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Centros Ltd—A Complete U-Turn in the Right of Establishment for Companies?

Published online by Cambridge University Press:  17 January 2008

Anne Looijestijn-Clearie
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Extract

InCentros Ltd and Erhvers-og Selskabsstyrelesen (hereinafter Centros),1 the European Court of Justice ruled that it is contrary to Article 52 (now Article 432) and Article 58 (now Article 48) of the EC Treaty for the authorities of a member State (in casu Denmark) to refuse to register a branch of a company formed under the law of another member State (in casu the United Kingdom) in which it has its registered office, even if the company concerned has never conducted any business in the latter State and intends to carry out its entire business in the State in which the branch is to be set up. By avoiding the need to form a company there it would thus evade the application of the rules governing the provision for and the paying-up of a minimum share capital in force in that State. According to the Court, this does not, however, prevent the authorities of the member State in which the branch is to be set up from adopting appropriate measures for preventing or penalising fraud, either with regard to the company itself, if need be in co-operation with the member State in which it was formed, or with regard to its members, where it has been determined that they are in fact attempting, by means of the formation of a company, to evade their obligations towards creditors established in the territory of the member State of the branch.

Type
Articles
Information
International & Comparative Law Quarterly , Volume 49 , Issue 3 , July 2000 , pp. 621 - 642
Copyright
Copyright © British Institute of International and Comparative Law 2000

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References

1. Case C–212/97 of 9 March 1999, nyr.

2. Since the coming into force of the Treaty of Amsterdam on 1 May 1999, many provisions of the EC Treaty have been renumbered. In this article I will use the new numbering. However, the first time that 1 refer to a particular provision of the EC Treaty, I will use the numbering in effect before 1 May 1999 and mention the new numbering in brackets.

3. Officially Centros Ltd was formed under the law of England and Wales. For reasons of convenience, I will refer to UK law throughout this paper.

4. Article 48 EC Treaty allows companies and firms defined therein to be treated in the same way as natural persons for the purposes of the right of establishment. Article 48 also applies, by way of Article 66 (now Article 55) EC Treaty, to such companies and firms wishing to benefit from the Treaty provisions on the freedom to provide services.

5. See Werlauff, E., “Using a Foreign Company for Domestic Activities”, (http://www.rws-verlag.de/volltext/centros4.htm) who regards the judgment in Centros as the Cassis de Djion in the field of the freedom of establishment of companies.Google Scholar

6. Case 79/85, Segers v. Bedrijfsvereniging voor Bank-en Verzekeringswezen, Groot-handel en Vrije Beroepen [1986] E.C.R. 2375.

7. Case C–221/89 The Queen v. The Secretary of Stale for Transport, ex pane Factortame Ltd and Others [1991] E.C.R. 1–3905. This is one of a series of cases in which Spanish nationals and companies successfully invoked Article 43 and Article 221 (now Article 294) of the Treaty in order to gain access to the British fishing quota under the EC Common Fisheries Policy, a practice known as “quota hopping”. See the related infringement proceedings in Case 246/89R Commission v. United Kingdom [1989] E.C.R. 3125 and Case C–246/89 Commission v. United Kingdom [1991] E.C.R. 1–4585. The first case, Factortame I, Case C–213/89 The Queen v. The Secretary of State for Transport, ex parte Factortame Ltd and Others [1990] E.C.R. 1–2433, concerned a request for a preliminary ruling on the question put to the Court of Justice by the House of Lords as to whether the latter had the power to grant interim relief under Community law whereas as a matter of domestic law, it had no jurisdiction to award interim relief against the Crown. A positive answer was given by the Court of Justice. The third case, Factortame III, Case C–48/93 The Queen v. The Secretary of State for Transport, ex parte Factortame Ltd and Others [1996] E.C.R. 1–1029, concerning state liability for damages, was decided by the Court of Justice on 5 March 1996 together with Case C–46/93 Brasserie du Pêcheur SA v. Federal Republic of Germany.

8. Case C–221/89 Factortame II, note 7, supra, para.20.

9. See Case 53/81 Levin v. Staatssecretaris van Justitie [1982] E.C.R. 1035, para.21 and Case C–55/94 Gebhard v. Consiglio dell'Ordine degli Avvocati e Procuratori di Milano [1995] E.C.R. 1–4165 where the Court stated in para.32 “(…) whether it is possible for a national of a Member State to exercise the right of establishment and the conditions for the exercise of that right must be determined in the light of the activities which he intends to pursue on the territory of the host Member State.” (Emphasis added).

10. Presumably with the phrase “in another Member State”, the Court of Justice means a member State other than the State whose nationality a person possesses. With regard to companies, this can be taken to mean a member State other than that in which they have their seat within the meaning of Article 48 (see, para.20 of the judgment in Centros).

11. See Case C–55/94 Gebhard, note 9, supra, paras. 27 & 39.

12. See Case C–107/94 P.H. Asscher v. Staatssecretaris van Financiën [1996] E.C.R. 1–3089.

13. The term “effective seat” or “siège réel” refers to the office of a company at which the centre of management and control is located, i.e. the “brain or nerve centre” of the company. See, Tridimas, T., “The Case Law of the Court of Justice On Corporate Entities”, YEL, 1993, at 336.Google Scholar

14. See Peter Troberg in the chapters on the right of establishment in: von der Groeben, H., Thiesing, J. and Ehlermann, C.-D., Kommentar zum EGW-Vertrag. Fünfte neubearbeitete Auflage, Baden-Baden, 1997, at 1/1313. (Hereinafter: Kommentar zum EGW-Vertrag).Google Scholar

