Company Law (Enforcement)
The enforcement of company law is characterized by the dual enforcement rights exercised by the company’s elected representatives and by its members (see 1. below). Moreover, there is also a public interest in the enforcement of company law which is usually achieved by several mechanisms of governmental supervision (see 2. below).
1. Private enforcement of corporate law
Company law is characterized by a variety of legal relationships. Besides the enforcement by the elected representatives of the company (see 1. a) below), its members also usually engage in the enforcement (see 1. b) below).
a) Enforcement by the representatives
The enforcement of company law by the representatives of the company usually occurs in disputes between persons within a certain legal body of the company or between certain organs of the company, forcing each other to engage only in lawful conduct. Besides that, internal disputes can also occur between the company and a single member in order to expel it from the company, which usually requires a special kind of cause.
b) Enforcement by the members
However, the enforcement of company law by the members of the company is far more relevant. This enforcement usually collides with the general power and duty of the management to administer and to represent the company in a lawful way in which the members of the company are generally not involved. The extent of the power to enforce company law by company members is usually governed differently for each type of company. While partners in a partnership or shareholders in a closed corporation can easily enforce lawful behaviour of the management, this possibility does not exist for shareholders in stock corporations. The most significant exception in this context is the legal enforcement of claims of the company by its members (actio pro socio or pro societate/derivative action). In these cases, an individual member of the company can represent the company in the legal enforcement of certain claims despite the administrative and representative authority of the (other) representatives of the company. Legal action by company members for claims of the company have to be strictly distinguished from legal action of company members regarding their own claims which do not interfere with the organizational structure of the company.
In addition, the right of a company member to challenge resolutions of the member meetings is one of the central mechanisms of enforcement. This mechanism guarantees that almost every violation of company law can be challenged by the members as long as their individual rights to vote or to participate in company affairs are harmed. While severe violations lead to the invalidity of the resolution, less severe violations only have legal effect when they are determined by court. Within this context the shareholders’ right to information is of special importance since the right of a company member to challenge resolutions of the member meetings is the central mechanism to sanction incomplete or incorrect information provided to the members.
c) Influence of European private law
(i) Harmonization of national company law. Despite the considerable amount of harmonization of national company laws in the common market, the issue of enforcement of company law has hardly been addressed.
Status quo of harmonization. The most comprehensive provision is found in the First Council Directive 68/151 although it concerns only public enforcement by public authorities being in charge for the registration of a company in public registers (see 2. (b)(i)). However, the subsequently abandoned proposal for a Fifth Company Law Council Directive (Company Structure Directive) contained several provisions concerning the enforcement of company law by individual rights of company members. Finally, Dir 2007/36 had a severe impact on the enforcement of company law by shareholders of publicly traded corporations. The directive focused especially on the information of shareholders before the general meeting by stating an obligation of the corporation to publish certain documents on the internet for shareholders (Arts 4 ff). Moreover, the directive harmonizes the rights of shareholders to gather information from the management during the general meeting and to exercise voting rights by using modern communication devices (Arts 8 ff). However, the directive does not focus on sanctions for the violation of these shareholder rights. Consequently the possibilities of shareholders enforcing these rights are not governed by the directive, but only by the national laws of the Member States.
Further developments. In its actual development, the harmonization process focuses more on the responsibility of the management and/or supervisory bodies of companies listed on the stock exchanges. In particular, Art 50c Annual Account Directive (Dir 78/660/EEC) and Art 7 Transparency Directive (Dir 2004/109/EC) state a responsibility for the preparation and publication of certain financial reports.
In contrast to antitrust law (White Paper of the European Commission on damages actions for breach of the EC antitrust rules, COM(2008) 165 final) and consumer protection law, company law so far is not addressed in the current discussion to increase the instruments of collective enforcement.
(ii) Supranational companies. The existing forms of supranational companies (company law) such as the European Economic Interest Grouping (EEIG), the European Company (SE —Societas Europaea), and the European Cooperative Society (SCE—Societas Cooperativa Europaea) contain only few (specific) provisions on the enforcement of company law. Consequently the national laws of the Member States have to be applied in this context (Art 2(1) Reg 2137/85; Art 9 Reg 2157/2001 on the European Company; Art 8 Reg 1435/2003 on the European Cooperative Society). Even the statute of the planned European Private Company (SPE —Societas Privata Europaea), following the idea of an exclusive application of supranational (European) law without reference to the national laws of the Member States, does not contain any provisions on the enforcement of company law by the management or the shareholders. So even for the European Private Company the national laws of the Member State will govern the enforcement.
(iii) European civil procedure and insolvency law. European civil procedure law addresses the issues of enforcement of corporate law in only a very minor way. The Brussels I Regulation (Reg 44/2001) (recognition and enforcement of foreign judgments) in particular contains only very few provisions on the different types of company law remedies. Only Art 22 no 2 Brussels I provides for an exclusive jurisdiction for the courts of the Member State in which the company, association, or legal person has its seat for proceedings regarding the validity of the constitution, the nullity or the dissolution of companies, associations or legal persons, or of the decisions of their organs. However, as early as in the course of determining the company’s or legal person’s seat, the court shall apply its own private international law. Besides these incomplete provisions on jurisdiction, European civil procedure law does not contain any further company law related provisions; only the general provisions of the national laws of the Members States have to be applied, which unfortunately do not guarantee a concentration of all company law related proceedings at the court at the seat of the company.
