Case I (Company Law 5 points)
In 2012 the European Commission held a public consultation on the future of European
Company Law. Question 5 of the consultation reads as follows: ‘What should be the
objective(s) of EU company law?’ Already in 2002 the High Level Group of Company
Law Expert in their report ‘on a Modern Regulatory Framework for Company Law in
Europe’ stated what it believed should be the primary objective of European Company
Law.
Question 1
Please explain what should be the primary objective of European Company Law
according to the Report of the High Level Group of Company Law Expert.
Case II (Company Law 10 points)
In Europe there are two doctrines that determine the applicable company law: the
incorporation theory and the real seat theory
Question 2 (5 points)
Please explain what is meant with the incorporation theory and what is meant with the
real seat theory.
Question 3 (Law 5 points)
Please explain to what extend the real seat theory is still valid in practice after the
Überseering case and after the Cartesio case of the Court of Justice EU.
Case III (Company Law 10 points)
After the implementation of the First EC directive, article 240 Book 2 of the Dutch
Civil Code reads as follows:
‘1. The management represents the company to the extent that the contrary does not
follow from the law.
2. The representative authority shall also vest in every director but, notwithstanding the
foregoing, the articles may provide that it shall vest only in one or more directors
concurrently with the management. In addition, the articles may provide that a director
may represent the company only with the cooperation of one or more other persons.
3. The representative authority vested in the management or in a director shall be
unrestricted and unconditional to the extent that the contrary does not follow from the
law. Any restrictions in or conditions on the representative authority permitted or
prescribed by law may only be invoked by the company
4. The articles may also vest representative authority in persons other than directors.’
Studenthousing BV, a Dutch private limited liability company registered in Utrecht, is
specialized in renting studio’s to Dutch and foreign students. The company has three
directors: Clarkson, Kramer and Philips. The statutes (articles of association) provide
for the following provision:
‘The management represents the company. The representative authority shall also vest
in a single director. For the acquisition of immovable property, however, prior consent
of the chief executive officer is required.’
The statutes have been published in accordance with Dutch law.
One day Clarkson is offered to buy a big house that can easily be transformed in several
studio’s in Utrecht. Since the chief executive officer is on holiday and Clarkson does
not want to disturb him, he decides to sign the contract (after having consulted Kramer)
and buys the house the next day.
Question 4
Is Studenthousing BV bound by the agreement?
Case IV (Company Law 5 points)
Healthcare SA, a French public company, and LiveLong NV, a Dutch public company,
are planning to merge.
Question 5
Please explain whether the companies can use an SE (European Company) for the
merger, give one reason why you would advise the companies to set up an SE (an
advantage of the SE) and give one reason why you would not advise to set up an SE (a
disadvantage of the SE).
Answer question 1
From the powerpoint from the first lecture: ‘ (p. 29) ‘The mandate given to the Group
was “to provide recommendations for a modern regulatory European company law
framework designed to be sufficiently flexible and up-to-date to meet companies’
needs ...’ ‘The mandate denotes a distinct shift in the approach the EU could take to
company law.
Until now, this approach has been mainly to coordinate the safeguards which, for
the protection of the interests of members and others, are required by MS (…) with
a view to making such safeguards equivalent throughout the Union …… Meeting
companies’ needs” has not been a prominent feature of this harmonisation
exercise.
The exercise has been much more driven by establishing a proper level of protection
(…), in particular shareholders and creditors, with a view to preventing a “race to
the bottom” by MS.’ (…) we may have lost sight of what (…) the primary purpose
of company law: to provide a legal framework for those who wish to undertake
business activities efficiently, in a way they consider to be best suited to attain
success.
Company law should first of all facilitate the running of efficient and competitive
business enterprises. This is not to ignore that protection of shareholders and
creditors is an integral part of any company law. (…).
Part of the focus should be to eliminate obstacles for cross-border activities of
business in Europe.’
See also the Summary of the Report, p. 4.
Answer question 2
Both theories determine the applicable company law.
Incorporation theory: determines the applicable company law by reference to the
country in which the company was incorporated (and registered). The connecting
factor being the country of incorporation.
Real seat theory: determines the applicable company law by reference to the country
in which the company has its real seat. In most cases this will be interpreted as the
head office. The connecting factor being the real seat.
Definition by Wymeersch, CMLR 2003, 40, p. 661: Where the first theory connects a
company to the jurisdiction in which it has been incorporated, so that the company
may develop whatever activities it exercises in other States without losing its original
status, the second technique is based on social and economic reality and applies its
legal order to all entities that are effectively directed from within its territory. Where
the first recognizes all foreign legal entities according to the rules applicable in the
State of origin, the second theory refuses to recognize companies that claim to belong
to a jurisdiction which is not the one in which their real seat is established
Answer question 3
In Uberseering the Court rules that ‘where a company formed in accordance with the law of
a Member State ('A') in which it has its registered office is deemed, under the law of another
Member State ('B'), to have moved its actual centre of administration to Member State B,
Articles 43 EC and 48 EC [now 49 and 54 TFEU)] preclude Member State B from denying
the company legal capacity and, consequently, the capacity to bring legal proceedings before
its national courts for the purpose of enforcing rights under a contract with a company
established in Member State B.’ and that ‘where a company formed in accordance with the
law of a Member State ('A') in which it has its registered office exercises its freedom of
establishment in another Member State ('B'), Articles 43 EC and 48 EC [now 49 and 54
TFEU)] require Member State B to recognise the legal capacity and, consequently, the
capacity to be a party to legal proceedings which the company enjoys under the law of its
State of incorporation ('A').’ The real seat theory therefore cannot be applied to ‘foreign’
companies.
