The Court Of Justice (CJEU) Case Law on Corporate Mobility Supporting Multi-National Enterprises

The Court Of Justice (CJEU) Case Law on Corporate Mobility Supporting Multi-National Enterprises
Name
Institution
Date
The Court Of Justice (CJEU) Case Law on Corporate Mobility Supporting Multi-National Enterprises
The current dynamic world characterized by globalized activities enables many corporations to easily expand their businesses beyond their borders. With increased need for development, corporations are able to separate its business from its headquarters and establish its operations wherever it wants. As a result, corporation mobility has become a common phenomenon within international markets, strengthening competition within these markets. Cross-border trade within Europe has become the foundation of a common market.[Hopt Klaus, ‘Corporate Governance in Europe: A Critical Review of the European Commission's Initiatives on Corporate Law and Corporate Governance’ (2015) NYUJL & Bus 139.]
The free mobility of entities within the European markets has been enhanced by specific guidelines under the Treaty on the Functioning of the European Union (TFEU). Corporations among EU member states have benefited from this freedom of establishment under the European Union, setting specific rules of trade. Many multi-national enterprises have experienced minimum challenges during their cross border mobility because EU trade laws permit corporations to exercise the freedom of establishment.[Ringe Wolf-Georg, ‘Corporate Mobility in the European Union–a Flash in the Pan? An empirical study on the success of lawmaking and regulatory competition’ (2013) European Company and Financial Law Review 230.] [ibid 233]
Cross border, mobility has greatly supported multinational enterprises in several ways, Under the Treaty on the Functioning of the European Union, member states have benefited from effective corporate governance framework, creating a wider business environment within the international market.Through the court of justice, the EU has harmonized company laws to promote freedom of establishment, giving business freedom to operate easily beyond their borders.[Enriques Luca, ‘A Harmonized European Company Law: Are We There Already?’ ( 2017)International & Comparative Law Quarterly 1.] [ibid 6]
The court of justice of the EU (CJEU), is responsible for interpreting laws to ensure that they are applied uniformly across its member states. The CJEU also settles legal disputes between EU institutions and member countries.In addition, companies or individual entities can file complaints if any EU member state infringes on their rights. Because of its mandate, the CJEU has greatly promoted corporate mobility supporting multinational enterprise activities among EU member states.[Lombardo, Stefano, ‘Some reflections on freedom of establishment of non-profit entities in the European Union’(2013) EBOR 225.] [ibid 231]
According to the CJEU regulations, two important preconditions need to be fulfilled, which include mutual recognition and minimum standards .With these two pre-conditions, both small firms and multi-national corporations are permitted to select a legal seat anywhere within the EU markets, without facing any constraints in their state corporate laws.[Alavi Hamed & Tatsiana Khamichonak, ‘Protection of dissenting shareholders in the EU cross-border mergers framework: A call for further harmonization’ (2017) A Journal of the Humanities & Social Sciences 21.] [ibid 28]
Member states represented by corporations can impose strict legal standards if only they can justify their action, which should protect the general interest. CJEU case laws are applied reasonably and on a non-discriminatory basis. It is not surprising to see several multinational corporations taking advantage of this freedom of establishment, by choosing member state that offers more complimentary conditions, especially those with minimum capital requirements.[ibid 29] [Kovacevic, Natasa Zunic, Dionis Juric, and Stjepan Gadzo, ‘Cross-border transfer of company's seat and exit taxation in the European union.’ (2016). Economic and Social Development: Book of Proceedings 171.]
