EUROPEAN COMPANY STATUTE
Amended proposal for a Council Regulation on the Statute
for a European Company guideline for political
Council Directive supplementing the Statute for a
European Company with regard to the involvement of
||Article 308 EC; consultation; unanimity
||(a) 18 December 2000
(b) 1 February 2001
|Forwarded to the Council:
||(a) 20 December 2000
|Deposited in Parliament:
||(a) 24 January 2001|
(b) 13 February 2001
||Trade and Industry|
|Basis of consideration:
||EM of 19 February 2001 and Minister's letters of 18 December 2000, 2 January 2001 and 16 February 2001
|Previous Committee Report:
||None; but see paragraphs 12.1 to 12.5 below
|To be discussed in Council:
||6 March 2000|
||Legally and politically important
12.1 The proposal for a European Company
Statute (ECS) was first put forward by the Commission in 1970.
We have considered a series of drafts over the years and some
of these have been debated.
12.2 Between 1991 and 1998, the proposal
remained dormant. On 19 March 1998, the Minister of State at the
Department of Trade and Industry (Mr Ian McCartney) commented
that negotiations had stalled, largely owing to differences over
"Member States have
generally sought to protect their own national systems and, owing
to the diversity of those arrangements, it has not been possible
to identify a single set of arrangements acceptable to all".
12.3 In a bid to break the deadlock, in
late 1997 the Luxembourg Presidency produced a compromise text
for an Employee Involvement Directive, as a separate proposal
from the draft Regulation establishing the ECS, but complementary
to it. The draft Regulation covers the core company law issues,
while the draft Directive specifies the employee involvement requirements
that would apply to a European Company or Societas Europaea
12.4 On 29 April 1998, we cleared the draft
Regulation, but not the draft Directive.
On 3 June 1998,
we cleared an amended draft Presidency compromise text of the
draft Directive, which was expected to be taken at the Social
Affairs Council on 4 June. The Minister said that the UK would
be making every effort to secure political agreement on it. However,
it was not agreed and, on 25 November 1998, we cleared a later
amended draft Presidency compromise text.
We asked for further information, which the Minister provided
in a letter of 7 January 1999.
12.5 The German Presidency cancelled a meeting
of the Labour and Social Affairs Council on 22 June 1999 when
the only item on the agenda for discussion was the draft Directive
and it was deadlocked. The European Trade Union Confederation
(ETUC) was reported to have strongly criticised the attitude of
the Spanish Government. On 7 July, the Minister gave evidence
to the Committee on this and other employment issues.
He followed this session with a letter, dated 14 July 1999, in
which he brought the Committee up to date.
Recent letters from the Minister for Competitiveness
12.6 We consider here three subsequent letters
from the Minister for Competitiveness (Mr Alan Johnson). On 18
December 2000, he wrote to say that there had been no formal discussion
of the Directive during the Finnish and Portuguese Presidencies
but that at the Employment and Social Policy Council on 28 November
the French Presidency had stated that it was involved in bilateral
discussions with "the Member State concerned" about
a possible compromise solution. These discussions came to fruition,
the Minister said, at the Nice European Council. He quotes the
relevant part of the Conclusions:
"The European Council
welcomes the agreement reached on the social policy aspects of
the European Company. That agreement, which takes into account
the different types of employment relations existing in the Member
States, will leave Member States the option of whether to transpose
into their national law the reference provisions relating to participation
applicable to European companies constituted by merger. In order
for a European company to be registered in a Member State which
has not transposed these reference provisions, an agreement must
have been concluded on the arrangements for worker involvement,
including participation, or none of the companies involved must
have been governed by participation rules prior to the registration
of the European company. On this basis, the European Council calls
on the Council to complete before the end of this year the texts
enabling the Statute for the European company to be established."
12.7 The Employment and Social Policy Council
was expected to meet on 20 December to seek "an orientation
for a political agreement" on the texts of both the draft
Directive and the draft Regulation.
