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CMS Strommer Reich-Rohrwig Karasek Hainz Vienna

In a remarkable decision, the Austrian Supreme Court (OGH) held that the commercial courts may not refuse to register a branch of a UK incorporated company, solely on the grounds that the actual seat of management is situated in Austria ("pseudo-foreign company"), thus avoiding minimum capital requirements for the formation of a company under Austrian law.

The Supreme Court followed the decision of the European Court of Justice (ECJ) in Centros (ECJ 9.3.1999, C-212/97), in which refusal to register a branch of a company formed in accordance with the laws of another EU member state was found to be contrary to the freedom of establishment.

According to the Austrian International Private Law Act the personal law of a company, which includes matters such as the legal capacity and the existence of a company, is governed by the law of its residence as opposed to the law of domicile approach adopted in most of the common law countries. Consequently the Austrian Supreme Court applied this provision to so called letter box companies, which had their actual seat of management in Austria ("pseudo-foreign companies") and denied their existence, since those companies had not been formed according to the laws of Austria.

The Supreme Court further held that in the light of Centros the law of residence approach under the International Private Law Act did not apply to companies registered in an EEA Member State. The Supreme Court did not even consider Daily Mail (ECJ 27.9.1988, C-81/87) as the leading case in this field, in which the ECJ recognizes the two approaches in absence of an international treaty between the Member States. In Centros the subject whether the law of residence approach was contrary to the freedom of establishment was not in question, since Denmark, where the branch of the English company should be registered, follows the law of domicile approach and hence recognizes the legal capacity of a English company.

In the light of Centros and Daily Mail, the Supreme Court could have stayed proceedings and referred the question to the ECJ for a preliminary ruling. As a result of the Supreme Court decision pseudo-foreign companies from a EEA Member State can register their branches in Austria circumventing stringent capital requirements under Austrian law.

Peter Huber and Marcel L Aschenbrenner

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