In Cartesio the ECJ concluded that there is no uniform definition of the companies
which may enjoy the right of establishment on the basis of a single connecting factor
determining the national law applicable to a company and that a MS has the power to
define both the connecting factor required of a company if it is to be regarded as
incorporated under the law of that MS and that required if the company is to be able
subsequently to maintain that status. The conclusion is that after the Cartesio-case,
MS are still allowed to oblige their companies to keep the head office in their country
in order to maintain a company according to their laws. The real seat is therefore still
valid for ‘own’ companies.
Answer question 4
Yes (once the restriction is invoked by the company): the restriction of prior consent
cannot be hold against third parties and only has internal effect (art. 240, par. 3:
unrestricted and unconditional. See also Art. 10 (2) and (3) Directive 2009/101/EC
(First Directive).
Answer question 5
Yes, they can set up an SE through a merger: Art. 2 (1) SE-Regulation: two public
limited liability companies from different MS. (See for the rules art. 17).
(Possible) advantages:
- European/international reputation of the company as an SE;
- Neutral company type (not French or Dutch)
- provisions for transfer of the registered office
- choice between one tier and two tier
(Possible) disadvantages:
- company type less known to the public and professionals
- (some) uncertainty on applicable rules due to reference to national laws
- complicated procedure, mainly with respect to the directive on employee
participation
- 120.000 euro capital (Art. 4(2))
- Art. 7: real seat doctrine
Case V (Economics 15 points)
Assume we live in a perfect capital market. Company X is 50% debt financed (D/E =
1).
The cost of equity is 14%. The cost of debt is 6%. Company X looks - because of the
assets in place - forward to a permanent annual stream of EBITs of € 150.-.
Question 6
a. Calculate the WACC.
b. Calculate the value of the firm.
c. Determine the market value of debt (D) and equity (E).
d. Calculate the equity cash flow (ECF).
e. Determine again the market value of equity (E) by discounting the expected
ECFs with the required return on equity.
a. WACC = 0,5 x 6% + 0,5 x 14% = 10% (4 p)
b. Vl = EBIT / WACC = 150 / 10% = €1500 (2 p)
c. E = 0,5 x Vl = 0,5 x €1500 = €750 (3 p)
d. EFC = EBIT – RDxD = €150 – 6%x€750 = €105 (4 p)
e. E = ECF / Re = €105 / 0,14 = €750 (2 p)
Case VI (Tax Law 10 points)
Company 1 in Member State A holds 55% of the shares in Company 2 in Member
State B. Company 2 (subsidiary) earns a profit of 2000, which is distributed as
dividends to company 1. Assume that all conditions are satisfied for the application
of the directive.
In addition, assume that CIT in Member State A is 30% and in Member State B 25%.
Withholding tax in Member State A is 15% and 10% in Member State B.
Question 7
a. Explain how the Parent-Subsidiary (p/s) directive avoids double taxation of
profits if the exemption method is used and explain what the effect of the p/s
directive is on the taxation of dividends. (4 p)
Company 2 earns a profit of 2000. The profit is taxed at a rate of 30% according to
the national tax law of MS B. Profit after tax is 1400 ((2000 – (30% * 2000)). The
profit is distributed to the parent company in MS A. According to article 4 of the p/s
directive the parent company shall refrain from taxing profits received from the
subsidiary. This is the essence of the exemption method. The profit after tax of 1400
is not taxed again at the level of the parent as shown in the table below.
Profit C 2 2000
CIT MS A (30%) 600
--------------Profit
after
CIT
1400
Dividend C 2 1400
Div. tax MS A (15%) 0
--------------1400
CIT MS B (exempt) 0
Div. Tax MS A 0
--------------Profit
after
tax
C
II
1400
According to article 5 the profits distributed to the parent company are exempt from
withholding taxes. In addition, according to article 6 the Member State of the parent
company may not charge withholding tax on the profits received from the subsidiary.
