Europe and business law: Still far from complete harmonization

Nicole Stolowy, Professor of Tax and Law - March 15th, 2012
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Nicole Stolowy and Séverine Schrameck* looked at European legislation and how it impacts the business law of member states. They show that it is still difficult for the European Commission to create a global European model for business law.

Nicole Stolowy ©HEC Paris

Nicole Stolowy joined HEC Paris in 2005. She holds a doctoral degree in private law from the University Paris 1 Pantheon-Sorbonne as well as a certificate to practice law, and she (...)

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The initial objective of the European Communities was to build a common market, based on the legal foundation of the treaties of the European Communities and the European Union. However, “EU institutions have been concerned from the outset about the way disparities in national laws slow down progress in building the common market,” says Nicole Stolowy. “As they cannot ignore those laws, they have introduced many initiatives to try to harmonize all rules relative to the operation and regulation of companies.” In effect, the company laws of member states and European legislation do not always interlock to support a common market. The example at the start of the article coauthored with Séverine Schrameck provides a case in point. In late 2008, the Court of Justice of the European Communities ruled in the Cartesio case that member state legislation prohibiting a company incorporated in the country from transferring its registered office to another member state while retaining its status in the original country was contrary to the treaties of the European Union.


STILL GLARING DISPARITIES

This case concerned a Hungarian company that wanted to transfer its registered office to Italy. The Hungarian law on the matter required it to liquidate the company, so it no longer appeared in the company register, and then to create a new company in accordance with the laws of the new country. “This ruling illustrates the obstacles that legal development of the Union places in the way of full achievement of the common market,” explains Stolowy. “The ongoing construction of a united Europe has achieved freedom of movement for workers, merchandise and capital, but is still hindered by juxtaposition of European law and national laws within the legal order created by the EU. The Cartesio ruling shows how influential national legal orders remain, and that they can hamper corporate mobility and therefore the reality of the common market. It also highlights the stalemate in which the ECJ finds itself on these questions.” This ruling, combined with the difficulties of extending the Union and the skepticism towards the Bolkestein directive on the free movement of workers, raises doubts over the reality and scope of this harmonization. Member states’ legal traditions are so diverse that some wonder if such a harmonization is really possible.


THE EUROPEAN COMPANY STATUTE

Even when progress is made, it is often placed into question or does not lead to the desired results. For example, after 30 years of work and discussions, European authorities reached an agreement in 2000 on a new type of company where the same rules of creation and administration apply throughout the European Union: the European company. “This is progress in elaboration of a European corporate identity and construction of a European business law model and culture,” says Stolowy. This structure offers new possibilities to some European countries. It is thus a factor of unification. Stolowy’s current research looks at the inherent territorial boundaries of this transnational model in conceptual terms. She studies the legal system for bankruptcies of this type of company and the applicable law in this matter. It is a very important theoretical and practical question that is of great interest to lawyers.

And harmonization is even more complex for laws governing problems encountered by firms. In 2005, the European Union registered 140,000 cases of insolvency likely to endanger one and a half million jobs. The phenomenon of business internationalization means that legal consequences of bankruptcies are more complex and far-reaching than before. One example is the Italian group Parmalat, which had 37,000 employees in more than 30 countries.


THE COMMON MARKET UP AGAINST TAXATION

For a long time, there was no common European approach to insolvency. It was not until 2000 that the European Union took measures to govern procedures concerning the assets of insolvent debtors spread across several Member States. “[It] is a first step forward. But it remains insufficient, no doubt, in the face of the corporate insolvencies in Europe and the necessity of unification for the legal regime,” says Stolowy. “Problems of bankruptcy and labor law are highly territorial areas.” And for good reason: legislation on the duration of working time, employment contracts, paid vacation, layoffs, and maternity leave is very different form one country to another. “Regarding taxes, which is a very important practical area for companies and individuals, we cannot talk about harmonization. Practitioners are very interested in these differences to best advise their clients on setting up companies,” she explains. “In reality, as long as we talk about general issues like basic employee rights or tax justice, everyone agrees. But in the application of domestic law, we encounter territorial specificities, which are a major limitation and are the result of different legal cultures within Europe.”


*Graduate of Sciences Po Paris and HEC Paris, trial lawyer

Based on an interview with Nicole Stolowy, professor in the law department, and the article “The Contribution of European Law to National Legislation Governing Business Law” (Journal of Business Law , 2011, no. 6, pp. 614-640), co-written with Séverine Schrameck.

PRACTICAL USES
PRACTICAL USES

This article highlights the need to adopt more measures destined to reduce or eliminate legal differences between States. Two avenues can be explored by legislators:

1. Improve the status of the European company to create a true transnational model

2. Work towards a common tax system (for both companies and individuals)

METHODOLOGY
METHODOLOGY

The researchers studied the company law of several European countries and analyzed how different member States have adopted European legislation on different themes. “We studied numerous decisions and dispositions taken by the European Community on business law issues, and considered whether national jurisdictions had applied or resisted them,” says Stolowy. “This is very interesting but also very important work. It requires carrying out a highly accurate study on domestic law.”