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Reporting and documentation

To contribute to enhancing the competitiveness of EU companies by reducing administrative burdens imposed under the European Company Law Directives where this can be done without major negative impact on other stakeholders, in 2006, the Commission adopted a simplification programme. This would measure administrative costs and reduce administrative burdens. The objective was to reduce 25% of administrative burdens by the year 2012 were endorsed by the Spring European Council in March 2007, at the Presidency Conclusions of the Brussels European Council (doc. 7224/07 Concl 1).

As a consequence, the Commission adopted, in July 2007, a communication setting out its proposals for simplifying the areas of company law, accounting and auditing. Furthermore, in March 2007 and April 2008, two fast-track proposals were presented by the Commission in order to achieve a rapid reduction of administrative burdens through minor changes of the EU acquis. The first one was adopted in November 2007. The second proposal that takes up certain elements considered in the July 2007 Communication is still under consideration in the European Parliament and the Council. Other simplification possibilities presented in the Communication and additional proposals received during the consultation process are presented in this proposal. Finally, in September 2008 the Commission issue a Proposal for a Directive as regards reporting and documentation requirements in the case of mergers and divisions, amending other Directives.

The initiative focuses on the Third Directive (Council Directive 78/855/EEC) concerning mergers of public limited liability companies and the Sixth Directive (Council Directive 82/891/EEC) concerning the division of public limited liability companies that deal with the modalities of domestic mergers and divisions. In addition, in relation to the Cross-border mergers Directive two points need to be aligned with the changes made to the regimes for domestic mergers. Furthermore, mainly technical changes were need to be made to Second Directive (Council Directive 77/91/EEC).

In terms of EC company law, therefore, proposals to simplify procedures have been made in two areas: material law, in the First Directive on the formation of public limited companies
and in the Second Directive on the maintenance and alteration of capital (Directive 77/91/EEC (OJ L 26, 31.1.1977, p.1), amended by Directive 2006/68/EC (OJ L 264, 25.9.2006, p. 32); and the Directives on procedural law, particularly as regards accounting standards and information requirements for listed companies.

There were an Impact Assesment. The Competitiveness Council adopted, on 22 November 2007, conclusions welcoming the simplification initiative [Council document 15222/07 DRS 48] In the European Parliament, a report was adopted on 21 May 2007 that reflects broad support for the initiative to simplify European company law and reduce administrative burdens. [ A6-0101/2008]. 

As an example of reducing burdens, the Directives inform shareholders about the details of the transactions were designed 30 years ago and therefore do not take into account today’s technological possibilities. This leads to unnecessary costs and an excessive use of paper that can be avoided.

The reporting requirements in the Third and the Sixth Directives consist of (1) the obligation to produce a written report by the management on the legal and economic grounds of the merger/division; (2) an independent expert’s report that examines in particular the proposed share exchange ratio; and (3) an accounting statement where the annual accounts are older than six months at the time the draft terms of merger or division are drawn up. These documents have to be submitted to the general meeting of shareholders that decides on the merger or the division.

With a view to the management report and the accounting statement, the Impact Assessment recommends to introduce the possibility of a unanimous waiver, as was done by Directive 2007/63/EC with a view to the expert’s report. This would avoid a negative impact on the interests of the shareholders while achieving some savings for the companies involved.

In addition, it is proposed to abolish the requirement for an accounting statement where the company has set up a half-yearly financial statement under the Transparency Directive.

In cases where the operation is linked to either setting up a new company or an increase in the capital of the receiving company, currently there is a duplication of requirements for experts’ reports due to the rules of the Sixth Directives on the one hand and the Second Directive on the other. In the case of mergers and public offers, the Second Directive contains a Member State option to exempt companies from the report on contributions in kind required by that directive. The Impact Assessment recommends that this Member State option be extended to the cases of divisions.

According to the Commission, Company websites offer, in certain cases, an alternative to the publication using the companies registers. Companies should therefore have the possibility to use their websites for the publication of the draft terms of mergers and division and of other documents that have to be made available to shareholders and creditors in the process.

The proposal also states that there is no need to impose the requirement to draw up an accounting statement in cases where an issuer of listed securities publishes half-yearly financial statements, in accordance with the rules of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.

There is also no often needed an independent expert report (as provided for under Directive 77/91/EEC)  where an expert report has to be drawn up also under the rules of Directive 78/855/EEC and the Sixth Council Directive 82/891/EEC of 17 December 1982 based on Article 54 (3) (g) of the Treaty, concerning the division of public limited liability companies. Member States should therefore have the possibility to dispense companies from the reporting requirement under the Second Directive in these cases or to provide that both reports may be established by the same expert.

Amendments to the Third Directive

The proposal introduces an alternative, for companies, to the publication mechanism of the First Directive. Instead of filing the draft terms of merger with the register they can be published on the company’s website or another website (in particular where the company has the possibility to use the website e.g. of a business association). However, in order to allow shareholders and other stakeholders to locate the document, a reference and a link have to be published on the central electronic platform that should be introduced as a mandatory tool in Art. 3(4) of the First Directive by the directive that was proposed by Commission proposal of 17 April 2008 [COM(2008)194]. With a view to the fact that certain provisions (as for example Art. 13 Third Directive and Art. 12 Sixth Directive with a view to the creditor protection) refer to the date of publication, this date has to be published on the central electronic platform as well.

