Consultation on the future of European Company Law. Dear Mr Ducoulombier,

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1 Deutscher Genossenschaftsund Raiffeisenverband e. V. Mr Eric Ducoulombier Head of Unit Corporate governance and social responsibility European Commission DG Internal Market and Services Capital and companies, Unit F2 SPA 2/85 B-1000 Brüssel Pariser Platz 3 Postfach D Berlin D Berlin T info@dgrv.de F Policy Department Ulf Jessen T F jessen@dgrv.de 14 th May 2012 hk/ts Consultation on the future of European Company Law Dear Mr Ducoulombier, We are grateful for the opportunity to set out our views on the future of European company law, and enclose as an annex to this letter the duly completed consultation questionnaire. In Section XI "Capital Regime" (question 20), discussion is invited on the wellestablished European capital maintenance regime, whereby the alternatives of a profit distribution on the basis of IFRS and a solvency test are given consideration. In this connection, we should like to make the following comments at the outset: In the continental European economic system, the protection of creditors and of investors plays a dominant role in company law. Accordingly, the effects of any change of the capital regime ought not to be underestimated, and must be implemented in a manner compatible with this system. The well-established 2 nd Company Law Directive on capital is closely connected with the principles of the 4 th Directive on annual accounts, which comprises the principle of prudent accounting providing adequate creditor and capital protection. These accounting principles ought also to be retained following the revision of the 4 th Annual Accounts Directive which is currently in process. In particular, under the 4 th Annual Accounts Directive, the well-established realisation principle (only profits may be regocnised when they have been realised on the market) and the imparity principle (losses which have arisen but have not yet been realised are anticipated) as well as measurement at purchase price applies. These principles of prudent accounting are the foundation of creditor protection and capital maintenance. If they are violated, the financial accounting is useless for calculating the dividend distribution. DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt a. M., BLZ , Konto-Nr WGZ-Bank AG Westdeutsche Genossenschafts-Zentralbank Düsseldorf, BLZ , Konto-Nr Sparda-Bank Berlin eg, BLZ , Konto-Nr Vereinsregister-Nr. VR Nz Steuer-Nr. 27/622/50340

2 Contrary to commercial prudence, the International Financial Reporting Standards (IFRS), in particular in the context of recognition at fair value, cut through these basic pre-requisites which are necessary for the maintenance of capital. Since, in the context of recognition at fair value, the acquisition costs may be exceeded, this results in unrealised phantom profits which, according to the realisation principle, may not be distributed. Since, however, the IFRS disregard the realisation principle, they are not appropriate to maintain capital. The distribution of unrealised phantom profits can also not be prevented through an additional solvency test, which depends on purely subjective estimates. Consequently, this test is also inappropriate for the purpose of determining dividends, and cannot compensate the weaknesses of financial statements prepared according to IFRS. A change of the capital maintenance regime from the calculation of the dividend distribution on the basis of accounting in accordance with the 4 th Annual Accounts Directive to IFRS and a solvency test would seriously impair creditor protection and sink below the current minimum level of protection. This ought, however, for reasons of legal policy and on economic grounds, to be preserved. The so-called feasibility study carried out by KPMG was unable to prove either the need of a change of system or any weaknesses of the current capital maintenance regime. Against the background of the path dependence of the legal development and of regulation established on the basis of prudence, it provides no persuasive argument for a change of system. In this spirit, the Commission having regard to the results of the study, had already decided on this basis not to enact any direct consequential measures or amendment to the 2 nd Company Law Directive. The decision not to make any changes to the principles of the 2 nd Directive is, in our view, to be emphatically supported. We will be pleased to answer any further questions. Sincerely, DGRV German Cooperative and Raiffeisen Confederation reg. assoc. Dr. Eckhard Ott Chairman p.p. Ulf Jessen Director of the Policy Department Annex page 2 of 23

