EU Company Law Developments

Transparency Directive

Directive 2004/109/EC of the European Parliament and of the Council on minimum transparency requirements for listed companies was formally adopted on 15 December 2004. (See Press Release)

The aim of the Directive is to upgrade the information available to investors, thus helping them to allocate their funds on the basis of a more informed assessment. It seeks to ensure that investors receive interim management statements from those share issuers who do not publish quarterly reports, and half yearly financial reports from issuers of new bonds. In addition, all securities issuers will have to provide annual financial reports within four months after the end of the financial year. The Directive is also expected to improve dissemination of information on issuers.

The Directive completes a package of Financial Services Action Plan measures adopted over the last two years (the IAS Regulation, the Market Abuse Directive, the Prospectus Directive) to establish a common financial disclosure regime across the EU for issuers of listed securities. It is due to be implemented not later than 20 January 2007.

Directive on Takeovers

Regulations entitled European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 (S.I. No. 255 of 2006) came into effect on 20 May 2006. These regulations are intended to give effect to Directive 2004/25/EC of the European Parliament and of the Council on Takeover Bids, which was formally adopted on 21 April 2004. This Directive provides for minimum EU rules concerning the regulation of takeovers of ‘listed’ companies whose shares are traded on a regulated market. It is one of the key measures adopted in the EU as part of the Financial Services Action Plan (FSAP). It aims to strengthen the Single Market in financial services by facilitating cross-border restructuring and enhancing minority shareholder protection.

The Regulations designate the Irish Takeover Panel as the supervisory authority for purposes of the Directive. The Panel has been operating domestically in such a supervisory capacity since 1997 on foot of its statutory establishment in the role by virtue of the Irish Takeover Panel Act 1997.

EU Commission Recommendation on Directors’ Remuneration

On 6 October, 2004, the European Commission adopted a Recommendation on directors’ remuneration (See Press Release). It recommends that Member States should ensure listed companies disclose their policy on directors’ remuneration and tell shareholders how much individual directors are earning and in what form, and ensure shareholders are given adequate control over these matters and over share-based remuneration schemes. The Commission Recommendation – fostering an appropriate regime for the remuneration of directors of listed companies takes due account of the comments expressed in the public consultation, which was launched in February 2004. The results of the consultation were presented by the Commission on 15 June, 2004.

EU Commission Recommendation on the role of independent directors

On 6 October, 2004, the European Commission also adopted a Recommendation on the role of independent non-executive directors on listed companies’ boards (See Press Release). The Recommendation concentrates on the role of non-executive or supervisory directors in key areas where executive or managing directors may have conflicts of interest. It includes minimum standards for the qualifications, commitment and independence of non-executive or supervisory directors.

EU Commission Consultation on Cross-Border transfer of companies' registered offices

On 26 February, 2004, the European Commission launched an Internet consultation on the outline of the planned proposal for a Directive on the right of limited companies to transfer their registered office from one Member State to another (see Press Release). Two previous public consultation exercises, as well as the case law of the Court of Justice, have highlighted a need for clear EU framework legislation on this issue, so that companies can exercise their rights in the Internal Market. Those interested are invited to respond by 15 April 2004.

Directive on Cross-Border Mergers

Directive 2005/56/EC of the European Parliament and of the Council on cross-border mergers of limited liability companies was formally adopted on 26 October 2005 for implementation by Member States by 15^th December 2007.

The aim of this Directive is to facilitate cross-border mergers of commercial companies under favourable conditions in terms of costs and legal certainty. The Directive allows companies across the EEA to merge cross border based on the approach taken in the Third Company Law Directive (Council Directive 78/855/EEC), which applies to domesticmergers of public limited companies.

Regulations entitled European Communities (Cross-Border Mergers) Regulations 2008 (S.I. No. 157 of 2008 (PDF)) giving effect to the Cross Border Mergers Directive were signed into law on 27^th May 2008. The Regulations apply to all public and private companies (other than companies limited by guarantee).

