Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council amending Council Directive 77/91/EEC, as regards the formation of public limited liability companies and the maintenance and alteration of their capital (COM(2004) 730 final — 2004/0256 (COD))
Date: 2005-07-13
Institutions: European Economic and Social Committee
Subjects: capital increase, company law, financial legislation, protection of shareholders, public limited company, share, shareholder, shareholding

25.11.2005

EN

Official Journal of the European Union

C 294/1

II

(Preparatory Acts)

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

419th PLENARY SESSION, HELD ON 13 AND 14 JULY 2005

Opinion of the European Economic and Social Committee on the Proposal for a Directive of the
European Parliament and of the Council amending Council Directive 77/91/EEC, as regards the
formation of public limited liability companies and the maintenance and alteration of their capital

(COM(2004) 730 final — 2004/0256 (COD))

(2005/C 294/01)

On 13 January 2005 the Council decided to consult the European Economic and Social Committee, under
Article 44(1) of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 23 June 2005. The rapporteur was Mr Burani.

At its 419th plenary session, held on 13 and 14 July 2005 (meeting of 13 July), the European Economic
and Social Committee unanimously adopted the following opinion.

Preamble

1. Background

1.1
In September 1999, in the context of the Simplification
of the Legislation on the Internal Market process (SLIM), a
Commission Company Law Working Group issued a report on
the simplification of the First and Second Company Law Direc-
tives.
In its report on a Modern Regulatory Framework for
Company Law in Europe (issued in November 2002), the High-
Level Group of Company Law Experts stated that most of the
SLIM Group proposals were worth implementing in the form
of a directive.

The draft directive in question undertakes to simplify
1.2
certain aspects of the Second Directive, which currently sets
out the following requirements:

— Shares may not be issued at a price lower than their
nominal value, or, where there is no nominal value, their
accountable par. This prohibition applies to all share issues
without exception, not just to the initial share issue in the
context of
the company's incorporation. This does not
imply that subsequent share issues cannot be made at a
nominal or accountable par value lower than that of a
previous issue, as long as the price at which the new shares
are issued complies with the above mentioned obligation.

— Issuance of shares for non-cash-consideration is subject to
the requirement of a valuation by one or more independent
experts.

— Streamlining of ownership in the company's share capital
is, if possible at all, subject in principle to ex-ante authorisa-
tion by the statutes, by the instruments of incorporation
and/or by the general meeting.

— Acquisition by the company of its own shares is subject in
principle to approval by the general meeting only for a
certain period of time and only for a certain fraction of the
company's capital.

— Financial assistance by the company for the acquisition of
its shares by a third party is possible only in very limited
cases and only up to a certain limit.

— Exclusion of pre-emptive rights in capital increases for cash
consideration is subject to approval by the general meeting
and to the requirement of a written report by the compa-
ny's administrative or management body.

— For cases of capital reduction, it is up to the Member States
to lay down the conditions for the exercise of a creditor's
right to obtain adequate security.

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2. Content of the draft directive

The draft directive is based on the premise that a simpli-
2.1
fication of the Second Directive would do much to promote
business efficiency and competitiveness without reducing the
protection offered to shareholders and creditors.

In this light,

2.2
aimed directly or indirectly at:

the draft directive's various articles are

— providing companies with the possibility to attract consid-
erations other than in cash to their capital without having
to resort to a special expert valuation, providing there is no
opposition;

— enabling companies to acquire their own shares up to the

limit of the company's distributable reserves;

— enabling companies to grant

financial assistance with a
view to the acquisition of their shares by a third party up
to the limit of their distributable reserves;

— enabling companies to increase, under certain conditions,
their capital without having to meet reporting requirements
linked to the restriction or withdrawal of the pre-emption
rights of shareholders;

— offering creditors the opportunity to resort to judicial or
administrative proceedings where their claims are at stake;

— giving shareholders holding a large majority (90 %) of a
to

public limited liability company's capital
acquire the remaining shares.

the right

simplify corporate governance, improving companies' competi-
tiveness and cutting their costs; it is not acceptable if it reduces
the rights of third parties, especially minority shareholders or
creditors. The Committee draws the attention of the Parliament
and the Council to this point, which is very important in order
to avoid giving the public the impression that a simplification
exercise is being used to make substantive changes that are
unrelated to simplification. That is the spirit in which the EESC
intends to make its contribution, commenting solely on those
aspects requiring attention, it being understood that those not
mentioned have received its approval.

4. Specific comments

4.1
Article 10a(1) states that Member States may decide
not to apply the protective provisions of Article 10(1), (2) and
in the event of a new non-cash
(3) of Directive 77/91/EEC,
capital contribution: in practice, if the contribution consists of
quoted securities. In this case, certification by an expert may be
replaced by a valuation on the basis of their weighted average
price over the previous three months.