One of the notable legislation of the EU is the cross-border company mobility; cross border mobility enables companies within the EU to benefit from an integrated economic zone. Multinational enterprises enjoy the freedom to do business with few limitations. Cross border mobility emerged as a result of rulings made by the CJEU on VALE Construzioni Srl, an Italian construction company. The company appealed to the court when the Hungarian government refused its application to be registered within the Hungarian national laws.[ibid 175] [Horak Hana, Kosjenka Dumancic, Freedom of Establishment: VALE Case—Direction for New Rules: Dreams or Reality? (International Publishing 2016)]
The cross-border reorganization is a strategy used by multinational corporations to move abroad. According to European Union laws, cross-border mobility laws recognize the freedom of establishment stipulated in Article 49 and 54, Under the Treaty on the Functioning of European Union (TFEU).The rulings by the European court of justice have shaped the way multinational corporation uses the scope of the freedom to increase cross border mobility. The VALE decision is an example of how the court has shaped the regulatory frameworks, promoting corporate mobility activities among multi-national enterprises.[ibid 170] [Casey Catherine, Antje Fiedler, Benjamin Fath, ‘The European Company (SE): Power and participation in the multinational corporation’ (2016) European Journal of Industrial Relations 73.]
European case law decision on VALE Construzioni Srl.
VALE Construzioni Srl, a construction company originally from Italy, decided to close down its operations in Italy and transferred its business to Hungary. According to national trade regulations, the Construction Company has to operate within the Hungarian laws.VALE Construzioni requested to be deregistered from the commercial register in Italy; instead, the company adopted the article of association under the Hungarian law and wanted to be registered in the Hungary. During their application, the company stated that VALE was its precursor, the application was nullified by the Hungarian court.[Krarup Mathias, ‘VALE: determining the need for amended regulation regarding free movement of companies within the EU’(2013) Eur. Bus. L. Rev 691.] [ibid 694] [ibid 695]
The court argued that according to the Hungarian law, a foreign company cannot be a predecessor. The court of appeal stated that any transfer of seat, should be done according to the members state laws, and in relation to reincorporation, member states should follow the host member state regulations. Based on the origin of the company, which in this case was Italy, according to the Hungarian laws, this was not a conversion because the laws only apply in domestic situations.[ibid 696] [ibid697]
The EU laws permit national companies to convert, but should adhere to the laws of the host member state where certain restriction of freedom of establishment under the Article 49 and 54 of the TFEU may be applied.EU laws state that restrictions are applicable based on public interest, especially in relation to the protection of various individuals like employees, minority shareholder and creditors. This was not there in VALE's case.[Alavi Hamed & Tatsiana Khamichonak, ‘Protection of dissenting shareholders in the EU cross-border mergers framework: A call for further harmonization’ (2017) A Journal of the Humanities & Social Sciences 21.] [Kovacevic Natasa Zunic, Dionis Juric, Stjepan Gadzo,’Cross-border transfer of company's seat and exit taxation in the european union.’(2016) Economic and Social Development: Book of Proceedings 171..]
Host members are permitted to determine the national laws that are applicable in cross-border conversions depending on the rules of equivalence and effectiveness. These rules are meant to prevent host states from denying a company to be listed in as a foreign country as the predecessor, especially if the records are meant for domestic conversion. Furthermore, the law does not permit the host state to refuse to consider documents from authorities of the origin of the company.[ibid 173] [ibid 174]
In the VALEs case, the court provided clear direction, which is similar to the case of Cartesio, a company prevented from leaving a member state when it wanted to move to another EU member state. In the Cartesio judgment, the court ruled that, Articles 43 EC and 48 EC needs to be interpreted based on the existing law of the host country. Therefore, a member state is not permitted to transfer a seat to another member state and also maintain its status under the member state laws .[Borg-Barthet, Justin, ‘Free at Last: Choice of Corporate Law in the EU Following the Judgment in Vale’(2015). Int'l & Comp. LQ 62, 503.] [Stephane Reynolds , Amadine Scherrer, ‘Ex-post analysis of the EU framework in the area of cross-border mergers and divisions’(European Parliamentary Research Service , 2016). /RegData/etudes/STUD/2016/593796/EPRS_STU(2016)593796_EN.pd accessed 19 November 2017.]
The VALE case decision provides a clear guideline on how member states can provide national conversion and should not refuse cross-border conversion. The EU court observed that the cross-border conversion was not a domestic conversion, therefore, under the Hungarian law, the company had the freedom of establishment. The court further clarified that national legislation cannot be turned into domestic conversion, but the conversion needs to apply within the international context.[Alavi Hamed & Tatsiana Khamichonak, ‘Protection of dissenting shareholders in the EU cross-border mergers framework: A call for further harmonization’ (2017) A Journal of the Humanities & Social Sciences 21.] [ibid 33]
How the VALE case supports corporate mobility of multi-national enterprises.
