14 March 2006

EP approved amendment of second Company Law Directive

The European Parliament approved the report by Piia-Noora Kauppi supporting the Commission initiative to improve European companies' competitiveness without hampering creditors' rights. By amending the second Company Law Directive the regulatory burden imposed to public limited liability companies should be reduced, particularly with regards to external reporting and shareholders' consultation.

The aim is to give the European PLLCs the possibility to react in a more flexible way to market developments that require a change both in capital and in the ownership of the company.

Parliament eliminated the sell-out and squeeze-out rights from the scope of the directive. Those rights are designed to protect minority shareholders in case of a successful bid and the consequent change in the ownership of the company's capital. In fact, squeeze-out rights oblige the successful bidder to acquire the shares of minority shareholders who have not accepted the bid. Sell-out rights enable minority shareholders to force majority shareholder to purchase their shares, after such a successful bid.

The Commission proposal is part of the Company Law Action Plan for modernising the EU company law. At present, consultations with stakeholders for further improvements are on the way.

The Commission welcomed the Parliament's agreement at first reading. The proposed Directive will implement a number of these recommendations, including the acquisition of shares through contributions in kind and the acquisition by a company of its own shares. Also, the current rules on financial assistance that a company can give for the acquisition of its shares by a third party will be relaxed.

In parallel to the adoption of the Directive, the Commission is preparing a study that will examine the feasibility of an alternative system to that of the Second Company Law Directive, in order to explore further ways of increasing the flexibility of public limited liability companies.

Commission press release
Link to full text of the proposed Directive and a working document with further detailed information.

© European Parliament