Other amendment is the proposed changes to Article 11 with the aim at ensuring that:

  • A company does not need to set up an accounting statement:  where it is subject to the obligation, under the Transparency Directive, to draw up half-yearly financial reports and has effectively done so; and where all shareholders agree that they do not need it.
  • That copies of the documents set out in paragraph 1 of that article can also be sent by electronic mail if the shareholder generally has agreed to using this way of communication, e.g. by providing the company with his/her e-mail address. Although the current text does not exclude that the copy be in electronic form, so far is not clear under which conditions the electronic means can be used by the company. Currently, the shareholder could always insist on receiving a paper copy which would not be the case any more if the provision is changed as suggested;
  • That, instead of making the documents available at the place of its registered office, the company can post it on its website. This possibility facilitates the procedure for the company and makes the documents more easily accessible for non-resident shareholders and, where the company allows open access to that site, also for creditors. Where the documents can be downloaded from the site, there is also no need to provide for a right of shareholders to obtain an individual copy, taking into account that the process of sending (even in electronic form) creates unnecessary costs to the company.

Other Proposals

Other proposed solutions were:

  • Measures concerning simplified mergers and divisions between parent companies and subsidiaries: Currently, Member States have the possibility to grant exemptions from the need to hold a general meeting and from certain reporting and information requirements where the merger or division take place between parent companies and their subsidiaries. However, only a few of the Member States make full or almost full use of these options. The conclusion of the Impact Assessment is that Member States should be required to grant the possibility of simplified mergers/divisions to their companies.
  • Publication and documentation duties: Under the rules of the Third, the Sixth and the Directive on Cross-border Mergers, companies have to file the draft terms of merger or division with the companies register and publish these draft terms in the national gazette or on a central electronic platform. Furthermore, the Third and the Sixth Directives provide that shareholders must be given the possibility to access certain documents at the place of the company’s registered office and to receive free copies of these documents. However, today’s means of modern information technology allow for an easier and cheaper access to the information and have therefore already been used in more recent directives, such as the Shareholders’ rights Directive [ Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies, OJ L 184, 14.7.2007, p. 1713]. The Impact Assessment therefore recommends allowing companies to use their Internet site for publishing the information.
  • Protection of creditors: Changes to the Second Directive [Directive 2006/68/EC of the European Parliament and of the Council of 6 September 2006 amending Council Directive 77/91/EEC as regards the formation of public limited liability companies and the maintenance and alteration of their capital, OJ L 264, 25.9.2006, p. 32.] have, inter alia, led to clarifying the creditor protection rules under that directive in the sense that creditors have to show credibly that an operation concerning the company’s capital jeopardises their claims if they want to obtain securities. For reasons of coherence, the Impact Assessment recommends that the rules of the Third and the Sixth Directives be adapted along these lines.


EESC Opinion

The report from the main Committe of the European Parliament (PE416.662v01-00) were almost worthless.

More interesting were the European Economic and Social Committee (EESC) opinion, of 25 february 2009.

The EESC believes that legislation concerning European SMEs – which comprise the main part of Europe’s economic fabric – should be clearly separated from legislation
applicable to large companies, especially those which raise funds
on the stock market. One of the Commission’s priorities for the internal
market has been to set up a process to simplify EU law,
especially the law governing the administrative burdens on
European companies. According to the EESC, most European companies are SMEs,
but many of the requirements set out in company law
Directives are designed for large limited-liability companies
that raise funds on the stock market.
They understand the Commission’s interest in protecting
shareholders as owners of the company, but it should not
neglect other interested parties whose rights could be affected
by legal transactions. We therefore understand and support the
European Parliament’s position (European Parliament Report A6-0101/2008 ) on the issue which pointed
out the need to take into account the interests of all interested
parties (investors, owners, creditors and employees). The EESC
has already voiced this view (EESC Opinion OJ C 117, 30.4.2004, p. 43), and we are making the point
again to try and maintain transparency and ensure that
economic and social actors have confidence in the European
single market.

Regarding creditor protection, the possibility for creditors to oppose mergers or
divisions until they have obtained guarantees (as long as they
have evidence of an outstanding claim on the companies that
are involved in the transactions), has been one of the ways of
maintaining confidence in market transactions and ensuring
they run smoothly. Requiring creditors to apply to the appropriate
administrative or judicial authority in order to obtain
adequate safeguards, and to credibly demonstrate that the satisfaction
of their claims is at stake and, in the EESC opinion, that no adequate
safeguards have been obtained from the company
(Article 12(2) Directive 82/891/CEE), effectively diminishes
creditor protection rules. Reversing the burden of proof in
this way should make us pause to consider whether this is a
sensible change to make: it will make hitherto routine market
transactions more complicated, and could potentially lead to an
increase in the number of transactions effected with legally
binding guarantees.

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