Hence not withholding taxes are levied.
b. Would your answer be different if Company 2 is a branch/permanent
establishment of Company 1? (2 p)
No, the answer would not be different if company 2 is a branch/PE of the parent
company. According to article 4 the MS of the parent company of the branch could
use the exemption method in order to avoid taxation of branch profits distributed to
the parent company. A branch/PE and a subsidiary should be treated the same
according to the 9th recital of the directive. The payment of profit distribution and
their receipts by a PE of a parent company should give rise to the same treatment as
that applying between a subsidiary and its parent.
c. If company 2 merges with company 1, how are taxes deferred? Please assume
that all conditions for the application of the Merger directive are satisfied. (4p)
During a merger a transfer of ownership occurs with regard to the assets of company
2. Without the Merger directive company 2 could be taxed on its capital gains and
reserves. The shareholders of company 2 could be taxed on the capital gains with
regard to their shares. In addition any losses from company 2 would likely evaporate.
In order to avoid taxation the Merger Directive states in article 4 that a merger shall
not give rise to any taxation of capital gains (the difference between the market value
(real value) and the bookvalue (value for tax purposes)) of the assets and liabilities
transferred. Sub b of article 4 states that the transferred assets and liabilities must
effectively be connected to a PE or a branch in MS B of company 2. Due to the PE
connectivity MS B keeps the right to tax the assets upon disposal of the assets.
The receiving company must compute any depreciation, gains and losses according
to the rules that would have applied to the transferring company if the merger had not
taken place according to Paragraph 4 of article 4.
In order for the provisions and reserves to remain tax free they must be carried over
to a PE in the MS of the transferring company 2. This is stated in article 5 of the
directive.
According to 8 shares shall not be taxed when they are exchanged due to the
merger. None of the income, profits or capital gains of the share shall be taxable. The
shares must satisfy the conditions as listed in article 8 paragraph 4 and 5.
Start with question 8 with a new sheet.
Case VII (M&A Legal 10 points)
Green Ltd., a UK private company, has a business in online marketing services. Blue
Ltd, also a UK private company, has agreed to become owner of the business of
Green Ltd.
Question 8
a. Please explain which techniques Blue Ltd could use to become the owner of the
business of Green Ltd. and how they differ from each other.
b. Please answer which technique should be preferred in this case and why.
c. If Blue Ltd. wants to combine its businesses with the assets of Green Ltd. in one
company, which technique would then be preferable?
a. 1. Share transfer, 2. legal merger, 3. transfer of asset and liabilities.(3p)
b. Share transfer, because this is a simple technique. (4 p)
c. Transfer of asset, as this is the only way the liabilities can stay behind in Green Ltd. (3 p)
Case VIII (M&A Legal 15 points)
Lion PLC, a UK public company, has a business in Oil & Gas and is listed at the
London Stock Exchange. Dutch Energy BV, a Dutch private company, has bought
shares in Lion PLC, and is now required to make a public offer (mandatory bid) for all
shares of Lion PLC.
Question 9
a. The board of Lion PLC has been advised by its legal advisors to implement a
Pandora construction. Please explain what is meant by Pandora construction.
b. Please explain in what possible ways article 12 of the Takeover Directive might
be relevant for takeover defenses.
c. Please explain what the difference is between preference shares and priorities
shares.
d. Give four techniques that the Directive on takeover bids includes to protect
minority shareholders.
a. poison pills, golden parachutes, crown-jewel constructions or an explanation (3 p)
b. Choices company:
1. unprotected and breakthrough (opt in 9 and 11)
2. protected and no breakthrough (opt out 9 and 11)
3. unprotected and no breakthrough (opt in 9 and opt out 11)
4. protected and breakthrough (opt out 9 and opt in 11) (5 p)
c. Preferences shares give a preference to profit, priorities share give certain additional rights
not related to profit, for example to appoint board members. (3 p)
d. mandatory bid, information about the bid, publicity, sell-out right. (4 p)
Start with question 10 with a new sheet.
Case IX (Transfer of undertaking 20 points)
The Dutch insurance company Rotterdam Verzekert BV has an information,
communication and technology department (the ‘ICT department’) that comprises
three units: (i) infrastructure, (ii) business clients and (iii) private clients. Each unit
has three employees, all having the same hierarchical level and performing more or
less the same tasks within each unit. There is one supervisor, Mandy, who heads the
ICT department. She organises the work in each unit and regularly helps the
employees of these units in case of a problem or severe workload. About 40% of her
time, she spends on managing and helping the unit infrastructure, while the remainder
of her time is equally dived between the units business clients and private clients.
The unit infrastructure is responsible for the entire ICT infrastructure of Rotterdam
Verzekert BV Rotterdam. Verzekert BV feels that this important unit infrastructure is
somewhat vulnerable, just having three employees. Therefore, it decides to source all
activities of this unit out to the ICT company Insource BV. As of 1 April 2015
Insource BV is responsible for all these activities, gains all relevant information on
software and structure from Rotterdam Verzekert BV, including licenses, and is
allowed access to the premises of Rotterdam Verzekert BV. Furthermore, it has
offered all three employees of the unit infrastructure employment, which two of them
accept starting as of 1 April 2015.