4.1.1
The Committee approves this, but would point out
that a calculation on the basis of the weighted average price
over the previous three months is based on past values that do
not take future prospects into account; prices may rise but also
fall. The rule should be expanded to allow for the weighted
average price to be considered a maximum, giving the decision-
making bodies the option to choose a different value, giving
reasons.

2.3
In order to prevent market abuse, Member States should
take into account, for the purpose of implementation of this
the provisions of Directives 2003/6/EC and
Directive,
2004/72/EC as regards accepted market practices and a series
of measures aimed at securing transparency in management
and the accountability of management bodies.

The derogations envisaged in Article 10a(1) should be
4.1.2
applied throughout the EU. If they were left to the Member
States' discretion, there is a risk that the desired deregulatory
effect would not be felt in certain countries.

3. General comments

3.1
The Committee approves the objectives set by the draft
directive and, in general, the means by which the Commission
intends to meet them. A distinction must be made, however,
between genuine simplification, which does not alter the meaning
or scope of existing provisions, and modifying simplification,
which, by doing away with certain procedures that were origin-
ally designed to protect third parties, the market or companies
themselves, can bring about a change, be it substantial or
secondary, to the protective nature of previous directives.

3.2 Modifying simplification is not necessarily a bad thing,
and can indeed prove useful
if it adjusts provisions to the
reality of the market and company life. However, when under-
taking it, the Commission cannot go beyond its remit of simpli-
fying — not modernising — the legislation in force. In other
words, a modification is acceptable if it demonstrably helps to

4.2
Under Article 10a(2), Member States may also decide
not to apply the abovementioned protective provisions in the
event of a new capital contribution that does not take the form
of quoted securities (unquoted securities, immovable property,
etc.). In such cases however, the valuation has to have been
undertaken by an independent expert who is ‘sufficiently
trained and experienced’ in this area.

The

Committee

that Article

4.2.1
10a(2)(a)
thinks
concerning the expert should be deleted, as the requirement
that he be 'sufficiently trained and experienced' is too vague.
For the purposes of the Directive it is sufficient to stipulate
referral to an independent expert recognised by the competent
authorities.

4.2.1.1
In Article 10a(2)(b) concerning the valuation of the
contribution, the period of three months should be extended to
at least six months.

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4.2.2
Article 10a(2)(c) states that the expert must make the
evaluation ‘in accordance with generally accepted valuation
standards and principles in the Member State’. The EESC
proposes that the accounting rules recognised by law or by
official regulations be cited explicitly.

authority with solely administrative powers to decide to annul
or change them. This makes it all the more necessary to define
the roles of the authorities responsible (see above in point 4.3)
and to set up a one-stop shop to include judicial functions
(administrative tribunal).

Under Article 10a(3), Member States may decide not
4.2.3
to apply the valuation provisions when assets are contributed
as consideration other than in cash whose value is derived
from the accounts of the previous year. It should be made clear
whether ‘value … derived by … asset’ refers to book value.

an

independent

administrative or

Article 10b(2) states that

‘each Member State shall
4.3
designate
judicial
authority to be responsible for examining the legality of the
considerations other than in cash’. On a point of form alone,
the EESC would note that a judicial authority is always indepen-
dent, and suggests a slight change in the wording of the text.
More importantly, such authorities are referred to a number of
times in the text of the directive, each time with reference to
different functions, but never with a definition of their precise
role or a list of tasks.

4.3.1
Every Member State has administrative or judicial
authorities with notarial, authorising or regulatory functions,
and the time seems to have come for the situation to be clari-
fied, at
least within the Member States, and for a single
authority (a ‘one-stop shop’ along the lines of the ‘services’
directive) to be designated as responsible for company regu-
lation and control. This would mark a real step forward, not
only towards simplification, but also and above all
in the
completion of the single market.

4.4
Article 19(1) states that in countries that allow compa-
nies to acquire their own shares, authorisation must be given
by the general meeting for a maximum period of five years. The
EESC thinks that this period is much too long. The state of the
market and of a company can change radically, obliging deci-
sion-making bodies to reverse their decisions. Share purchase
orders are not generally valid for five years. In the interests of
prudence and in order
shareholders'
meeting a degree of discretion, it would be preferable to reduce
the period to two years, allowing for either annual or biannual
renewals.

to give the general

4.4.1
In the second subparagraph of Article 23(1), the stipu-
lation that transactions should take place ‘on the initiative’ of
the administrative or management body should be deleted. The
concept is much too vague and can only have been intended as
an illustration. The period of
five years for the cash flow
analysis in the second subparagraph also appears to be too
long and should be cut to two years.

