C-212/97

I — Object of the question referred by the any business but it is desired to set up the national court, facts and relevant national branch in order to carry on the entire busi- provisions ness in the country in which the branch is established, and where, instead of incorpo- rating a company in the latter Member State, that procedure must be regarded as having been employed in order to avoid paying in company capital of not less than DKK 200 000 (at present DKK 125 000)?' 1. The Højesterets Anke-og Kæremålsudvalg (Appeals and Objections Committee of the Danish Supreme Court), hereinafter 'the Højesteret' (Supreme Court), has asked the Court, within the meaning and for the pur- poses of Article 177 of the EC Treaty (here- inafter 'the Treaty'), to interpret the Commu- nity provisions on the right of establishment with regard to a case of alleged circumven- tion of the domestic provisions of a Member State requiring a minimum capital for certain types of company. The question referred by 2. I propose to begin with a brief account of the national court is as follows: the facts that gave rise to the main proceed- ings. In the summer of 1992, Mrs Bryde, a member and the sole director of Centros Ltd which had been registered as a private limited company in England and Wales in May of that year, approached the Erhvervs-og Sel- skabsstyrelsen (hereinafter referred to as the 'Is it compatible with Article 52 of the EC 'Companies Board') seeking recognition of Treaty, in conjunction with Articles 58 and 56 the company's memorandum of association thereof, to refuse registration of a branch of with a view to registering a branch. It is a company which has its registered office in apparent from the order for reference that, another Member State and has been lawfully according to its memorandum of association, founded with company capital of £100 the company's object is to carry on business (approximately DKK 1 000) and established within an extensive range of commercial areas, under the legislation of that Member State, including the provision of loans. However, where the company does not itself carry on the partners intended it only to be a wine import and export business. Since its forma- tion the company has never done any busi- ness. The only other member is Mrs Brydc's * Original language: Italian. husband. Mr and Mrs Bryde, both Danish

citizens resident in Denmark, acquired the DKK 200 000. 1 The commentary on the draft company shortly after it was formed and hold law, subsequently adopted as Law N o 886 on the only two shares that have been issued. 21 December 1991, states that the reason for The company's share capital, amounting to the increase in the minimum capital required the legal minimum of £100, has not actually to establish companies of the type in question been paid in and is kept in a cash-box at (and also establish public limited compa- Mr Bryde's home.

impose any requirement as to minimum cap- ital for companies from other Community countries seeking to establish a branch in Danish territory. However, the practice fol- lowed by the Companies Board in such cases seems to be to ascertain whether the estab- lishment of the existing company abroad is 3. The registration of branches of foreign designed to circumvent the Danish rules on limited companies in Denmark is governed minimum capital. In the present case, having by the rules on limited companies, which, at failed to obtain from Mrs Bryde the informa- the time of the events at issue in this case, tion it had requested about Centros's activi- were embodied in Articles 117-122 of Lovbek- ties in England and Wales, the Board rejected endtgørelse (Consolidating Regulation) N o the application for registration.

behalf. The branch must be registered by the designed to secure company capital were tightened, in par- ticular, (i) the prohibition on acquiring own shares or shares Companies Board in order to do business and in the parent company; (it) the conditions governing the acquisition of the company by shareholders within two years it may not do business if registration is refused. of registration if the consideration paid amounts to at least DKK. 50 000 and corresponds to at least 10% of the capital; The branch is subject to Danish law and deci- and (iii) the obligations incumbent on the directors, in the sions of the Danish courts in respect of its event of losses equal to at least 40% of the share capital. 2 — Law N o 886 of 21 December 1991 set the requirement as to business dealings in Denmark. It should also paid-up capital for public limited liability companies at D K K be noted for the purposes of this Opinion 500 000 (that is to say, much more than the minimum amount of E C U 25 000 laid down in the Second Council Directive of that — as expressly mentioned in the ques- 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are tion referred by the national court — at the required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect time of the events at issue in this case, com- of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to panies established in Denmark were required making such safeguards equivalent (77/91/EEC) (hereinafter to have paid-up capital of not less than 'the Second Directive') (OJ 1977 L 26, p. 1), as subsequently

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8 September 1995, in which it found that the company is therefore, in its view, contrary to Treaty provisions on freedom of establish- the freedom of establishment in the territory ment did not allow companies of any Member of a Member State other than the Member State, whose activity is directed entirely State in which the principal establishment is towards the territory of any other Member situated, to which Centros is entitled under State, to circumvent binding rules of that Articles 52 and 58 of the Treaty. According to other State. Appearing as a witness in the the appellant, it follows from the Court's proceedings before that court, Mr Bryde said judgment in Segers 3 that a company's right he did not know if the purchase of Centros to set up a secondary establishment within and the subsequent establishment of a branch Community territory is subject only to the in Denmark could be called a circumvention conditions laid down in Article 58 of the of Danish law but admitted that 'it is cer- Treaty and not to the additional requirement tainly easier to find £100 than DKK 200 000' that the company must actually do business (frec translation). An appeal against the deci- in the State in which it is registered. The sion of the court of first instance is now appellant also submits that the fact that the pending before the Højesteret, which in view company carries on its business — through of the circumstances has approached the Court an agency, branch or subsidiary — solely in with a request for interpretation in the terms one or more Member States other than the cited above. Member State in which the principal estab- lishment is situated, is entirely immaterial.

