[authors: David Pang and Anja von Alemann]
The European Parliament (Parliament) and the Council of the European Union (Council) recently published a new Directive 2012/30/EU (the Recast Directive), which recasts Directive 77/91/EEC (the Second Company Law Directive), in the Official Journal of the European Union. The objective of the Recast Directive is to provide various safeguards to protect the rights and interests of shareholders and creditors of public limited liability companies (LLCs). This is achieved through clarification, codification and coordination of national provisions relating to the formation of public LLCs and to the maintenance and alteration of share capital of public LLCs.
Although the Recast Directive incorporates additional amendments necessary under European case law, in terms of content it codifies and constitutes mainly a conformed version of the
Second Company Law Directive and the various acts incorporated in it following subsequent amendments.
The Recast Directive comes into force on 4 December 2012.
The Parliament and the Council believe the safeguards offered by the Recast Directive are of particular importance to public LLCs, as their activities predominate in the economies of the EU Member States, and frequently extend beyond national boundaries, which could have significant effects on the economic wellbeing of the European Union and elsewhere.
In order to ensure minimum equivalent protection for both shareholders and creditors of public LLCs, the Recast Directive considers the following key requirements for the coordination of national provisions relating to the formation of public LLCs and the maintenance, increase or reduction of their share capital:
The statutes or instruments of incorporation of a public LLC must make it possible for any interested person to acquaint him or herself with the basic particulars of the company, including the exact composition of its capital.
Clear provisions are necessary for the maintenance of the share capital of a public LLC, as this constitutes the creditors’ security. Such provisions should include a prohibition against any reduction of share capital by distribution to shareholders where shareholders are not entitled to it, and by imposing limits on the company’s right to acquire its own shares.
In order to prevent a public LLC from using a subsidiary company (in which it holds a majority of the voting rights, or on which it can exercise a dominant influence) to make an acquisition of the parent company’s own shares without complying with the relevant restrictions, the arrangements governing a company’s acquisition of its own shares should be extended to cover the most important and most frequent cases of such acquisitions. In addition, those arrangements should be extended to apply to subscriptions for shares in the public LLC.
The Recast Directive therefore covers provisions regarding, amongst others, minimum share capital requirements, increases and reductions in capital, the subscription, issue and price paid for shares and distributions, the information to appear in statutes and instruments of incorporation, the legal minimum of members, and the acquisition and holding of its own shares by a company.
Following a number of amendments to the Second Company Law Directive, and for the sake of clarity, the European Commission proposed a Directive codifying the Second Company Law Directive in 2008. In addition, pursuant to a judgment of the European Court of Justice (6 May 2008 ,Parliament v Council C-133/06), it was considered necessary to amend Article 6(3) (Articled 6(2) of the codified text) of the Second Company Law Directive to remove an existing secondary legal basis, and to confer on both the Parliament and the Council the competence to examine and revise the minimum capital requirements. Consequently, as this implied a substantive amendment to the Second Company Law Directive, the codification was transformed into a redraft. Apart from this amendment the Recast Directive was not intended to introduce changes to the Second Company Law Directive.
Please click here for more information on the Recast Directive.
Robert Lister, a trainee solicitor in London, also contributed to this article
1 Directive 2012/30/EU of the Parliament and of the Council of 25 October 2012 on co-ordination of safeguards which, for the protection of the interests of members and others, are required by member states of companies within the meaning of the second paragraph of Article 54 of the Treaty on the Functioning of the European Union, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent (Recast).