Question 10 (10 points)
Has a transfer of undertaking, as set out in the Transfers of Undertakings Directive
(also known as the Acquired Rights Directive), occurred between Rotterdam
Verzekert BV and Insource BV? Please explain, referring to legislation and/or caselaw
Case I (Company Law 10 points)
From the Sevic case of December 2005 we know that, in short, cross border mergers of
companies is possible in Europe on the basis of freedom of establishment. Shortly after
the ruling in the Sevic case, Directive 2005/56/EC on cross-border mergers of limited
liability companies was implemented in the Member States.
Question 1 (5 points)
Please explain what the benefit is of having a directive on cross-border mergers,
knowing that cross border mergers are in principle already possible under the freedom
of establishment.
Question 2(5 points)
Please explain why the Sevic case is still relevant for cross-border mergers after the
implementation of Directive 2005/56/EC in the Member States.
Case II (Company Law 5 points)
In the Cartesio case the Court of Justice EU states: ‘Nevertheless, the situation where
the seat of a company incorporated under the law of one Member State is transferred to
another Member State with no change as regards the law which governs that company
falls to be distinguished from the situation where a company governed by the law of
one Member State moves to another Member State with an attendant change as regards
the national law applicable, since in the latter situation the company is converted into a
form of company which is governed by the law of the Member State to which it has
moved.’
Question 3 (5 points)
Please explain for both situations (with and without a change as regards the national
law applicable) separately whether companies from Member States using the real seat
doctrine are free to move their seat to another Member State.
Case III (Company Law 10 points)
After the implementation of the First EC directive, article 240 Book 2 of the Dutch
Civil Code reads as follows:
‘1. The management represents the company to the extent that the contrary does not
follow from the law.
2. The representative authority shall also vest in every director but, notwithstanding the
foregoing, the articles may provide that it shall vest only in one or more directors
concurrently with the management. In addition, the articles may provide that a director
may represent the company only with the cooperation of one or more other persons.
3. The representative authority vested in the management or in a director shall be
unrestricted and unconditional to the extent that the contrary does not follow from the
law. Any restrictions in or conditions on the representative authority permitted or
prescribed by law may only be invoked by the company
4. The articles may also vest representative authority in persons other than directors.’
BigFun BV, a Dutch private limited liability company registered in Amsterdam, is
specialized in organizing big events. The company has four directors: Jones, Ive, Lois
and Sofie.
The statutes (articles of association) provide for the following provision:
The management represents the company. The representative authority shall
also vest in two directors acting together. For acquisitions that exceed 50.000
euro, prior consent of the treasurer is required.
The statutes have been published in accordance with Dutch law. One day Jones buys
new professional music equipment for BigFun BV of 60.000 euro in New York when
he is on a short vacation. At that moment he does not realize that he needs prior consent
of the treasurer according to the statutes. Back in Amsterdam it turns out that the other
directors, including the treasurer, do not agree with the acquisition of the music
equipment.
Question 4 (10 points)
Is BigFun BV bound by the agreement?
Case IV (Company Law 5 points)
EasyFlight SE, a European Company with registered office in the Netherlands (where
the incorporation doctrine applies), wants to move its real seat (and not its statutory
seat) to France.
Question 5
Is EasyFlight SE allowed to move its real seat to France?
Answers
Question 1
Since there are companies from different Member States involved, the company laws
of both states are involved. Without clear rules the exact applicable rules concerning
the procedure and concerning the protection of stakeholders can be problematic, they
can be lacking, overlapping or unsure.
Question 2
The Directive only applies to limited liability companies, whereas the freedom of
establishment apples to companies according to Article 54 TFEU, which is a much
broader definition.
Question 3
1). Without changing the applicable company law: no, companies are not free, see
Daily Mail and Cartesio
2. With an attendant change of the applicable company law: yes, companies are free
if the host Member State allows the conversion, see Cartesio. If the host MS has rules
for national conversion, then it should allow the cross border conversion, see Vale.
Question 4
No (once the restriction is invoked by the company); the restriction of prior consent
cannot be hold against third parties and only has internal effect (art. 240, par. 3:
unrestricted and unconditional). The restriction that directors should act together,
however, follows from the Dutch law (art. 240, par. 2) and is in line with article 10(3)
Directive 2009/101/EC and can therefore be hold against third parties.
Question 5
No, see Article 7 and 64 of the SE Regulation.
Start with question 6 with a new sheet.
Case V (Economics 15 points)
Firm B is contemplating the acquisition of firm T. The values of the two companies as
separate entities are 50 and 30 million respectively. B estimates that by combining the
two companies it can create synergies worth 15 million. B can either pay 40 million in
cash or offer T a 40% holding in B.
Question 6
a. What is the cost of the cash offer?
b. What is the cost of the stock alternative?
c. What is the NPV of the acquisition for the shareholders of B under the cash
offer?
d. What is the NPV of the acquisition for the shareholders of B under the stock
offer?
a. Cost = Cash – CW
T
b. Cost = value offer - CW
T
= 40 – 30 = 10 ( 2p)
= 40% x (50+30+15) – 30 = 38 – 30 = 8 (5 p)
c. NPV = wealth with acquisition – wealth without acquisition = (50 + 30+ 15 –
40) – 50 = 5 (4p)
d. NPV = wealth with acquisition – wealth without acquisition = 0,6*(50 + 30+
15) – 50 = 7 (4p)
Case VI (Tax Law 10 points)
Question 7
a. Explain the difference between judicial double taxation and economic double
taxation? Please use examples in your explanation.
b. Explain when a company is entitled to the benefits of the Parent/subsidiary
directive.