15. Case 81/87 The Queen v. H.M. Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust PLC [1988] E.C.R. 5483.

16. Kommentar zum EWG-Vertrag, at 1/1313.

17. See para 30 of the judgment in Centros.

18. OJ, English Special Edition, Second Series IX, at 7.

19. Ibid., at 3.

20. van Thiel, S., “Daily Mail Case: Tax Planning and the European Right of Establishment. A Setback”, European Taxation, 1988, at 361Google Scholar; Woolridge, F., Company Law in the UK and the European Community. Its Harmonization and Unification, London, 1991, at 4.Google Scholar

21. Case 71/76 Jean Thieffry v. Conseil de l'ordre des avocats à la Cour de Paris [1977] E.C.R. 765, para.13–14. Case 197/84 P. Steinhauser v. City of Biarritz (1985) E.C.R. 1819, para.15 and Case 79/85 Segers, note 6, supra, para.15.

22. Case 79/85, Segers, note 6, para.16.

23. Para.17.

24. Para.27.

25. Case C–56/96 VT4 Ltd and Vlaamse Gemeenschap [1997] E.C.R., para.22.

26. Directive 89/522/EEC on the co-ordination of certain provisions laid down by law, regulation or administrative action in member States concerning the pursuit of television activities, OJ, 1989 L298/23. Amended by Directive 97/36/EC, OJ 1997 L202/60.

27. Para.28.

28. Case C–221/89, note 7, supra.

29. Case C–55/94, note 9, supra, paras29–31.

30. Case 270/83 Commission v. France (more commonly known as “Avoir fiscal”) [1986] E.C.R. 273, para.22 and Case C–l/93 Halliburton Services v. Staatssecretaris van Financiën [1994] E.C.R. 1–1137, para.19.

31. Behrens, P., “Niederlassnungsfreiheit und Internationale Gesellschaftsrecht”, RabelsZ, 1988, at 501Google Scholar, Cath, I. G. F., “Freedom of Establishment of Companies: a New Step Towards Completion of the Internal Market”, YEL, 1986, at 261Google Scholar, Knobbe-Keuk, B., “Umzug von Gesellschaften in Europa”, ZHR, 1990, at 325Google Scholar, van Solinge, G., “Vestigingsvrijheid van vennootschappen”, TVVS, 1991Google Scholar, nr.91/7, at 174 and Timmermans, C. W. A., “Methods and Tools for Integration” in: European Business Law. Legal and Economic Analysis on Integration and Harmonisation, Buxbaum, R. M., Hertig, G. & Hopt, K. J. (Eds.), Berlin, New York, 1991, at 149.Google Scholar

32. Meilicke, W., DB, 1999, at 627–628.Google Scholar

33. Case 81/87. Daily Mail, note 15, supra, para.24.

34. The judgment in Centros, para.34.

35. This may amount to indirect discrimination as it may place a greater burden on companies formed under the law of another member State. However, as long as the company law rules of the member States adhering to the theory of the siège réel do not directly discriminate on grounds of “nationality”, it is possible to invoke the rule of reason exception.

36. Sec para.24 of the judgment in Centros. The Court refers here in particular to the following judgments: Case 33/74 Van Binsbergen v. Bedrijfsvereniging Metaalnijverheid [1974] E.C.R. 1299, para.13, Case C–148/91 Veronica Omroep Organisatie v. Commissariaat voor de Media [1993] E.C.R. 1–487, para.12, Case C–23/93 TV10SA v. Commissariaat voor de Media [1994] E.C.R. 1–4795, para.21 (all concerning the freedom to provide services). Case 115/78 Knoors v. Secretary of Slate for Economic Affairs [1979] E.C.R. 399, para.25, Case C–61/89 Criminal Proceedings against Marc Gaston Bonchoucha [1990] E.C. R. 1–3551, para.14 (both concerning the freedom of establishment). Case 229/83 Leclerc and Others v. “Au Blè Vert” and Others [1985] E.C.R. I, para.27 (concerning the free movement of goods), Case C–206/94 Brennet v. Paletta [1996] E.C.R. 1–2357, “Paletta II”, para.24 (concerning social security), Case 39/86 Lair v. Universität Hannover [1988] E.C.R. 3161, para.43 (concerning the free movement of workers). Case C–8/92 General Milk Products v. Hauptzollamt Hamburg-Jonas [1993] E.C.R. 1–779, para.21 (concerning the common agricultural policy) and Case C–367/96 Kefalas and Others v. Greece [1998] E.C.R. 1–2843, para.20 (concerning company law).

37. Case 81/87, Daily Mail, note 15, supra, para.16.

38. See, Case C–159/90 Society for the Protection of Unborn Children Ltd v. Grogan [1991] E.C.R. 1–4685 concerning abortion and Case C–275/92 Her Majesty's Customs and Excise v. Schindler [1994] E.C.R. 1–1039 concerning the prohibition of large scale lotteries.

39. Doc. XV/D2/6002/97–EN REV. 2 of 20 April 1997.

40. Wattel, P. J., Misbruik van Europees Recht, 1993Google Scholar, at 16 and Wouters, J., Het Europese Vestigingsrecht voor Ondernemingen Herbekeken, Leuven, 1996, at 737.Google Scholar

41. Case C–23/93, note 36, supra.

42. Numerous other examples are to be found in the case-law of the Court of Justice. See note 36, supra.

43. See para.17 of the judgment in Centros.

44. Ibid., para.18.

45. Case 33/74 Van Binsbergen, note 36, supra, para.13.

46. See para.25 of the judgment in Centros.

47. Wattel, P. J., note 40, supra, at 25.Google Scholar

48. Case C–221/89, note 7, supra.

49. Case 81/87, note 15, supra.