Modernisation of the Accounting Directives

EU Directive 2003/51/EC of 18 June, 2003 amends the European Union 4th and 7th Company Law Directives. The changes, approved by the European Parliament in January 2003 bring existing EU rules into line with current best practice. They complement the International Accounting Standards (IAS) Regulation, (1606/2002) adopted in June 2002, that requires all EU companies listed on a regulated market to use IAS from 2005 onwards and allows Member States to extend this requirement to all companies.

High Level Group on Company Law

In September 2001, the European Commission set up a Group of High Level Company Law Experts with the objective of initiating a discussion on the need for the modernisation of company law in Europe.

In April 2002, the High Level Group launched consultations on possible reforms to company law in Europe. The issues covered included both general themes and the following seven specific issues: corporate governance; shareholder information, communication and decision-making; alternatives to capital formation and maintenance rules; the functioning of groups of companies; corporate restructuring and mobility; a European Private Company; and co-operatives and other forms of enterprise.

On 4 November 2002 the Chairman Jaap Winter of the High Level Group of Company Law Experts presented the Final Report of the Group on a Modern Regulatory Framework for Company Law in Europe to the EU Commission (Press Release). The Commission has welcomed the publication of the report.

After the Group had delivered its Report on Issues Related to Takeover Bids in January 2002, it turned to its original mandate to provide recommendations for a modern regulatory European company law framework. This mandate was extended by the Commission following the ECOFIN Council meeting in Oviedo on April 12 and 13, 2002, to review specifically a number of issues related to corporate governance: the role of non-executive and supervisory directors, management remuneration, the responsibility of management for financial statements, and auditing practices. These and other corporate governance issues form a major part of the Final Report. The Final Report also addresses a number of company law subjects, such as capital formation and maintenance rules, group and pyramid structures, corporate restructuring and mobility, the European Private Company and other European legal forms of enterprise, as well as certain general themes for future development of company law in Europe. The Group identified what it believes to be the priorities for the EU on the short, medium and longer term and advises the Commission to set up an EU Company Law Action Plan.

Commission Action Plan on Modernising Company Law and Enhancing Corporate Governance in the European Union

On 21 May 2003, the European Commission presented a Communication on an Action Plan on Modernising Company Law and Enhancing Corporate Governance in the European Union. (Press Release) The main objectives of the Action Plan are

to strengthen shareholders' rights and protection for employees, creditors and the other parties with which companies deal, while adapting company law and corporate governance rules appropriately for different categories of company;

to foster the efficiency and competitiveness of business, with special attention to some specific cross-border issues.

The Action Plan set out in the Commission's communication does not adopt all of the recommendations of the High Level Group, but it reflects the issues and themes raised in its final report. The Action Plan is based on two core principles: increasing transparency and strengthening the role of independent non-executive directors. The Commission identifies the strengthening of shareholders' rights (and the protection of third parties) and the fostering of business efficiency and competitiveness as the two main policy objectives to be achieved. For this purpose, the Action Plan proposes a ten-year programme of 24 measures to be undertaken in the short, medium and long term. To achieve this the Action Plan proposes a mix of legislative and non-legislative measures.

On 20 December 2005 the European Commission launched a public consultation on future priorities for the Action Plan.

Objectives of the consultation

1) The overall aim and context for future priorities;

2) Continued relevance of the medium and long-term measures in light of the Lisbon agenda;

3) The added value of modernising and simplifying European Company Law, with particular regard to the Better Regulation initiative.

The consultation document is available at:

http://europa.eu.int/comm/internal_market/company/consultation/index_en.htm
Replies should be sent by 31 March 2006 to: MARKT-COMPLAW@cec.eu.int

Further information on the Action Plan is available on the EU Commission internet site (see Frequently Asked Questions).

Amendment to the Second Company Law Directive

The Second Company Law Directive (Council Directive 77/91/EEC), which was adopted in 1976, deals with issues relating to public limited liability companies including formation, minimum share capital requirement, distributions to shareholders, increase in capital and reduction in capital. Directive 2006/68/EC, which was adopted on 6 September 2006, amends the Second Company Law Directive in relation to the formation of public limited liability companies and the maintenance and alteration of their capital. The Directive establishes the conditions that must be satisfied in order to ensure that the capital of the company is maintained in the interest of creditors. Furthermore, it aims at protecting minority shareholders and states the principle that all shareholders who are in the same position should be treated in the same way. This Directive is due to be transposed into Irish legislation by 15 April 2008.

