALE Építési kft. Under Italian law it is possible for a company to convert into a company established under foreign law. Under Hungarian law only companies incorporated under the law of Hungary are allowed to convert. The VALE case is the ‘mirror image’ of the Cartesio case (C-210/06) which concerns a transfer of a registered office of a company under Hungarian law to Italy without a conversion. In the Vale case the Court stated that a Member State may restrict a company governed by its law to retain the status of the company established under the law of that Member State if the company intends to move its seat to another Member State, thereby breaking the connecting factor required under the national law of the Member State of incorporation. However, the Member State of origin of that company cannot prevent a company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so.

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The European Parliament on cross border transfer of company seat

In its Cartesio judgment (C-210/06) the Court ruled that “as Community law now stands, Articles 43 EC and 48 EC are to be interpreted as not precluding legislation of a Member State under which a company incorporated under the law of that Member State may not transfer its seat to another Member State whilst retaining its status as a company governed by the law of the Member State of incorporation.”

 The Court also stated that a Member State has the power to define the connecting factors to determine whether a company is incorporated under the law of that Member State. However this power “enjoys any form of immunity from the rules of the EC Treaty on freedom of establishment, cannot, in particular, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so”.

This judgment confirms the necessity of harmonizing the regimes of cross border transfer of company seat within the European Union, but it does not provide any clarification.

Considering the developments in the case law of the Court as well as the Stockholm Programme and its implementation, the European Parliament (EP) adopted a resolution on cross border transfer of company seat within the European Union on 2 February 2012. In the resolution, the EP requests the European Commission to swiftly submit a proposal for a directive on cross border transfer of company seat.