The European Public Limited Liability Company Regulations 2004


These regulations implement the legal framework for the European company. Effectively, companies already incorporated in one of the EU member states and operating across borders can now opt to take on a genuinely European form that will be known as the Societas Europaea (SE).


The SE could potentially benefit a company by creating a harmonised structure. For example, a public company operating in several member states might find there were presentational advantages. In addition, an SE can transfer its registered office to another member state without a winding-up process or the creation of a further legal person.


An SE is a public company with its capital expressed in euros, which must be not less than ¤120,000. In addition to its shareholders, an SE may choose one of two structures for its operation. It may have an administrative body, similar to the board of directors as found in British companies. Alternatively, it may adopt a two-tier system of a supervisory body and a management body, similar to the system in Germany.


An SE can be established by:


  • Merger of two or more Plcs, provided at least two of them are subject to the laws of different member states;


  • Forming a holding SE for public or private limited companies, provided at least two of them are from different member states;


  • Forming a subsidiary SE as a subsidiary of a company and other legal bodies if at least two of them are from different member states;


  • Transforming a Plc into a SE if it has had a subsidiary company in another member state for at least two years; and


  • Forming subsidiary SEs where an SE is the parent.



    • Although the legislation is aimed primarily at member state companies, there is provision for some involvement from non-member state companies. This might occur through EU registered subsidiaries in member states despite the head office being located outside the EU. In addition, a non-member state company may also be a shareholder in an SE.


    Although the SE would have significant freedom of movement within the EU, there are many ways in which domestic law will govern its operations - for example, taxation, preparation of annual accounts, provisions on decision-making in a general meeting and protection of minority shareholders.




    Employee involvement


    The accompanying EC directive has detailed requirements for the information, consultation and participation of employees in SEs. Before registration is possible the employee involvement must be agreed, which may extend to employee participation on the board, for example, if this already existed within one or more of the participating companies.


    In reality, an SE will not be free of domestic law despite the general framework that has been introduced. There are several areas where local laws will apply and this means that there will effectively be as many different types of treatment of SEs as there are member states. The lack of a unified tax regime for SEs and the potential costs, particularly in relation to the employee participation rules, may well deter many British companies for some years.


    All companies with a workforce of at least 150 employees now have an obligation to keep their employees informed of certain commercial developments. The underlying ethos is that there are long-term economic benefits if the employees are at least consulted about major changes, rather than finding out about them through the media.


    The regulations provide some default provisions that will apply if at least 10% of the employees request a consultation process be put in place. It is expected that in the majority of cases these default or standard provisions will apply. This is because few British companies either have existing arrangements for employee consultation or are in process of negotiating such arrangements.




    Standard provisions


    The standard provisions require information and/or consultation in a wide number of commercial transactions. The workforce must be informed about probable developments of the business or its activities. It must be informed and consulted where the probable developments involve a possible threat to employment or where the decisions are likely to lead to substantial changes in work organisation or contractual relations.


    So the regulations will take effect when a company is considering a reorganisation, for example, moving locations. They will also apply to substantial developments, such as takeovers, mergers, acquisition or disposal of companies or assets. The company is obliged in these circumstances to inform employees but if there are changes, such as harmonisation of terms of employment, manner of work or redundancies, there is also an obligation to consult.


    The Department of Trade and Industry has produced guidance that states that the obligations of the listing rules and the takeover code do not provide an excuse for failing to provide information to employees. However, it does suggest that an employer could legitimately restrict the employee representative from disclosing the information to anyone - including the workforce - to maintain confidentiality.


    There is also an exception where an employer may withhold information if its disclosure would cause prejudice or serious harm to the business. Employers need to be wary of relying on this exception, as such decisions can be challenged by the central arbitration committee.


    The regulations give little assistance on when information and consultation have to start. They refer to an appropriate time. If it is information only that must be given then clearly the appropriate time within the spirit of the regulations should be before it is disclosed to the public. In cases where consultation is needed, the regulations require certain procedures such as meetings, and again a timetable for the procedure may dictate the latest time at which the consultation should start.


    However, this is clearly another area where companies will be keen to see how the business world reacts. Complaints about such timing issues may be challenged before the central arbitration committee and so eventually there will be some additional guidance on what is an appropriate time.


    There are already consultation regimes applicable where collective redundancies are taking place or there is a transfer of a business within the transfer of undertakings regulations. In these cases, it is open to the employer to notify the employee representatives in writing that this consultation is taking place so that it does not need to be repeated under the regime of these more recent regulations.




    Penalties


    Complaints by employees concerning the regulations may be made to the central arbitration committee. It has powers to require an employer to rectify the situation within a specified time period. However, this may be of little use if the transaction is completed, as no order by the committee can suspend or alter an agreement. It may be that in the future purchasers will require warranties concerning employee information and consultation, as the committee may also impose fines of up to £75,000.


    There will inevitably be teething problems with these regulations. Many employers will simply be completely unaware of the obligations imposed. Even for those with an understanding of the regulations there are clear issues regarding some of the disclosure arrangements and the timing of information and consultation.




    By Coral Hill, associate professor, College of Law, London