EC Unveils Planned Amendments To Company Law Directive

by Ulrika Lomas, for LawAndTax-News.com, Brussels

03 November 2004

As part of the ongoing initiative to reform European corporate governance rules, the European Commission on Friday presented a proposed directive designed to make it easier for public limited liability companies to take certain measures affecting the size, structure and ownership of their capital.

The proposed legislation would amend the parts of the 1976 Second Company Law Directive covering the formation, maintenance and alteration of capital.

The planned changes include:

• Limiting the need for an expert valuation of contributions in kind when a company establishes itself or increases capital;
• Relaxing current rules on the limitation or withdrawal of pre-emption rights, to make the procedure of issuing new shares less burdensome while maintaining shareholders’ protection from dilution of their shareholdings;
• Partially relaxing the prohibition on companies providing financial assistance for acquisition of their shares by third parties;
• Introducing “squeeze out”- and “sell out”-rights (i.e. the right of the majority shareholder, under certain conditions, to buy out minority shareholders at a fair price and the complementary right of minority shareholders to compel the majority shareholder to buy their shares); and
• Introducing a right for the company to acquire its own shares up to the limits of distributable reserves.

The EC suggested last week that the planned modifications should enable companies to react more promptly and efficiently to market developments, whilst making strong provision for the protection of shareholders’ interests.

Internal Market Commissioner Frits Bolkestein confirmed this, observing that:

"To maximise the efficiency and competitiveness of European business, we need to simplify and improve EU rules on companies’ capital while maintaining strong safeguards for creditors and investors, especially minority shareholders.”

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