C-167/01

INSPIRE ART

OPINION OF ADVOCATE GENERAL ALBER delivered on 30 January 2003 1

I — Introduction requirements, personal joint and several liability of directors and other formal requirements.

I I — Legal framework

1. The Kantongerecht te Amsterdam (Am- sterdam Cantonal Court) has referred two questions to the Court for a preliminary 2. Articles 1 to 5 of the WFBV 2 provide as ruling concerning the interpretation of follows. Articles 43 and 48 EC and the conditions of justification under Article 46 EC. These questions arise in a dispute between the Kamer van Koophandel en Fabrieken voor Amsterdam and Inspire Art Ltd. Inspire Art 'Article 1 Ltd was formed under the law of the United Kingdom, and the dispute concerns prin- cipally whether the entry relating to its Netherlands branch in the Netherlands commercial register must be supplemented For the purposes of this Law, a formally by the words 'formally foreign company'. foreign company is a capital company The Dutch Wet op de formeel buitenlandse established under laws other than those of vennootschappen (Law on formally foreign the Netherlands and having legal person- companies, hereinafter 'WFBV') provides ality, which carries on its activities entirely that these supplementary words must or almost entirely in the Netherlands and appear in the commercial register and must also does not have any real connection with be used in the course of business. The the State within which the law under which Kantongerecht asks whether this is com- the company was formed applies. patible with freedom of establishment. There are other, connected legal obli- gations which may also restrict freedom 2 — Wet van 17 december 1997, houdende regels met betrekk- of establishment, such as minimum capital ing tot naar buitenlands recht opgerichte, rechtspersoon- lijkheid bezittende kapitaalvennootschappen die hun werksaamheid geheel of negenoeg geheel in Nederland verrichten en geen werkelijke band hebben met de staat naar welks recht zij zijn opgericht (Wet óp de formeel buiten- 1 — Original language: German. landse vennootschappen), Staatsblad 1997, 697.

1. When applying for registration in the commercial register, the persons authorised to carry on business on behalf of a formally foreign company must state that the com- pany falls within the definition in Article 1 Article 3 and must lodge at the commercial register a copy of the document establishing the company and, if contained in a separate document, a copy of the company's stat- utes, in each case in Dutch, French, Ger- man or English and certified either offi- cially or by a person authorised to carry on business on the company's behalf. The 1. The company's full name, legal form, application must also identify the register seat and place of the branch of the under- in which and the number under which the taking of which it forms part, and, where company is registered, and must also state applicable law requires it to be registered, the date on which it was first registered. the register in which and the number under which the company is registered and the date of first registration, are to be stated on all documents, printed matter and notices to which a formally foreign company is party or produces, except telegrams and advertisements. They must also state the number under which the company is regis- The application must also state the name, tered in the commercial register and that personal details (in the case of a natural the company is a formally foreign com- person) and residence of a sole shareholder pany. N o document, printed matter or in the company, or a shareholder who is a notice may include a false statement to party to a marriage which owns all the the effect that the undertaking is owned by shares in the company, whereby there is to a Netherlands legal person. be disregarded any shares held by the company itself or by any of its subsidiaries. The persons authorised to carry on business on behalf of a formally foreign company must notify any change in the details registered in the commercial register pur- suant to this Law, stating the date on which 2. If the company's share capital is stated, the change took effect. The acts which this there must be stated the amount of its provision requires to be done may not be nominal capital and how much thereof has done by an agent. been paid up.