example the coordinated disclosure require- Kingdom, rely on Articles 52 and 58 of the ments covering numerous documents and par- Treaty to avoid payment of the minimum ticulars relating to branches opened in a capital laid down by law. In the circumstances Member State by companies governed by the described, the branch which Centros, in the law of another Member State introduced by person of Mrs Bryde, sought to register in the Eleventh Council Directive on companies Denmark was in reality the parent company. (hereinafter 'the Eleventh Directive'). 4 Under As to the Community concept of 'branch', that system, third parties entering into con- the defendant proposes, in the absence of any tractual relations with the parent company acceptable definition in the relevant legisla- through its branch are informed that the tion, to employ the concept used by the Court parent company has been incorporated in in its rulings interpreting the Convention on another Member State in accordance with the Jurisdiction and the Enforcement of Judg- requirements imposed in that State, including ments in Civil and Commercial Matters, signed the requirements in respect of paid-up capital, at Brussels on 27 September 1968 (hereinafter and that the relevant particulars may be found 'the Convention'). 5 It claims that it follows in the State register in which the branch is from that case-law, 6 in particular, that if there entered. The United Kingdom Government is no parent body with effective powers of recognises that, according to the case-law of direction and control over the activities of the the Court, a distinction must be drawn branch, the branch will constitute the com- between the legitimate exercise of the right of pany's principal place of business. It must establishment and merely perfunctory then, according to the Companies Board, con- recourse to conduct regulated by Community sistently meet the requirements for consti- law. It considers, however, that the establish- ment of a company by nationals of one tuting the principal, not the secondary, estab- Member State in accordance with the laws of lishment. The fact that it is essential to the another Member State can never be so exercise of the right to set up a secondary described. In any event, the restriction on the establishment that the parent body actually right of establishment resulting from the Com- pursue a business activity may, in its view, panies Board's decision cannot be justified on also be deduced mutatis mutandis from the purely economic grounds, which are not cov- case-law on the free movement of workers. 7 ered by Article 56 of the Treaty. The defendant argues that it is perfectly legiti- mate for a Member State to impose this obli- gation, since, at the present stage of develop- ment of Community law, the establishment and running of companies are still governed

by the national rules on the subject. Further- include personal assets or requiring sureties more, as the Court has stated, the host State to be provided when a company is estab- has the right to require that nationals of other lished, to cover future obligations vis-à-vis Member States abide by the rules applicable the tax or social security authorities, or other to its own nationals or companies in exer- public creditors. Citing a consistent line of cising their activities, provided this does not the Court's judgments on the subject of the prevent the nationals of other Member States abusive exercise of rights deriving from Com- from exercising properly their right of estab- munity rules, the Companies Board observes lishment. 8 The Companies Board contends in particular that in Segers, also quoted by that Centros's application is an abusive exer- Centros, the Court established that in prin- cise of the right of establishment and suggests ciple Article 56 of the Treaty allows within that the conclusion reached in Van Binsber- certain limits special treatment for companies gen9 with regard to the interpretation of formed in accordance with the law of another Article 59 of the Treaty should apply by Member State provided that that treatment is analogy in the present case. According to the justified by the need to combat fraud. It is principles established by the Court in that true that the Netherlands action at issue in case, a Member State has the right to take that case was in fact held not to be justified measures to prevent the exercise by a person within the meaning of that provision, as the providing services, who is a national of another refusal to accord a sickness benefit to a director Member State and whose activity is entirely of a company formed in accordance with the or principally directed towards the territory law of another Member State cannot consti- of the first State, of the freedom guaranteed tute an appropriate measure in that respect. by Article 59 for the purpose of avoiding the However, in the Board's view the decision professional rules of conduct which would be taken in that specific case in no way detracts from the validity of the general principle applicable to him if he were established within established by the Court. Above all, the pro- that State. In short, the Companies Board tection of the financial interests of creditors is contends that, even if Centros was entitled to not, in its opinion, an economic objective •—• exercise the right to freedom of establishment and consequently not within the scope of within Community territory, the fact remains Article 56 — but is intended to preserve a that the requirement in respect of the min- legal system based on fair dealing in contrac- imum capital for limited companies, imposed tual relations. by Danish law to protect the interests of companies and their employees and creditors, is a perfectly legitimate measure despite the absence of harmonisation on the subject at Community level. It is, in the Board's view, essential in the general interest to strengthen the financial basis of companies of the type in question. That need cannot be met by less restrictive means than refusing registration and may, indeed, require more drastic mea- sures such as extending company liability to

