stefan lammel gesellschaftsrecht 1.jpgDr. Oliver Wasmeier

Isolated change of the legal form (from a foreign registration to a local registration) is protected by EU freedom of establishment

Does an EU Member State have to accept it when a company established under its law relocates its registered office to another Member State and thereby transforms itself into a company under the law of that host country? Even if the company continues to operate only in its country of origin and no economic activity develops in the host country? Yes, it does, at least in principle, it has now been decided in a long-awaited decision of the European Court of Justice (ECJ). That is because this process is protected by the European freedom of establishment pursuant to Articles 49 and 52 of the Treaty on the Functioning of the European Union (TFEU). Although it is possible for the country of origin to pose restrictions, these must, however, be justified. In any event, if (as in the case in question) the transfer of the registered office from the country of origin is allowed only after prior liquidation, this is in any event too far-reaching and not justified.

The facts

The shareholders of Polbud Wykonawstwo sp. z o.o., a limited liability company incorporated under Polish law, decided in 2011 to transfer its registered office to Luxembourg without changing the place of its commercial activity. Subsequently, the shareholders certified the change of legal form to a limited liability company under Luxembourg law, while maintaining its legal personality, before a Luxembourg notary. The Polish Registration Court refused to enter the cancellation required to complete the conversion into the Polish Commercial Register of Companies, as Polish law requires the company to be liquidated prior to such entry. The Supreme Court of Poland (Sąd Najwyższy), before which the case was brought on as the court of third instance, asked the ECJ for a preliminary ruling on the relevant issues of European law.

The ruling of the ECJ

The ECJ notes for the first time that the freedom of establishment guaranteed under European law includes the right of a company incorporated under one of the laws of a Member State (hereinafter: “State of origin”) to become a company subject to the law of another Member State (hereinafter: “State of incorporation”), provided that the requirements of the law of the host State are met and, in particular, the criterion required in the host State for affiliation of a company with its national legal system, is met. So far, this has been doubted in light of recent rulings in the Daily Mail and General Trust (judgment of 27/09/1988, Case no. C-81/87), Cartesio (judgment of 16/12/ 2008, C 210/06) and VALE (judgment of 12 July 2012, Case no. C 378/10) cases.

Furthermore, the ECJ expressly rejects the Austrian Government’s objection that freedom of establishment can only be invoked if the transfer of a registered office is justified by the actual exercise of a commercial activity by means of a permanent establishment in the host State. The only decisive factor is that the conditions laid down by Luxembourg law for the formation of a company and its affiliation with its national law (that is, international private law) are met. As a result, the Luxembourg judges dissociate themselves from the hitherto prevailing autonomous definition of companies under European law and instead focus on the fulfillment of national criteria.

On this basis, the ECJ concludes that it constitutes a restriction on the freedom of establishment of Polbud if, under Polish law, deletion from the commercial register can only be entered if a liquidation procedure has previously been carried out. Such a restriction may, however, in principle be justified by overriding reasons in the public interest, such as the protection of creditors, minority shareholders and employees. A general obligation to liquidate, without considering whether there is any actual danger to those interests, and without providing for a possibility to choose less restrictive measures could also protect those interests, goes beyond what is required for protection of the interests mentioned.

Comment

Even if the ECJ has to take some quick dogmatic turns in order to get there, the result is conclusive. Because if, conversely, Polbud had been established in Luxembourg and had relocated its actual registered office to Poland, that would undoubtedly be protected by the freedom of establishment on the basis of the previous case law of the ECJ – but the outcome would be the same. It also does not clarify why the interests of domestic stakeholders (minority shareholders, employees and other creditors) should be adequately protected only in the case of a cross-border change of legal form, whereas other mechanisms are sufficient in the case of a cross-border merger.

Whether the decision of the European Court of Justice will have consequences for the EU Directive on the cross-border transfer of a company’s registered office announced by the European Commission, remains to be seen. It cannot be ruled out that the Commission may in this regard go back beyond the ECJ’s extensive interpretation, according to which it is possible for a company to transfer only its registered office to another EU Member State in isolation, and establish a compulsory alignment of the registered office and the administrative headquarters, as required by EU law already in connection with the transfer of the European joint stock company (Aktiengesellschaft).

Until that happens, the decision of the ECJ opens up interesting maneuverability for the practice. In the absence of legislative requirements, it is above all the agreement with the respective registry court that is decisive.

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