A further step towards effective free movement of corporations

In its Judgement of 12 July 2012 in case C-378/10 VALE Építési Kft. (http://tinyurl.com/CJEUVale), the Court of Justice of the EU has extended its doctrine on the applicability (and limits) of the freedom of establishment (and movement) of corporations in cases of conversion (ie the changing of the seat of a company, together with the national law applicable to it). 

In my view, VALE goes further than the prior string of case law in Centros (Case C-212/97, 9 March 1999), Überseering (Case C-208/00, 5 November 2002), and Inspire Art (Case C-167/01; 30 September 2003) but follows the same logic of dismantling domestic corporate law systems based on connection points closely linked to the "real seat theory"; and pushes strongly in favour of mutual recognition of corporate forms (and, potentially, for harmonisation of the regulation of a true 'standard' EU corporation or partnership).

In VALE, the CJEU notes that, in the absence of a uniform definition of companies in EU law, companies exist only by virtue of the national legislation which determines their incorporation and functioning. Thus, in the context of cross-border company conversions, the host Member State may determine the national law applicable to such operations and apply the provisions of its national law on the conversion of national companies that govern the incorporation and functioning of companies. However, national legislation in this area cannot escape the principle of the freedom of establishment from the outset and, as a result, national provisions which prohibit companies from another Member State from converting, while authorising national companies to do so, must be examined in light of that principle (paras. 27 to 33).

In conducting that analysis, the CJEU has found that "in so far as the national legislation at issue in the case in the main proceedings provides only for conversion of companies which already have their seat in the Member State concerned, that legislation treats companies differently according to whether the conversion is domestic or of a cross‑border nature, which is likely to deter companies which have their seat in another Member State from exercising the freedom of establishment laid down by the Treaty and, therefore, amounts to a restriction with the meaning of Articles 49 TFEU and 54 TFEU" (para. 36, emphasis added). Moreover, "differences in treatment depending on whether a domestic or cross‑border conversion is at issue cannot be justified by the absence of rules laid down in secondary European Union law. Even though such rules are indeed useful for facilitating cross-border conversions, their existence cannot be made a precondition for the implementation of the freedom of establishment" (para. 38, emphasis added). 

Therefore, it seems cleat that the CJEU once again uses the principle of non-discrimination on the basis of nationality as a lever to push for new developments in EU company law (even in cases where there is limited cross-border effect because only one small company is concerned, and a matter of principle).

In the remainder of the VALE Judgment, the CJEU finds, firstly, that the application to the foreign converted company of the provisions of a national law on domestic conversions governing the incorporation and functioning of companies, such as the requirements to draw up lists of assets and liabilities and property inventories, cannot be called into question. Further than that, where a Member State requires, in the context of a domestic conversion, strict legal and economic continuity between the predecessor company which applied to be converted and the converted successor company, such a requirement may also be imposed in the context of a cross-border conversion (paras. 42 to 55).

However, the CJEU finds that EU law precludes the authorities of a Member State from refusing to record in its commercial register, in the case of cross-border conversions, the company of the Member State of origin as the predecessor in law of the converted company, if such a record is made of the predecessor company in the case of domestic conversions (paras. 55 and 56). And, finally, the CJEU finds that, when examining a company’s application for registration, the authorities of the host Member State are required to take due account of documents obtained from the authorities of the Member State of origin certifying that, when it ceased to operate, that company did in fact comply with the national legislation of that Member State
(paras. 57 to 61). Therefore, the CJEU further pushes for mutual recognition of documents and mutual reliance on domestic laws concerning conversion of companies.

I think that, overall, VALE is an important Judgment in the general area of EU company law and goes further than the specifics of corporate conversion, as it seems clear that the Court remains strongly committed to spur change and harmonisation of domestic rules.