Answers
a.Judicial double taxation exists when a single tax payer is taxed twice on the same
income. For example when the same income is taxed in two different countries such
as in the state of residence and in the source state. An example would be taxation of
dividends. Dividends are taxed in the state of source and in the state of residence as
income received being part of the profit. A tax treaty will avoid the double taxation of
dividends by allowing state of the parent company to tax the dividends exclusively or
allowing the source state to tax the dividends to a maximum percentage while the
state of the parent company will have to credit the dividend tax levied in the source
state. (5 p.)
Economic double taxation will occur when the same income is taxed twice by two
different taxpayers. This will occur when a same profits are taxed at the level of the
subsidiary and at the level of the parent. A tax treaty cannot eliminate economic
double taxation. Only the Member state of the parent company can avoid economic
double taxation using the exemption method or the credit method.
b.According to article 3 of the P/S directive a company is entitled to the benefits of
the directive under the following conditions:
i) the Legal form must be listed in the annex of the directive. The annex lists
the legal forms in each MS which are entitled to the directive. For example a
Dutch BV or a French SARL.
ii) the company must be a resident of according to national tax law of the MS.
Residency according to national tax law could determined by the place of
effective management or place of incorporation. When a company is
resident in two different countries the tie-breakerrule of the tax treaty will
determine in which country a company has its residency. This will be the
place of effective management. The place of effective management is the
country where the board of the company meets and where the company will
have its main administration.
iii) The company must be subject to corporation tax as listed in the annex in
the directive without being exempt.
iv) the country must be MS of the European Union.
Note that both the parent company and the subsidiary must meet the
conditions mentioned above. (5p.)
Start with question 8 with a new sheet.
Case VII (M&A Legal 10 points)
Animalbook NV., a Dutch public company, is listed at the Amsterdam Stock Exchange.
Facebook Plc, a UK public company, has bought shares in Animalbook NV., and is
now required to make a public offer (mandatory bid) for all shares of Animalbook NV.
Question 8
a. The board of Animalbook NV. has been advised by it legal advisors to
implement a staggered board construction and a Pac Man construction. Can you
explain what is meant by these constructions?
b. The board has also heard that the Takeover Directive has harmonized the
takeover rules in the EU. Is this true?
c. Can you explain what the difference is between squeeze-out and sell-out?
d. Why might minority shareholders prefer not to stay shareholder in a company
when a takeover bid is published which is expected to be successful?
Answers:
a. Staggered board means (for example) 1/3 of the board members are up for
(re)appointment vote every year, so it takes at least 2 years to get board majority for a bidder.
Pac Man means starting a bid against the bidder. ( 4 p)
b. No, not completely. Positive: mandatory bid, information on bid, publicity, sell-out right.
Negative: art. 12 directive. Not included: Lapse and revision of bid competing bids (2 p)
c. art. 15 and 16 directive. (2 p)
d. Abuse of power, decrease of tradability, loss of value. (2 p)
Case VIII (M&A Legal 15 points)
Question 9 (15 points)
a. On what legal grounds can a cross-border legal merger be conducted?
b. What are the differences between Representations and Warranties?
c. What is the difference between Oppression remedies and Appraisal rights?
a. 1. SE directive, 2. Cross-border legal merger directive, 3. Sevic Case. (6 p)
b. Representations: certain described facts or circumstances that are true according to the
seller and target (they are liable in case of incorrectness) E.g. the soil is not polluted. Not
correct- seller is liable. (4 p)
Warranties: the target and seller take the responsibility for certain known facts (e.g.
target will pay for the possibly damages in a started court procedure)
c. Oppression remedies give access to court to have a potential wrong judged, whereas
Appraisal rights means the shareholder is entitled to exit and cash his shares. (5 p)
Case IX (Transfer of undertaking 20 points)
Question 10 (10 points)
Please explain why it is relevant to distinguish between labour intensive and capital
intensive (also referred to as asset reliant) companies in case of assessing whether a
transfer of undertaking occurred? Please give examples of case-law substantiating your
answer to this question.
For two reasons it is important to assess whether a company is labour intensive or
capital intensive.
In a labour intensive undertaking (i) a group of workers engaged in a joint activity on a
permanent basis may constitute an undertaking (“economic entity”). That undertaking
transfers (it maintains its identity) (ii) where the new employer does not merely pursue
the activity in question performed by the transferor, but also takes over a major part, in
terms of their numbers and skills, of the employees specially assigned by his
predecessor to that task. Reference is made to ECJ, C-13/95, Süzen. Therefore, the
definition of “economic entity” and “transfer” are somewhat different in a labour
intensive undertaking.