12.8 European Voice of 20 December
2000 comments that, with agreement reached "in the political
melting pot of the summit", speculation was rife about the
significant sweetener that the Spanish would have received in
return for agreeing to the draft Directive, which was important
for the French.
12.9 On 2 January 2001, the Minister wrote
again to say that the revised texts were agreed unanimously on
20 December. In his Explanatory Memorandum of 19 February he describes
this as an "agreement constituting a guideline for a political
agreement". He assures us that the UK's agreement remains
subject to the parliamentary scrutiny reserve. In his letter of
16 February, he says that the Swedish Presidency intends to consult
the European Parliament again, with a view to adopting the proposals
at the Employment and Social Policy Council on 6 March, if the
European Parliament has given its Opinion by that time.
The draft Regulation
12.10 The Minister provides an Explanatory
Memorandum on each proposal. On the draft Regulation he sets out
the principal differences between the version considered by the
Committee on 28 November 1998 and the latest text. In summary,
The Commission proposed that this paragraph should
be added to the recitals, following agreement by a large majority
of Member States in favour of the present Article 7. This Article
provides that the registered office of a European Company (SE)
must be Article 7 provided that the registered office of an SE
must be located within the Community and in the same Member State
as the head office. Although the UK would have preferred not to
have this requirement in the Regulation, it was prepared to accept
it in the interests of reaching overall agreement.
Two other Member States would also have preferred
the Regulation to have allowed, albeit as a Member State opt-out,
the registered office and head office to be located in different
Member States. However, they agreed to the additional recital
and dropped their opposition to Article 7. The recital recognises
the unique status of an SE and states that the requirement for
the registered office and head office to be in the same Member
State is not to be regarded as setting a precedent in respect
of future EU Directives or as prejudicing existing national legislation
on company law.
Articles 2.4 and 36
12.11 These Articles have been reinserted,
after being deleted from the November 1998 version. They provide
that a public limited liability company, formed under the law
of a Member State, may, if certain other conditions are met, be
transformed into an SE. The Government supports the reinsertion
of these Articles, which could make SEs more readily accessible
to UK companies and, in particular, SMEs.
12.12 The Minister says:
"In the previous version, dated 10 November
1998, Article 11.2 provided that an SE could not be registered
unless arrangements for employee involvement had been determined
in accordance with national legislation implementing the Directive.
This has been expanded so that an SE may be registered only if:-
" an agreement
on arrangements for employee involvement (provided for in Article
4 of the Directive) has been concluded; or
" the special negotiating body representative
of the employees (provided for in Article 3 of the Directive)
has decided not to open negotiations, or to terminate negotiations,
on employee involvement and to rely instead on information and
consultation rules in force in the Member States where the SE
has employees; or
" the period for negotiations (provided
for in Article 5 of the Directive) has expired without an agreement
with the special negotiating body having been concluded (in which
case, if the companies concerned wished to proceed with registration
of an SE, the standard rules on employee involvement in the annex
to the Directive would apply).
"The Government is not opposed to this change".
12.13 The Minister says:
"Article 7.3 of the
Directive provides that the standard rules on employee participation
may be disapplied by Member States in the case of 'merger' SEs...
Article 11.2a which is new provides that an SE
may only be registered in a Member State which has taken advantage
of this derogation if:-
" an agreement on arrangements for
employee involvement, including participation, has been concluded;
" none of the companies which are
to be merged to form the SE has been governed by participation
rules prior to registration of the SE.
"The Government is not opposed to this addition,
which creates additional flexibility in implementing the employee
12.14 This Article concerns the formation
of an SE by merger. The Minister comments that it adds little
to what is already provided by the Acquired Rights Directive.
The Government's view
12.15 The Parliamentary Under-Secretary
of State for Competitiveness at the Department of Trade and Industry
(Mr Alan Johnson) comments:
"The ECS would create
a framework by which UK companies could engage in cross-border
mergers with companies from other Member States. At present, there
are no harmonised rules in the EU governing cross-border mergers.
