Introduction

The European Commission published a proposal for a Council Regulation (COM (2008) 396 final) on the Statute for a European Private Company (Societas Privata Europaea, SPE) (200Kb MS Word) on 25 June 2008.

This initiative forms part of a package of measures designed to make it easier for SMEs to do business in the Single market and consequently to improve their market performance. The idea behind the SPE is to create a company with limited liability at European level that is designed to enhance SMEs’ competitiveness by facilitating their establishment and operation on the Single Market. The SPE is one of the priority initiatives of the Commission’s 2008 Work Programme.

ETUC welcomes initiatives designed to improve market conditions for SMEs. According to the Commission, SMEs account for more than 99% of companies in the EU. The SPE may therefore become a reality for a large number of employees. At the same time, ETUC stresses that enhancing flexibility for SMEs must not be done at the detriment of employees’ rights to participation in the board of the company. The right to information and consultation is a fundamental right protected by EU law.

The ETUC is concerned that the proposed Statute for SPEs comes across as an encouragement for businesses, including larger companies, to set up ‘letter box’ companies with a view to evading the post protective national legislations on workers’ rights. For the ETUC, it is vital that a a number of improvements are brought to the Commission’s proposal, if the objectives of the Lisbon Agenda of more and better jobs are to be respected. (See ETUC position adopted at the Executive Committee of 18-19 October 2006).

Summary of the proposal

The objective of the SPE is to facilitate cross border business for SMEs by providing them with a European legal form, uniform in each Member State. According to the Commission, the possibility to operate in various Member States according to the same corporate rules should reduce compliance costs on the creation and operation of businesses arising from the disparities between national rules. Therefore the SPE would enhance mobility and competitiveness of European SMEs. It is very unclear to which extent the proposed SPE Statute will replace the much discussed 14th Directive on transfer of registered seats for private companies.

The Commission argues that the existing Statute on a European Company (‘the SE statute’) does not constitute a viable option for SMEs because of its minimum capital requirement of 120,000 Euros.

The Commission’s proposal lays down uniform rules relating to the procedure for the formation of an SPE, its shares, the capital stock, organisation, the law applicable to employees’ participation and conditions for transfer of the registered office to another Member State. National law would govern those matters which are not covered by the Regulation or by the articles of association of the SPE such as insolvency or tax law.

The SPE Statute is intended to be a regulation, which means that there will be no space for variations in national law. The proposal is based on Article 308 of the EC Treaty, which involves a unanimous decision in Council and consultation of the European Parliament.

Preliminary remark: Lack of consultation of the social partners

In July 2007, the Commission launched a public consultation on the SPE. ETUC wants to express its strong disagreement with such a procedure; an online consultation can under no circumstances be considered as an appropriate substitute for the social partners consultation foreseen in Article 138 of the EC Treaty.

Given the impact of the SPE on existing employees’ rights to participation, there is no doubt that the subject of the consultation is in the heart of ‘social policy field’ as mentioned in Article 138. Therefore Social Partners at European level should have been consulted in a different way, and with a clearly different weight, than the wider public, to allow them at an early stage to influence the direction of the initiatives to be taken.

The problem for employees’ rights: Circumventing national legislations on workers’ participation

The arrangements on employees’ rights of participation contained in the Commission’s proposal constitute a step backwards compared to what was achieved for the European Company and the European Cooperative Society. The proposed SPE Statute does not create specific participation rights. Employees’ participation is only envisaged under the applicable law angle. There is therefore a great risk that companies will use the SPE Statute to evade the most protective legislations and that existing participation rights will be undermined.

The general principle is that the SPE should be subject to the rules on employees’ participation of the country where it has its registered office. However, Article 7 of the proposal also allows SPEs to have their central administration or principal place of business in another place than the Member State of the registered office. The combination of both provisions is an invitation for businesses to play around with national legislations.

Article 5 of the Commission’s proposal foresees four methods of formation of an SPE, three of which are highly problematic.

• (a) Creation of an SPE from ‘scratch’
  

ETUC considers that the case of an SPE formed ex nihilo is highly problematic for emloyees’ rights. According to the Commission’s proposal, the law applicable to employee participation will be the law of the registered office – which may be different from the place where the business is actually carried out. It must also be underlined that an SPE could be formed with a symbolic share capital of 1 EURO.

A general problem here is that if there is no employees’ participations rules from the beginning according to national provisions in the home country (like in Spain and/or countries with high threshold), there will be no workers’ participation in the future either. Special European provisions are needed to take care of that.

• (b) Transformation of an existing company into an SPE
  

Where such operation is followed by a transfer of registered seat, the Commission’s proposal contains many loopholes and is likely to undermine employees’ participation rights.

In case of a transfer of registered office, the law applicable to participation rights will become the law of the newly registered office unless one third of the total workforce is employed in the member State where the company had its registered office before the transfer (‘the home Member State’) and the legislation of the newly registered office does not provide for an equivalent level of employees’ participation rights. In such case, negotiations with employee representatives shall start with a view to reaching an agreement on participation of the employees. If after a period of 6 months, which can be jointly renewed for another 6 months, no agreement can be reached the rules of the home Member State are maintained.