8. The French Government, for its part, main- tains that the principle that for the purposes 9. The Netherlands Government, for its part, of the right of establishment it is immaterial concedes that the Companies Board's deci- that the foreign company does not conduct sion is contrary to Article 52 of the Treaty business in the country in which it is incor- but maintains that that provision is of limited porated — a principle established by the Court application in the present case. In particular, in Segers and relied upon in the present case while admitting the need for a consistent interpretation of all the Community rules on the fundamental freedoms, it draws attention 10 — Case 53/81, cited in note 7 above, and Case C-55/94 Geb- to the principle — established by the Court hard v Consiglio dell'Ordine degli Avvocati e Procuratori di Milano [1995] ECR 1-4165, paragraphs 25 and 26, according in its judgment in Rutili " on the free move- to which freedom of establishment — unlike the freedom to provide services, characterized by the temporary nature of ment of workers — that restrictive national the activities pursued in another Member State — is designed to allow Community nationals to participate, on a stable and continuous basis, in the economic life of a Member State other than his State of origin and to profit therefrom, so contributing to economic and social interpénétration within 11 — Case 36/75 Rutili v Minister for the Interior [1975] ECR the Community in the sphere of activities as self-employed 1219, paragraph 28, on the interpretation of Articles 7 (now persons. 6) ana 48 of the Treaty.

measures based on the personal conduct of a branch of a company that meets the require- the individual concerned may be justified by ments laid down in Article 58 of the Treaty a genuine and sufficiently serious threat to amount to discrimination on grounds of public policy. The Netherlands Government nationality, which is prohibited under Article considers that the Court's statement in Segers, 52. A State in which it is sought to set up a to the effect that the need to combat fraud secondary establishment may not make reg- may justify a difference of treatment for com- istration of the branch subject to the condi- panies formed in accordance with the law of tion that the parent company must satisfy all another Member State, should be interpreted the requirements for the establishment of in the light of these considerations, a conten- companies imposed by its national law.

creditors. With respect to that objective, the 10. Finally, the Commission proposes a dif- Commission considers however that it is dis- ferent and more complex view of the case at proportionate to refuse permission for the issue. On the one hand, it maintains that secondary establishment purely and simply Centros was simply exercising the right of on a presumption of intent to circumvent laws establishment in the Member State that offered currently in force. Such refusal cannot be jus- it the most favourable conditions in respect tified on any of the grounds mentioned in of the paid-up capital requirement, a proce- Article 56 of the Treaty, which do not apply dure which — it follows from the judgment to economic objectives and would in any in Segers — is exactly one of the objectives event presuppose actual proof that the for- freedom of establishment is designed to eign company intended to defraud creditors

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C E N T R O S v ERHVERVS-OG SELSKABSSTYRELSEN

right to set up and manage undertakings under defined. 1 3 For that purpose, as explained in the conditions laid down for its own nationals the General programme for the removal of by the law of the host country and the set­ restrictions on freedom of establishment ting up of agencies, branches or subsidiaries adopted by the Council on 18 December by Community nationals having their prin­ 1961, H it is necessary to satisfy the further cipal establishment in the territory of another criterion of an economic connection, an 'effec­ Member State. And under Article 58 of the tive and continuous' link with the economy Treaty, the right of establishment also includes of a Member State. 1 5 However, I need scarcely the right of companies or firms formed in add, that criterion applies only to non- accordance with the law of a Member State Community companies. and having their registered office, central administration or principal place of business within the Community to do business in another Member State through a secondary establishment. Three further rights arc a log­ ical corollary of this fundamental freedom: first, company business may be conducted in a Member State through a company incorpo­ rated in that State or in another Member State; second, companies have the right to decide whether a secondary establishment is to be a subsidiary or a branch; and lastly, foreign companies have the same rights in the State in 13. As to the scope of the right to set up a which the secondary establishment is set up secondary establishment, it is apparent from as the companies of that State. i 2 the case-law of the Court that it is the scat of the company in question in the sense of the three possibilities mentioned above (sec

E crmanent, effective and relevant (not just, for example, ranch offices or showrooms that arc not active in the market or employ only a very small number of people). O n the other hand, the nationality of the partners or members of 12 — See E. Wcrlauff, EC Company Lav). Copenhagen, 1993. pp. the company's managerial and governing bodies is immate- 17-22. i- b ,ľľ rial in this connection.

