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Comments from ACCA
4 October 2007

ACCA is pleased to comment on the consultation exercise on the European Private Company (EPC). ACCA is a professional accountancy body, based in the UK , with over 120,000 qualified members in the UK , Europe and around the world, a high proportion of whom work in the SME sector either in business or as practising accountants offering professional services to SMEs.

As a professional accountancy body, our comments address matters of principle rather than the largely cost-benefit issues that are discussed in the consultation paper and which appear to be directed at individual businesses.

Demand for the EPC

Given the very low rate of adoption, to date, of the SE for public companies, we believe the Commission is right to carry out a thorough assessment of the likely demand for the proposed new vehicle and of the gaps in the existing corporate environment which the EPC might usefully fill. In this connection we are not aware that there is any substantial demand for this vehicle in the UK . Companies registered here, and in every other member state, are already entitled to trade in other member states without hindrance. The ease of incorporation in the UK has in fact made it increasingly attractive for companies from continental Europe to register in the UK while trading wholly or largely in their home markets. While we respect the argument that the EPC vehicle would save companies the burden of establishing group structures, with the associated set-up and compliance costs, it should also be borne in mind that group structures have a substantial commercial rationale of their own in that they enable one company in the chain to become insolvent without threatening the viability and existence of the group as a whole – this protective element would be lost if a group transformed itself into an EPC.

We accept, though, that the EPC idea might offer to some companies the intangible benefit of a ‘European' trading entity and that this might encourage cross-border trading. The EPC identity could also prove particularly useful for businesses in the newer member states where the adoption of a visibly 'European' business format might be seen to carry more reputational weight - and hence might help individual companies to do more business, domestically and internationally - than might be offered by existing domestic formats.

Features of the EPC

If it is to be an attractive business vehicle, the EPC needs to be structured in such a way as to meet the needs of those companies which would not be eligible to form an SE. This means setting the formation and compliance requirements at a level which corresponds to the circumstances of SMEs and which at the same time take account of the competing options available to them, for example the UK private limited company. If this is not done, then it is probable that little interest will be shown in the new vehicle - as has been the case with the SE - and the time and effort spent in legislating for it will turn out to have been a waste of time. So the provisions regarding such elements as required capital, board structure and minimum membership need to be framed with these considerations in mind.

The European legal character of the EPC

We are aware that the proponents of the EPC, including the European Parliament, are strongly of the view that any future legislation on the EPC should, as far as possible, provide for harmonised rules to apply regardless of the member state in which an individual EPC is registered. We agree that following this approach would help to create a real pan-EU ‘character' for the EPC. We are also in favour of working towards the creation of a level playing field so that companies do not register in particular jurisdictions because of commercial incentives which might be available there and not in other states. But there is a limit to what can be achieved in this context: it is inevitable that a number of major legal issues, such as tax, accounting and insolvency, will have to be left to national laws. We would make the point in this regard that the Commission's current proposals to devolve more powers to individual member states in the area of accounting and reporting would undermine the aim of creating a level playing field for the EPC. At present, we have quite a high degree of harmonisation in accounting and reporting, which means that a reference to national laws in this area would not mean big differences in the rules which would apply to the EPC in the different member states. But if some states abolished all or most of their accounting and reporting rules for very small companies as the result of the Commission's proposals, this could give direct encouragement to some businesses to establish companies in those states: this would not, in our view, be in the interests of shareholders and creditors or of overall confidence in the EPC vehicle as a truly pan-EU creation.

The model of the EPC

In keeping with the flexible approach that we think is desirable, we believe the EPC should be able to have both single and multiple membership, in accordance with the Twelfth Directive, and should be available for use in both domestic and cross-border trading.

The core elements of the EPC

We agree that there must be some provision in the legal framework for the EPC to account financially for its activities. This is necessary in order to protect the interests of shareholders and creditors, including the tax authorities, and to minimise the risk of fraud and money laundering by a company's managers. These arrangements must be provided for in the law - since the shareholders are the beneficiaries of the company's limited liability status, it would be inappropriate for them to be left to decide whether and if so how to account for their company's activities. The reference to the law could in theory be a simple reference to the requirements of the Fourth Company Law Directive, but the problem with that is that the Directive contains several options which allow member states to exempt certain types of company from some of the reporting rules. Alternatively, the EPC statute could contain a schedule which specified which of the requirements of the Fourth Directive should apply directly to EPCs, in whichever member state the individual EPC was registered. This option would be consistent with the aim of creating a truly pan-European character for the EPC, although there would be the inevitable problem of deciding which of the rules should and should not apply, and it would raise the possibility that the reporting rules for domestic companies in some member states would be less strict than those for EPCs. The third option would be to accept, as the Parliament has done, that the national laws on reporting should apply to an EPC registered in the same state. In this context though, we refer to our earlier comment on the Commission's current proposals to deregulate in this area, which would undermine the goal of harmonisation.

We believe that the name of the company should be a matter left to the shareholders to decide, via their constitution. Legislation should only cover essential regulatory matters, e.g. no name should be adopted if it has already been adopted by another EPC and national authorities should be able to order an EPC if it is too similar to an existing EPC name or is misleading. It should also be considered whether national authorities should be able to reject a proposed name if it is identical to or too similar to a name currently used by an existing limited company anywhere in the EU - companies should not be allowed to capitalise on the goodwill of existing ‘domestic' companies or SEs by trading as an EPC.

We suggest also that the constitution of each individual company should be allowed to decide on the board structure - each EPC should be allowed to decide whether to have a unitary or two-tier board - and the powers of directors.

The name of the EPC

It is not clear whether there is to be one single name for the new vehicle or if there are to be 27 different translations of it. If the latter, this would not be likely to generate Europe-wide brand recognition of the new format, since people in the different member states might not be able to recognise an EPC which carried the title in a foreign language. On the other hand, many might think it unfair to have an English-only name for it. We raise the question therefore whether it might be possible to do what was done with the SE and devise a Latin name for the new vehicle.

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