DG MARKT F2 European Commission Brussels Re. EU Action Plan on modernizing company law and enhancing corporate governance consultation on future priorities of Plan General We very much welcome this consultation on future priorities for the Action Plan. Question 1 Future strategy In terms of the overall strategy which should underpin future priorities please refer to the Joint Paper which Ireland along with six other member States (Denmark, Estonia, Finland, Slovenia, Sweden and UK) has already submitted to the Commission and which has been circulated to all other Member States. We would draw attention to the following key messages from this paper; (a) Future Action at EU level can only be justified where it addresses genuine cross border issues (to be measured by the application of specific cross border economic criteria set out in the paper), which contribute to the development of the single market and promote the competitiveness of EU companies. (b) Such proposals should also adhere fully to the EU s better regulation principles. In this regard where EU action is warranted non-legislative means should be considered as the first option as this provides the most flexible means of dealing with changing circumstances. We need to opt for instruments that put the least burden on companies and leave them as much flexibility as possible. (c) Further legislation on corporate governance is not currently relevant at the EU level. The focus should be on greater co-ordination of corporate governance standards between Member States through the sharing of information and best practice and availing fully of the work of the EU Corporate Governance Forum for this purpose. (d) the prime need is not so much for new measures but for a new focus on effective implementation and evaluation of measures already adopted, particularly in the light of the cumulative impact of regulation in the corporate, accounting and financial services sectors. Implementation and evaluation of measures already adopted As indicated at the CLEG meeting on 6 March 2006 the key issue as we see it at this juncture is point (d) above, namely effective implementation and evaluation of measures already adopted and due to be adopted shortly. In this connection the effect of measures adopted over the last two years and measures currently close to adoption
is that Member States will have at least 8 Directives to transpose into national law by 2008. This represents substantial legislative activity by any standards for this area and it comes on the heels of an already very busy period during 2004 2005 when at least 6 EU measures fell due for transposition. See table attached for details. Against this background we are strongly of the view that examination of any further EU actions emanating from the current consultation exercise should be put on hold for a period of two years to allow Member States and other stakeholders, including the Commission, to concentrate resources exclusively on the implementation of the existing workload referred to above. In this regard the overarching message we are getting from a wide range of stakeholders here is that they cannot cope with the scale and scope of the regulatory burden coming from Brussels and that the top priority over the period ahead must be consolidation of existing activity before moving on to detailed consideration of incremental activity. Question 2 Application of Better Regulation Principles As indicated in the Joint paper we welcome and wholeheartedly support the EU institutions commitment to better regulation and the importance being attached to applying Better Regulation principles to the development and implementation of the Action Plan. Paragraph 15 of the Joint Paper sets out how we believe the principles should be applied. Question 3 - One Share, one vote Ireland supports the proposal to carry out a study on the feasibility of giving further effect to the principle of proportionality between capital and control by examining the impact of existing distortions between capital and control created by special voting rights. The added value of addressing this issue at EU level in relation to listed companies would be a more level playing field in areas such as takeovers etc. Given the very sensitive nature of this issue for some Member States perhaps a non legislative measure would hold the best prospect of making progress, at least initially. Question 4 Rights of Shareholders It would appear that the nomination and dismissal of directors and shareholder communication issues raised here were not part of the original Action Plan. We are not convinced that these present a cross border issue requiring action at EU level at least not without further study, perhaps by the Corporate Governance Forum. While we have provisions in our company law providing for special investigations into the conduct of company affairs by shareholders, again we would need to be convinced that a genuine cross border issue arises here - for example is it clear that such a right would be of benefit in all Member States given that the structure of company ownership differs as between Member States? Question 5 Disclosure by investors of their voting policies We believe that there is a case for having this addressed at EU level so as to enhance effective operation of cross border shareholder rights but consider that a best practice
approach would be the appropriate way forward using the EU Corporate Governance Forum as the driver in this area. Question 6 Directors Responsibilities/Enhanced transparency of legal entities While Ireland s company legislation already contains a wrongful trading rule we are not convinced of the economic need for this issue to be dealt with at EU level on the basis of the information presented by the Commission. We would however agree that there are cross border issues with regard to directors disqualification as a director disqualified in one Member State could set up a company in another Member State. We believe that this could be addressed by enhanced transparency and improved co-operation between national competent authorities without the need for a legislative measure. We would not be opposed to a Commission Recommendation/Communication setting down some general principles if the consensus is that this is considered necessary to facilitate the enhanced disclosure and co-operation referred to. As regards the need for additional measures to enhance transparency for legal entities with limited liability we would need to see the outcome of the Commission s proposed examination of the matter before taking a position on whether new disclosure requirements at an EU level are warranted. Question 7 - Directive on the transfer of registered office In light of the European Company Statute, Cross Border Mergers Directive and ECJ case law over recent years the need for this measure is less compelling. However, on the face of it, it presents companies with another option on facilitating mobility. To be fully meaningful though, such a measure should be consistent with the ECJ case law under which a company can have its registered office in one Member State and all business operations in another member State. This flexibility was not provided for in the proposal which the Commission had under consideration previously, albeit that some Member States already provide for such flexibility. In addition, replication of the employee involvement arrangements of the Cross Border mergers Directive would not be considered appropriate here. Question 8 Choice between the monistic and dualistic types of board structure We would not see the need for EU action in relation to this matter. A recent survey by the Commission found that the vast majority of Member States already allow for flexibility on the form of board structure a company can adopt. Question 9 Squeeze out and Sell out This matter was considered in detail in the context of the recent negotiation on the changes to the 2 nd Directive and was comprehensively rejected by both the Council and the European Parliament. The overwhelming view was that this matter should be left to the member States and this continues to be Ireland s view.