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point 12) which 'serves as the connecting attractive the exercise by Community factor with the legal system of a particular nationals (or companies) of fundamental free­ State, like nationality in the case of natural doms guaranteed by Community law. 19

20 tion. It follows that it cannot be invoked in support of economic aims; 2 1 furthermore, the measures taken to protect the interests which 16 — Sec ex mulžii Case 270/83 Commission v France [1986] E C R it seeks to safeguard must be limited to what 273, paragraphs 13, 14 and 18, in particular paragraph 18. See also Case C-70/95 Sodemare and Others v Regione is strictly necessary and must obey the prin Lombardia [1997] E C R 1-3395, paragraphs 25 and 26, and Case C-2Ć4/96 ICI v Colmer (HMIT) [1998] E C R 1-4695, ciple of proportionality. 2 2 paragraph 20. 17 — Case 79/85, cited in note 3 above, paragraphs 14 and 16.

paragraph 17. ritory of that State, although it does not conduct any busi 21 — See ex multis Case C-288/89 Stichting Collectieve Anten ness in that State but operates exclusively in the Member nevoorziening Gouda and Others v Commissariaat voor de State in which the secondary establishment is situated. Media [1991] E C R 1-4007, paragraph 11. 18 — Case C-330/91 The Queen v Inland Revenue Commis 22 — See ex multis Joined Cases 115/81 and 116/81 Adoui and sioners, ex parte Commerzbank [1993] E C R 1-4017, para Comuaille v Belgian State [1982] E C R 1665, paragraph 9, graph 14, and Case C-l/93 Halliburton Services v Staatssec and Case 352/85 Bond van Adverteerders v Netherlands retaris van Financiën [1994] E C R 1-1137, paragraph 15. State [1982] E C R 2085, paragraph 36.

23 — These include professional rules intended to protect recipi- ents of a service, protection of intellectual property, protec- tion of workers, consumer protection, conservation of the national historical and artistic heritage, turning to account the archaeological, historical and artistic heritage of a country 26 — Sec M. Cabrillac, Unité ou pluralité dc la notion de suc- and the widest possible dissemination of knowledge of the cursale en droit privé, in Mélanges en l'honneur du Doyen artistic and cultural heritage of a country, and reasons of cul- Joseph Hamel, Paris, 1981, p. 119, and Y. Loussouarn, La tural policy (sec cx tnultis Casc C-288/89, cited Ín note 21 succursale, technique juridique dit commerce international, in above, paragraphs 14 and 27); protection of the recipients of D. P. C. I., 1985, p. 359, in particular p. 362. services for monitoring and renewing patents (Casc C-76/90 Säger \ Dennemeyer [1991] ECR 1-4221, paragraph 17); the 27 — But sec A. Pictrobon, L'interpretazione della nozione comu- need to preserve the cohesion of the tax system (Case nitaria dì [diale, Padua, 1990.

The author Media [1991] ECR 1-4007, cited in note 21 above, para- adds that it consequently appears doubtful whether this is graphs 13 and 15. applicable to the concept of the società affiliate which, as she 25 — '"Società affiliate" rather than "filiali" used in Article 52 of has pointed out, is not mentioned in the Italian version of the Treaty Ís the term which in Italian lega! usage corre- Article 52. In her view, the establishment by an undertaking sponds to the Dutch "dochterondernemingen", English "sub- incorporated in one Member State, of a subsidiary (società sidiaries", French "filiales", German " Toch ter gesel Is ch aften"' affiliata) Ín another Member State is an operation that should (Opinion of Mr Advocate Genera! Mancini in Case 270/83 more properly be regarded as a primary establishment (of Commission v France [1986] ECR 273, cited in note 16 above, the subsidiary).

