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United Kingdom

The European Company Statute (ECS) continues its tortuous progress towards implementation. On December 20 2000, political agreement was reached by the EU's Council of Ministers to establish the Statute, and on the related Directive concerning worker involvement in European companies. However, the question remains as to whether the compromise reached, which is still to be endorsed by the European Parliament, will in practice be palatable to countries such as the UK with less of a tradition of worker involvement, than other countries.

Once adopted, the ECS will give companies the option of forming a European company or Societas Europeae (SE). This new entity will be able to operate on a European-wide basis and will be governed by Community law directly applicable in all member states. The ECS will be established by two pieces of legislation, a Regulation (directly applicable in member states) establishing the company law rules, and a Directive (which will need to be implemented in national law in all member states) on worker involvement.

As presently envisaged, an SE could be created:

  1. by merger of two or more existing public limited companies from at least two different EU member states;
  2. by the formation of a holding company promoted by public or private limited companies from at least two different member states;
  3. by the formation of a subsidiary of companies from at least two different member states; or
  4. by the transformation of a public limited company which has, for at least two years, had a subsidiary in another member state.

While a low minimum capital requirement is proposed for SEs (euro120,000 ($107,000), it is contemplated the SE will be of particular use in the context of larger pan-European projects, such as infrastructure projects.

The main advantage of setting up an SE will be that pan-European businesses will be able to operate throughout the EU on the basis of a single set of rules and a unified management and reporting system, avoiding complex networks of subsidiaries governed by different national laws. The follow on benefit of this will be, it is anticipated, significant reductions in administrative and legal costs. The ability to offset losses in one member state against profits in another for tax purposes would also be a benefit.

It is not proposed that there will be a central register of SEs, rather these will be logged in the member state on the same register as companies established under national law. Each SE will have to be registered in the member state where it has its administrative head office, although it is envisaged that an SE will be able to move its registered office from state to state.

For many, the main issue in utilizing SEs may be the extent of worker involvement. In the case of a European company created as a holding company or joint venture (see paragraphs (ii) or (iii) above) when a majority of the employees had the right, prior to creation of the SE, to participate in company decisions, then the standard EU principles on participation of its workers will be applied in the event that managers and employee representatives fail to agree a mutually satisfactory arrangement on worker participation. In the case of an SE created by merger (the scenario in paragraph (i) above) it had been proposed that the standard principles on participation of workers would have to be applied when at least 25% of employees had the right to participate before the merger. However, agreement on this point had not been reached prior to the Nice Summit in December 2000. The compromise struck at that Summit was to authorize a member state not to implement the Directive on participation in the case of SEs created by merger, but in that case the SE could be registered in that member state only if an agreement was concluded or when no employees were covered by participation rules before the SE was created. Where a national company is converted into an SE (the scenario in paragraph (iv) above) the arrangements for worker participation applied by that company prior to its conversion to an SE would continue to apply.

That compromise will now need to be submitted again to the European Parliament for consultation. This is likely to last some time after which the proposal will be formally approved by the Council of Ministers at the first available opportunity, with the Regulation and Directive entering into force on the same date three years after their formal adoption.

Mark Poczman

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