In a capital intensive undertaking, where the tangible assets contribute significantly to
the performance of the activity, the absence of a transfer to a significant extent from
the old to the new company of such assets, which are necessary for the proper
functioning of the undertaking (entity), must lead to the conclusion that the entity does
not retain its identity. Reference is made to ECJ, C-172/99, Oy Liikenne. This bears
relevance for the definition of “transfer”.
In summary, in a labour intensive undertaking the “undertaking” and the transfer is
approached differently when compared to the capital-intensive undertaking.
Question 11 (10 points)
Please explain whether the following statements are true or false. Substantiate your
answer in two sentences at most referring to case-law, the Directive and/or other
relevant sources. Answers merely stating “true” or “false”, without further explanation,
will not be awarded any points. (10 points). The term ‘business’ as used in the questions
below, refers to ‘undertaking’ as set out in the Directive on transfer of undertaking.
In order to establish whether or not the business that may transfer retains its
identity, it is necessary to consider whether that business was disposed of as a
going concern. (2 points) True: This was ruled in the case Spijkers. [also on
sheet]
Where there are no representatives of employees in a business through no fault
of their own, the employees that are to be transferred are entitled to receive
information about that transfer themselves. (2 points) True: See article 7.6 of
the Directive on transfer of undertaking
The term “employee” in the Directive on transfer of undertaking is given an
autonomous and uniform interpretation throughout the European Union. (2
points) False: Pursuant to article 2 (d) an employee shall mean any person
who, in the Member State concerned, is protected as an employee under
national (instead of EU) employment law.
An employee is only entitled to waive and restrict his rights conferred on him by
the Directive on transfer of undertaking, if this is done in writing with his freely
given consent, while he obtains new benefits in compensation for the
disadvantages resulting from the amendment to his contract of employment so
that, taking the matter as a whole, he is not placed in a worse position than before.
(2 points) False: see par. 15 of Daddy’s Dance Hall.
An entity (business) cannot retain its identity, if it loses its organisational
autonomy upon transfer. (2 points) False: see ECJ Klarenberg/Ferrotron
Case I (Company Law 5 points)
Until now the European Commission has not made an official proposal for a directive on the cross border transfer of the registered office of companies (cross border conversion). One of the arguments from the Commission is that the case law from the Court of Justice EU makes a cross border transfer of the registered office already possible.
Question 1
What would be the main argument to convince the Commission to come with a proposal for a directive, notwithstanding the fact that a cross border transfer of the registered office is already possible in practice?
Case II (Company Law 10 points)
Between Line BV, a Dutch limited liability company and Soleil Sarl, a French limited liability company, a cross border legal merger takes place whereby the French company is the acquiring company and the assets and liabilities of Line BV are being transferred. After the merger the head office of Soleil Sarl will be situated in Amsterdam. A few months after the merger a legal dispute between Soleil Sarl and another company arise. In the subsequent legal procedure that follows in France, the French court decides that Soleil Sarl has no legal capacity and, consequently, no capacity to bring legal proceedings before its court because the real seat of Soleil Sarl is established outside France. The lawyer of Soleil Sarl argues in the court proceedings in appeal that the ruling of the lower court is not in accordance with article 49 TFEU.
Question 2
How do you assess the argument of the lawyer of Soleil Sarl, taking into account the case law of the Court of Justice EU?
Case III (Company Law 10 points)
After the implementation of the First EC directive, article 240 Book 2 of the Dutch Civil Code reads as follows:
‘1. The management represents the company to the extent that the contrary does not follow from the law.
2. The representative authority shall also vest in every director but, notwithstanding the foregoing, the articles may provide that it shall vest only in one or more directors concurrently with the management. In addition, the articles may provide that a director may represent the company only with the cooperation of one or more other persons.
3. The representative authority vested in the management or in a director shall be unrestricted and unconditional to the extent that the contrary does not follow from the law. Any restrictions in or conditions on the representative authority permitted or prescribed by law may only be invoked by the company
4. The articles may also vest representative authority in persons other than directors.’
TwoPairs BV, a Dutch limited liability company registered in Rotterdam that runs several shoe shops, has four directors: A, B, C and D. The statutes (articles of association) provide, amongst others, for the following provision:
‘Director B may represent the company only with the cooperation of director C.’
The statutes have been published in accordance with Dutch law. One day, director A and director B together sign a contract with Rental BV in order to rent a new shop in the ‘Koopgoot’ in the center of Rotterdam. Later they found out that director C and D don’t agree with this transaction.
Question 3
Is TwoPairs BV bound by the agreement?
Case IV (Company Law 5 points)
On 8 October 2004, more than 30 years after its first proposal, the Council Regulation on the Statute for a European Company (SE) entered into force. The first proposal from 1970 contained 284 articles, the final Regulation has 70 articles. One could say that instead of one supranational company the Regulation brought about 28 (the number of Member States) different European companies.