If the negotiations provided for in Article 37.3 fail, the participation arrangements existing in the home Member State shall according to Article 37.6 be maintained. This may be problematic for some Member States. For example, the Swedish law on participation is only applicable on Swedish companies. Hence it will be impossible to maintain the participation arrangements existing in Sweden if the registered office is transferred to another Member State.

ETUC regards these provisions as highly unsatisfactory. The ‘one third of the workforce’ threshold is arbitrary and cannot be justified. Furthermore, the proposed Statute does not lay down essential arrangements which should govern the negotiations. In particular, the questions of the composition and the functioning of the negotiation body remain open. It may therefore be possible that these issues will be decided upon unilaterally by the shareholders, thereby depriving the negotiations of any practical effect.

In addition, the Commission’s proposal does not deal with the issue of successive transfers of registered offices, for instance where an SPE agreement already governs participation rights and the registered office is transferred to another Member State. The ETUC considers that the Commission’s silence on this issue is very worrying. In particular, it is unclear whether an existing agreement would be allowed to stay in place.

ETUC believes that the SPE statute should be completed with minimum European rules for employees’ involvement. Only then, would the SPE Statute be in line with the provisions on the European Company and the European Cooperative Society. Similar rules on employees’ participation rights should be adopted in the framework of an SPE in order to prevent the circumvention of national laws on workers’ participation. Indeed, the ETUC stresses rules on employee representation are already a reality for small companies in at least 12 Member States.

Furthermore, the issue of cross border transfer of registered office can only be regulated at Community level. ETUC is adamant that a 14th Directive on cross border transfers must be tackled before the SPE Statute enters into force.

• (c) Creation of an SPE through the merger of existing companies
  

According to Article 34.3 of the Commission’s proposal, the provisions contained in the cross border merger Directive 2005/56/EC shall apply. ETUC considers that this is a viable option since the cross border merger Directive makes a direct reference to the arrangements laid down in the Directive 2001/86 supplementing the Statute for a European company with regard to the involvement of employees (the SE Directive).

However, because the SPE is intended to apply to SMEs, ETUC believes that there should not be any threshold on the matter of workers participation. Therefore, the 500 workers threshold contained in the cross border merger Directive must be fundamentally questioned.

The proposed SPE statute must become a serious European project

ETUC is very concerned that an SPE operating in only one Member State will come across as a national company form with a European label, rather than a serious European project. ETUC therefore urges the European institutions to incorporate the following improvements into the SPE Statute.

• A cross border requirement
  

ETUC regards the missing cross border element in the Commission’s proposal as a breach of the subsidiarity principle. The proposed SPE Statute would put national legal forms – and the provisions on employees participation that are attached to it – under enormous pressure. It is therefore fundamental that an SPE should be formed only where the company is operating in at least two Member States.

• Minimum capital requirement must not be symbolic
  

The Commission’s proposal practically abandons the principle of a true minimum capital requirement. A minimum of just one Euro runs counter the interests of creditors. The availability of a certain level of capital resources is an indicator of financial commitment and sincerity. ETUC therefore demands that the minimum capital requirement for SPEs is raised to at least 10,000 Euros.

• Governing bodies
  

The Commission’s proposal foresees only two mandatory governing bodies: a management body and a general meeting. It is unclear which governing body will take employee participation into account. With a view to securing uniform Europe-wide standards, the SPE Statute must at least provide for mandatory supervisory bodies upward of a certain number of employees.

• Transparency
  

The proposed SPE Statute is marked by a lack of transparency. ETUC is concerned that provisions on documentary proof designed to ensure transparency and external checks are virtually non existent. Because of these gaps and because SPEs will benefit from far reaching autonomy in their articles of association, ETUC considers that mandatory notarial advice is urgently necessary to secure minimum legal certainty.

• Tax evasion

The SPE Statute should not lead to tax evasion, i.e. a company moving in the EU only on the basis of national taxation levels.

Conclusion

While welcoming the enhancement of a dynamic competitive environment for SMEs, the ETUC cannot accept that SPE Statute becomes an empty shell, avoiding the issue of employees’ participation.

ETUC will only bring its support to this project if vital modifications are made to the Commission’s proposal:

• minimum standard rules on employees’ participation rights must accompany the SPE Statute. To ensure that workers’ participation rights will be respected, the most appropriate approach would be, as in the case of the European Company and the European Cooperative Society, to complement the SPE statute with a separate directive on workers’ participation rights;
  

• the adoption of a Directive on cross border transfer of registered companies is an essential prerequisite, in particular with a view to prevent the setting up of letter box companies;
  

• more details requirements must be laid down in particular with regard to the cross border dimension of an SPE, its minimum capital requirement, the way in which governing bodies will be able to take into account employees’ participation, the transparency of its operations and the minimal conditions for corporation tax in order to avoid fiscal shopping around.