413. But sec note 27 below. 28 — Sec Loussouarn, op. cít. in note 26 above, pp. 363-368.

Above all, since nationality is an attribute of personality, a branch whose activity is the same as that of its parent company cannot 16. In mý view, the measure taken by the have a different nationality from that com- Danish authorities is contrary to the Treaty pany; and its legal status is governed by the provisions on freedom of establishment. As I legal order to which the parent company, of shall explain more clearly, that measure does which it is merely a limb, is subject. The not merely limit the exercise of the right of opposite applies to subsidiaries. Moreover, companies of other Community countries to although a branch may enjoy a degree of set up secondary establishments, it absolutely precludes it. In the present case, Mr and managerial independence, the parent com- Mrs Bryde are effectively prevented from car- pany alone is responsible for the business rying on a business activity in Denmark activity conducted on its behalf by the person through a company that is lawfully estab- appointed to run the branch. A subsidiary, on lished and has its registered office in another the other hand, can legitimately conclude con- Member State of the Community. The Com- tracts, though in some cases the parent com- panies Board appears to consider, in effect, pany may intervene in the transaction as a that because the persons concerned intend to contracting party. And lastly, on the principle do business only in the Danish market they of unity of assets and liabilities, any debts must therefore comply with the rules imposed contracted (or, conversely, credits accumu- under Danish lav/ with respect to the type of lated) by a branch in the course of its activi- company they have chosen. This, in my ties are chargeable to the company (so that it opinion, is contrary to Article 52 of the Treaty. is incorrect to speak of a branch's debts) inas- The case must also be considered in the light much as, for reasons of practical convenience, of Article 58. In that regard, it is clear that creditors are normally allowed in such cases Centros has been treated differently from to bring an action against the company before companies established in accordance with the court of the place where the branch is Danish legislation, which have no such obsta- established (see point 18 below). A subsid- cles to overcome when they set up branches iary, on the other hand, has its own funds to in Denmark. The measure at issue in this case settle any debts it has contracted; the subsid- also indirectly affects the appellant company's iary with its own separate legal personality right to decide whether to open a branch or thus acts as a protective screen between parent establish a subsidiary in Denmark. It seems to me obvious that the Danish authorities company and creditors.

18. Further to the views expressed above, I should point out that the rules on freedom of establishment arc inapplicable — as the Danish 17. I shall now take a closer look at the argu- Government maintains they arc in the present ments advanced by the Danish authorities case ·— only where there is no connecting against the points I have found it necessary to factor between the situation of those con- raise. They contend that Centros cannot legiti- cerned, be they nationals or companies of a mately claim the right to freedom of estab- Member State, and the provisions of Com- lishment within the meaning of the Treaty. As munity law, which consequently has no bearing on the case. 31 For my own part, I do the company established by the Brydes in the United Kingdom docs not conduct any busi- ness there, they maintain that it has no real and continuous link with the economic life of 30 — Sec C. Timmermans, Methods and Tools for Integration. Report, in R. M. Buxbaum — G. Hcrt¡|¡ —A. Hirsch — K. J. Hopt (ed.), Europem Business Law, Legal and Eco- nomic Analyses on Integration and Harmonisation, Berlin-New York, 1991, p. 129, in particular pp. 136 and 137. 31 — Sec ex mullis Case C-60/91 Batista Morais [1992] ECR 29 — Case 270/83, cited in note 16 above, paragraph 22. 1-2085.

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Treaty. In my view, no further information is persons, the Court has already had occasion needed about the nationality of the members to rule on a Member State's claim that the or directors or about the territorial scope of exercise of that right should be subject to an the company's activities. 32 Moreover, the additional condition (in that case, actual resi- Court has held that the reference in Article dence in the territory of the State in question) 52 to 'nationals of a Member State' who wish to establish themselves 'in the territory of over and above the requirement that the another Member State' cannot be interpreted person be a national of a Member State, which in such a way as to exclude from the benefit is the only condition Article 52 imposes in of Community law a given Member State's respect of persons. The Court held that claim own nationals when the latter, owing to the to be contrary to Community law. 35 The fact that they have taken advantage of the comparison — suggested by the Companies facilities existing in the matter of freedom of Board — between the present case and the movement and establishment, are, with regard case that was the subject of the ruling in to their State of origin in a situation which may be assimilated to that of any other per- sons enjoying the rights and liberties guaran- teed by the Treaty. 33 The Danish authorities 34 — See I. G. E Cath, Freedom of Establishment of Companies: insist that the principal establishment must a New Step Towards Completion of the Internal Market, in E G. Jacobs (ed.), 1986 Yearbook of European Law, Oxford, really pursue the activities stated to be the 1987, p. 247, in particular pp. 259 and 261.

is subject. However, in my view, the formal is therefore that of the legal form of the company, irrespec- requirements set out in Article 58, for the tive of its business'. 35 — According to the Court, 'it is not permissible for the legisla- tion of a Member State to restrict the effects of the grant of the nationality of another Member State b y imposing an additional condition for recognition of that nationality with a view to the exercise of the fundamental freedoms provided for in the Treaty.

See its broadcasts being regarded as services within the meaning also Case 136/78 Ministère Public v Auer [1979] ECR 437, and for the purposes of Article 59 of the Treaty. The situa- paragraph 28, in which the Court held that 'there is no pro- tion of Centros is consequently different, for example, from vision of the Treaty which, within the field of application of the situation — examined by the Court in Esso Española the Treaty, makes it possible to treat nationals or a Member — which has to do purely with the extension within the ter- State differently according to the time at which or the manner ritory of a Member State of the activities of a company in which they acquired the nationality of that State, as long having its head office in that State and pursuing its activities as, at the time at which they rely on the benefit of the provi- there (Case C-134/94 Esso Española v Comunidad Autónoma sions of Community law, they possess the nationality of one de Canarias [1995] ECR 1-4223, paragraphs 12-17). of the Member States and that, in addition, the other condi- 33 — Case 115/78 Knoorsw Secretary of State for Economic Affairs tions for the application of the rule on which they rely arc [1979] ECR 399, paragraphs 20 and 24. fulfilled'.