Directive on Prospectuses and Directive on Insider Dealing and Market Manipulation (Market Abuse)

Both of these proposals, published in May 2001, represent the start of a whole new approach to EU legislation in the securities area. This approach is based on the recommendations of the Lamfulussy Report, which were endorsed by the Stockholm European Council. It consists of four levels – Level I- framework legislation (the proposed directives), Level 2 – technical implementing measure (these will be delegated to the Commission under comitology), Level 3 – co-operation and Level 4 – enforcement.

The proposals form a key part of the Commission’s plan to have an integrated securities market in place by end 2003 under the Action Plan for Financial Services.

Prospectus Directive

Regulations entitled the Prospectus (Directive 2003/71/EC) Regulations 2005 (SI No. 324) came into effect on 30 June 2005. These Regulations are intended to give effect to Directive 2003/71/EC of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading.

Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC was formally adopted on 4 November, 2003.

The Directive will introduce a new "single passport for issuers". This means that once approved by the authority in one Member State, a prospectus would then have to be accepted everywhere else in the EU. In order to ensure investor protection, that approval would only be granted if prospectuses meet common EU standards with regard to disclosure of information (Frequently asked questions).

Insider Dealing and Market Manipulation (Market Abuse)

Regulations entitled the Market Abuse (Directive 2003/6/EC) Regulations 2005, (S.I. No. 342 ) came into effect on 1 July, 2005. These Regulations are intended to give effect to Directive 2003/6/EC of 28 January 2003 on insider dealing and market manipulation (market abuse) and the implementing Directives, 2003/124/EC, 2003/125/EC, 2004/72/EC.

The Directive is based on the principles of transparency and equal treatment of market participants. It aims to reinforce protection against insider dealing and market manipulation by building one set of rules for all the EU's financial markets, thus reducing potential inconsistencies, confusion and loopholes. It would heighten investor protection and make European financial markets more attractive. (Frequently asked questions)

The Ecofin Council of Ministers formally adopted the Directive on 3 December 2002 (Press Release). The Directive covers both insider dealing and market manipulation. The same framework applies to both categories of market abuse. This will simplify administration and reduce the number of different rules and standards across the European Union.

On 7 January 2004, the Commission adopted the following implementing measures in relation to the Market Abuse Directive (see Press Release). :

Commission Directive 2003/124/EC of 22.12.2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards the definition and public disclosure of inside information and the definition of market manipulation

Commission Directive 2003/125/EC of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards the fair presentation of investment recommendations and the disclosure of conflicts of interest

Commission Regulation (EC) 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards exemptions for buy-back programmes and stabilisation of financial instruments

A further Commission Directive was adopted on 29 April 2004:

Commission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers' transactions and the notification of suspicious transactions.

Council Regulation on Insolvency Proceedings

Regulations entitled the European Communities (Corporate Insolvency) Regulations 2002 came into effect on 2 July, 2002 These Regulations are intended to facilitate the operation of Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings, insofar as they concern corporate insolvency.

The EC Insolvency Regulation was agreed by Member States on 29 May, 2000, and came into force on 31 May, 2002. The EC Regulation applies to corporate insolvencies and personal bankruptcies, entailing the partial or total disinvestment of debtors and the appointment of a liquidator. It covers insolvency proceedings as well as suspension of payments proceedings intended to rescue a debtor. It defines common rules on cross border insolvency proceedings to enable such proceedings operate more efficiently and effectively. The Regulation provides that main proceedings may be opened in the Member State where the debtor has the centre of his main interest. In the case of corporate entities, this is presumed to be the country in which the entity is registered.

These main proceedings will be recognised and take effect in the other Member States from the time the judgement becomes effective in the Member State where the proceedings are opened.

Where the debtor has an establishment in another Member State proceedings confined to the assets in that State can be opened either prior to (territorial proceedings), or subsequent to (secondary proceedings), the opening of the main proceedings.

