A MODERN REGULATORY FRAMEWORK FOR COMPANY LAW IN EUROPE
A consultative document issued by the High Level Group of Company Law Experts
Comments from the Association of Chartered Certified Accountants
June 2002
Executive Summary
The Association of Chartered Certified Accountants (ACCA) is pleased to have the opportunity to comment on the consultative document 'A Modern Regulatory Framework for Company Law in Europe' issued by the High Level Group of Company Law Experts.
ACCA believes that the review is well-timed. A number of factors are currently posing questions about the framework of business law in Europe and its ability to serve the interests of business and stakeholders. Among these factors are:
- the development of the single market and the opportunities which it has created for cross-border trade and share ownership
- advances in information technology
- the growth of EU-inspired employment law measures, and
- the dramatic recent collapse of major corporations in the US and Europe.
We hope that the Group can reach conclusions which are able to address the concerns of both these constituencies as well as satisfy the aims of the single market.
At the outset, the consultative document states the Group's belief that the focus of EU company law initiatives up until now has been on protecting stakeholders, and that the time has come to redress the balance in favour of promoting business activity. We agree that the extent of government regulation of business should always be proportionate to the benefit likely to accrue from it; if there are areas of the law where business activity is being impeded without there being a proportionate regulatory benefit, those areas should be reviewed. It should, however, be remembered that the essential nature of the company format is that it reduces the risk to shareholders and directors and passes it on to creditors and other stakeholders. We consider that the Group needs to give more emphasis in its final report to the information needs of stakeholders.
With the development of the single financial services market, there will be more opportunities for cross-border share ownership. Issues such as corporate governance and sustainability are increasingly material to investment decisions. It would help investors and other stakeholders if efforts were made to strengthen corporate governance arrangements at the European level. We believe that these efforts should involve the preparation of best practice guidance rather than legislation. Guidance should, in particular, encourage listed companies to disclose more information on their policies and practices with regard to risk.
We support the Group's suggestion that the EU should consider the use of alternative mechanisms, other than directives and regulations, in future company law-related initiatives. Directives in particular take too long to approve and implement and are not always suitable for highly technical measures. We believe that, in keeping with the Commission's new Action Plan on Better Regulation, the EU should be prepared, where appropriate, to regulate by means of industry standards and best practice guidance. Any delegation of authority in these matters will, however, need to be subject to governmental scrutiny and backed up by remedial powers.
The Group should aim to establish minimum standards for shareholder and creditor rights in EU company law. Shareholders need to have legal powers which enable them to carry out effective supervision of directors' actions. Directors should also be made effectively accountable to creditors for losses incurred by their companies as a result of their own failures to exercise proper control of their companies' financial affairs.
The Expert Group should focus its attention on issues which are of genuinely pan-EU concern. Technical problems which exist in the legal systems of one member state, or even a minority of member states, and which have no implications for businesses and stakeholders based in other states, should not be the subject of EU legislation. One example of a problem discussed in the consultative document which should not be the subject of EU law is the position of group companies. Where problems can be resolved by means of domestic political action, they should be.
In the context of the objective of promoting business activity, the Group should aim to ensure that each company is free to conduct its activities, in its home state or in other states, in the manner that its directors consider is in the best interests of the company and its stakeholders. The current uncertainty surrounding cross-border operation should be resolved as a priority. This should be followed up by provisions to ensure that company information published under the terms of the company law directives and national legislation is fully and easily available to searchers from anywhere in the EU. There should also be minimum rules governing shareholder rights and moves to harmonise insolvency procedures and creditor rights.
Companies and unincorporated bodies should be dealt with differently by the law. Company law measures should not be applied to unincorporated bodies. Progress on the proposals to devise new pan-EU vehicles for private companies, co-operatives, foundations, etc, should be deferred unless the Group has substantial reason to believe that there would be a real demand for the entities concerned and/or that they would lead to enhanced business activity in their respective areas of activity.
Our responses to the numbered questions posed in the consultative document are set out on the following document. TECH-CDR-194.doc