19. In support of the position they have taken in the present case, the Danish authorities also cite other decisions handed down by the Court in the context of the Convention (sec point 6 above). Those decisions arc however irrelevant for the purposes of this case. They are, as we have seen, interpretative decisions concerning the applicability in those par 38 — In derogation from the general rule laid down in Article 2 of the Convention, Article 5(5) provides that a person domi ticular cases of the provision on special juris ciled in a Contracting State may, in another Contracting State, be sued, as regards a dispute arising out of the opera diction contained in Article 5(5) of the Con tions of a branch, agency or other establishment, in the courts for the place in which the branch, agency or other establishment is situated. 'This concept of operations com prises on the one hand actions relating to rights and con tractual or non-contractual obligations concerning the man agement properly so-called of the agency, branch or other 36 — Case 53/81, cited in note 7 above. establishment itself such as those concerning the situation of 37 — The Court observed that 'under Article 48(3) of the Treaty the building where such entity is established or the local the right to move freely within the territory of die Member engagement of staff to work there. Further it also comprises States is conferred upon workers for the "purpose" of those relating to undertakings which have been entered into accepting offers^of employment actually made. By virtue of at the above-mentioned place of business in the name of the the same provision workers enjoy the right to stay in one of parent body and which must be performed in the Con the Member States "for the purpose" of employment there. trac tin g^ S t ate where the placc of business is established and Moreover, it is stated in the preamble to Regulation (EEC) also actions concerning non-contractual obligations arising N o 1612/68 that freedom of movement for workers entails from the activities in which the branch, agency or other the right of workers to move freely within the Community establishment within the above defined meaning, has engaged "in order t o " pursue activities as employed persons, whilst at the place in which it is established on behalf of the parent

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defendants. 39 That case-law was developed direction and control the secondary establish- for purposes that are entirely different from ment must be subject. those at issue here and it certainly cannot be held to imply that an establishment is sec- ondary, rather than primary, only if it con- cerns commercial activities undertaken as an extension of a principal establishment which is actively engaged in business and to whose

as being at the head of a branch, agency or other establish- advanced by the Companies Board and by ment of the grantor within the meaning of Article 5(5) of the Convention (Case 14/76, cited in note 6 above, paragraphs the Danish Government, namely that Mr and 20-23) and that an independent commercial agent, who merely negotiates business . . . and transmits orders to the Mrs Bryde's wish to carry on business through parent undertaking without being involved in cither their a limited company in Denmark is not eligible terms or their execution, does not have the character of a branch, agency or other establishment within the meaning of for protection under Articles 52 et seq. of the Article 5(5) of the Convention (Case 139/80, cited in note 6 above, paragraphs 12 and 13).

The clearest evidence that the relied on for fraudulent or abusive ends' 40 normative content of the concept of 'agency, branch or other establishment' in the context of the Convention is different which is among the general principles of Com- from that of the concept of 'agency, branch or subsidiary' munity law. It is however by no means easy in the context of the Treaty, with contradictory implications in some cases (see Pietrobon, op. cit., p. 94), ís provided by to define the precise scope of that principle. the guidance given by the Court on the situation in which a company acts, essentially, as though it were a branch or sub- According to the recent judgment in Refalas, sidiary of a different 'parent' company, although it is in fact a person abuses the right conferred on him if legally independent and may even hold all the company capital, as was the case in Rothschild. In that case too, Ín he exercises it unreasonably to derive, to the order to protect the confidence of third parties, the special detriment of others, 'an improper advantage, jurisdiction provided under Article 5(5) of the Convention must apply because the situation apparently created by 'the manifestly contrary to the objective' pursued way in which these two undertakings behave in their busi- ness relations and present themselves vis-à-vis third parties in their commercial dealings' is such as to determine a close connection between the dispute and the court called upon

The Court has conse- through an independent company with the same name and quently held that 'Community law does not preclude a identical management which negotiates and conducts busi- Member State from adopting, in the absence of harmonisa- ness in its name and which it uses as an extension of itself tion, measures designed to prevent the opportunities created (Case 218/86 SAR Schotte v Parfums Rothschild [1987] ECR under the Treaty from being abused Ín a manner contrary 4905, paragraph 17). to the legitimate interests of the State' (Case C-19/92, cited Ín note 19 above, paragraph 34).