If the resulting SE were to be incorporated in the UK it would
be subject, in large measure, to existing legislation applying
to UK public companies. Secondly, a UK company wishing to take
over a company from another Member State, or wishing to establish
a joint venture with a company in another Member State, might
find it easier to reach agreement with the overseas company if
it decided to form a joint holding company or joint subsidiary
in the form of an SE. The SE could be incorporated in the UK,
in which case it would be subject in large measure to existing
legislation applying to UK public companies. Thirdly, a UK public
company wishing to operate in several Member States simultaneously
might consider that there were presentational advantages in adopting
the SE name and form.
"The Government supports the concept of the
ECS and its aim of facilitating the operation of the Single Market.
The optional nature of the Regulation means that companies need
only use the SE form where they consider that doing so will provide
advantages. The Government recognises that the dependence on the
application of national law means that there may be significant
differences between the legal frameworks for SEs incorporated
in different Member States. However, it considers that the positive
effects on the single market mean that the Regulation is worthwhile.
"Currently, there appears limited interest in
the ECS amongst UK companies. However, there is potential for
business interest to grow in the longer term as UK companies increasingly
seek to expand their operations in the rest of Europe".
Regulatory Impact Assessment
12.16 A Regulatory Impact Assessment has
not been produced as the European Company Statute would be an
optional legal framework for companies. Compliance costs would
only be incurred by those companies that chose to adopt the SE
Impact on the law in the UK
12.17 The Minister says that the Regulation
would not have a direct impact on existing law in the UK as this
applies to national companies. However, it might be necessary
to apply existing national laws in a modified way to SEs. He says
that the Regulation would require a certain amount of supplementing
legislation, for example to provide sanctions for non-compliance.
He notes that there are a number of provisions where Member States
have discretion to adopt different rules, or impose additional
requirements specific to the SE.
The draft Directive
12.18 The draft Directive provides for the
employee involvement arrangements which will govern the SE, covering
information, consultation and, where appropriate, participation.
12.19 In the first instance, these arrangements
are to be freely negotiated between the management and the employees,
acting through a Special Negotiating Body. If a voluntary agreement
is not reached, then the standard rules set out in an Annex to
the directive apply, provided management wants to carry on with
the registration of an SE.
12.20 On information and consultation, the
standard rules are based on the provisions of the European Works
These are that a representative body of employees shall have the
right to meet management once a year to be informed and consulted
on questions which concern the SE itself and any of its subsidiaries
or establishments situated in another Member State or on matters
which exceed the powers of the decision-making organs in a single
12.21 On worker participation ("co-determination"),
the basic principle set out in the standard rules is that this
should be established in the SE at the highest level at which
it existed in any of the companies which are forming the SE. For
example, if the employees were entitled to 20% of the seats on
the board in one of the participating companies, this level would
apply to the SE. If there was no participation previously, there
would be no entitlement to it in the SE.
12.22 The Minister recalls that discussion
of the compromise text produced by the Luxembourg Presidency in
1997 revealed a wide range of views amongst Member States, particularly
on the proposal that, in the absence of agreement to the contrary,
employee representatives should be entitled to a proportion of
seats on the SE's board. The debate centred on recommendations
in the Davignon Group's Report on which the Luxembourg text drew.
These were that the employee involvement arrangements in an SE
should, in the first instance, be left for negotiation between
management and a "special negotiating body" (SNB) of
employee representatives. If no agreement could be reached, a
set of standard rules would apply, including requirements for
informing and consulting employees at European level, similar
to those set out in the European Works Council Directive, which
concerns European-level information and consultation in large
organisations. The standard rules proposed by the Davignon Group
also provided for the allocation to employee representatives of
a proportion of seats on the SE's management or supervisory board.
12.23 The Minister then runs through the
various subsequent proposals. The UK Presidency proposed the "before
and after" principle, according to which the level of worker
participation imposed through the standard rules would depend
on the arrangements which already existed in the participating
companies. It was also agreed that the parties involved in the
negotiations should be free to decide not to negotiate any new
employee involvement arrangements for the SE, or could agree a
lower level of participation than previously existed, provided
such a decision was subject to special voting arrangements within
12.24 The Austrian Presidency proposed two
main amendments which set thresholds in certain circumstances.
