The Idea Behind The Creation Of Ses Law European Essay

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02 Nov 2017

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This essay critically analyses the statement that by 10 September 2009, there were 431 SEs registered across Europe, but they have been more popular in some States than others and at the end of March 2011, only 23 SEs were registered in the UK. The essay evaluates the legal framework for the SE, in its legal, historical and economic context, having regard to issues of governance that arise as well as the reasons why the SE model has not been successful.

In addition to facilitating movement between Member States and takeovers across jurisdictions, the EU Commission has been looking to create new European structures. This was started by the introduction of the European Economic Interest Grouping ("EEIG") in 1989. However, this received limited appeal with just 205 EEIGs being on the register in 31 March 2008 (Hannigan, 2009). The reason for its limited appeal is that its activities have to be ancillary to the activities of its members and it cannot be profit-making in its own right (Hannigan, 2009).

This was followed by an agreement on a statute for the SE in 2000 and a Council Regulation (EC) No 2157/2001 on the Statute for a European Company ("Council Regulation 2001") was adopted in 2000, followed by the adoption of a Council Directive 2001/86/EC on employee involvement (Birds, et al 2009). An SE is a European Public Limited Company which may be established on registration in any of the EU Member States. It can be registered in any EU Member State in which it has its registered office under the Council Regulation 2001 (Art. 12(1)). The Council Regulation is supplemented by a Council Directive 2001/86/EC, which makes provisions for employee participation. Subject to the provisions of the Council Regulation 2011, the creation of an SE is governed by the law applicable to public limited liability companies in the Member State in which it establishes its registered office (Art. 15(1)). In the UK, the registration of an SE is done by the Registrar of Companies under the European Public Limited-Liability Company Regulations 2004 ("SE Regulations 2004").

An SE may be created by a merger of two or more existing public limited companies, forming a holding company as an SE, creating a subsidiary SE and by converting an existing public limited company into an SE (Council Regulation 2001, Art 2). The two or more companies must be governed by the law of at least two different Member States. Once created, the SE must be treated as a if it were a public limited company created in accordance with the law of the EU Member State in which it has its registered office (Council Regulation 2011, Art. 10). The SE is not intended to be for ancillary activities, but to facilitate cross-border mergers of companies and their mainstream activities (Davies and Worthington, 2012). UK national laws that apply to public limited companies also apply, in many respects, to SEs registered in the UK (SE Regulations 2004, Article 9(1)(c)(ii)).

The idea behind the creation of SEs is to give EU businesses a transnational model, disconnected from the internal national regulations, as appropriate to the needs of an integrated internal market. There are advantages relating to governance of the SE. For a group, the SE will give it a genuinely European identity. The SE form facilitates cross-border mergers and allows registered office mobility within the EU. The SE harmonises corporate forms at European level. This simplifies and rationalises structures, and also reduces the number of legal entities in a group, which lowers administrative costs. The SE enables the businesses of the group to be reorganised at European level. Since it transcends national divides, the SE model is not only valuable for marketing, but also good for competitiveness owing to the flexibility of structures and the social cohesion it entails.

The SE also offers certain specific advantages in the banking and insurance sector, optimising equity allocation, reducing the constraints of fragmented supervision and lowering operational risks. Other specific advantages exist for project financing and preparation for an IPO for all or some of a group’s businesses. The SE improves access to national and European public financing, as it guarantees transnational management. For the establishment of a joint venture between several companies from different Member States, it is easier to work using a common structure that is familiar to all parties to the joint venture. The mobility offered by SE status lies in the possibility of transferring the registered office. The European company’s legal personality continues unaffected by such transfers. This continuity of the legal personality, regardless of the registered office’s location and whether it is transferred from one Member State to another, avoids the issue of the company’s nationality.

The SE model encourages greater employee participation in the management of the company. Employee participation in the management is the general rule (Council Directive 2001/86/EC). An SE has a choice between one-tier or two-tier board structures by making employee participation mandatory. Where the two-tier structure is adopted, the management organ manages the SE and the supervisory organ supervises the work of the management (Council Regulation 2001, Arts. 39(1) and 40(1)). The management organ must provide information to employee representatives. Thus, the model encourages dialogues between employee representatives and the SE’s competent bodies. Agreements governing the employee participation are negotiated in SEs. An SE can only be registered if an agreement on employee representation has been signed. During negotiations, employees are represented by a special negotiating body and the employers are represented by the companies’ management bodies involved in forming the SE.

The SE is not without it own problems. Unlike a UK domestic public company, an SE cannot be established by the agreement of subscribers to its memorandum. Instead, an SE can be created only by an existing SE or by existing companies. This limits the circumstances in which SEs may be created, when compared with companies formed under national law (French, Mayson and Ryan, 2012).

The complexity of cross-border operations results from application of national laws that lack full harmonisation (Hopt, 2000). The SE model not only fails to regulate adjacent legal areas such as taxation, competition law, intellectual property and insolvency, but also the SE law relies heavily on the national laws of the Member States (Davies and Worthington, 2012). The rules applicable to board structure and employee participation in a particular SE will vary according to the choice made by the SE itself, any agreement made between the SE and the employee representatives or to the national origins of the companies forming the SE. Otherwise, the SE will be governed by the law relating to public companies in the Member State in which it is registered.

The formation process is long as it involves introducing the employee representative system. The procedure for employee participation can be complicated. In deed, the provisions contained in the Directive on employee participation are complex, given that they are a result of decades of negotiations designed to accommodate the very differing views on this across the Member States (Hannigan, 2009). The process can be cumbersome, particularly for a large group of companies with employees in all EU Member States. It requires information to be given to all employee representative bodies, translation of the SE documentation into all the corresponding languages, setting up a special negotiating body with a large number of members from several different Member States, and a decision process in the special negotiating body.

The SE has not proved attractive in the UK. By 10 September 2009, 431 SEs had been registered in the EU, but by March 2011, only 23 SEs were registered in the UK (Mayson, French and Ryan, 2012). Even those registered in the EU have been popular in some States than others. In addition, only a small fraction of those registered in the EU can be considered as normal SEs in the sense that the business activities and employees are headquartered in Germany where the SE model is based (Hannigan, 2009).

The complexity of the SE is not attractive to small and medium-sized enterprises and it was never envisaged that it might be appropriate for such entities. Thus, in 2008, the European Commission proposed a Regulation to enact a statute for the European Private Company (SPE, societas private europaea). Unlike the SE, the SPE would be a private limited company and would be formed and registered by anyone. This suggests that registration as an SPE would be an alternative to a registration as a private company under domestic law. However, this proposal has yet to receive unanimous approval.

The case for SE has also been overtaken by other developments, such as the breadth of the freedom of establishment articulated by the European Court of Justice (Case C-212/97, Centros Ltd v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459; Case C-208/00, Uberseering BV v Nordic Construction Co Baumanagement Gmbh (NCC) [2002] ECR I-9919; Case C-167/01, Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd [2003] ECR I-10155; Case C-411/03, Re Sevic Systems AG [2006] 2 BCLC 510) and the ease of transfer between Member States as a result of the Tenth Company Law Directive 2005/56/EC on Cross-Border Mergers of Limited Liability Companies (Hannigan, 2009; Davies and Worthington, 2012). This means that the existing structures facilitate operations across the EU without the need for a specific SE.

In summary, the SE model enables businesses in the EU to proceed to cross-border transfers of their registered office, improve reorganisation and/or restructuring and choose between different governance structures, while upholding employee participation. This corporate form also creates a European image and supranational companies. However, the issue of the involvement of employees in the management of the company has been a stumbling block for successive plans for a SE.



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