1. A formally foreign company's nominal capital and the amount thereof which has been paid up must be at least the minimum amount stated in Article 178(2) of Book II 5. Paragraphs (1) to (4) above shall not of the Burgerlijk Wetboek (Civil Code) as apply to companies which are subject to the in force at the time the company first came law of a Member State of the European within the definition in Article 1. Union or a party to the Treaty relating to the European Economic Area of 2 May 1992 and the Second Council Directive 77/91/EEC of 13 December 1976 on coor- dination of safeguards which, for the pro- 2. As of the time the company first comes tection of the interests of members and within the definition in Article 1, its share others, are required by Member States of capital must be at least the amount pro- companies within the meaning of the vided for in (1) above. second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards 3. Where the persons authorised to carry equivalent (OJ 1977 L 26, p. 1). on the company's business provide details pursuant to Article 2(1), they shall also lodge in the commercial register referred to in that provision a copy of a declaration by a registered accountant or a consultant accountant [two types of auditor] that the Article 5 company fulfils the requirements of para- graphs (1) and (2) above. The second and third sentences of Article 204a(2) of Book II of the Burgerlijk Wetboek apply mutatis mutandis. The declaration must relate to a point in time not more than five months 1. Notwithstanding paragraph (2) below, before the date on which the company first Article 10 of Book II of the Burgerlijk came within the definition in Article 1. Wetboek shall apply mutatis mutandis to

3. Paragraph (2) shall not apply to com- panies which are subject to the law of a Member State of the European Union or a party to the Treaty relating to the European Economic Area of 2 May 1992 and both the Fourth Council Directive 78/660/EEC 4. The company was formed in the United of 25 July 1978 based on Article 54(3)(g) of Kingdom in order to take advantage of the the Treaty on the annual accounts of benefits offered by English law, in compari- certain types of companies (OJ 1978 son with Netherlands law, in relation to the L 222, p. 11) and the Seventh Council setting up and maintenance of companies. Directive 83/349/EEC of 13 June 1983 According to the national court, which based on the Article 54(3)(g) of the Treaty relied on averments by Inspire Art Ltd, the on consolidated accounts (OJ 1983 L 193, benefits are that, under English law, there is p. 1). no rule requiring shares to be fully paid up in an amount of EUR 18 000, formation is considerably quicker, no checks need to be carried out in advance of formation and the applicable provisions regarding the amend- ment of company statutes / articles of 4. Before 1 April in each calendar year, the association, share transfers and publication persons authorised to carry on the com- are less rigorous.

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5. According to the findings of the national sions to protect persons dealing with the court, Inspire Art Ltd falls within the company and to safeguard them against definition in Article 1 of the WFBV and is loss. therefore to be registered in the commercial register as a 'formally foreign company'. The question arises as to whether this registration requirement is compatible with the provisions relating to freedom of estab- 9. For those reasons, the Kantongerecht lishment. Amsterdam refers the following questions to the Court for preliminary ruling:

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buitenlandse vennootschappen are to freedom of establishment were appli- i n c o m p a t i b l e with them, must cable to the present type of case. It Article 46 of the Treaty be interpreted concludes that they were. With reference as meaning that the said Articles 43 to the judgments in Centros 3 and Segers,4 and 48 do not affect the applicability of it submits that a company is entitled to the Netherlands rules laid down in that exercise the freedom of establishment law, on the ground that the provisions where it has been formed in one Member in question are justified for the reasons State for the sole purpose of establishing a stated by the Netherlands legislature?' branch in another Member State where it would principally, or even exclusively, carry on its business. According to those judgments, it is irrelevant that the sole purpose of forming the company in the Member State concerned is the evasion of statutory provisions in the other Member State. The case-law cited shows that this IV — Submissions of the parties was not an abuse, but merely the exercise of the freedom of establishment guaranteed by the Treaty. Inspire Art Ltd and the United Kingdom Government have made similar submissions.

A — Incompatibility with the Treaty (the first question)

12. The Commission also submits that applying the 'de facto company seat prin- ciple' would not preclude reliance on the I. Submissions that the Treaty has been provisions relating to freedom of establish- infringed ment. According to this theory, a company is subject to the statutory provisions of the State of its de facto seat. Where its de facto seat is depends on where the company's management or central control is situated. 10. Inspire Art Ltd, the United Kingdom Government and the Commission are of the view that the WFBV infringes the freedom of establishment. At the least, it makes establishment in the Netherlands less 13. The Commission and Inspire Art Ltd attractive. submit that the WFBV was in any event not an application of the de facto company seat principle. Article 1 of the WFBV was linked instead to the company's activity. With

