RECOMMENDATIONS by THE COMPANY LAW SLIM WORKING GROUP on THE SIMPLIFICATION OF THE FIRST AND SECOND COMPANY LAW DIRECTIVES

RECOMMENDATIONS by THE COMPANY LAW SLIM WORKING GROUP on THE SIMPLIFICATION OF THE FIRST AND SECOND COMPANY LAW DIRECTIVES Conclusions submitted by the Company Law Slim Working Group I. FIRST COUNCIL DIRECTIVE OF 9 MARCH 1968 (68/151/EEC) PROPOSAL 1. Disclosure / Electronic versus paper publication - art. 2 to 6 There is a clear need for simplifying the registration and disclosure procedures, provided for in article 3 e.s. of this directive. Electronic filing and dissemination, home state control and Europe-wide reliability should be the guiding lines of the proposed SLIM reform. The Member States should provide, within a reasonable period of time, for electronic data filing and dissemination and pan-european accessibility, e.g. within the framework of the project for a "European Business Register". During a first limited stage (the interim period), electronic dissemination of data replacing any dissemination in paper format is deemed essential. During this period, Member States will determine whether filing can still take place in a paper or should be effected in electronic format on the basis of transitional measures. Member States should ensure that paper documents filed during this period are converted by the competent authority into electronic data in order to disseminate same electronically. The following main lines of reasoning distinguishing between the drafting, filing and dissemination of documents, could be followed: 1. Company disclosure documents, as referred to in the First Company Law Directive, may be drafted in a traditional, printed or written way. Member States may authorise electronic drafting, including electronic signature, provided that the usual standards on electronic exchange of information in an electronic form are complied with. 2. It is up to each Member State to decide where the filing takes places (greffe, court registrar, central office). Page 1

3. In the longer term, all Member States should provide for filing and dissemination in electronic form. 4. However, Member States may continue to provide, for a transitional period not exceeding [5] years, that filings can be made in paper form; in this case appropriate measures should be taken to ensure conversion and processing of these data in an electronic form within a reasonable period of time, with a view to electronic dissemination of these data. 5. Having been so filed and electronically disseminated, all data should be made electronically available for consultation throughout the Union. 6. As far as its content is concerned, the document disseminated should be identical to the document filed. 7. Documents may be relied upon as soon as they have been filed and processed for electronic dissemination. During the transitional period( sub 4) and only with respect to paper filings, article 3 (5) would continue to apply. 8. The Member States decide whether reviewing of filed documents or their authentication prior to dissemination, e.g. by a court or by a registrar, should be required. PROPOSAL 2. Disclosure / Use of languages - art. 2-6 In addition to the basic rules on filing and dissemination of company documents, the Company Law Slim Working Group deemed it useful to open up the international accessibility of the data files in which company information is being stored, relying essentially on the information stored in the company's home state. Even in the absence of any foreign establishment of the company, the following rules would apply. 1. Documents should be filed and disseminated in one or more languages according to the rules applicable to the home state of the company. 2. The national legislator should allow the company to voluntarily file and disseminate documents in other languages, provided that only the documents in one of the E.U. languages have legal value. In addition Member States may allow the use of other languages. PROPOSAL 3. Disclosure documents relating to cross-border establishments - link with Eleventh Council Directive of 21 December 1989 (89/666/EEC) Although the subject has been dealt with in the Eleventh Directive, the Company Law Slim Working Group recommends that in case of cross-border establishment, more effective techniques of disclosure can be developed and further simplification achieved. Therefore, an establishment in another Member States does not trigger additional filing obligations in the host state, provided that the relevant data are available in the home state. Page 2

