Service Case 2: Enforcement and Simplification of the 11th Directive
Enabling coordinated enforcement of cross-border branch-related legislation as well as the implementation of initiatives for the simplification of legislation.
The 11th Company Law Directive of 1989 (Council Directive 89/666/EC) concerns cross-border branch offices. The potential complexity of scenarios involving branch offices is substantial. At the heart of this complexity are the varied reasons for which a company registered in one Member State may open a branch office in a different Member State.
The normal reason for a company to open a branch office in another Member State is, of course, to allow the company to better manage its business opportunities in the other State. But companies are now regularly formed in one Member State (home State) with a view to carrying out business exclusively in another (host State). One reason for such a strategy might be the search for less onerous incorporation procedures. But there is often another reason: by registering in a different State to that where business is conducted, a company can acquire a lower exposure to the activities of the supervisory authorities in the host State.
Not surprisingly, this has led to many practical issues of supervision of the activities of branches. Commercial supervisory functions in Member States are usually closely interlocked with company law. Where a company has a substantial activity in the place of its home registration the supervisory authorities are charged directly with the task of protecting the rights of members and creditors. Those authorities have readily to hand the documentation pertaining to the company being supervised. Where a company has all of its formal documentation in one Member State and all of its economic activity in another, this supervisory connection is weakened. Addressing these cross-border issues will require increased co-operation between supervisory authorities and the communications issues will be substantial.
Another important issue is that a company formed in one Member State with a view to setting up a business totally within another, may not always be diligent in complying with the filing requirements in the Member State where it is registered. It might therefore be removed from its home register and cease to exist. There is no direct mechanism whereby the host register becomes notified of the change in the company status and in particular that the "company" on the home register has ceased to exist.
While the fact that the company may cease to exist is the critical issue to be resolved, at a second level the host company may go through changes that are relevant to the branch register. It may change for example its name or legal form. BRITE will enable the free flow of this vital information to the register of the branch. This service case, therefore, involves the enabling of cross-border communication between business registers such that any significant change in the status of a company in its home register is automatically communicated to the host register.
This service case also addresses the issue of simplification – again, involving the 11th Directive. The Working Group on Simpler Legislation for the Internal Market, known as SLIM, has made a number of recommendations, which presented such a challenge to business registers and supervisory authorities that thus far the Commission has not felt it possible to bring forward proposals for amendment. In particular, the Working Group suggested the implementation of a “home state” principle: in case of crossborder establishments within the Union, no additional filing requirements should exist in the host state.
It is expected that the number of transactions that would be originated by the SLIM recommendations would be very high.
This BRITE service, in order to implement automated support for this SLIM recommendation, will have to be able to process the semantics of filing requirements in the different Member States and map them accordingly in cross-border inter-register communications. In addition, it will have to deal with issues of translation and the various alternative scenarios outlined in the steps above. It will also involve issues of certificate authentication.
In summary, this eGovernment service case will provide an example of how BRITE can aid in the enforcement of the provisions of an existing directive, creating important links among registers that in turn strengthen the links between supervisory authorities and companies operating under their jurisdiction. In addition, it will provide an example of how BRITE can contribute to the simplification of the bureaucratic burden placed upon companies doing business within the European Union.
Related deliverable:
Related documents:
- Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State
- Recommendations by the Company Law SLIM Working Group on the Simplification of the First and Second Company Law Directives
Initial implementation in Ireland, Italy, and Sweden.
Lead partner: Enterprise Registry Solutions
Contact: Mr. Paul Farrell
