ECJ: The cross-border transformation of a company must be treated like a domestic transformation

By judgment of the 12.07.2012 (Case No. C-378/10), the European Court of Justice held that if a member state provides for the possibility of a transformation of a domestic company, such a possibility must also be granted to companies founded in other member states.
The decision is based on the following facts: A company founded in the year 2000 in Italy and registered with the commercial register of Rome (VALE Costruzioni Srl) applied for this deregistration because it intended to transfer its seat and its activities to Hungary and cease its Italian business. The company was deregistered from the Italian commercial register as applied and the following note was registered: “ the company has transferred its seat to Hungary.”

Thereafter the managing director of VALE Costruzioni Srl and a further private individual founded a limited liability company under Hungarian law. (VALE Építési kft). In the subsequent application for registration in the Hungarian commercial register, the company VALE Costruzioni Srl was given as legal predecessor of VALE Építési kft. However the application was rejected by the registry court by reasoning that a company founded and registered in Italy could not transfer its company seat to Hungary and could not be registered as the legal predecessor of a Hungarian company in the Hungarian commercial register. The matter came to the attention of the Hungarian supreme court (Legfelsbb Bíróság), which addressed the ECJ with the question, whether Hungarian law that allows Hungarian companies transformation, could prohibit companies from other member states the transformation into Hungarian companies with respect to the principle of freedom of settlement (the transformation lies within the change of the registered office and the applicable national law).

The ECJ came to the conclusion that within the context of a cross-border transformation of a company, the host member state establishes the relevant legislation and may apply its national law with respect to domestic transformations that rule the foundation and the functioning of a company. However the national law of the host member state cannot completely disregard the freedom of settlement, so that a provision that prohibits companies from other member states the transformation, but on the other side allows domestic companies the transformation, is to be examined in the light of the principle of the freedom of settlement.

The ECJ ruled that the Hungarian provision established a different treatment of companies depending on whether the transformation refers to a company which already has a seat in Hungary and therefore a domestic transformation or cross-border transformation of companies.

Since such a form of discrimination of companies with seat in different member states can deter the companies from exercising their freedom of settlement, this forms an unjustified restriction of the freedom of settlement.

The law firm was established in 2003 by Dr. Artur Bunk, an Attorney-at-Law. Qualified in 1995, he was admitted to the Frankfurt Bar in 1997 after obtaining an LL.D. in European Law at the University Viadrina in Frankfurt (Oder). During his career he has worked with the German law firm Pünder, Volhard, Weber & Axster (now Clifford Chance), was Head of Office at Rödl & Partner in Poland, and Senior Legal Counsel at the Legal and Restructuring Department of KfW. In addition to German, he also speaks fluent English and Polish.

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This release was published on openPR.