5.1  Cross-Border Transfer of Corporate Seat and Applicable Law	141

its Dutch creditors would have been exposed to the same risk. Second, and perhaps more noteworthy, the ECJ expressed its doubts regarding the necessity of protecting Dutch creditors. The Court stated that, since

the company […] holds itself out as a company governed by the law of England and Wales and not as a company governed by Danish law, its creditors are on notice that it is covered by laws different from those which govern the formation of private limited companies in Denmark.21

5.1.4.4  The Überseering Decision (2002)

In the case of Überseering, the German real seat doctrine itself came under the ECJ’s scrutiny.22 The Dutch Überseering BV, a limited liability company formed in accordance with Dutch law (Besloten Vennootschap met beperkte aansprakelijkheid) and registered in Amsterdam and Haarlem, owned a piece of land in Düsseldorf, Germany. In 1992 Überseering BV had hired a company, the NCC, to refurbish a motel and a garage located on the site. Two years later, two German Nation­ als residing in Düsseldorf acquired all shares of Überseering BV. In a legal dispute arising between NCC and Überseering BV, the latter filed an action with the District Court (Landgericht) Düsseldorf and, upon appeal, with the Higher Regional Court (Oberlandesgericht).

The Higher Regional Court dismissed the action on the grounds that Überseering BV obviously had transferred its administrative center (i.e. its real seat) to Germany. Therefore, under the ‘real seat doctrine’, German company law would apply to it. But since the firm was not formed in accordance with German corporate law, it was considered null and void under German law and, therefore, lacked the capacity to bring any legal proceedings under the German Act on Civil Procedure (Zivilprozessordnung).

The ECJ decided

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 center of administration to Member State B, Articles 43 EC and 48 EC [now:Artt. 49, 54TFEU] 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.23

The Court made clear that the ‘creatures of the law doctrine’as employed in Daily Mail only applied to such national restrictions regarding the movement of a company’s center of administration that were imposed on it by the state of its incorporation. Thus, the Member States were not to be seen as

having the power, vis-à-vis companies validly incorporated in other Member States and found by it to have transferred their seat to its territory, to subject those companies’ effec-

21  ECJ, case C-212/97 Centros ECR [1999] I-1459, para. 35. 22  See Schulz and Sester 2002, pp. 545 et seq.

23  ECJ, case C-208/00 Überseering ECR [2002] I-9919, para. 94.

142	5  Cross-Border Corporate Activities

tive exercise in its territory of the freedom of establishment to compliance with its domestic company law.24

Once again, the ECJ repeated that restrictions of the Freedom of Establishment in principle could be justified by imperative requirements in the general interest and stated that such requirements may well be seen in the protection of the interests of creditors, minority shareholders, employees and even the taxation authorities. In the Überseering case, however, the ECJ held that such objectives could neither justify denying the legal capacity, nor the capacity to be a party to legal proceedings of a company which was properly incorporated in another Member State in which it had its registered office. The ECJ regarded such a treatment of Überseeing as tantamount to an outright negation of the Freedom of Establishment conferred on companies by the EU Treaties.

5.1.4.5  The Inspire Art Decision (2003)

Inspire Art Ltd. was a limited liability company formed in 2000 under English Company Law, with its registered office located in Folkstone, England, and its sole director resident in the Netherlands. Similar to the cases Segers and Centros it again was a so-called ‘U-Turn construction’ that neither conducted any business within the UK nor was ever intended to do so.