Question 10 Groups and Pyramids We note that the Commission is not aware of any practical difficulties which render EU action necessary reflecting no doubt that groups operate perfectly well under existing laws of Member States. Furthermore improved transparency as regards financial and non financial information about groups of companies is already addressed in the short term measures of the Action Plan. As regards abusive pyramids perhaps this is an issue that could form part of the study on the one share one vote issue. Question 11 European Company We welcome the fact that the Commission is assessing usage and whether more flexibility is necessary for companies wishing to establish an SE. This is important not just for the Statute but for other mobility measures, e.g., transfer of registered office, to ensure that we don t repeat deficiencies/inflexibilities. It may however be a bit early for meaningful feedback. Question 12 European Private Company The Cross Border Mergers Directive will apply to all limited companies and, as alluded to by the Commission in the consultation paper, this Directive solves a number of the problems related to corporate restructuring. Furthermore the development of ECJ law already affords private companies substantial freedom to operate throughout the EU. Consequently we do not see value in developing an EPC Statute in addition to the existing SE. Question 13 - European Foundation We fail to see what useful economic purpose this proposed EU legal form would serve. Question 14 Simplification and Modernization of European Company law We would be strongly supportive of an initiative in this area but the challenge is how best to structure it to ensure meaningful results can be achieved for the level of effort and time required. There would appear to be three options codification, limited simplification, recasting of legislation. We would consider a phased approach as the most practical way forward. Despite its limitations we consider that, as a first step, a codification would be worthwhile. It is something that could be done in a reasonable amount of time and we already have a template in the Consolidated Admissions and Reporting Directive 2001/34/EC. Side by side with this exercise, consideration could be given to setting priorities for limited simplification. The 3 rd and 6 th Directives have already been suggested by the Commission for simplification. It would be important that we learn from the experience of the 2 nd Directive in terms of the way forward. As part of this exercise it might be possible to consider the scope for repeal of existing Directives as well. In
this regard the 11 th Directive comes to mind if the job of that Directive could more easily be carried out by co-operation between national registries and greater access of all EU citizens to information held in national registries. Coherence with other actions in related areas We would agree fully with the Commission that it is crucial to ensure that initiatives launched in the field of company law and corporate governance are coherent with existing and planned measures in related sectors such as financial services, financial reporting etc. Company Law(EU/Legislation)Section Department of Enterprise, Trade and Employment Ireland 27 March 2006
Details of EU measures in the Company Law area transposed in recent years and for transposition in the period to 2008 A. Transposed in the period 2004-2005 DESCRIPTION OF DIRECTIVE Fair Value Accounting Directive International Accounting Standards (IAS) Regulation and Modernisation Directive Prospectus Directive 2003/71/EC Market Abuse Directive 2003/6/EC B. For Transposition in the period 2006-2008 Takeovers Directive 2004/25/EC Amendments to 1 st Company law Directive deals with annual returns etc Transparency(on going disclosures) Directive 2004/109/EC 10 th Directive on Cross Border Mergers 2005/56/EC Amendments to 2 nd Directive deals with PLC capital related issues Amendments to 4 th & 7 th Accounting Directives 2004 Transposed Comments 2005 These two measures transposed as a package 2005 2005 Made up of one codecision Directive and three Commission level implementing Directives Deadline for transposition Comments May 2006 December 2006 January 2007 October 2007 Expected late 2007/early 2008 Expected late 2007/early 2008 Close to final adoption Close to final adoption 8 th Directive- deals with auditing Shareholder Rights Directive Commission Recommendations on Directors Remuneration and Non-Executive Directors Expected late 2007/early 2008 Likely in 2008 June 2006 Close to final adoption Being negotiated currently at Council Working Group