This further simplification is conditioned upon: - the availability of a Europe wide company data dissemination network - the company's purpose to effectuate a cross border establishment In this respect the following scheme is proposed: a) Disclosure exclusively takes place in the home state of the company and remains subject to the regulations of that state, which will also determine, pursuant or in addition to the directive which information should be disclosed; b) In the host state, no additional filing should be required, third parties being able to retrieve the documentation from the electronic database in the home state; c) If home and host state do not use the same language, the information should be translated in the language used in the host state, or in the states in which the company has secondary establishments; d) The minimum data to be so translated and disseminated are determined in a future directive - inspired by the present eleventh directive (e.g. the main data of the articles of association (extract) and the powers of attorney of the local representative, if any). It can be supplemented by the authorities of the home state. Whether other documentation (e.g. the annual accounts) is to be translated is left to the home state, or, on a voluntary basis, to the company; d) This translation should be authenticated by the authorities of the host state; e) The host state can waive, as a general measure, the requirement for a translation if the home state language is easily accessible to the residents of the host state; f) If for tax or other administrative purposes, the existence of the company has to be proved to the authorities in the host state, an extract of the filed documentation, with translation, and a declaration by the home state that this information has been filed, will be sufficient. PROPOSAL 4. Powers of representation - art. 9.2 & 3 Clarification is needed as regards the publication of the powers of attorney of representatives of a company, other than its organs (board of directors, or directors acting separately or jointly). A directive ought to allow that representatives with general powers - other than organs - be listed in the register. A limited power of attorney should, however, not be disclosed. Page 3

II. SECOND COUNCIL DIRECTIVE OF 13 DECEMBER 1976 (77/91/EEC) PROPOSAL 1. Contribution in kind - art. 10, 11 and 27 For the application of article 10, 11 and 27 of the Second directive, no expert opinion is necessary in respect of the formation of the company or decisions to increase the capital, either: a) if the assets contributed have been the subject of an independent expert valuation provided that: - these valuation reports are sufficiently recent and reliable (e.g. not older than 3 months); - these reports have been established in the same perspective of valuation.; - there have occurred no major changes with respect to the assets contributed. or b) if transferable securities are contributed, these securities being valued at the price at which they are traded on a "regulated market" (in the sense of the Investment Services Directive, art. 1,13) There is a case for harmonisation as to the rules to be followed for the conversion of debts in capital. PROPOSAL 2. Nominal value, accountable par - art. 8 There is subject for further investigation and research whether the present notions of nominal value and accountable par should be maintained, or whether a simplification would result from the use of shares that merely represent a fraction of the company. PROPOSAL 3. Withdrawal of shares - art. 36 Member States that have not introduced squeeze-out remedies, may declare shares compulsorily withdrawable, if this withdrawal has been provided for with respect to these securities, not only if this is authorised by the articles of association at their issue, but also after their issue, by a later decision of the general meeting. The decision to withdraw should be taken by shareholders owning not less than 90% of the shares. This would ensure that the shares of these remaining minority shareholders can be withdrawn.. Page 4

PROPOSAL 4. Acquisition of own shares - art. 19 At the level of the European directive, the rule limiting the acquisition of own shares to 10% of the outstanding shares should be replaced by a limitation of the acquisition to the amount of the distributable net assets. It is up to the Member States to decide whether they want to restrict the acquisition of own shares to a certain quota of outstanding shares. In case of both listed and unlisted companies, equal treatment should be safeguarded. Purchases at market price are deemed to respect this rule. With respect to stock exchange listed companies, the articles may provide the general meeting to authorise, upon a simple majority and within the limits of the distributable net assets, the board of directors to acquire own shares at the market price, provided that there is sufficient continuous or periodic disclosure. No further formalities would apply. Both with respect to listed and unlisted companies, the time period for the general meeting's authorisation to acquire own shares (at present 18 months) should be extended to 5 years, the same period as for the issue of shares under the authorised capital. PROPOSAL 5. Financial assistance - art. 23 The prohibition on financial assistance should be reduced to a practical minimum. Two avenues may thereby be followed: - to limit financial assistance to the amount of the distributable net assets; or - to limit the prohibition to the assistance for the subscription of newly issued shares. PROPOSAL 6. Pre-emptive rights - art. 29, 4 In derogation to art. 29, 4, unless the articles state otherwise, the general meeting of listed companies may empower the board, for a period not exceeding five years, to issue additional shares against a contribution in cash without pre-emptive rights, provided that these additional shares are issued at least at market price, or slightly below. No expert report is necessary, nor any specific report of the board of directors. Page 5

