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Currently, the Council of the European Union is negotiating the European Commission’s recent proposal on cross-border mobility. This paper provides an overall assessment based on the proposal’s central pillars: freedom of establishment and protection of the interests of creditors, shareholders, and employees. The proposed directive meets a real necessity for regulation on a European level and pursues an ambitious agenda. While the general approach is excellent, there is room for improvement on some issues of importance.

The legal regime applicable to groups of companies in the European Union has been discussed for many years. National legislations have been adopted in a certain number of Member States, and new initiatives are being considered by the European Commission and in academic writing. The central issues in groups of companies is the relationship between the controlling shareholder, often the parent company and the subsidiaries, and the potential for abuse to the detriment of the latter’s minority shareholders and creditors. Several answers have been formulated, ranging from a duty of the parent to indemnify the subsidiary for the charges imposed by the parent, to the acceptance of these charges provided they result in some benefit to the subsidiary and do not endanger the subsidiary’s solvency. In another approach, these issues may be solved by other common company law, e.g., on the basis of the unfair prejudice provisions. With respect to shareholder and creditor protection, a comparative analysis concludes that there is no need for additional regulatory safeguards. The present approaches indicate that group relations are often characterised by conflicts of interest. Therefore, it is proposed to develop a standard for dealing with these, especially under the form of related party transactions. The specific conditions for dealing with intragroup related party transactions are submitted for further discussion.

Currently, the Council of the European Union is negotiating the European Commission’s recent proposal on cross-border mobility. This paper provides an overall assessment based on the proposal’s central pillars: freedom of establishment and protection of the interests of creditors, shareholders, and employees. The proposed directive meets a real necessity for regulation on a European level and pursues an ambitious agenda. While the general approach is excellent, there is room for improvement on some issues of importance.

The legal regime applicable to groups of companies in the European Union has been discussed for many years. National legislations have been adopted in a certain number of member states, and new initiatives are being considered by the European Commission and in academic writing. The central issues in groups of companies is the relationship between the controlling shareholder, often the parent company and the subsidiaries, and the potential for abuse to the detriment of the latter’s minority shareholders and creditors. Several answers have been formulated, going from a duty of the parent to indemnify the subsidiary for the charges imposed by the parent, to the acceptance of these charges provided they result in some benefit to the subsidiary and provided they do not endanger the subsidiary’s solvency. In a third approach, these issues may be solved by other common company law, e.g. on the basis of the unfair prejudice provisions. With respect to shareholder and creditor protection, a comparative analysis concludes that there is no need for additional regulatory safeguards. The present approaches indicate that group relations are often characterised by conflicts of interest. Therefore, it is proposed to develop a standard for dealing with these, especially under the form of Related Party Transactions. The specific conditions for dealing with intragroup related party transactions are submitted for further discussion.

The European Commission has proposed a Takeover Directive that aims to make the control of European corporations more contestable. The European Parliament and Germany will not adopt the Directive unless it provides for reciprocity in takeovers, limiting access to the articles of contestability to bidders that have adopted contestability themselves. Reciprocity in takeovers is not desirable. It unduly restricts the pool of bidders and reduces the potential benefits of contestable control. Contestable control itself has benefits, but the theoretical and empirical support for neutralising the power of incumbent blockholders and boards is too weak to justify large-scale regulatory intervention. The most powerful instruments for making corporate control contestable are not available in all Member States. The Takeover Directive could put these tools on the menu throughout the European Union, allowing companies that want them to embrace them - and giving institutional investors a chance to push for the hug. The current proposals will not change much, one-way or the other. If anything, they will add another level of complexity and confusion to the prevailing systems of corporate control in Europe.