Question 4
What is meant with this statement and what would be the main argument for this statement?
Answer question 5 and 6 on a separate sheet.
Case V (Labour Law 10 points)
Article 4 (2) of Directive 2001/23/EC (transfer of undertaking) reads that, if the employment contract is terminated because the transfer involves a substantial change in working conditions to the detriment of the employee, the employer shall be regarded as having been responsible for termination of the employment contract. In the meantime article 3 (1) of this Directive reads that the transferor's rights and obligations arising from an employment contract existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee. In other words, at first glance article 3 (1) doesn’t permit changes to the working conditions of the employees transferred.
Question 5
Please explain why articles 4 (2) and 3 (1) are not in conflict, giving three examples of changes to the employment conditions of the employees transferred to their detriment, which are allowed by the Directive.
Case VI (Labour Law 10 points)
The large limited liability company Kolka B.V. (600 employees) buys the assets and activities of the much smaller limited liability company Giron B.V. (12 employees). This purchase results in a transfer of undertaking. The Managing Director of Giron B.V., Mr Goodal, employed on the basis of an employment agreement, is prior to the transfer solely involved in managing the company Giron B.V. Upon transfer of the business there is no suitable place for him in the organisation of Kolka B.V., as Kolka B.V. already has a Managing Director. Kolka B.V. wishes to terminate the employment agreement of Mr Goodal. He, however, takes the view that such a termination is not permissible, because he enjoys dismissal protection due to the transfer, even though he is realistic enough to see that indeed there is no suitable position for him in the organisation of Kolka B.V.
Question 6
Please explain whether it is possible for Kolka B.V. to terminate the employment agreement of Mr Goodal, taking into consideration the defence forwarded by Mr Goodal.
Answer question 7 to 9 on a separate sheet.
Case VII (Economics 10 points)
You are given the following facts of company B(idder) and company T(arget). B acquires T.
B exchanges 10 mln new shares for all the shares of T. Synergy (=gain) of the merger is zero.
B T
Market value equity $ 1,000 mln $ 400 mln
P/E 16 10
Price per share $ 40 $ 40
Fooling the market means, making the market to believe that the P/E ratio of B after the acquisition of T is still 16.
Question 7
a. Calculate the price per share of company B directly after the acquisition of company T. Assume company B fools the market.
b. Calculate the NPV of the acquisition for the shareholders of company B. Assume company B fools the market.
Case VIII (Economics 5 points)
Question 8
a. What represents goodwill acquired in a business combination?
b. A part of the acquisition methods is determining the acquisition date. How do you determine the acquisition date?
Case IX (Tax Law 10 points)
King BV, a Dutch limited liability company and a Dutch resident company, intends to merge with Queen BV.
King BV is fully owned by König GmbH (a German resident entity) and Queen BV is owned for 50% by Qinvest Ltd. (a UK resident entity) and for 50% by Indep Inc. (a US resident entity).
König GmbH, Qinvest Ltd and Indep Inc. are all subject to tax in their respective places of residence.
King BV has the following balance sheet for tax purposes:
King BV (in EUR 1.000)
Assets 5,000Equity 2,000 Liabilities 3,000 Total 5,000Total 5,000
Queen BV has the following fiscal balance sheet
Queen BV (in EUR 1.000)
Assets 3,500Equity 1,000 Liabilities 2,500 Total 3,500Total 3,500
The assets of King BV have a net asset value of EUR 8,000. The surplus value is therefore EUR 3,000 (not taking deferred corporate income tax into valuation). The assets of Queen BV have the same net asset value as the book value for tax purposes.
King BV and Queen BV are considering 1). an exchange of shares (whereby King BV issues shares in return for shares Queen BV), 2). a legal merger (whereby both companies dissolve and Prince BV will be established) or 3). a transfer of assets from Queen BV to King BV (in return for shares King BV).
Question 9
a. Make a drawing of the corporate structure after these three types of merger.
b. In case King BV and Queen BV decide upon a legal merger into Prince BV, would Q Invest Ltd. and Indep Inc. be entitled to the benefits of the parent subsidiary directive after the merger for their stake in Prince BV? If so, mention the relevant conditions.
Answer question 10 to 11 on a separate sheet.
Case X (Takeover law 10 points)
Cadbury Beckham Ltd., a UK private company, has a business in internet hosting services. They host about one hundred thousand websites for their customers, mostly private persons. Berlin Beckenbauer GmbH, a German private company, has agreed to become owner of the business of Cadbury Beckham Ltd.
Question 10
Can you explain which techniques the German company could use to become the owner of the business of the UK company and how they differ from each other?
Can you answer which technique should be preferred in this case and why?
If the German company wants to combine its businesses with that of the UK company, which technique would then be preferable?
Case XI (Takeover law 15 points)
Cadbury Beckham PLC, a UK public company, has a business in real estate and it is listed at the London Stock Exchange. Deutsche Real Estate AG has bought shares in Cadbury Beckham PLC, and is now required to make a public offer (mandatory bid) for all shares of Cadbury Beckham PLC.