by the legislator in conferring that particular and indeed its secondary —• establishment right on the individual. 41 On this aspect of wherever it wishes within the Community. the abuse of rights, there appears to be a cer- tain affinity between the general principle regarding such abuse and the principle of proportionality as a criterion for limiting the exercise of power. 42 Furthermore, as learned authors have pointed out, the famous state- ment of the French authority on civil law, Planiol, that 'law ceases where abuse begins' (le droit cesse là où l'abus continence) still

In other 16 above). That freedom certainly includes, words, it is the opportunity to exercise busi- for the purposes of the present case, the right ness activities that is protected, and with it to establish companies in accordance with the the contractual freedom to make use of the legislation of a Member State to carry on instruments provided for that purpose in the business in that State or, equally, in any other legal systems of the Member States. In the Member State. In other words, the newly present case, the right of establishment was formed company may set up its principal — exercised by setting up the company in accor- dance with the requirements of the law of the

I should point out that the formulation of the principle of abuse of rights adopted by the Court is based essentially on the common law of Member States with a civil law system [sec L. N . Brown, 'Is there a General Principle of Abuse of Rights in European Community Law?', in Institutional Dynamics of European Integration: Essays in Honour of 44 — Sec mutatis mutandis Case 53/81, cited in note 7 above, Henry G. Schenners, Dordrecht, 1994, vol. II (cd.

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be) are compatible with the domestic rules of a change. 45 This did not prevent the Court public law in the State in which the establish- from ruling that the situation of the company ment (primary or secondary) is situated, which and of its director, Mr Segers, was covered by may justify measures restricting the exercise the provisions on freedom of establishment of the right in question. The right of estab- and that the applicant was therefore entitled lishment is recognised in those terms precisely to receive the treatment accorded to Nether- with a view to the completion of the single lands nationals. 46 It is consequently not easy market. This is clear from the fact that dif- to see why the opposite conclusion should be ferent treatment is accorded under the Treaty reached in a situation where — as in the to legal persons outside the Community who, present case — a company is incorporated in to enter the circle of the Community, must the United Kingdom because the founders satisfy the criterion of an effective and con- wish to avail themselves of the opportunity tinuous link with the economy of a Member to operate with paid-up capital commensu- State (see point 12 above). rate with the resources at their disposal and less than is required under Danish law. That situation, whether one likes it or not, is the logical consequence of the rights guaranteed under the Treaty. Moreover, it is consistent with the objective behind the inclusion of the freedom of establishment in the Treaty, namely the need to promote the free movement of

documents in the case that the reason for this E ut lacking any genuine link with that country, was contrary to Article 52 of the Treaty (Ioc. cit., paragraph 4). The Court added that freedom of establishment in another Member arrangement was simply that he wanted to State may legitimately be made subject to a requirement for the registration of a vessel to the effect that it must be man- use the designation 'Ltd' which he considered aged and its operations directed and controlled from within more attractive than its Netherlands equiva- the Member State in which it is to be registered, a require- ment which, in the Court's view, essentially coincides with lent, 'BV', and to avoid the statutory time- the actual concept of establishment within the meaning of Article 52 et seq. of the Treaty (loc. cit., paragraph 34). Sec limit presented by Netherlands law for such also Brown, op. cit, in note 41 above, pp. 523-525].

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And it is on context of the Community system]'. n In precisely this point that the Companies short, in the absence of harmonisation, com- Board's arguments appear, if I may say so, to petition among rules must be allowed free beg the question: by insisting that the national play in corporate matters. AS In the present provisions must apply with respect to the case, as in Segers, the above-mentioned free- minimum capital limited companies arc doms are part of the material content of the required to have when they arc formed, the right in question and it cannot be held that Danish authorities exclude the possibility that Mr and Mrs Bryde took 'an improper advan- the opposite result may be brought about — tage, manifestly contrary to the objective' as it has been in the present case — through pursued by Articles 52 et seq. of the Treaty the exercise of the freedom of choice, guar- in abusively avoiding the application of anteed to individuals under the Treaty, as to binding rules of the State where the secondary the company instrument best suited to their establishment was to be set up. Far from con- purposes of all the instruments available under tradicting the conclusion I have reached, the the various national systems of the Member case-law cited by the Danish Government States. The contested measure of the Compa-

of a justification', since such harmonisation of national sys- mercial sector, such as the fixing of retail book prices by tems may result indirectly from competition between them publishes or importers (Case 229/83 Leclerc anti Others v (sec Competition among Jurisdictions in Formulating Cor- M I I lile vert' and Others [1985] ECR 1, paragraph 27), or porate Law Rules: An American Perspective on the 'Race to obligations with respect to the pluralist and non-commercial the Bottom' in the European Communities, in Ilarv. content of programmes broadcast in national territory (Case Int'l. L.Jonm., 1991, p. 423, in particular pp. 424 and 425). C-23/93, cited in note 32 above, paragraph 21).