4.5
Article 23a establishes the right of shareholders to
contest the general meeting's approval of a contribution trans-
action other than in cash by asking the appropriate judicial or
administrative body to decide on the legality of the transaction.
The EESC notes that the decisions of a general shareholders'
meeting have legal force and that it would be difficult for an

4.6
A paragraph is added to Article 29 exempting adminis-
trative or management bodies from the obligation to present a
written report on the restriction or withdrawal of the right of
pre-emption in the case of an increase in capital. The EESC
cannot see the logic behind this provision, which seems to run
counter to the principle of transparency without simplifying
procedures in any significant way. It should also be noted that
shareholders may ‘request the administrative or management
body to indicate the reasons for the restriction or withdrawal
of the right of pre-emption’. However, there is no provision for
a refusal to provide information or for shareholders to disagree
about the information they are given. The point of reference
should be the general principles of company law: the general
meeting is sovereign when it comes to the powers delegated to
company bodies, and always, in all cases, has the right to be
informed on what has been done and to receive an account of
every budget heading, concerning both income and expendi-
ture. The EESC therefore proposes that the new paragraph be
deleted.

4.7
Article 39a does not introduce a simplification as such,
but attempts to codify (mirroring Article 15 of the takeover
bids directive) a rule that exists only in certain countries: a
(i.e. one who holds at least 90 % of
‘majority shareholder’
subscribed capital
in a listed company) can oblige ‘minority
shareholders’ to sell him or her those shares at ‘a fair price’.
Member States may raise the threshold to a maximum of 95 %.
The preamble to the proposed directive extends the term
‘majority shareholder’ to cases where there are several main
shareholders, while the wording of Article 39a suggests that a
single shareholder
is meant. This ambiguity needs to be
resolved in the definitive text.

A rule of this kind has been codified in the takeover
4.7.1
bids directive, as mentioned above, but this is different: the
guarantees of transparency associated with a takeover bid are
lacking, as are the conditions which prompted it. While it may
well be in the interests of the majority shareholder to control
100 % of the company (particularly in the presence of an
obstructionist or argumentative minority), the minority share-
holders may view the matter very differently, depending on
circumstances and individual situations. A shareholder who has
no influence on the running of the company may be quite
happy to sell his or her portfolio at a fair price, providing it is
higher than the price he or she could obtain by selling the
shares on the stock market. However, if the shares provide a
good return or look likely to increase in value, an investor/
shareholder may prefer to hold on to them. In such circum-
stances, it is not clear why he or she should be obliged to sell.
In conclusion, while a minority 10 % shareholding is generally
unlikely to hamper corporate governance, one must also

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recognise the full freedom of choice that is the right of every
shareholder. At the same time, however, there will be a few
cases in which governance requires control of all shareholders:
these are the only cases where such a rule would be justified,
and then only with the authorisation of the supervisory autho-
rities.

is the mirror image of

4.8
Article 39b (modelled on Article 16 of the takeover
the previous point:
bids directive)
minority shareholders may, individually or jointly, oblige the
majority shareholder to buy their shares, again ‘at a fair price’.
The comments made in the previous paragraph apply mutatis

Brussels, 13 July 2005

mutandis. Here too,
the authorities should only approve a
forced sale in cases of proven necessity, excluding that of
selling off a shareholding simply because the company is fore-
cast to perform badly.

In both of

the above two cases,

4.8.1
the Committee's
conclusions are prompted by the same concern for fairness and
respect for general legal principles: the shareholders' right to
choose must be fully upheld and must not be restricted by
considerations extraneous to their interests unless there is a
proven necessity that dictates otherwise.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

Opinion of the European Economic and Social Committee on the Proposal for a Directive of the
European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC
concerning the annual accounts of certain types of companies and consolidated accounts

(COM(2004) 725 final — 2004/0250 (COD))

(2005/C 294/02)

On 3 February 2005, the Council decided to consult the European Economic and Social Committee, under
Article 44(1) of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 23 June 2005. The rapporteur was Mr Byrne.

At its 419th plenary session, held on 13 and 14 July 2005 (meeting of 13 July), the European Economic
and Social Committee adopted the following opinion unanimously.

1. Summary

2. Details of the Commission's proposal

1.1
The proposal to amend the Accounting Directives is a
follow up to the Action Plan adopted by the Commission on
21 May 2003, for Modernising Company Law and Corporate
Governance at EU level.

1.2
The objective of the proposals is to further enhance
confidence in the financial statements and annual reports
published by European companies to provide shareholders and
other stakeholders (e.g. employees and suppliers) with reliable,
complete and easily accessible information.

The proposal requires that the Accounting Directives

2.1
(78/660/EEC and 83/349/EEC) be amended to:

(a) Establish collective responsibility of board members i.e.
drawing up the financial statements is a collective responsi-
bility of all board members (administrative, management
and supervisory)

(b) Enhance transparency about related parties' transactions i.e.
involving all companies transactions with their managers,
the latter's family or other related parties which are not
carried out under normal commercial conditions

The EESC has made its comments on certain points of
1.3
detail
in this document but in general supports the stated
objective and believes that this action is necessary to protect all
stakeholders.

(c) Enhance transparency about off-balance sheet arrangements
by updating the requirements currently set out
in the
Accounting Directives to cover for example Special Purpose
Entities (SPE)