In October 2000 the Kamer van Koophandel en Fabrieken voor Amsterdam

(Chamber of Commerce and Industry of Amsterdam) applied to the Kantongerecht te Amsterdam (Amsterdam Cantonal Court) for an order that a statement should be added to Inspire Art Ltd.’s registration in the commercial register that it was a socalled ‘formally foreign company’ in accordance with Art. 1 of the Dutch Act on Formally Foreign Companies.25 This Act provided for ‘an incorporated company formed under laws other than those of the Netherlands and having legal personality, which carries on its activities entirely or almost entirely in the Netherlands and does not have any real connection with the State within which the law under which the companywasformedapplies’26 (formallyforeigncompany)tobesubjecttospecific Dutch regulations regarding disclosure requirements, annual reports and minimum capital requirements. Pursuant toArt. 4 para. 1 of saidAct, the subscribed capital of a formally foreign company had to equal the minimum amount required of regular Netherlands limited companies. If a formally foreign company failed to meet these requirements, theAct sanctioned this by a personal liability of its shareholders.

The application of saidAct in the case of InspireArt Ltd. created two problems: Although the Act was supposed to implement the regulations of the Eleventh Council Directive (aimed to harmonize disclosure requirements in the EU Member

24  ECJ, case C-208/00 Überseering ECR [2002] I-9919, para. 72.

25  Wet van 17 December 1997, houdende regels met betrekking tot naar buitenlands recht opgerichte, rechtspersoonlijkheid bezittende kapitaalvennootschappen die hun werkzaamheid geheel of nagenoeg geheel in Nederland verrichten en geen werkelijke band hebben met de staat naar welks recht zij zijn opgericht, Staatsblad 1997, 697.

26  Definition according toArt. 1 of saidAct.

5.1  Cross-Border Transfer of Corporate Seat and Applicable Law	143

States) it actually exceeded the requirements of this Directive in some points, such as recording in the commercial register the fact that the company may be ‘formally foreign’. In this matter, the ECJ stated that the harmonization of the disclosure to be made by branches, as regulated by the Eleventh Directive, was exhaustive. Any further disclosure obligations imposed on the branch of a company not provided for by that directive were contrary to (secondary) European law.27

As a consequence, only those provisions of the Act that did not fall within the scope of the Eleventh Directive were subject to control of the Freedom of Establishment, including the requirements regarding the amount of subscribed capital and the resulting ‘penalty’ of personal liability for violating them. The ECJ decided that, although the Member States are in principle

entitled to take measures designed to prevent certain of its nationals from attempting improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law.28

In the Inspire Art case no such behavior was evident. Although the company was formed under the law of another Member State solely for the purpose of evading the stricter Netherlands rules, the Freedom of Establishment was intended specifically to enable companies formed in accordance with the law of one member state to pursue activities in another one, and consequently enabled an entrepreneur to choose among the Member States’company law-rules those which seemed the least restrictive to him.

The ECJ further reasoned that neither the protection of Netherlands creditors nor the protection of fairness in business-dealings justified a national restriction of this freedom in the specific case. Creditors were

on sufficient notice that it [InspireArt Ltd.] is covered by legislation other than that regulating the formation in the Netherlands of limited liability companies and, in particular, laying down rules in respect of minimum capital and directors’liability.29

5.1.4.6  The Cartesio Decision (2008)

Cartesio Oktató és Szolgáltató (hereinafter: Cartesio) is a limited liability partnership (betéti társa—sag) formed in accordance with the Company Law of Hungary. Cartesio intended to move its head office from Hungary to Italy while maintaining its Hungarian legal form, and filed an application with the Bács-Kiskun Megyei Bíróság (Regional Court of Bács-Kiskun), sitting as a Cégbíróság (commercial court), for registration of such transfer. By a decision of 24 January 2006 the application was rejected on the grounds that the Hungarian conflict-of-laws rules30 did not allow a company incorporated in Hungary to transfer its seat abroad while continuing to be subject to Hungarian law as its personal law.

27  ECJ, case C-167/01 Inspire Art ECR [2003] I-10155, para. 72. 28  ECJ, case C-167/01 Inspire Art ECR [2003] I-10155, para. 136. 29  ECJ, case C-167/01 Inspire Art ECR [2003] I-10155, para. 135.

30 Art. 18 of Decree-Law No 13 of 1979 on private international law rules (a nemzetközi magánjogról szóló 1979. évi 13. törvényerejű rendelet).