3 Consultation on the future of European Company Law European Company law is a cornerstone of the internal market. EU Company law has evolved significantly over the last 40 years. The scope of EU harmonisation covers: the protection of interest of shareholders and others, the constitution and maintenance of public limited-liability companies' capital, takeover bids, branches disclosure, mergers and divisions, minimum rules for single-member private limitedliability companies, shareholders' rights and related areas such as financial reporting and accounting. Considerable work has also been accomplished on different legal forms such as the European Company (SE), the European Economic Interest Grouping (EEIG) and the European Cooperative Society (SCE). In recent times, however, the adoption of European company law initiatives has become more difficult. These difficulties are, for example, illustrated by the lack of progress on some simplification initiatives and on the proposed statute of the European Private Company (SPE). Nevertheless, at the same time, the cross-border dimension of business has grown tremendously both from a company and from a consumer perspective. Against this backdrop, DG Internal Market and Services launched a reflection exercise at the end of 2010 with the creation of an ad hoc reflection group composed of eminent academics. This group presented a report to the Commission which contained a number of recommendations for action 1. The report was discussed at a public conference in Brussels on 16 and 17 May The Commission now wishes to launch a public consultation to seek views from all stakeholders on European company law from 2012 onwards. Commissioner Barnier will announce in mid possible initiatives on corporate governance and company law for the second half of his mandate. After replying to all the questions in the consultation, you will have the opportunity to upload a document with additional comments. We kindly ask you to use this option only for comments you haven't already expressed in the consultation. I. Background Information This consultation is addressed to the broadest public possible, as it is important to get the views and input from all the interested parties and stakeholders. In order to best analyse the responses received after the consultation, there is a need for a limited amount of background information about you as respondent page 3 of 23

4 Annex Question 1: Please indicate your role for the purpose of this consultation: Company (non-financial) Consultant Retail investor Insurance Other liberal profession Public authority Banking Business federation Research institution/ Think tank Other financial services Trade Union/Employee body University/College Lawyer/notary Civil society Individual Auditor/accountant Institutional investor Other Question 2 Please indicate the country where you are located: Austria Finland Poland Belgium France Portugal Bulgaria Hungary Romania Czech Republik Ireland Slovakia Cyprus Italy Slovenia Germany Lithuania Sweden Denmark Luxembourg United Kingdom Estonia Latvia EU-wide organisation Greece Malta Non-EU country Spain The Netherlands Other Question 3: Please provide your contact information (name, address and -address) Ulf Jessen Deutscher Genossenschafts- und Raiffeisenverband e.v. Pariser Platz Berlin Jessen@dgrv.de page 4 of 23

5 Question 4: Is your organisation registered in the Interest Representative Register? Yes. No. ID Number of Interest Representative Register II. Objectives of European Company Law Question 5: What should be the objective(s) of EU company law? Improve the environment in which European companies operate, and their mobility in the EU. Facilitate the creation of companies in Europe. Setting the right framework for regulatory competition allowing for a high level of flexibility and choice. Better protect employees. Better protect creditors, shareholders and members. Other: Please specify. Comment: EU company law is intended to enable the Member States to obtain functions, which are important in regard to the national legal, economic and social environment. For example, already in 1884, following the experiences from the crisis arising from the rapid industrial expansion in Germany, a system of accounting law was created which, characterised by the basic principle of prudence, was suitable to maintain capital. In particular, the recognition at current value (fair value) was, for good reasons, prohibited and the purchase price and realisation principles introduced. This system of protection of capital and creditors still applies today in the form of the corresponding regulations of the 2 nd and 4 th Directives (see in detail the attached introductory letter). An application of the so-called IFRS, which follows the general concept of imprudent recognition at fair values and which disregards the realisation principle, would destroy the well-established system (see Section XI, question 20). page 5 of 23

6 III. Scope of European Company Law The Treaty on the Functioning of the European Union provides the legal basis to a- dopt Directives harmonising EU company law (Article 50). That legal basis has been used for the adoption of Directives related to the disclosure of companies and their branches as well as the validity of their obligations and their nullity; the maintenance and alteration of the capital of public limited-liability companies; the merger and divisions of public limited-liability companies; and the single-member private limitedliability companies. It has also been used to adopt Directives concerning take-over bids, cross-border merger of companies and certain rights of shareholders of listed companies. Question 6: Would you support that the EU's priority should be to improve the existing harmonised legal framework or, rather, to explore new areas for harmonisation? Yes, the following pieces of existing legislation harmonising company law could be modernised further (Please specify under 6.a) Yes, new areas could be explored for further harmonisation, such as... (Please specify under 6.b) Yes, both approaches could be combined and further work could target (Please specify under 6.c) Yes, both approaches could be combined and further work could target: (Please specify under 6.d) 6.a: The Directives on the disclosure of companies and their branches as well as the validity of their obligations and their nullity. The Directive on maintenance and alteration of the capital of public limited-liability companies. The Directives on the merger and divisions of public limited-liability companies. The Directive on single-member private limited-liability companies The Directive on take-over bids. The Directive on cross-border mergers. The Directive on certain rights of shareholders of listed companies. 6.b: Cross-border transfer of registered office. Cross-border divisions. page 6 of 23