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EXPLANATORY MEMORANDUM WITH REGARD TO THE RECOMMENDATIONS by THE COMPANY LAW SLIM WORKING GROUP on THE SIMPLIFICATION OF THE FIRST AND SECOND COMPANY LAW DIRECTIVES INTRODUCTION The simplification of the First and Second Company Law Directives is part of the fourth phase of the Simpler Legislation for the Single Market (SLIM) initiative. It is important to note that the purpose of SLIM is not to further harmonise, but to slim regulation. A small working group, called the Company Law Slim Working Group (hereinafter: the "Working Group"), was created with a view to identify where simpler legislation could replace the existing legislation in the field of the First and Second Company Law Directive. The Working Group was composed of Member States representatives (namely from Austria, Finland, Italy, Luxembourg and Spain) and experts in and users of company law. It was chaired by Eddy Wymeersch, professor at the University of Ghent. The names of the members of the Working Group are listed in the annex to this document. The Company Law Slim Exercise was defined as a "deregulation exercise" aimed at indicating certain matters within the scope of the First and Second Company Law Directives with respect to which the Single Market legislation could be simplified and to make appropriate proposals with respect to same. Certain links to the Eleventh Company Law Directive where thereby considered indispensable. The Working Group worked out its proposals during three meetings, held on 12 February 1999, 26 March 1999 and 17 July 1999. Given the limited working time table of its exercise, the Working Group did not aim to cover all possible areas susceptible to simplification in an comprehensive manner. It could only focus on certain selected substantial matters which could be the subject of simplification. It recognises, however, that a more in-depth review of the two directives would certainly reveal additional areas for simplification. With respect to the subject matters it examined, the Working Group worked out a number of proposals for simplification. The implementation of these proposals into coherent legislation, is left to the competency of the European Commission. Page 7

I. FIRST COUNCIL DIRECTIVE OF 9 MARCH 1968 (68/151/EEC) PROPOSAL 1. Disclosure / Electronic versus paper publication - art. 2-6 The articles 2 through 6 of the First Company Law Directive deal with compulsory disclosure by companies of a number of particulars and documents through 1) filing of same in a central register and 2) publishing (an extract of) the said texts in the national gazette. The traditional system of disclosure on paper (paper filing and publication) was considered outdated and responsible for considerable delays in the accessibility of company information and in the legal perfection of corporate transactions. The replacement of these paper procedures of filing and dissemination by electronic data processing with a view to Europe-wide access to these data was therefore considered one of the priorities of the SLIM exercise. In this context, several members of the Working Group referred to existing successful national initiatives towards informatisation and centralisation of company data. In certain Member States, differences could be observed between public and closely held companies. It was also pointed out that the slow working of most central filing bodies had lead to the establishment of private data processing and dissemination firms (information vendors) providing the service referred to in article 3.3. The switch to electronic filing and dissemination of company data would take place gradually, according to the technical possibilities of each Member State to organise an electronic filing and publication system, but should be finalised within a limited period of time, e. g. five years. This period would constitute the "interim period". During the interim period: 1. Member States will determine whether filing of company data with the central register should already take place electronically or can still take the form of a paper filing. In the latter case, Member States should, however, ensure due conversion of this paper format into an electronic file (e.g. by scanning). 2. All documents filed, should be disseminated electronically, as the case may be after the aforementioned conversion. 3. Through such electronic dissemination, company data should become electronically available for consultation throughout the Union. Data retrieval over the Internet should be considered. 4. Article 3.5 would continue to apply with respect to paper filings. Page 8

Once the interim period has elapsed, all company data should be exclusively filed and disseminated electronically. The Europe-wide accessibility of company data should be ensured by linkage of national company registers. The following general principles would govern the proposed switch: 1. The contents of the documents filed and the electronically disseminated data should be identical. 2. Documents may be relied upon as soon as they have been disseminated electronically. 3. Member States may require review or authentication by a national official of filed documents prior to their dissemination. PROPOSAL 2. Disclosure / Use of languages - art. 2-6 In addition to the basic rules on filing and dissemination of company documents, the Working Group deemed it useful to enhance the international accessibility of the data files in which company information is stored, relying essentially on the information stored in the company's home state. Even in the absence of any foreign establishment of the company, it proposes the following rules: 1. Documents should be filed and disseminated in one or more languages according to the rules applicable to the home state of the company. 2. The national legislator should allow the company to voluntarily file and disseminate documents in other languages, provided that only the documents in one of the E.U. languages have legal value. In addition Member States may allow the use of other languages. With respect to the definition of "home state", reference is made to other EU activities. PROPOSAL 3. Disclosure documents relating to cross-border establishments - link with Eleventh Council Directive of 21 December 1989 (89/666/EEC) The problem of disclosure in case of cross-border establishments was assessed both from the angle of the First and Eleventh Directive. One of the main concerns related to the duplication of information frequently encountered when establishing a foreign branch. In such case, the host country may require registration of the branch, makes such registration subject to filing of a huge set of corporate documents, which it defines with the requirement that these documents be translated into the national language of the host state. This usually does not only apply at the initial stage of the opening of the branch, but also at each consequent action of Page 9