The Regulations, exercises the Member State options on registration, filing and translation, and make appropriate provision for having creditors voluntary winding ups certified in an appropriate manner by the Master of the High Court. They also include a number of technical measures on how applications by foreign liquidators must be made to the Irish courts and how they will be handled by the courts. Moreover, the regulations provide for amendments to the Companies Acts to ensure that the provisions of domestic law do not conflict with the EC Regulation.

The Minister for Justice, Equality and Law Reform has also signed Regulations entitled European Communities (Personal Insolvency) Regulations 2002 (S.I. 334 of 2002). These Regulations are intended to facilitate the operation of Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings, insofar as they concern personal insolvency.

Copies of the Regulations are available from the Government Publications Sales Office, Molesworth Street, Dublin 2 and also from this Department's web site at http://www.djei.ie/cr/SI333-2002.doc.

European Company Statute

Regulations entitled European Communities (European Public Limited-Liability Company) Regulations 2007 (S.I. 21 of 2007) and European Communities (European Public Limited-Liability Company)(Forms) Regulations 2007 (S.I. 22 of 2007), giving full effect to the European Company Statute were enacted on 22 January 2007. The European Company Statute was adopted on 8 October 2001. It is a new legal instrument based on European Community law that gives companies the option of forming a European Company – known formally by its Latin name of ‘Societas Europeae’ (SE). An SE will be able to operate on a European-wide basis and be governed by Community law directly applicable in all Member States. The European Company Statute is established by two pieces of legislation, namely a Regulation EC 2157/2001 (directly applicable in Member States) establishing the company law rules and a Directive 2001/86/EC on worker involvement. Regulations entitled European Communities (European Public Limited-Liability Company)(Employee Involvement) Regulations 2006 (S.I. 623 of 2006) transposing this directive came into effect on 14 December 2006.

Fair Value Accounting Directive

The Directive 2001/65/EC was adopted by the Internal Market Council on the 31 May 2001 and has to be transposed into national law by January 2004.

This Directive amends the following three Directives:

• 78/660/EEC: Annual Accounts of certain types of companies (4^th Directive);
• 83/349/EEC: Consolidated Accounts (7^th Directive);
• 86/635/EEC: Banks and other Financial Institutions.

This Directives gives Member States the option to permit or require the use of fair value valuation methods to account for certain classes of financial instruments in companies’ annual financial statements. Up to now the above mentioned Directives only permitted valuation of financial instruments using historical cost methods.

This proposal is based on an International Accounting Standard (IAS) on the use of Fair Value Accounting (IAS 39). This Directive will therefore enable European companies to prepare annual financial statements in accordance with international developments. Companies will be required to provide additional information in the notes to the accounts on the items that have been valued at fair value.

International Accounting Standards (IAS) Regulation

International Accounting Standards (IAS) Regulation (1606/2002) dated 19 July, 2002 will require listed companies, including banks and insurance companies, to prepare their consolidated accounts in accordance with International Accounting Standards (IAS) from 2005 onwards.

The adoption of the Regulation is central to the achievement of single EU capital market under the Financial Services Action Plan (FSAP) by 2005. Member States have the option of extending the requirements of this Regulation to unlisted companies and to the production of individual accounts. Although the Commission put forward the IAS proposal long before the Enron affair, this is one of a series of measures which will help to protect the EU from such problems– others include the Commission’s Recommendation on Auditor Independence and its proposal to amend the Accounting Directives.

To ensure appropriate political oversight, the Regulation establishes a new EU mechanism to assess IAS adopted by the International Accounting Standards Board (IASB), the international accounting standard-setting organisation based in London, to give them legal endorsement for use within the EU. The Accounting Regulatory Committee chaired by the Commission and composed of representatives of the Member States, will decide whether to endorse IAS on the basis of Commission proposals.

In its task, the Commission will be helped by EFRAG, the European Financial Reporting Advisory Group; a group composed of accounting experts from the private sector in several Member States.

Recommendation on Auditor Independence

On 16 May 2002 the Commission published a Recommendation on Auditor Independence, (Press Release). This has been the subject of substantial work at the EU Committee on Auditing and the Accounting Contact Committee. . This Recommendation follows a framework based approach by setting down general principles on auditor independence. Please see Frequently Asked Questions for further details.