7 Groups of companies. Cross-border conversion. Other. 6.c: The Directives on the disclosure of companies and their branches as well as the validity of their obligations and their nullity. The Directive on maintenance and alteration of the capital of public limited-liability companies. The Directives on the merger and divisions of public limited-liability companies. The Directive on single-member private limited-liability companies. The Directive on take-over bids. The Directive on cross-border mergers. The Directive on certain rights of shareholders of listed companies. Cross-border transfer of registered office. Cross-border divisions. Groups of companies. Cross-border conversion. Other.(Please specify.) Angabe 6.d: Soft-law instruments, like Recommendations. Increased administrative co-operation and exchange of good practices. Other. (Please specify.) Comment: Since company law also applies for businesses which operate on a regional basis, the benefit of an EU-wide harmonisation beyond the existing minimum level of protection is questionable in many areas. The protection of capital represents an area in which such a minimum harmonisation has already taken place in an appropriate manner. page 7 of 23

8 EU company law has been built on the basis of the distinction between public and private limited-liability companies. While some EU Directives apply to all company law forms, others focus on one type of company or the other. However, the reality has changed in the last years in particular to confer appropriate protection to public shareholders. A trend in some Member States is that public limited-liability companies are often used as legal form for listed companies while other large and mediumsized companies are private limited-liability companies. New hybrid company law forms have been designed in some Member States to grant further flexibility. Furthermore, the public-private distinction does not exist in all Member States. Question 7: Should the focus of EU company law move away from the distinction between public/private towards listed/unlisted in order to ensure adequate protection to shareholders? Yes, for all the legal instruments harmonising EU company law. Yes, but only for legal instruments related to: (Please specify.) No. Yes, but only for legal instruments related to: Disclosure of companies and their branches as well as the validity of their obligations and their nullity, Maintenance and alteration of the capital, Mergers and divisions, Single-member ownership, Take-over bids, Cross-border mergers, Certain rights of shareholders of listed companies, Other: (Please specify.) Comment: Particularly in relation to the maintenance of the capital and the protection of creditors associated therewith it is incomprehensible why a lower level of protection should apply here for listed companies (e.g. through adoption of IFRS for the determination of dividends) (see in detail question 20). In respect of information needs, consolidated financial statements under IFRS ought at most to be demanded of businesses listed entities on regulated markets. page 8 of 23

9 IV. User-friendly regulatory framework for European company law Because of the large number of Directives dealing with it, European company law is sometimes regarded as not particularly 'user friendly'. It is also exposed to the risk of inconsistencies, gaps or overlaps. In order to address this risk, the existing Directives could be amended and codified either to create a single instrument on Company Law or to only have a very limited number of Directives regrouping related areas. Question 8: Do you think that codifying existing EU company law Directives, thus reducing potential inconsistencies, overlaps or gaps, is an idea worth pursuing? Yes, a single EU company law instrument should replace all existing Directives. Yes, EU company law Directives with a similar scope should be merged. No, this is not an idea worth pursuing. Please specify: (maximum 500 characters) Comment: Since the Directives have already been transformed into national law and serve as the basis of an interpretation in conformity with the Directive, any formal amendment would cause unnecessary consequential costs. page 9 of 23

10 V. Company legal forms Apart from harmonisation, EU company law has also focussed on the definition of specific EU company law forms, such as the Statute for a European Company (SE), the Statute for the European Cooperative Society (SCE), the European Economic Interest Grouping (EEIG) and more recently, the proposed Private Company Statute (SPE). Those instruments are often referred to as being a "28th regime" to the extent that they introduce new legal forms that do not harmonise, modify or substitute the existing national legal forms, but provide an additional alternative legal form. Question 9: What, if any, is the added value that EU company legal forms bring for European business? The European image of those company law forms. Their European label ("SE", "SCE"). Their full legal personality. Savings in costs of cross-border transactions. Ad hoc solution to cross-border related issues. Workable alternatives to existing national company law forms. The possibility not to be subject to compulsory national requirements (for example, the SE allow public limited-liability companies to choose between one-tier and two-tier management structure). The possibility to carry out operations, like cross-border transfer of seat. Tax reasons. Labour law reasons. Other: (Please specify.) No added value. Comment: The legal forms under EU company law do not replace the national legal forms but apply in addition to the same. In particular, they gain importance if companies intend to or already carry out cross-border activities. The importance of the SCE for the co-operative sector, which tends rather to have local activities, is accordingly small. The SCE should nevertheless be retained as an option for cross-border business activities. Furthermore, it ought not to be ignored that the SCE has made a considerable contribution to the further development of national co-operative systems. page 10 of 23