importance within the company s life (e.g. a capital increase or decrease, a corporate name change, a transfer of registered office, corporate appointments and dismissals/resignations etc.). It was also mentioned that different policies may exist between the competent registries within one host state. In addition, it was pointed out that these registration formalities are imposed to qualify for certain tax treatments in the host state. Although the Eleventh Company Law Directive was aimed at limiting the number of disclosures, it was pointed out that some countries had extensively made use of the freedom left by the Directive to the Member States to require additional information. Against the background of a single market, theses filing procedures were considered unnecessary, both in terms of cost and time, especially when the files respectively kept in the home and the host country are composed of (almost) all and the same documents. The Working Group therefore suggests the implementation of a "home state" principle: in case of cross-border establishments within the Union, no additional filing requirements should exist in the host state. All necessary company information should be retrievable from the electronic database held with the company register in the company's home state. A directive ought to determine the minimum data to be processed in the home state. Host states would not be able to impose additional disclosures. Translations would be supervised by the host state. The proposed reduction of filing procedures would be subject to the following translation rules: 1) If applicable, the information should be translated in the language used in the host state, or in the states in which the company has secondary establishments; 2) The minimum data to be so translated and disseminated are determined in a future directive - inspired by the present eleventh directive (e.g. the main data of the articles of association (extract) and the powers of attorney of the local representative, if any). It can be supplemented by the authorities of the home state. Whether other documentation (e.g. the annual accounts) is to be translated is left to the home state, or, on a voluntary basis, to the company; 3) This translation should be authenticated by the authorities of the host state; 4) The host state can waive, as a general measure, the requirement for a translation if the home state language is easily accessible to the residents of the host state; 5) If for tax or other administrative purposes, the existence of the company has to be proved to the authorities in the host state, an extract of the filed documentation, with translation, and a declaration by the home state that this information has been filed, will be sufficient. PROPOSAL 4. Powers of representation - art. 9.2 & 3 Page 10

In order to facilitate cross-border transactions, the Working Group agreed on the need for a pan-european reliability of the powers of representation of company representatives other than the corporate organs. A clarification as to the exact scope of these powers in the disclosure documents was deemed necessary. II. SECOND COUNCIL DIRECTIVE OF 13 DECEMBER 1976 (77/91/EEC) PROPOSAL 1. Contribution in kind - art. 10, 11 and 27 The Working Group agreed that expert opinions with regard to the valuation of contributions in kind were not always useful or necessary, and that the number of cases in which they are not required, should be increased. There was a general feeling that an expert opinion is not necessary in case of stock exchange acquisitions or acquisition on the market. The requirement of a new additional expert opinion in cases where the assets had already been valued by another expert or in another procedure in the near past was deemed usefulness both in terms of cost and time, provided that the assets had not suffered any substantial changes since the first valuation. Finally it was discussed whether it would be appropriate to define the concept of "contribution in kind" in the directive, since it is differently construed in different Member States, e.g. with respect to the contribution of a claim. It was felt, however, that defining the concept of contribution in kind would perhaps run contrary to the purpose of SLIM, which is not to harmonise further, but to slim regulation. In conclusion, it was decided to draw the attention of the Commission to some problems regarding the definition of contributions in kind, in particular the valuation of claims against the company itself. PROPOSAL 2. Nominal value, accountable par - art. 8 In many or most Member States, companies can only issue shares with nominal value. This value in fact reflects no particular value at all. The nominal value expresses a relation to the capital of the company. The number of shares times their nominal value equals the statutory capital of the company. In most States, shares cannot be issued for less than their nominal value. Issues above nominal value entail the payment of a premium. Page 11