for persons and capital [see Article 3(c) of the Possible justifications for the contested mea- Treaty]. The interpreter must draw the neces- sure sary conclusions from the developments that have already taken place in the Community system; it is for the Court to ensure that the spirit of the Treaty prevails by applying the 'Cassis de Dijon' doctrine on mutual recogni- tion in a consistent manner, to corporate mobility inter alia. 50 This does not, in my view, mean that a foreign company which does no business in the country in which it was formed is not subject, in respect of the exercise of activities by a branch opened in another Member State, to binding rules of that State applicable to national companies of

The Companies able reasons to justify it. Board cites the need to combat fraud and, more precisely, the need to protect future creditors of Centros in relation to the activi- ties of the Danish branch: in view of the 'undercapitalisation' of the company, at least by Danish standards, and the limited Lability of the partners, the Board considers that reg- istration of the branch in Denmark would expose Danish traders and public creditors to 50 •— See X Mortimer, The Removal of Barriers to Corporate the risk of incurring financial losses should

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ment. The protection of persons who have think that that has any bearing on the present dealings with a company of another Member case. Various considerations support this view. State through a branch of that company is First of all, it is doubtful whether, in the case secured under the system of the Treaty through of limited liability companies, the criterion of the coordinated disclosure requirements of presumed adequacy of minimum capital alone the Member State in which the branch is may be relied upon to protect or (in the words of the fourth recital in the preamble to the Second Directive, in relation to public limited liability companies) 'ensure' the protection of

. ., and it guarantees a that they arc contrary to the policy of encouraging small and 'reliability threshold' for certain collective business under- mcdium-sÍ7.cd undertakings. takings (notes omitted).

53 — Under Articles 1-6 of the Eleventh Directive, cited in note 4 above and the relevant part of the text, a branch is required to disclose pursuant to the law of the Member State in which it is situated the information necessary to protect the public, including: (i) the name, address and activities of the branch, (ii) the name of the company of which it forms part, (iii) the names and addresses of the persons who are autho- Quite apart from any other considerations, it rised as permanent representatives of the company for the should be possible for the requirement men- activities of the branch, or who may represent the company in dealings with third parties and in legal proceedings, (iv) tioned by the Danish authorities to be satis- the annual accounts and annual reports relating to the com- pany or group of companies to which it belongs, drawn up fied by measures that are less restrictive than in accordance with the Fourth and Seventh Company Direc- the one at issue in this case, which effectively tives (if necessary translated into the language of the State in which the branch is registered), (v) the closure of the denies the right to set up a secondary estab- branch, (vi) the winding-up of the company or insolvency proceedings to which it is subject, (vii) particulars of the reg- lishment. This seems to me to be sufficiently ister in which the company file is kept, together with the registration number in that register, and (vili) the existence clear not to require lengthy explanations but of any other branches in the same Member State. Also, the some clarification is nevertheless called for. In Member State in which the branch has been opened may require it to disclose further information about the company my opinion, the measure suggested by the of which it is a branch, in particular concerning: (i) the instruments of constitution and the memorandum and articles Commission (see point 10 above) of making of association (if necessary translated into the language of registration of the branch in Denmark subject the State in question), (ii) an attestation from the register in which the company file is kept relating to the existence of to the condition that the foreign parent com- the company, and (iii) an indication of the validity of the securities on the company's property situated in the Member pany have capital amounting to no less than State in question. Lastly, the registers in which the branch the capital required under the relevant national and the company are entered, together with their registra- tion numbers in those registers, the registered office and provisions for the establishment of companies legal form of the branch (and if necessary the relevant sub- scribed and paid-up capital) must also be stated in letters and of the same type in Denmark is not among order forms used by the branch. the measures that could be regarded as

Conclusion

2 3 . I n the light of the foregoing considerations, I p r o p o s e that the C o u r t give the following answer t o the question s u b m i t t e d b y the Højesterets A n k e - o g K æ r c m å l - sudvalg:

Article 52 et seq. of the E C Treaty p r o h i b i t the c o m p e t e n t authorities of a M e m b e r State from refusing t o register a b r a n c h of a limited liability c o m p a n y formed in accordance w i t h the law of a n o t h e r M e m b e r State and having its registered office in the t e r r i t o r y of that State, if the reasons for refusing are that: (i) the c o m p a n y itself is n o t engaged in any business activities, (ii) the intention in establishing the b r a n c h is t o carry o n all the c o m p a n y ' s activities in the State in w h i c h the b r a n c h is t o be set u p , and (iii) that w a y of organising the operation allows the m e m b e r s t o avoid the r e q u i r e m e n t t o have a higher m i n i m u m capital than w o u l d have been t h e case h a d the c o m p a n y been established in the M e m b e r State in w h i c h it is intended t o o p e n the b r a n c h .

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