16. The Commission also submits that a Member State is not entitled to rely on the de facto company seat principle in order to deny a company lawfully formed under the 14. Inspire Art Ltd interprets the WFBV in laws of a Member State its right to freedom the same way. It emphasises that the of establishment. present dispute arose because Dutch law applied the law of the country of formation to a company as a matter of principle. That is the only thing enabling Netherlands nationals to form foreign companies for the purpose of carrying on business entirely, or almost entirely, in the Nether- 17. Inspire Art Ltd, the United Kingdom lands. It appears from the travaux prépara- Government and the Commission consider toires for the WFBV that the legislature had that the fact that the WFBV makes estab- intended to address precisely this problem. lishment less attractive is enough to con- Its purpose was to combat this practice, stitute a restriction on the freedom of which it regarded as an abuse, by applying establishment. Indeed, according to the Netherlands company law to such com- travaux préparatoires, the WFBV's objec- panies. The justification given by the legis- tive is to attack the practice of establishing lature was creditor protection. It followed companies abroad with the intention of that the WFBV was not to be regarded as subsequently carrying on business exclus- an application of the de facto company seat ively in the Netherlands. principle.

18. In addition, Inspire Art Ltd submits that the fact that provisions additional to 15. Inspire Art Ltd also argues that the those of the country of formation were WFBV merely alters the existing Nether- applicable is sufficient to constitute a lands conflict of laws rules (according to restriction on the freedom of establishment, which the legal status of a company since it makes the exercise of that freedom depends on its country of establishment) less attractive.

23. On the other hand, the Commission 2 1 . The Commission considers that considers that the obligation laid down in Article 2(1) of the WFBV is incompatible Article 5(4) to submit an annual certifi- with Article 2 of the Eleventh Directive cation of registration in a foreign commer- 89/666/EEC 5and Articles 43 EC and 48 cial register is compatible with the Eleventh EC as regards the declaration that the Directive and Articles 43 EC and 48 EC. company comes within the definition in Article 1, the information relating to the initial registration in a foreign commercial register and the information relating to a sole shareholder. The Eleventh Directive does not require this declaration or that information. It follows that the obligation 24. The Commission submits that the to provide them infringes the freedom of questions referred should be reformulated establishment. On the other hand, the and, on the basis of the judgment in Dias, 6 Commission considers that the other provi- that those provisions of the WFBV that do sions in Article 2(1) (identification of the not relate to registration as such should be foreign commercial register, statement of disregarded from the assessment. Specifi- the company's registered number and lodg- cally, it submits that Articles 3 and 6 of the ing of a certified copy of its founding

6 — Case C-343/90 [1992] ECR I-4673, paragraphs 18 to 20. It also relies on Case C-18/93 Corsica Ferries [1994] ECR 5 — Council Directive of 21 December 1989 concerning dis- I-1783, paragraph 14, Case C-83/91 Meilicke [1992] ECR closure requirements in respect of branches opened in a I-4871, Case C-297/93 Grau-Hupka [1994] ECR I-5535, Member State by certain types of company governed by the paragraph 19, and Case C-143/94 Furlanis [1995] ECR law of another State (OJ 1989 L 395, p. 36). I-3633, paragraph 12.