A second class of shares are the no-par-value shares, which represent a percentage of statutory capital (which is still expressed in a nominal way, i.e. as a number) Their value is the so-called accountable par. Issues under par are only possible in accordance with a special procedure. The only difference between nominal value and no-par-value-shares is that, for the latter category, the nominal value is not expressed, in printed form, on the shares. In fact the "potential nominal value" of such a share can be calculated by dividing the capital by the denominator mentioned on the share (e.g., no par value of 1/1000 of capital; divide capital by 1000). This is the "accountable par". In a third system, there either is no statutory capital (cf. U.S.) or if there is, it is not divided into shares with a defined value. The shares do not represent any precise value, but only a percentage of the overall company. Upon issue of additional shares, at whatever price, this percentage merely changes. The main differences between the systems could be summarised as follows: (A) Issue of additional shares: 1. nominal value: issues under nominal value are impossible, issues above nominal value entail a premium or if necessary a reduction of capital 2. accountable par: issues under accountable par are possible, but require a special procedure 3. shares without expressed value: can be issued at any price; this only leads to an increase in the denominator (B) Voting rights If voting rights are proportional to capital: 1. nominal value: only one class of shares can be issued; significant premiums may result, or very complicated structures have to be called upon 2. accountable par: here several theories are defended: 2.1 present accountable par is the basis for voting rights 2.2 historical accountable par is the basis for voting rights; this is extremely complicated in practice 3. shares without expressed value: issue price is irrelevant for determining voting rights The question was raised whether article 8 applies, and if it does, if it is applicable only to new issues of shares or only applies at the moment of incorporation of the company. It seems that most Member States apply article 8 to both situations. Page 12

It was remarked that, if article 8 were not applicable to new share issues, it might be worth considering the third system (no par value shares in the real sense of the word). In conclusion, it was deemed that there is subject for further investigation and research whether the present notions of nominal value and accountable par should be maintained, or whether a simplification would result from the use of shares that merely represent a fraction of the company. PROPOSAL 3. Withdrawal of shares - art. 36 Under the present wording of article 36, a compulsory withdrawal is only possible if authorised by the statutes or the articles of incorporation at the moment the shares that are to be withdrawn are subscribed for. It was proposed to allow the withdrawal of shares issued by the company. Withdrawal could be stipulated, whether upon the issue of the shares, or later on, by decision of the general meeting with respect to previously issued shares. This would only be allowed if one shareholder owns at least 90% of all shares. This possibility should be reserved for Member States that have not introduced any squeeze-out procedure. PROPOSAL 4. Acquisition of own shares - art. 19 The present rules concerning buy-backs were considered too rigid. Especially the limitation to 10% of subscribed capital and the 18-month time- limit on the authorisation of the general meeting were deemed unnecessarily restrictive. The 18 month- rule is easily "evaded" by successive authorisations, which are a mere formality, but a cumbersome and costly one, that can, however, hinder useful transactions, (e.g. stock-option programmes financed by own funds). It was therefore proposed to extend the period of authorisation to five years (cf. authorised capital). The 10%-rule can be evaded as well, through successive buybacks. It was thought that the 10%-rule was redundant if the company disposed of distributable net assets. On the level of the Directive, the rule should therefore be replaced by one which limits the acquisition of own shares to cases where this is possible with distributable assets, thus at least safeguarding the capital as mentioned in the articles. Member States would, however, remain free to restrict the acquisition of own shares to a certain quota of outstanding shares. There was general agreement that, in any case, equal treatment of shareholders should be safeguarded. Page 13

PROPOSAL 5. Financial assistance - art. 23 It was agreed that the prohibition on financial assistance should be reduced to a practical minimum. Two avenues may thereby be followed: to limit financial assistance to the amount of the distributable net assets; or to limit the prohibition to the assistance for the subscription of newly issued shares. PROPOSAL 6. Pre-emptive rights - art. 29 In its present wording, article 29 prohibits any restriction or withdrawal of the right of pre-emption by the statutes or the instrument of incorporation. Such restriction or withdrawal may only be decided by the general meeting upon a special justifying report by the board of directors. The decision is subject to a two-thirds majority. In derogation to art. 29, 4, unless the articles state otherwise, it was proposed that the general meeting may empower the board, for a period not exceeding five years, to issue additional shares without pre-emptive rights, provided that these additional shares are issued at least at market price, or slightly below. No special report by the board of directors would be necessary. Indeed, in these cases, no dilution of the financial rights of the shareholders will occur. Since there exists no market price for shares of unlisted companies, this proposed change to art. 29 would only apply to listed companies. ANNEX: LIST OF THE NAMES OF THE MEMBERS OF THE WORKING GROUP Page 14