COVID-19: Temporary derogation to allow European companies and cooperatives to postpone their general meetings

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The European Commission adopted on 29 April a proposal for a temporary derogation to the rules governing European Companies (SEs) and the European Cooperative Society (SCEs). The confinement and social distancing measures applying in the EU make it difficult for SEs and SCEs to organise their general meetings within six months of the end of their financial year, as is legally required. The temporary derogation will allow SEs and the SCEs to hold their general meetings within 12 months of the end of the financial year, but no later than 31 December 2020.

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Council regulation on temporary measures concerning the general meetings of European companies (SE) and of European Cooperative Societies (SCE).

To know more about all the actions taken by the European Commission to cope with the Coronavirus crisis, see the Coronavirus Response page on Economy

EU rules in this area

The purpose of EU rules in this area is to

• enable businesses to be set up and to carry out operations anywhere in the EU

• provide protection for shareholders and other parties with a particular interest in companies, such as employees and creditors

• make business more efficient, competitive and sustainable in the long term

• encourage businesses based in different EU countries to cooperate with each other.

EU company reporting, auditing and transparency rules complement this legal framework.

What the EU is doing

I. EU company law rules cover issues such as the formation, capital and disclosure requirements, and operations (mergers, divisions) of companies:

1. A large part of EU company law is now codified in a single Directive - Directive 2017/1132 relating to certain aspects of company law.

The Directive 2019/1151 of 20 June 2019 covers provisions on the use of digital tools and processes in company law. Member States need to transpose this Directive by August 2021 (with longer deadline for some specific provisions). The Directive (EU) 2019/2121 of 27 November 2019 lays down new rules on cross-border conversions and divisions and amends the rules on cross-border mergers. Member States need to transpose this Directive by January 2023. This new set of rules will enable companies to use digital tools in company law procedures and to restructure and move cross-border, while providing strong safeguards against fraud and to protect stakeholders. These new Directives revise and complement Directive 2017/1132.

2. Directive 2012/17/EU and Commission Implementing Regulation (EU) 2015/884 set out rules on the system of interconnection of business registers (‘BRIS’). BRIS is operational since 8 June 2017. It allows EU-wide electronic access to company information and documents stored in Member States’ business registers via the European e-Justice Portal. BRIS also enables business registers to exchange between themselves notifications on cross-border operations and on branches.

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3. Directive 2009/102/EC provides a framework for setting up single-member companies.

4. Two Regulations provide rules on EU legal entities: Regulation 2157/2001 sets out a statute for a European Company (Societas Europea or ‘SE’),i.e. a EU legal form for public limited liability companies, and allows companies coming from different Member States to run their business in the EU under a single European brand name. Regulation 2137/85 sets out a statute for a European Economic Interest Grouping (EEIG),i.e. a EU legal form for a grouping formed by companies or legal bodies and/or natural persons carrying out economic activity coming from different Member States; the purpose of such a grouping is to facilitate or develop the cross-border economic activities of its members.

II. EU company law rules also address corporate governance issues, focusing on relationships between a company’s management, board, shareholders and other stakeholders, and therefore, on the ways the company is managed and controlled.

• Shareholders rights Directive2007/36/EC sets out certain rights for shareholders in listed companies

  This Directive was amended by Directive (EU) 2017/828, which aims to encourage more long-term engagement of shareholders.

  Furthermore, the 2018 Commission Implementing Regulation (EU) 2018/1212 lays down minimum requirements as regards shareholder identification, the transmission of information and the facilitation of the exercise of shareholders rights.

• Takeover bids Directive 2004/25/EC sets out minimum standards for takeover bids (or changes of control) involving securities of EU companies.

III. The corporate governance issues were also identified as an important area to focus on in the context of implementation of the Commission Action Plan on financing a sustainable growth, and in particular its Action 10.

In line with the overall Commission objective of a just transition to a sustainable economy and a sustainable recovery after the COVID crisis, the European Green Deal Communication and Commission’s Recovery Plan confirm the importance of embedding sustainability into corporate governance. A sustainable corporate governance initiative is planned to be proposed in 2021. An open public consultation is launched here: Sustainable corporate governance - consultation.

IV. Specific rules on corporate governance and remuneration apply to banks and investment firms. The aim of these rules is to curb excessive risk taking, and thereby help ensure financial stability.

• Rules on corporate governance and remuneration in banks and systemic investment firms can be found in the Capital Requirements Directive(Directive 2013/36/EUas amended by Directive 2019/878/EU) and the Capital Requirements Regulation(Regulation No 575/2013 as amended by Regulation No 2019/876).
• Rules on corporate governance and remuneration in non-systemic investment firms can be found in the Investment Firms Directive (Directive 2019/2034) and the Investment Firms Regulation (Regulation 2019/2033).

Thus, while systemic investment firms remain under the banking rules, non-systemic investment firms are subject to a separate regime. This is because the Commission found that the prudential framework for banks was not well adapted to the business model of these investment firms.

Expert groups and stakeholder platforms

Informal Company Law Expert Group

This group – consisting of company law professors and professionals - advises the Commission in the preparation of company law initiatives. For more information on its work see the link.