11 Question 10: What, if any, are the main shortcomings of EU legislation introducing EU company legal forms? The complexity linked to frequent cross-references to relevant national legislation. The uncertainty linked to the application of different national legislations that are applied simultaneously. The differences in the way EU company law forms are understood and used at national level. The different degree of attractiveness across Member States. The limitations that derive from unanimity decision-making. Other: (Please specify.) No main shortcomings. Comment: The complexity linked to frequent cross references to relevant national legislation is indeed a fact. However, this complexity is often a result of the difficult processes of agreement between the Member States. If a complex regulation represents the only possible compromise between the Member States, it is necessary to accept the complexity. Furthermore, the complexity is not to be seen as the main cause of the lack of proliferation of the SCE. page 11 of 23

12 Question 11: Should existing EU company legal forms be reviewed? Yes, in particular concerning: (Please specify.) No. Yes, in particular concerning: Simplification and rationalisation of existing procedures. Increased uniformity through reduction of cross-references to national legislation. Reduction of minimum capital required. Deletion of cross-border element requirement. Possibility to have the registered office and the headquarters in two Member States. Explicit solution to the issue of shelf companies. Other: (Please specify.) Comment: Instead of a review of the existing provisions, measures ought to be taken which are directed towards increasing the level of awareness of the respective legal company forms in the EU. The potential founders need to be given a closer understanding of the advantages of the EU company forms. Once this step has been taken, the interested parties will not be put off from forming a company simply by reason of a certain degree of complexity. page 12 of 23

13 The European Model Company Act (EMCA) 3 on which academics are currently working aims at providing a modern and flexible Model Act, taking account of the latest developments in Member States. The initiative does not strive to harmonise national company law, but rather to facilitate understanding of the specific features in various national systems and to serve as a flexible and optional model. Question 12: Could optional models such as the EMCA -or similar projects- be a suitable alternative to traditional harmonisation? Yes. (Please explain) No. Yes: (maximum 500 characters) Comment: The advantage of optional models lies in the flexibility of dealing with the same. However, even such models are unable to resolve the problem of complexity. The Member States are free to decide whether they orientate themselves on the model in whole or only as to parts. In view of the differences in the Member States, it is to be assumed that in the majority of cases they would only adopt parts of any such model. 3 For further information please see: project/ page 13 of 23

14 VI. The particular case of the Societasprivata Europaea (SPE) Statute The proposal on the SPE Statute has been discussed for more than three years without any final outcome. After lengthy negotiations, Member States could not agree in particular on the possibility to separate their registered office and the headquarters and the regime for employee participation. However, the Commission still believes that European small and medium size businesses need support at EU level, particularly in the current economic context. Question 13: Should the Commission explore alternative means to support European SMEs engaged in cross-border activities? Yes, for example: (please explain) No, further efforts should be made to get an agreement on the current SPE statute proposal. Other possibilities to explore? (Please specify.) Yes, for example: The Commission could prepare a new legislative proposal aimed at promoting EU SMEs through the European labelling of existing national company law instruments that meet a number of pre-defined harmonised requirements. The 12th Company Law Directive could be reviewed in order to introduce a simplified company charter to facilitate the organisation of groups (i.e. single member private limited-liability companies would be exempted from certain harmonised rules, not indispensable for a single member company). The scope of application of the SE Statute could be modified to allow smaller EU companies to benefit from it on the basis of more flexible requirements. Other: (Please specify.) Other possibilities to explore: (maximum 500 characters) page 14 of 23