Because of the VALE Case, the possibilities of cross-border conversion became easier to achieve, unlike before . As ordered by the court, member states have the mandate to ensure that the registered seat and the real seat needs to be in their country of incorporation. Furthermore, member states have the authority to determine several factors that are applicable to laws governing companies.[Sattler Denis, ‘Does Europe still need a 14th Company Law Directive on Cross-Border Transfer of Company Seats?’(2015) ZEuS Zeitschrift für Europarechtliche Studien 227.] [ibid 228]
In the VALE Case ruling, companies who wish to convert according to the laws of host states, needs to comply with all the laws applicable under than national legislation and follow all the procedures of the host member states. However, they further need to take into consideration specific restriction for the establishment, including, creditor protection, employee welfare, minority shareholder protection and also comply with all the minimum capital requirements of the host member state laws.[Borg-Barthet, Justin, ‘Free at Last: Choice of Corporate Law in the EU Following the Judgment in Vale’(2015). Int'l & Comp. LQ 62, 503.] [Hansen Jesper Lau, ‘The Vale Decision and the Court’s Case Law on the Nationality of Companies’(2013) European company and financial law review1.]
One notable clause in the law is that, member state does not have the authority to prohibit cross-border inbound conversion if the local conversion is permitted by national legislation of host member states and the original member state. The European court of justice acknowledged the need for cross-border changes, hence, the court through various legislations, promote corporate mobility because it preserves the identity of an enterprise at the same time eliminate barriers against the mobility of enterprises.[Gerner-Beuerle, et al. ‘Cross-border reincorporations in the European Union: the case for comprehensive harmonisation’ (2017) Journal of Corporate Law Studies 1.] [ibid 4]
Enterprises have unlimited mobility within the EU markets because of case laws of the EU court of justice. The fact that the Hungarian court did not permit the new company to be listed in their register, according to the Hungarian law, the ECJ termed this refusal as the violation of European freedom of establishment. There were no justifiable reasons why the member state allowed domestic companies to change their forms, preserving their identity, but refusing companies from other member states to do so.[Blauberger Michael, Rike U. Kramer, Europeanisation with many unknowns: national company law reforms after Centros’( 2014) West European Politics 786.] [ibid 788]
The ECJ, also permits the transformation of companies to different forms, for example, the German company like Gesellschaft mit beschränkter Haftung, GmbH can easily transform into a stock corporation. One of the notable features during such transformation include ownership of shares within the company, asset, contract with third parties, which remain uninterrupted during the transformation process.Initially, member states had limited transformations. However, this combination is possible because of the VALE case law. According to the VALE case decision, the ECJ has eliminated several barriers that work against the mobility of various enterprises within Europe.The judgment broadened the scope of mobility through smaller decisions like Centros, that obliged member state to acknowledge corporate forms, but only if the company had relocated their headquarters outside the national border to another member state.[ibid 789] [Blauberger Michael, Rike U. Kramer, Europeanisation with many unknowns: national company law reforms after Centros’( 2014) West European Politics 786.] [ibid 790] [ibid 791] [Rossi Stefano, Paolo F. Volpin, ‘Cross-country determinants of mergers and acquisitions’(2004) Journal of Financial Economics 277.]
The VALE court case decision is crucial because international corporations can enjoy mobility, such decisions have forced many EU member states to align their legislation with the EU laws. The VALE case triggered several legislative solutions like the cross border mobility, nowadays, transfer of the seat can be done indirectly through a single step.[ibid 279] [Hansen Jesper Lau, ‘The Vale Decision and the Court’s Case Law on the Nationality of Companies’(2013) European company and financial law review1.]
Because many companies laws have different ways of implementing among member states, the directive of transfer according to the EUCJ has promoted a common framework to regulate all different member states. The use of cr...