2. Submissions that the Treaty has not been infringed 27. The German Government's sub­ missions are to the same effect. It takes the view that Articles 43 EC and 48 EC were not intended to benefit 'brass plate companies' which do not carry on any 25. By contrast, the Kamer van Koop­ activity in the country of their registered handel and the German, Italian, Nether­ office. Articles 43 EC and 48 EC are rather lands and Austrian Governments submit predicated on the case of undertakings that that the WFBV is compatible with the carry on business in their home country. It provisions relating to freedom of establish­ considers that the judgment in Centros was ment, or correspond to the company law therefore unsatisfactory, since it held that it Directives (in particular the First, Second, was sufficient for a company to be properly Fourth, Seventh, Eleventh and Twelfth established in accordance with the laws of a Directives) 7 or constitute a non-discrimi­ Member State, and that it was unnecessary natory application of the provisions appli­ for it to carry on business in that State. For cable to capital companies formed under that reason it submits that national laws to Netherlands law. counter 'brass plate companies' are lawful. The Austrian Government is effectively of the same opinion. 7 — F i r s t Council Directive 68/151/EEC of 9 March 1968 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Com­ munity (OJ English Special Edition 1968 (I), p. 41); Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, arc required bv Member States of companies within the meaning of the second 28. The Italian Government draws a dis­ paragraph of Article 58 of the Treaty, in respect of the tinction between freedom of establishment formation of public limited liability companies and the maintenance and alteration of their capital, with a view to of natural persons on the one hand and of making such safeguards equivalent (OJ 1977 L. 26, p. 1); Fourth Council Directive 78/660/ĽĽC of 25 July 1978 based legal persons on the other. It argues that the on Article 54(3)(g) of the Treaty on the annual accounts of certain rypes of companies (OJ 1978 L 222, p. 11); Seventh reason for, and the limits on, recognition of Council Directive 83/349/EEC of 13 June 1983 based on a foreign company derive from the activ­ Article 54(3)(g) of the Treaty on consolidated accounts (OJ 1983 L 193, p. 1); Eleventh Council Directive 89/666 ities the company intends to carry on. A EEC (cited above, footnote 5); and Twelfth Council Company Law Directive 89/667/EEC of 21 December 1989 legal person is recognised within the frame­ on single-member private limited liability' companies work of a specific legal system. The extent (OJ 1989 L 395, p. 40). to which other legal systems recognise the

company depend on the equivalence of the 31. Because of the continually increasing conditions implied on the company by the number of 'pseudo-foreign', principally State of its formation and the receiving English law or Delaware companies which State. To that extent, Member States are have no actual connection to their country entitled to require compliance with addi- of formation, the Netherlands Government tional provisions, in order to ensure equiv- took certain limited measures in the WFBV alence with companies formed under their in order to protect creditors' interests, own laws. combat fraud, protect the revenue and prevent abuse of foreign company status. The Kamer van Koophandel adds that a strikingly large number of such companies have become insolvent and that creditors have had virtually no chance of limiting their losses. 29. The Kamer van Koophandel and the Netherlands Government argue that the WFBV does not restrict freedom of estab- lishment. By contrast with Centros, in the present case' formally foreign companies were not refused registration. Instead, the present case concerned provisions relating solely to the conduct of formally foreign companies, not their formation or recogni- 32. In this connection the Kamer van tion. Koophandel refers to the preamble to the WFBV which indicates that the law is intended to ensure the application of cer- tain provisions of Netherlands company law to foreign legal persons who carry on their business entirely, or almost entirely, in the Netherlands and are foreign companies purely as a matter of form. It is intended to 30. The Kamer van Koophandel and the prevent fraudulent use of foreign com- Netherlands Government confirm that, in panies and to protect creditors. principle, Netherlands law determines which law applies by reference to a com- pany's registered office. They refer to Article 2 of the Wet conflictenrecht cor- poraties (Law on international private law for legal persons), 8and to Article 6 of that Law which provide that it applies without prejudice to the WFBV. Netherlands pri- vate law determines applicable law irre- 33. The Kamer van Koophandel and the spective of any business activity in the Netherlands Government argue that the country of formation. In principle, this does measures in the WFBV are not discrimina- not depend on the company's de facto seat. tory. They merely apply mandatory provi- sions of Netherlands company law which also apply to all companies formed under 8 — Staatsblad 1997, 699. Netherlands law. I-10168