15 VII. Cross-border Transfer of a company's registered office Apart from the rules contained in the Statutes for the European Company (SE) and for the European Cooperative Society (SCE), the current EU rules do not provide for a general right to the cross-border transfer of a company's registered office, which would preserve the company's legal personality. Currently, only few Member States allow for a seat transfer without winding up and subsequent re-incorporation. In most Member states, companies must therefore establish a new legal entity in the Member State of destination, merge the companies in question and register the company formed by merger in that Member State. Question 14: Should the EU act to facilitate the cross-border transfer of a company's registered office? Yes, through a harmonizing Directive. Yes, through some other measure. No, as the existing EU framework (European Company Statute, cross-border mergers Directive) provides for sufficient tools for a cross-border transfer of registered office. No. Please give further reasons for your opinion (maximum 500 characters): Question 15: What should be the conditions for a cross-border transfer of registered office? A transfer should not be possible if proceedings for winding up, liquidation, insolvency, suspension of payments or similar proceedings have been brought against the company. Member States should be able to decide whether or not they require the transfer of the company's headquarters or principal place of business together with the transfer of the registered office. A transfer should be accepted by all Member States even when not accompanied by the transfer of the company's headquarters or principal place of business. A transfer should be allowed only if accompanied by the transfer of the company's headquarters or principal place of business. page 15 of 23

16 Question 16: What should be the consequences of a cross-border transfer of registered office? There should be no winding-up of the company in the home Member State. The company should not lose its legal personality. The transfer should be tax neutral following the approach of Directive 90/434 applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States. A transfer should not result in the loss of the pre-existing rights of shareholders, members, creditors and employees of the company. page 16 of 23

17 VIII. Cross-border Mergers The Directive on cross-border mergers of limited-liability companies 4 contains rules for mergers between companies from different Member States. The Directive contains a harmonized framework for cross-border mergers and national rules are applicable on the merger procedure and the decision making process, as well as on common issues, such as creditors' rights. Question 17: Do you support further harmonized rules in the Directive? Yes. (Please specify, which areas) No. (Please specify.) Yes. (Please specify, which areas): Approval of the cross-border merger by the general meeting. The duration of the review by national authorities of cross-border mergers. The methods for valuation of assets in cross-border mergers. The date of the start of the protection period regarding creditors' rights. The duration of the protection period regarding creditors' rights. The consequences of creditors' rights on the completion of a cross-border merger. Other. (Please specify.) No: (Please specify.) There is no need for further harmonisation in the area of cross-border mergers. The division between EU regulation and national legislation does not pose a problem. The areas currently not covered are better dealt with in national regulation. Other. (Please specify.) 4 Directive 2005/56/EC. For the text of the Directive, please see: page 17 of 23

18 IX. Cross-Border Divisions Divisions at national level are currently harmonized by the Directive on divisions 5, but EU Company Law does not provide for rules on cross-border divisions. Question 18: Do you support introducing regulation regarding cross-border divisions at EU level? Yes. (Please specify.) No. (Please specify why.) Yes: And these harmonised rules should aim at the following: a) Building rules on cross-border divisions around the framework established in the Directive on cross-border mergers. (Please specify why.) b) Shared liability of the involved companies for claims existing at the time of the division. (Please specify.) c) Other. (Please specify.) Yes: a) Please specify why. The framework is well known by the relevant stakeholders. The framework has proven to be sustainable. The framework presents the best structure to deal with this type of cross-border activities. Other. (Please specify.) Yes: b) Should this shared liability be based on the distribution of assets in the division? Yes. No. Directive 82/891/EEC. For the text of the Directive, please see: page 18 of 23

19 No: (Please specify.) These areas are best dealt with at national level. The division between EU regulation and national legislation does not pose a problem. Other. (Please specify.) page 19 of 23

20 X. Groups of companies From a business perspective, company groups or holdings are a reality. However, not all national legal systems have come up with specific legal frameworks dealing with groups of companies. Many Member States have legal safeguards in place which try to deal with the most important legal issues that may arise in such a context. At EU level, there were attempts in the past to produce a comprehensive European framework on groups of companies, the so- called 9 th company law Directive. This initiative never succeeded. The Reflection Group has tabled recommendations which are not aimed at creating an exhaustive legal framework, but try to target specific aspects where they feel action 6 is needed. We would like to seek views on them. Question 19: Do you see a need for EU intervention in this field? Yes, there should be an EU intervention. (Please specify.) No, there is no need for EU intervention. Yes, there should be an EU intervention: The Commission should recommend the recognition of group interest. The EU should require groups to provide information on their structure in a consolidated, investor-friendly and easy-to-read document. Other. (Please specify.) For more information, please see Reflection Group report, pages 59-75, page 20 of 23