The same problem occurs in the context of European insolvency law (insolvency, cross-border). Regulation 1346/2000 on insolvency proceedings does not contain any specific provisions for the insolvency of companies or legal persons. As a consequence, the national laws of the Member States have to be applied. Only Art 3(1) of the Regulation states the presumption that the Centre of Main Interest (COMI) as basis for the determination of jurisdiction is located at the registered office of the association or legal person. In its Eurofood case (Case C-341/04 [2006] ECR I-3813) the European Court of Justice (ECJ) held that the COMI has to be determined by objective criteria. Consequently the COMI of subsidiaries in company groups cannot automatically be assumed at the seat of the respective parent company.
(iv) Influence of the fundamental freedoms. The fundamental freedoms generally have no impact on the enforcement of company law. Only the freedom of establishment guarantees that limitations on general mobility in the laws of the Member States cannot be applied. This mobility, however, can lead to a lack of concentration of the jurisdiction for company law matters at the seat of the company (see 1. c)(i) above).
2. Public enforcement
Public enforcement of company law is provided by the administrative authorities responsible for public registers. Moreover, especially in capital market law (capital markets law), other administrative authorities can also be in charge of the enforcement of special company law issues. Finally, accountants and their regulations and respective enforcement also provide public enforcement of company law (auditor).
a) Control by the public registers
Regarding the control of the administrative authorities responsible for the public registers, one has to distinguish between the legal effects the public registration of company law matters could have. Whereas some registrations have no influence on the validity of the respective legal act, several company law matters require a registration in the public register. Besides this distinction the administrative authorities responsible for the public registers exercise only a very limited control, usually referring especially to formal violations of the respective requirements.
However, even in cases where registration does not have an impact on the validity of the respective legal act, enforcement of company law is indirectly achieved by the impact false or missing registrations could have on the company. Nevertheless, the most important instrument for public enforcement of company law is the requirement for certain legal acts to be registered before they can have any legal effect and the respective supervision by the administrative authorities.
b) Influence of European private law
(i) Harmonization of national company law. The public register is mainly addressed by the First Council Directive (Dir 68/151). The directive, however, only focuses on the effect registrations in the respective registers could have without determining to what extent administrative authorities will have to review these registrations. The other company law directives also only refer to the First Council Directive concerning the public registration of certain aspects without stating the applicable level of review of the administrative authorities.
(ii) Supranational companies. Similarly, the regulations of the supranational companies refer only to a general review of several kinds of registration by administrative authorities without determining the exact level of review (regarding the European Company, see Art 8(8) and (9), 15 ff Reg 2157/2001 on the SE (European Company (Societas Europaea)); regarding the European Economic Interest Grouping (EEIG), see Art 14(2) Reg 2137/85 on the EEIG; regarding the European Cooperative (Societas Cooperativa Europaea), see Arts 7(8), 11(2), 17 ff Reg 1435/ 2003 on the SCE). The same applies to the statute of the planned European Private Company (Societas Privata Europaea) according to its Arts 10(4) lit a, 37.
(iii) European civil procedure law. The procedure for the registration of company law matters at public registers is not governed by Brussels I. Consequently these aspects are only addressed by the national laws of the Member States.
Finally, there is one particular characteristic in the context of preliminary rulings under Art 201 TFEU/234 EC. According to the ECJ, courts administering public registers do not constitute courts within the meaning of Art 201 TFEU/ 234 EC, but only administrative authorities. As a consequence these courts cannot refer to the ECJ concerning preliminary rulings (ECJ Case C-86/00 – HSB-Wohnbau GmbH [2001] ECR I-5353, 5360; ECJ Case C-447/00 – Holto Ltd [2002] ECR I-735, 744). This restriction constitutes a severe obstacle to the effective enforcement of European company law as a significant number of questions regarding the interpretation and application of harmonized European law are often addressed in registration procedures.
Literature
For a comparative overview see the contributions on the ECFR Symposium ‘Shareholder Suits’ Vienna, 10 October 2008, reprinted in ECFR 2009, 161–357; in addition see Wolfgang Fikentscher and Bernhard Großfeld, ‘The Proposed Directive on Company Law’ (1964) 2 CMLR 259; James Cox, ‘Searching for the Corporation’s Voice in Derivative Suit Litigation: A Critique of Zapata and the ALI Project’ (1982) Duke Law Journal 959; John C Coffee, ‘Understanding the Plaintiff’s Attorney: The implication of Private Enforcement of Law through Class and Derivative Actions’ (1986) 86 Columbia LR 669; Roberta Romano, ‘The Shareholder Suit: Litigation without Foundation?’ (1991) 7 J L Econ & Org 55; John C Coffee Jr, ‘New Myths and Old Realities: The American Law Institute Faces the Derivative Action’ (1993) 48 Business Lawyer 1407; Ralph C Ferrara, Kevin T Abikoff and Laura Leedy Gansler, Shareholder Derivative Litigation. Besieging the Board (1995).