Question 11
Can you explain what the board of Cadbury Beckham PLC can do with regard to takeover defense (and what not), based on the Takeover Directive?
Can you explain in what possible ways article 12 of the Takeover Directive might be relevant for takeover defenses?
Can you explain what the difference is between a squeeze out right and a selling right?
Give four reasons why companies might use takeover defenses.
Question 1
Since the company law of two Member States is involved and the applicable company law changes when the conversion enters into force, there should be harmonized rules concerning the transaction. Without a directive questions and therefore uncertainty can arise concerning for example the applicable procedure and the position of stakeholders.
N.B.: the question is not about the distinction between the real seat and the incorporation doctrine.
Question 2
The lawyer is wrong. In this case the ruling of the Court of Justice EU in Daily Mail and in Cartesio(one has to mention at least the Cartesio-case)applies: ‘As Community law now stands, Articles 43 EC and 48 EC [now: 49 and 54 TFEU] are to be interpreted as not precluding legislation of a Member State under which a company incorporated under the law of that Member State may not transfer its seat to another Member State whilst retaining its status as a company governed by the law of the Member State of incorporation.’
The fact that a merger took place is not relevant in this case since the Dutch company is the disappearing company.
Question 3
Yes. Article 240 paragraph 2 states that the representative authority shall also vest in every director. This means that director A has the authority to represent the company alone. The fact that director B does not have the authority to represent the company without director C does not influence this.
N.B.: the answer ‘Yes’, but without the reasoning as stated above (e.g. the restriction only has internal effect) does not account for 10 points.
Question 4
The idea behind the SE as a supranational company is that the company is ruled completely by its statute (through the regulation with direct effect), without references to national law. Since Member States could not agree on many aspects of the Regulation references is often made in the Regulation to national company law. The consequence is that the company law of the Member State where the seat of the SE is situated plays an important role.
N.B.: tax issues is not a very good example since the question refers to company law.
Question 5
Article 3 (1) indeed brings about that as a general rule all individual employment conditions transfer. However, the Directive brings about exceptions that may cause the employment conditions to deteriorate. These exceptions may trigger the applicability of Article 4 (2) of the Directive. The transferee may (i) apply its own collective agreement pursuant to Article 3 (3) of the Directive in stead of the collective agreement in force during the employment at the transferor, which may lead to deterioration of the employment conditions. Furthermore, unless Member States provide otherwise, (ii) pension rights do not transfer on the basis of Article 3 (4) of the Directive, which may also deteriorate the employment conditions. Finally, (iii) the transfer may result in, for instance, changes in working location of the employee (involving more travelling time) due to the location of the business of the transferee. This may lead to deterioration of the employment conditions.
Question 6
Mr. Goodal is right, indeed he enjoys dismissal protection based on article 4 (1) of the Directive. However, this dismissal protection does not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce (article 4.1 of the Directive). In case at hand, there is an organisational reason for the termination of the employment agreement. After all, there already is a managing director, whilst MrGoodal cannot be employed somewhere else in the organisation of Kolka B.V. Therefore Kolka B.V. may terminate the employment agreement.
Question 7a
The price is $46.86.
Question 7b
NPV shareholders of B =
value in hands shareholders B after the acquisition -/-
value in hands shareholders B before the acquisition =
((25/35) x $1,640mln) - ((100/100) x $1,000mln = $171.4 mln.
Question 8a
Goodwill acquired in a business combination represents a payment made by the acquirer in anticipation of future economic benefits from assets that are not capable of being individually identified and separately recognized (3 points)
Question 8b
(2 points)
The acquirer shall identify the acquisition date, which is the date on which it obtains control of the acquiree.
Question 9a
6 points (2 per drawing)
Question 9b
Due to the Legal merger Q Ltd and I Inc will get a shareholding of 1/12 in P BV (net asset value of each 50% shareholding is € 500 on total value of € 6000.
Therefore 10% criterion is not met. (4 pts)
(Answer also correct when is discussed that I Inc is a US resident entity)
Question 10a
Share transfer, takeover of assets and liabilities, legal international merger (3 pts and explanations also 3 pts in total).
Question 10b
Share transfer (1 pt), is simplest method (1 pt).
Question 10c
Legal international merger (1 pt), because of transfer of assets by general title (1 pt).
Question 11a
See art. 9 and explain ( total 4 pts)
Mentioning article 9 (1 pt)
Alternative bidder/white knight (1 pt)
Permission of GM and explanation (2 pts)
Question 11b
See article 12 and slides (part 3). (4 pts total)
Mentioning art 9 and 11 (1 pt)
Explanation opt in/out (2 pts)
Explant ion layered system (1 pt)
Question 11c
See article 15 and 16. (4 pts total)
Mentioning art 15 and 16 (2 pts)
Explain sell out (1 pt)
Explain squeeze out (1 pt)
Question 11d
Answer: to get a better price, management believes company will perform better on its own, absence during general meetings, preservation of position of directors (3 points).
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