36. According to the Netherlands Govern- ment, that also applies to directors' joint and several liability (Article 4(4) of the WFBV). The Netherlands Civil Code (Articles 2:69(2) and 2:180(2)) apply the same rule as regards liability in relation to 39. As regards Article 5 of the WFBV, the companies formed under Netherlands law. Netherlands Government submits that it corresponds to the provisions relating to annual accounts in Book 2, Title 9, of the Netherlands Civil Code. In any event, it corresponds to the relevant provisions in the Fourth and Seventh Directives. The obligation in Article 5(4) of the WFBV 37. Likewise, the obligations in Article 3 of corresponds to Article 2(2)(c) of the Elev- the WFBV correspond to obligations appli- enth Directive. The Netherlands Govern-

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41. The Kamer van Koophandel and the German and Netherlands Governments also rely on the judgment in Daily Mail and General Trust. 10 In that judgment, the Court recognised that, as regards the con- 43. The Kamer van Koophandel and the necting factor which determines the law Dutch Government also argue that the EC applicable to a company, the private inter- first acquired competence in private inter- national law by the Treaty of Amsterdam. However, even after the enactment of 9 — Cited above, footnote 6. Article 65 EC, Article 293 EC provides 10 — Case 81/87 [1988] ECR 5483. that specified company law matters are to I - 10170

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46. The Netherlands Government also con- siders this approach to be consistent with the judgment in Segers. 13 It accepts that the 49. However, even on the assumption that freedom of establishment is infringed, the 11 — Cited above, footnote 3. The Netherlands Government infringement is de minimis in any event and referred in particular to paragraph 24 of the judgment. 12 — It referred to paragraph 18 of the judgment. thus compatible with Community law. The 13 — Cited above, footnote 4. other fundamental freedoms have also been

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interpreted in the case-law as permitting establishment. A general statutory provi- infringements of less than a certain grav- sion such as the WFBV does not satisfy this ity. 14 requirement.

52. In any event, in Centros it was recog- nised that there could be a restriction at B — Justification (the second question) most for the purpose of maintaining the effectiveness of provisions concerning the exercise of particular commercial activities. By contrast, the question arising in Inspire Art Ltd's case simply concerned freedom of 1. Submissions that there is no justification establishment generally and compliance with Netherlands company law (for example as regards minimum capital). As was held in Centros, the fact that one used the more favourable rules of another Member State constituted not on abuse 50. Inspire Art Ltd, the United Kingdom but precisely the exercise of freedom of Government and the Commission consider establishment. that there is no justification for the rules in the WFBV.

55. Inspire Art Ltd and the Commission argue, first, that the company's name indicates it is governed by English law, 58. Moreover, Inspire Art Ltd and the and therefore creditors cannot be deceived. Commission consider the rules on direc- The Fourth and the Eleventh Directives tors' joint and several liability to be dis- guarantee a minimum transparency of criminatory. Under Article 4(4) of the annual accounts and of shareholders' iden- WFBV, directors incur such liability even tities. Creditors have a certain responsibil- where the minimum capital is reduced to ity for their own actions. If they are not below the legal limit after registration in satisfied by the protection conferred by the commercial register. By contrast, the English law, they can either demand addi- directors of a limited liability company tional security or decline to conclude formed under Netherlands law (a BV) are contracts with a company governed by not subject to that stringent liability. More- foreign law. over, by contrast with the rules relating to Dutch companies, the circle of persons to whom such liability attaches is widened so as to include persons who de facto carry on the company's business.

56. The United Kingdom Government and the Commission also argue that the WFBV would not have applied if Inspire Art Ltd had carried out even a minimal amount of activity in another Member State. Yet the 59. The Commission considers Article 4(1), risk to creditors is no less in that case than (2) and (4) of the WFBV to be dispropor- it is where the activity is carried on entirely tionate, since Inspire Art Ltd uses a name in the Netherlands. identifying it as an English company. The Fourth and Eleventh Directives also ensure creditors sufficient transparency.