21 XI. Captal regime In 2008 an external study was launched by the Commission to provide input on the feasibility of an alternative to the capital maintenance regime of the Second Company Law Directive (77/91/EEC) and the impact of the adoption of IFRS on profit distribution 7. The study found that the current minimum legal capital requirements and rules on capital maintenance do not constitute a major obstacle to dividend distribution. It also held that the impact of IFRS on dividend distribution was not significant. Taking into account the results of the study, the Commission decided not to adopt any immediate follow-up measures or changes to the 2 nd Company Law Directive. Question 20: In your opinion, should the Second Company Law Directive be reviewed? Yes. (Please indicate what should be the aim of the review) No. (Please specify.) Yes. (Please indicate what should be the aim of the review * * Apart from the scope private-public, see question no 7. Abolition or change of the minimum capital requirement. Replacement of the balance sheet test by a solvency test. Cumulative use of the balance sheet test and of the solvency test. Alternative use of the balance sheet test and of the solvency test. Use of International Financial Reporting Standards for the determination of distribution of dividends. Clarifying the regime of abstention vote. Other. (Please specify.) See page 21 of 23

22 No: (Please specify.) Current rules are flexible and leave a significant margin of manoeuvre to Member States. Current rules have stood the test of time. Compliance costs for companies are not excessive. Other. (Please specify.) Comment: For companies not listed, the high burdens associated with applying the IFRS are not acceptable since, beyond the capital market, the majority of small and medium sized businesses derive no benefits therefrom. Conversely, the costs of dual accounting as a price for the advantages of listing on a regulated market are justifiable and affect only a few larger companies. Accordingly, any reform ought by no means to be orientated on the interests of the users of IFRS who would possibly like, in addition to their consolidated financial statements, to prepare their individual financial statements on the basis of IFRS as well. A differing level of creditor and capital protection between listed and not listed entities (two classes of creditor protection) is not acceptable in terms of legal policy. Accordingly, the voluntary application of the IFRS for purposes of capital maintenance is also not a possibility. Rather, the current minimum level of protection should be retained and contrary to the practice in certain EU Member States a distribution of dividends ought to be made on the basis of accounting in accordance with the 4 th Annual Accounts Directive. The well-established 2 nd Capital Directive is closely connected with the principles of the 4 th Annual Accounts Directive, which comprises the principle of prudent accounting appropriate for an adequate protection of creditors and capital. These accounting principles ought also to be retained following the revision of the 4 th Annual Accounts Directive which is currently in process. In this connection, under the 4 th Annual Accounts Directive, in particular the acquisition cost and realisation principle (only profits may be recognised when they have been realised on the market) and also the imparity principle (losses which have arisen but which have not yet been realised are anticipated) are to be observed. These principles were developed for prudent accounting and may be regarded as the foundation of creditor protection and capital maintenance. If they are not respected, the financial statements are inappropriate for determining the dividend distribution. The International Financial Reporting Standards (IFRS), in the context of the prevailing recognition at current value (so-called fair value), cut through these fundamental pre-requisites which are necessary for capital maintenance. In the context of measurement at fair values, the historical costs may be exceeded and this may result in the recognition of unrealised phantom profits which, under the realisation principle, page 22 of 23

23 may not be distributed. Since, however, the IFRS disregard the realisation principle, they are not appropriate to maintain capital. Although this is generally accepted, additional capital protection measures such as the solvency test are proposed. However, the IFRS-orientated distribution of unrealised phantom profits cannot be prevented through an additional solvency test, which depends on purely subjective estimates. Consequently, this test is also inappropriate for the purpose of determining dividends, and cannot compensate the weaknesses of financial statements prepared according to IFRS. A change of the capital protection system from accounting under the 4 th Annual Accounts Directive to IFRS and a solvency test would consequently seriously impair creditor protection and sink below the current minimum level of protection. This ought, however, for reasons of legal policy and on economic grounds, to be preserved. The so-called feasibility study carried out by KPMG was unable to prove either the need of a change of system (feasibility is something other than advisability) or particular weaknesses of the current capital maintenance regime. Against the background of the path dependence of the legal development and of a regulation established on the basis of prudence, the study provides no persuasive argument for a change of system. In this spirit, the Commission, having regard to the results of the study, had already decided on this basis not to enact any direct consequential measures or amendment to the 2 nd Directive. This view should be supported further. XII. Additional comments page 23 of 23