Problems of Introduction of Societas Europaea in Estonian Law

Author:Andres Vutt, Margit Vutt

1. Historical and legal background of creating SE as type of company - 2. Limits of developing the structure of SE's management organs - 3. Corporate Governance Recommendations as a regulator of the management of SE - 4. Determination of the powers of SE general meeting - 5. Foundation of SE - 6. Limitations arising from national law - 7. Conclusions - development of SE as special type of company ... (see full summary)


Andres Vutt

Magister iuris, Lecturer of Civil Law, University of Tartu

Margit Vutt

Magister iuris, Analyst of the Legal Department, Supreme Court

Problems of Introduction of Societas Europaea in Estonian Law

1. Historical and legal background of creating SE as type of company

The inauguration speech, delivered by Professor Piet Sanders at the University of Rotterdam in 1959 may be regarded as the moment of the first announcement of the idea to establish a pan-European type of company. Six years later, the European Commission established a working group to develop the standards required for introducing a relevant legal body1. At that time, a European company 2 (Societas Europaea or SE) as a transnational type of company was called the "flagship of European company law" in literature, and in 1970, when the European Commission submitted its proposal on the basis of the developed project 3 , the related ambitions did indeed soar. The initially planned provisions governing the SE, in principle, served as a code for European company law. The hope was to develop the SE into a legal body that was completely detached from national legal systems and based solely on European corporate law, independent of the legal systems of the Member States4. At the same time, it was forgotten to what extent company law and especially the corporate governance in each MemberState was intertwined with the economic, political and cultural history of the relevant state5.

The draft statute of the SE consisted of 284 articles and contained provisions that determined its smooth enforcement to fail from the start. Namely, the draft provided for a mandatory two-tier management structure with the employee involvement obligation characteristic of the German model6. A more important reason why the draft failed at that time was the principally different approach of the Member States to the management structure - opposition to the requirement of two-tier management and employee involvement obligation was so great in some Member States that it took nearly 25 years before the SE was finally supplied with a legal framework7.

The Member States have acted in accordance with the specific trends in company law of the relevant state upon implementing the SE-Statute. According to the press release of 8 October 2004, only Belgium , Austria , Denmark , Sweden and Finland had introduced the necessary changes to their national law by that time8. The relevant Act (Gesetz zur Einführung der Europäischen Gesellschaft, SEEG 9 ) entered into force in Germany at the end of 2004 and rules concerning the SE were also enforced in Great Britain at about the same time10. In order to implement the SE-Statute, Estonia adopted on 10 November 2004 the Council Regulation (EC) No. 2157/2001 on the Statute for a European Company Implementation Act 11 , whose objective was to regulate the legal status of the SE registered in Estonia , insofar as it is not governed by the Regulation.

It has been opined in legal literature that the main output of the SE regarding implementation should be to facilitate cross-border mergers 12 ; however, the effects resulting from the creation of the SE have also been labelled as merely psychological13. Although it is true, to a certain extent, that the SE enables companies operating in different Member States to act as a single company under uniform rules, the SE as a special and uniform type of company is largely imaginary because, for example, the SE registered in Germany cannot be identical to its equivalent registered in England, since pursuant to the 8 October 2001 (SE-Statute) Council Regulation No. 2157/2001 on the Statute for a European Company 14 , a company is unavoidably, to a certain extent, subject to the national law of the state in which the SE has been registered15.

It has been the primary task of the Member States to ensure that the SE is not discriminated against, compared to similar national public limited-liability companies, and to avoid the unequal treatment of the SE and disproportionate restrictions upon the establishment of the SE or the transfer of its registered office from one Member State to another. As a result, the general principle is that the SE must be treated equally with a public limited-liability company of the MemberState in which the registered office of the SE is located16. A number of provisions of various levels apply to each SE depending on the nature of the relevant company. Firstly, the Regulation itself contains mandatory provisions; secondly, the Regulation entitles the SE to make certain choices (e.g., the choice between one-tier and two-tier management); thirdly, the Regulation also contains a number of non-mandatory provisions. The right to regulate particular issues has been given to the Member States, an entry into a relevant agreement governed by a separate directive has been stipulated in case of employee involvement 17 , and standard rules are applied when negotiations fail. In issues not governed by the Regulation, the Member States may impose mandatory rules by their national law (including applying general company law provisions); in addition, the SE has the right to use its statute to establish rules in cases where issues are not governed by law and, provided that this has not been done, the non-mandatory provisions of the Member State shall apply18. Although such a multi-level legal regulation involving many provisions may leave an impression that all issues should be covered by provisions, the result may be quite the contrary, and due to the number of regulation levels and different provisions, gaps are unavoidable. Paradoxically, the creation of a large number of norms for regulating social relations also produces gaps. Any strategy for reforming law generally also means that additional provisions are created, and as law is used to try to solve all problems found in a society, each gap requires the creation of a new provision. However, society develops faster than law and consequently there are more and more situations that need to be regulated19.

The objective of this article is to examine how the Member States have introduced the regulation governing the SE to their national law and whether the declarative options of choice have been in fact realised as SE provisions. As differences of opinion concerning the management model have constituted one of the most problematic areas in the past, an important question discussed is how the legal system representing the classical two-tier management system has created a one-tier system for the SE and viceversa20. In addition to that, some other problems highlighted in the theory have been analysed, such as how the potential supplementation of the powers of the general meeting has been regulated in one-tier management, how the issue of independent supervision has been addressed, as well as how, in case of different establishment options of the SE, to solve certain situations not regulated by national law. The issues to be discussed have been selected based on some problems also found in Estonian law, focussing, above all, on finding solutions that are important with regard to complementing Estonian law.

2. Limits of developing the structure of SE's management organs

E. Werlauff notes when analysing various models of the SE that the monistic or one-tier management structure encompasses the origins of company law disputes that are simply suppressed in the dualist or two-tier structure so that the supervisory body (supervisory board) has a possibility to relatively easily recall the inconvenient members of the management board and compel such persons to leave the company. In the one-tier structure, the non-executive members of the management board have no right to exclude executive members from the administrative organ because only shareholders are competent to do that21. Although the monistic system may seem more democratic from the point of view of a member of the management organ, we cannot forget that the relationship between the management organ and the company can be defined as a special trust relationship because of its mandatory nature, so it should be possible to terminate the relationship promptly if needed. In that sense, the dualist system may be considered more efficient since lack of trust and long-lasting disputes about whether a member of the management organ has performed his or her duties or not should not impede the further normal functioning of the company. However, instead of opposing various management structures to each other, they have recently been implied to also converge22.

According to article 38 of the SE-Statute, the SE shall comprise firstly a general meeting of shareholders and secondly either a supervisory organ and a management organ (two-tier system) or an administrative organ (one-tier system) depending on the form adopted in the statute. Thus, any public limited-liability company operating in the form of the SE has been declared to have an option to use either a one-tier or two-tier management structure. The dualist model considerably resembles the management structure of a German public limited-liability company, whereas it is somewhat more difficult to draw exact parallels for a one-tier model, but the British system may generally be considered as an example.

According to article 43 (1) of the Regulation, the administrative organ shall manage the SE in the case of one-tier management structure. The Member States may provide that a managing...

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