61. Furthermore, it is possible to conceive 64. The purpose of the WFBV is to prevent of less restrictive measures. Thus, for fraud. This has been recognised as a example, one could make it possible in legitimate justification in both Centros law for public creditors to obtain the and Segers. 1 8Moreover, the WFBV pro- necessary guarantees from the branches. 17 tects creditors, and this has also been recognised in the case-law to be a ground of justification. 19 Another purpose of the WFBV is to protect the revenue, and the case-law has also approved this as ground of justification. 20 Finally, it protects the 62. The United Kingdom Government also integrity of trade. This is also a legitimate considers the WFBV's rules on accounting ground of justification. 21 and annual accounts to be unnecessary. English law lays down adequate annual accounts rules for limited liability com- panies. Moreover, the provisions concerned infringe the Eleventh Directive, according to which the States in which a branch has 65. The Austrian Government argues that its seat are not entitled to demand specified registration of such 'brass plate companies' information. has a warning function. The information is important for potential contracting partners to enable them to decide whether they want to transact with the company concerned. The judgment in Centros expressly recognises the need for commerce 2. Submissions that there is justification to have such information. 22

70. Finally, imposing joint and several liability on the directors is simply an appropriate sanction for breaches of the WFBV. In any event, directors of a Nether- 67. Disclosure that the company is a for- lands company are subject to similar liabil- mally foreign company enables third ity. It is not unknown in Community law, parties to take cognisance of that fact and as is shown by Article 51 of the Proposal to take it into account when assessing the for a Regulation relating to a European company's reliability. The fact that the company. Moreover, Article 4(1) of the company is governed by foreign law is also Second Directive authorises Member States important for the competent public auth- to enact suitable provisions imposing lia- orities. bility where it is not possible to dissolve the company.

68. That a third party has an interest in knowing that a company has only one shareholder (see Article 3 of the WFBV) is 71. The Kamer van Koophandel submits expressly recognised in Article 3 of the that the WFBV is not discriminatory. Twelfth Directive. Rather, its effect is to apply the rules which apply to companies formed under Nether- lands law to foreign companies. Those rules are the Civil Code, the Law relating to the commercial register 1996 and the Order relating to the commercial register 1996.

69. The principal purpose of Article 4 of the WFBV is to protect creditors. Article 6 of the Second Directive expressly recog- nises the importance of minimum capital requirements in respect of companies fal- ling within its scope. Minimum capital 72. The Kamer van Koophandel and the requirements are intended primarily to Austrian Government argue that the mcas-

74. The WFBV's requirements to keep 77. The facts of the present case differ from accounts and to produce and publish Centros in that Netherlands law does not annual accounts confer necessary and effec- refuse registration of a branch, but does tive protection on creditors. The Fourth require disclosure that it is a formally Directive lays down only minimum require- foreign company and attaches various legal ments. Because of the many discretions it consequences to its registration as such. gives to the Member States, the Member The question thus arises as to whether and, States have a discernible interest in pre- if so, to what extent this difference leads to scribing the application of the measures by a different conclusion in law from that in which they transpose the directive to all Centros as regards the compatibility of the companies carrying on business within rules with those relating to freedom of their respective territories. establishment.

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23 — Segers (cited above, footnote 4), paragraph 16; Centros (cited above, footnote 31, paragraph 17. 24 — Centros (cited above, footnote 3), paragraph 18. The fact that such a purpose is immaterial is also recognised in the law relating to freedom to provide services, see, for 80. The first is that the Treaty does not example, Case C-23/93 TV 10 [1994] ECR I-4795, paragraph 15. provide that carrying on business in the 25 — Cited above, footnote 10. country of formation is a condition of 26 — Case C-208/00 Oberseering [2002] ECR I-9919.

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84. What must next be considered is 86. However, the Kamer van Koophandel, whether the WFBV restricts freedom of the Netherlands Government, the United establishment. Kingdom Government and the Commission have submitted that the assessment should be restricted to the provisions relating to the company's registration in the commer- cial register. They are of the opinion that the questions ought to be considered against the background of the main pro- 1. The relevant provisions of the Wet op de ceedings. Since those proceedings con- formeel buitenlandse vennootschappen cerned only registration in the commercial register, they argue that Articles 3 and 6 of the WFBV in particular are to be dis- regarded in the present proceedings. The Kamer van Koophandel and the Nether- lands Government submit that parts of 85. It needs to be considered first which Articles 2 and 5 should also be excluded provisions of the WFBV are the subject of from consideration. the reference for preliminary ruling. The national court referred to Articles 2 to 5 of the WFBV, and in particular to the facts that a formally foreign company has to register as such in the commercial register (Article 2), that it must provide specified 87. According to the case-law cited by details on all documents it issues (Article 3) those parties, 27 'the national court, which and that the nominal capital and the proportion of it paid up must be at least the minimum specified for companies 27 — See the references in footnote 6.

