The Gazette 1974

LEGAL EUROPE

Wexford Seminar on EEC Company Law

THE FIRST DIRECTIVE AND THE

PROPOSED FOURTH DIRECTIVE

By Dr. C. W. A. Timmermans, Principal Administrator

of the European Comission

The Third Lecture was delivered by Dr. C. W. A.

Timmermans, Principal Administrator of the European

Commission, especially competent for current and

future proposals on consolidated accounts and groups

of companies. The subject was the First Directive and

the proposed Fourth Directive. The

First Directive

had

been adopted by the original Six Members of the Com-

munity in 1968, and came into force, as regards the

three new Member States, on 1 July 1973. The

First

Directive

dealt essentially with disclosure of documents,

and the principles underlying nullity of incorporation

and the ultra vires rule which for Ireland were not of

much practical value. According to the Irish Com-

panies Act 1963 the delivery of the certificate of in-

corporation is already conclusive evidence of the forma-

tion of the company. As regards disclosure, it is im-

portant to note that all relevant statutory notices must

be filed in the Gazette, "Iris Oifigiuil". Section 9 of the

Irish Companies Act 1963 is similar to the first part

of Article 9 of the First Directive. The Second Part of

Article 9 states that limitations on the powers of the

organs of the company can never be relied upon

against third parties, even if they are disclosed; it

follows that the rule of constructive notice has been

abandoned. In the Irish European (Companies) Re-

gulations 1973, the notion of awareness appears to be

substituted for the former notion of good faith. The

question arise; therefore if this article of the directive

has been correctly implemented into Irish Company

Law.

The

Fourth Directive

deals with the presentation of

accounts and the valuation of the Company's assets and

liabilities. There are many systems of presentation of

accounts in the different Member States, and they are

so various that they present a real hindrance to capital

investment. Accountancy is essentially an art and not a

science. Two tendencies have shown themselves. In

Ireland, Britain and the Netherlands there has broadly

been a very liberal tendency in which no specific rules

were enacted. The essential principle laid down in

Section 149 of the Irish Companies Act, 1963, requires

a true and fair view to be given of the companies

position and results. Here much is left to the discretion

of companies who are advised by highly competent

accountants. On the other hand in France, Germany

and Italy there are very detailed provisions which are

narrowly construed.

The adoption of the Fourth Directive as it stands

would imply many changes. A very detailed Profit and

Loss Account would have to be provided, and specified

rules as to valuation of assets and liabilities would have

to be adhered to. The present flexibility of the lay-out

and valuation rules will have to be tightened. But this

directive is not complete, inasmuch as, many com-

panies belonging to a group, want to obtain a true and

fair view of the situation of the group and therefore

require the presentations of group accounts. A decision

will have to be made as to which companies will have

to be taken into the group accounts. The Irish an°

British definition of a subsidiary is very precise. On the

other hand, in German law, the notion of a Group

Company is much broader, there must first be a rela-

tionship of dependency and furthermore the holding

company must at all times exercise its dominating

influence.

It is difficult to forecast the final implications on the

directive of group accounts. Proposed consolidate

balance sheets and consolidated profit and loss account*

are wider than those foreshadowed by the Irish

Section

151. Henceforth the obligation to present group account*

will also extend to foreign subsidiaries. Furthermore a

Holding Companies, whether public or private, vvil'

henceforth be compelled to present group accounts. (At

the moment the interests of shareholders are protected»

as long as the company does not join a group. Usualh

the directors of a holding company then appoint th

directors of the subsidiary company; this may lead

damages on behalf of outside shareholders and to

transfer of liquidities by creditors or stop activities as

between one subsidiary and another).

The remedies of classic company law only protect th

above mentioned interests to a limited extent. German

Law and the Statute of the Euro-Company provide f°

specific new remedies. These problems also have to b

tackled by the forthcoming harmonisation. Many rul

of Company Law will have to be adapted to subsidiary

companies. Another question in this context, concern*

the reciprocal holdings for which specific legislation

exists in France and Germany. In France two Com-

panies may not hold up to more than 10% of each

other's shares. All this shows that the programme

harmonisation is an ambitious one and that its achieve-

ment can only be foreseen in a relatively long peri°°

of time.

LAW MAKING PROCEDURE OF

THE COMMUNI TY

By Dr. Ivo Schwartz

Dr. Schwartz emphasised that one of the ma"

characteristics of the European Communities is precisely

the fact that there existed a

separate body of law

distin

from Public International Law called

Community

While other International Organisations operate on f

inter-governmental basis, the Community Treats*

created a new legal order with an independent existence-

The citizens of the Member States are directly affected»

and the Sovereignty of these States has been p a r t i al

transferred to the Communities.

In considering the Organs of the Communities,

must be stressed that the Council of Ministers and th

Commission

possess legislative and

administratis

powers conferred upon them by the Treaties.

176