Centros@20 Series: Regulatory Competition in European Company Law. Where Do We Stand Twenty Years after Centros
The twentieth anniversary of the important judgment of the European Court of Justice (ECJ) in the Centros case of 9 March 1999 is an opportunity to reassess its impact on developments of freedom of establishment in the European Union. The paper ‘Regulatory Competition in European Company Law. Where Do We Stand Twenty Years after Centros’ has an overview character, presenting the issue of freedom of establishment and mobility of companies from the beginning of the European ‘adventure’ and the development of regulatory arbitrage and regulatory competition in company law in the EU in the last twenty years. It provides also a short assessment of the actual market for company law with a specific consideration of close corporations, taking ownership costs vs contracting costs as a paradigm of analysis.
Indeed, contrary to the US benchmark model, in Europe the phenomenon of mobility of companies has involved almost exclusively close corporations and, in particular, private limited liability companies, with some sporadic exemptions related to listed companies. Given this pattern, the analysis shows that, twenty years after Centros, the situation in the EU differs considerably from the United States. A US style market for corporate charters for listed corporations with dispersed ownership will probably not develop in Europe in the future. Centros had the positive effect of reconsidering the philosophy of harmonization of company law in Europe and making all the actors more aware of the pros and cons of such a device to reach the goal of an integrated internal market (Article 3(3) of the Treaty on European Union).
More importantly, Centros served as a very simple but at the same time very incisive device, decided by the ECJ as ‘motor of European integration’, (i) to eradicate the very deep fears anchored on and defended by the real seat theory followed by some Member States against ‘(EU)-foreign’ companies, and as result (ii) to affirm the relevance of the country of origin principle and the mutual recognition principle, already applied in other areas of law, also in the field of company law. The mentioned fears were exaggerated both with respect to the protection of shareholders and the protection of creditors and no longer justified in the European internal market context of Article 3(3) of the Treaty on European Union.
At the same time, more recently the issue of creditors’ protection has gained new momentum with the Kornhaas case of the ECJ. This case has reconsidered the relationship between company law and insolvency law, making the regulatory picture at the same time easier but more difficult to evaluate. The liberal case law of the ECJ in the recent past accompanied by the economic and financial crisis after 2008 has led the European Commission to reconsider its action policy in the field of company law, which includes listed companies and close companies. Probably for this reason, the recent ‘mobility package’ of the European Commission is a minimal attempt to try to regulate only the issue of freedom of establishment in terms of reincorporations of private limited companies.
Stefano Lombardo is an Associate Professor of Banking and Financial Law at the Free University of Bolzano.
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