Simpler Legislation in the Internal Market (SLIM)

The SLIM Initiative – Simpler Legislation in the Internal Market was launched by the EU Commission in May, 1996 with the objective of identifying ways in which Single Market legislation could be simplified. In October 1998, the Commission announced the launch of the fourth phase of SLIM.

The SLIM work to-date on Company Law issues relate to the 1st and 2nd Company Law Directives, which provide respectively for disclosure and filing in Company Registration Offices of certain company data and capital maintenance requirements in PLCs.

The 1st Company Law Directive 68/151/EEC of 9 March 1968 sets out the main EU level requirements in respect of the filing and disclosure of documents and particulars by limited liability companies.

On 3 June, 2002, the European Commission presented a proposal to modify the 1^st Directive to make company information more easily and rapidly available to the public while at the same time simplifying the disclosure formalities required from companies.

The European Commission has welcomed the Council's definitive adoption (view Press Release) of Directive 2003/58/EC of 15 July 2003 amending Council Directive 68/151/EEC, as regards disclosure requirements in respect of certain types of companies which will modify Directive (68/151/EEC). The modifications will allow full advantage to be taken of modern technology. Companies will be able to file their documents and particulars either by paper means or by electronic means. Interested parties will be able to obtain copies by either means. Companies will continue to file their documents and particulars in the language(s) of their Member State but will have the option of voluntarily filing the same information in other EU languages, in order to improve cross-border access.

EU Communication on simplifying EU rules – comments invited

The Commission Communication entitled, "A simplified business environment for companies in the areas of company law, accounting and auditing, COM (2007) 394" outlines measures which would simplify the business environment for EU companies. The proposed measures would remove or reduce a range of administrative requirements that are considered outdated or excessive by:

• Repealing company law Directives that deal mainly with domestic situations or removing certain information obligations in the company law Directives;

• Simplifying disclosure requirements for companies and for branches;

• Further reducing reporting and auditing requirements for small and medium-sized enterprises.

The objective is to ensure that Community legislation in the fields of company law, accounting and auditing corresponds to today's business needs and to allow European businesses compete effectively in a highly competitive global environment.

All interested parties are invited to comment on the proposals by mid-October 2007. Comments can be sent by post to the European Commission, Unit MARKT.F.2, Rue de la Loi 200, 1049 Brussels, or by e-mail to Markt-F2@ec.europa.eu.

Directive Amending the Fourth and Seventh Directives

Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006 amending Council Directives 78/660/EEC on the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings. Directive 2006/46/EC which was formally adopted on 14^th June 2006, amends the Fourth and Seventh Directives (transposition date, 5 September 2008). The purpose of the amendment is to further enhance confidence in the financial statements and annual reports published by EU companies by requiring them to provide more reliable and complete information to shareholders and other stakeholders.

• DIRECTIVE 2006/46/EC – Consultation Document (PDF, 378KB)

Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts (Eight Company Law Directive)

This Directive on statutory audits of annual accounts and consolidated accounts was adopted on 17 May 2006 (transposition date, 29 June 2008). The Directive reinforces and harmonises the statutory audit function throughout the EU and sets out principles for public supervision in all Member States along with a requirement for external quality assurance, and clarifies the duties of statutory auditors. It also sets out principles of independence applicable to all statutory auditors and further improves the independence of auditors by requiring listed companies to set up an audit committee with clear functions to perform. The Department is drafting implementing regulations to give effect to the Directive.

• http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:157:0087:0107:EN:PDF

Directive amending the Third and Sixth Directives

Directive 2007/63/EC of the European Parliament and of the council of 13 November 2007 amending Council Directives 78/855/EEC and 82/891/EEC on mergers and division of public limited liability companies.

The 3^rd and 6^th Directives (Nos 78/855/EEC and 82/891/EEC respectively) set out the rules and procedures for mergers and divisions of public companies. Directive 2007/63/EC amends the 3^rd and 6^th Directives by giving shareholders the option, if they all agree, to dispense with the requirement to have a written expert’s report on the draft terms of a merger or division. The Directive requires to be transposed by 31 December 2008.

Other EU Developments

Details of other developments at EU may be obtained from EUROPA – The European Union on Line.