This document constitutes the High Level Group of Company Law Experts' first report, in conformity with the Group's terms of reference which were defined by the European Commission on 4 September 2001. The Group has been set up by the European Commission to provide independent advice in the first instance on issues related to pan-European rules for takeover bids and subsequently on key priorities for modernising company law in the European Union. The Group has been asked to consider the following three issues: - How to ensure the existence of a level playing field in the European Union concerning the equal treatment of shareholders across Member States; - The definition of the notion of an "equitable price" to be paid to minority shareholders; - The right for a majority shareholder to buy out minority shareholders ("squeeze-out right"). An important goal of the European Union is to create an integrated capital market in the Union by 2005. The regulation of takeover bids is a key element of such an integrated market. Currently there are many differences between the various Member States, in terms of such general and company specific factors. Annex [4] gives an overview of company specific barriers to takeover bids which are lawful or actually applied in the Member States and which the Group has reviewed.... This is what is generally referred to as the 'lack of level playing field' in the area of takeover bids in the European Union. In the light of available economic evidence the Group holds the view that the availability of a mechanism for takeover bids is basically beneficial. Takeovers are a means to create wealth by exploiting synergies and to discipline the management of listed companies with dispersed ownership, which in the long term is in the best interests of all stakeholders, and society at large. These views also form the basis for the Directive. This is not to say that takeover bids are always beneficial for all (or indeed any) of the parties involved. The mandate of the Group is to review whether and to what extent a level playing field for takeover bids should be created under company law in Member States. The Group acknowledges that any approach on this basis would leave the various general differences existing in Member States untouched. It believes, however, that its recommendations with respect to company law mechanisms and structures would, in addition to market driven changes, mark an important step forward in developing a general level playing field for takeover bids in the European Union. The Group believes that any European company law regulation aimed at creating a level playing field for takeover bids should be guided by two principles: 1. Shareholder decision-making In the event of a takeover bid the ultimate decision must be with the shareholders. They should always be able to decide whether to tender their shares to a bidder and for what price. It is not for the board of a company to decide whether a takeover bid for the shares in the company should be successful or not. This is not to say that the board has no responsibility at all in the context of a takeover bid. It is sometimes argued that allowing the board to frustrate a takeover bid can be justified as a means to help take into consideration the interests of shareholders and other stakeholders in the company, notably the employees. The Group rejects these views. Defensive mechanisms are often costly. Most importantly, managers are faced with a significant conflict of interests. Shareholders should be able to decide for themselves and stakeholders should be protected by specific rules (e.g. on labour law or environmental law). 2. Proportionality between risk-bearing capital and control In the Group's view, proportionality between ultimate economic risk and control means that share capital which has an unlimited right to participate in the profits of the company or in the residue on liquidation, and only such share capital, should normally carry control rights, in proportion to the risk carried. The holders of these rights to the residual profits and assets of the company are best equipped to decide on the affairs of the company as the ultimate effects of their decisions will be borne by them. This report will use the term 'risk-bearing capital' to refer to this concept. The holder of the majority of risk-bearing capital should be able to exercise control. Capital and control structures in a company which grant disproportionate control rights to some shareholder(s) should not operate to frustrate an otherwise successful bid for the risk-bearing capital of the company. The concept of risk-bearing capital used here does not include those preference shares which have no exposure to the surplus but only carry a limited right to distributions of profits and on liquidation.

This paper investigates the difficulties in the cross-border exercise of voting rights by shareholders. The difficulties arise a result of differences in the company laws, securities laws and securities systems in the member-states of the European Union, which have all been set up decades ago to serve national purposes. In addition there are as uncertainties in the rules of private international law governing these securities systems. These differences cause serious problems where shares are increasingly held through cross-border chains of intermediaries from investors to custodian and depository banks, national and international clearing organisations and regional or global custodians. As a result the author concludes that Europe is in need of a new legal and practical infrastructure which would facilitate cross-border voting by shareholders. The consolidating stock exchanges and clearing markets will increase the necessity of such an infrastructure, but will in itself not provide this infrastructure. Legislation, on a European scale is required. In devising a new system, Europe should look at the United States, where a number of these problems have been overcome in the past. With the knowledge of hindsight, Europe could probably even improve on the US system.