European Company Structure Likely To Flounder In The UK

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

19 October 2004

According to a report published last week in the UK Law Society's Law Gazette, the new 'European Company' created by the Statute of the same name, and implemented in the United Kingdom earlier this month, is unlikely to prove popular in the UK.

Speaking to the Law Gazette regarding the new company structure, which allows European firms to merge into a single entity without one partner being obliged to become a subsidiary, various representatives of the legal sector suggested that it will be difficult to advise upon.

Several of those questioned by the Law Society's news service suggested that provisions which would oblige UK companies to introduce employee representation at board level when merging with a continental European partner that already has such representation in place are likely to prove an insurmountable barrier to UK participation.

"UK companies are worried about employee participation at board level. There is no tradition of that here and it looks unattractive," Vanessa Knapp, who chairs the Law Society's company law committee, explained.

Clifford Chance partner Tim Herrington confirmed this, adding:

"I would be surprised if there was a big take-up of the structure over here – if you look at it closely it is a European wrapper around a local law vehicle. There is a degree of uncertainty about the processes for merging companies and it would be very hard to draft for a two-tier board in the UK without creating uncertainty. Lawyers will be reluctant to plunge into the unknown without any clear benefit."

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