The French Presidency introduced a derogation from the Austrian
text so that the standard rules for worker participation need
not be implemented where an SE was formed by merger.
12.25 Article 7.2, which sets out the circumstances
in which the standard rules shall apply, has been re-instated
in the Directive, together with Part 3 of the Annex, which sets
out the standard rules. They reflect the threshold approach agreed
during the Austrian Presidency.
12.26 Article 7.3 contains the French derogation
in respect of an SE formed by merger.
The Government's view
12.27 The Minister comments:
"One of the fundamental
characteristics of the ECS is that it is an entirely optional
arrangement. Companies would form SEs by choice and the management
would be free at any time up to the registration of the SE to
withdraw plans for its formation. Therefore, the proposal represents
an opportunity for UK companies to take advantage of a new corporate
entity if they consider it would be advantageous to them. Given
the optional nature of the ECS it would not have any major implications
for existing UK law and practice as regards employee involvement.
"The Government was concerned that the directive
should not in every case impose a rigid model of employee involvement
arrangements which took no account of traditions in the UK. The
arrangements in the directive are flexible in that they give priority
to free negotiations, which may result in different arrangements
than those which previously existed (except in the case of an
SE formed by 'transformation' of an existing company). And the
standard rules no longer impose participation in every case where
the free negotiations fail, but enshrine the 'before and after'
principle... The variations in this basic approach which were
introduced during the Austrian and French Presidencies ... increase
somewhat the flexibilities and are therefore welcome.
"Equally the Government acknowledges that the
directive also had to meet the concerns of some other Member States
that the ECS should not undermine their own traditions of participation.
The Government, therefore, accepts that the Directive must to
some extent safeguard existing participation arrangements in companies
wishing to form an SE, whilst respecting those traditions which
do not include such arrangements.
"The Government believes that the arrangements
for employee involvement in the latest text strike a fair balance
between the concerns of those Member States that already have
co-determination systems and wished to ensure those nationals
systems were safeguarded and those that did not have such systems".
12.28 The Government consulted in 1989,
1992 and 1996. It issued a further consultation paper on 31 July
1997. There was almost unanimous support, the Minister says, for
the Davignon Group's recommendation that priority should be placed
on free negotiations between management and employees on the employee
involvement arrangements to be established in the SE. However,
there was considerable unease with the recommendation for the
automatic inclusion in the reference framework of employee representation
on the boards of SEs. This feature has now been modified in the
proposed Directive. Article 2 (k) now reads:
the influence of the body representative of the employees and/or
the employees' representatives in the affairs of a company by
" the right to elect or appoint some
of the members of the company's supervisory or administrative
" the right to recommend and/or oppose
the appointment of some or all of the members of the company's
supervisory or administrative organ".
12.29 For legislation for which the Minister
says that there has been limited interest among United Kingdom
companies, much time and effort has been expended on these proposals.
However, we note that he believes that they offer potential for
United Kingdom companies as these "increasingly seek to expand
their operations in the rest of Europe".
12.30 The legislation in its present
form is more flexible and leaves greater discretion to Member
States than it did in earlier drafts. It is up to companies to
decide whether or not they wish to form a European Company or
Societas Europaea (SE), so that the crucial question left
is whether the worker participation provided for, following the
"before and after" principle proposed by the United
Kingdom and modified by the Austrian and French Presidencies,
proves to be acceptable in practice. We note that the Minister
does not believe that it has major implications for United Kingdom
law and practice in this respect.
12.31 We now clear both documents.
40 (18941) - (18942) - ; see HC 155-xxvi (1997-98),
paragraph 11 (29 April 1998). Back
- ; see HC 155-xxix (1997-98), paragraph 6 (3 June 1998). Back
- ; see HC 34-i (1998-99), paragraph 2 (25 November 1998). Back
- ; see HC 34-vi (1998-99), paragraph 8 (20 January 1999). Back
Scrutiny Committee Minutes of Evidence, 7 July 1999: Employment
and medium-sized enterprises. Back