Informal expert group on technical aspects of corporate governance

This expert group assist the Commission with its work on technical aspects of corporate governance, including the use of modern information and communication technologies in corporate governance.

Drivers Digital Identification Solutions Group Of Companies Reviews

Online Platform on Corporate Governance

This is a digital space for information sharing and the exchange of best practices on a number of different corporate governance topics, ranging from investor stewardship to sustainability. The platform encourages a dialogue between companies, investors, private and public stakeholders and aides the Commission in evaluating whether former measures achieve their purpose in practice. To find out more, please send an email to just-cg-op@ec.europa.eu

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Studies

Study on directors' duties and sustainable corporate governance

The objective of this study was to assess the root causes of “short termism” in corporate governance, discuss their relationship with current market practices and/or regulatory frameworks, and identify possible EU-level solutions, also with a view to contributing to the attainment of the UN Sustainable Development Goals and the goals of the Paris Agreement on climate change.

The Study found a clear trend of short-termism in the focus of EU companies. It identified key drivers of this issue, ranging from the narrow interpretation of directors duties and the company’s interest with the tendency to favour the short-term maximisation of financial value, through growing pressure from investors and the lack of a strategic perspective on sustainability all the way to the limited enforcement of the directors’ duty to act in the long-term interest of company. In order to lengthen the time horizon in corporate decision-making and to promote a corporate governance that is more conducive to sustainability, the Study also identified specific objectives that EU intervention could aim to reach.

Study on due diligence requirements through the supply chain

The study focuses on due diligence requirements to identify, prevent, mitigate and account for adverse corporate impacts (abuses of human rights, including the rights of the child and fundamental freedoms, serious bodily injury or health risks, environmental damage, including with respect to climate). It examines existing market practices and regulatory frameworks as well as options for regulating due diligence in companies’ own operations and through their supply chain.

Through desk research, country analyses, interviews, case studies and surveys it identifies practices and perceptions regarding regulatory options. The assessment of options, ranging from no intervention to mandatory due diligence as a legal standard of care, considers economic impacts, impacts on public authorities, social, human rights and environmental impacts.

The study shows that while the UN Guiding Principles on Business and Human Rights’ standard of due diligence is increasingly being introduced into legal standards or proposed in Member States, only one in three businesses in the EU are currently undertaking due diligence which takes into account all human rights and environmental impacts. The survey respondents indicated that EU-level regulation on a general due diligence requirement for human rights and environmental impacts may provide benefits for business and the assessment of options looked into the administrative costs and burdens of each approach.

Possible comments can be sent to just-cg-op@ec.europa.eu

Ernst and Young Study on the Cross-border Operations

This study provides an overview of the divergence of approaches across Member States in relation to cross-border conversions and divisions, the problems such fragmentation creates for companies and stakeholders, and the related statistical data.

Optimity Study on the Impact of Digitalisation

This study presents a comparative analysis of paper and online processes used in the context of company registration, company dissolution, filing and disclosure of company information and cross-border merger procedure, and the impacts that the use of digital tools has on legal certainty, socio-economic issues and illegal/fraudulent activities.

Everis Study on Digitalisation

This study presents a factual overview of the use of digital tools in company law procedures across the EU, including information about benefits, constraints and challenges associated with such digitalisation.

Ernst and Young study on identification and assessment of legal and practical impediments for the use of digital tools for interaction between companies and their shareholders

The study analyses the current legal framework and practices in the European Union as regards the use of digital solutions in the interaction between companies and shareholders. It assesses legal and practical impediments to the use of digital solutions and any possible solutions.

The use of digital solutions is in most cases either required or allowed by national laws. Most companies and shareholders use digital solutions, in particular for communicating resolutions adopted in general meetings and meeting notices. The most commonly used solutions are e-mails and corporate websites. Even if they can require significant investment, digital solutions overall allow for faster, cheaper, more convenient, more effective and safer interactions. In-depth research on ten Member States demonstrated that the development of digital solutions more adapted to the users’ needs significantly facilitates their adoption even if the legal framework is not particularly favourable. Impediments to the use of digital solutions were identified: bias in favour of traditional solutions; ineffectiveness of the legal framework; additional burden for using digital solutions; blocking points along the chain of intermediaries; risks related to the chosen technology; and lack of harmonisation of legislation across Member States. Recommendations were also formulated to overcome these impediments.

TGS Baltic study on Minority Shareholders Protection

The purpose of the study is to assist the European Commission in assessing the EU policy on minority shareholder protection. The study includes comprehensive analysis and assessment of every Member State’s legal framework and it focuses on all principal categories of minority shareholder rights, namely economic, control, information, litigation, and equal treatment rights. The study strives to enable policymakers to obtain a clearer picture of Member States’ hard laws, soft as well as case-law. National legal experts as well as national stakeholders in Member States were involved in the preparation of the study to identify both practical and theoretical problems.

The study shows that despite similarities in legal framework for shareholders rights across the Member States, there still exist numerous differences in both regulation and enforcement. In some areas the EU law has a moderate contribution towards the proper functioning of the internal market as well as a limited impact on legal certainty and foreseeability.