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90. It is, however, another question what provisions of the WFBV are in fact appli- cable to Inspire Art Ltd, for example, whether the exceptions in Article 4(5) and 88. The parties are clearly correct that the Article 5(3) of the WFBV are applicable. main proceedings concern the question as That question is for the national court to to whether Inspire Art Ltd is to be regis- decide and is not to be considered in the tered in the commercial register as a context of the reference for a preliminary formally foreign company. However, such ruling. registration has certain legal consequences, which are laid down in Articles 2 to 5 of the WFBV. Those legal consequences are not severable from registration as a formally foreign company, which is the only circum- stance in which they arise. The question as 91. It follows that the subject of the reference for a preliminary ruling is to be 28 — Dtas (cited above, footnote 6), paragraphs 14 to 18. taken to be Articles 2 to 5 of the WFBV. In

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96. These so-called administrative obli- gations amount to the application of the Netherlands rules on companies' minimum capital and the imposition on directors of joint and several liability for the company's 93. Article 43 EC in conjunction with debts where there is a failure to comply Article 48 EC confers on companies formed with the WFBV. In that sense one could say in accordance with the law of a Member that the obligations under the WFBV are State and having their registered office, central administration or principal place of business within the Community the right to 29 — Segers (cited above, footnote 4), paragraph 13; Centros establish and operate agencies, branches or (cited above, footnote 3), paragraph 20; Üèerseering (cited above, footnote 26), paragraph 57. subsidiaries in other Member States in 30 — Oberseering (cited above, footnote 26), paragraph 59. accordance with the laws the recipient Incidentally, it is also possible to deduce this from the judgment in Centros (cited above, footnote 3), paragraph country applies to its own nationals. 21.

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98. That is indeed what the Netherlands legislature intended. This is shown by the 100. Paying up minimum capital and direc- preamble to the WFBV, by the numerous tors' liability depend in principle on the law references mentioned above in the sub- of the jurisdiction in which the company is missions of the Kamer van Koophandel and formed; in the case of Inspire Art Ltd, that the Netherlands Government to the is English law. The requirements imposed Netherlands Civil Code and the rules relat- by the WFBV supersede those rules. To that ing to the commercial register, and by the travaux préparatoires to the WFBV on which a number of the parties relied. The 31 — See the discussion in Memorie van Toelichting, Tweede Kamer der Staten-General, Vergaderjaar 1994/95, promul- purpose of the WFBV was to discourage the gated on 19 April 1995, No 24139, No 3, p. 2, published on the Netherlands Parliament's website at www.tweede- use of foreign companies, in particular kamer.nl. those formed under English law or the 32 — Memorie van Toelichting (cited above, footnote 31), p. 3.

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33 — Cited above, footnote 3, paragraph 27. 34 — Cited above, footnote 26, paragraph 59. 35 — Überseering (cited above, footnote 26), paragraph 81.

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37 — Daily Mail (cited above, iootnotc 10), paragraph 23. 36 — Cited above, footnote 7. 38 — Überseering (cited above, footnote 26), paragraph 72.

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ment in Daily Mail and the freedom of 109. Thus the function of registration is to Member States to lay down their own act as a warning. Given the Netherlands private international law do not gainsay legislature's general assumption that such my conclusion. companies are less creditworthy and the consequential application of the provisions of Netherlands law relating to minimum capital and other creditor protection meas- ures to such companies, it may be assumed that the designation 'formally foreign com- pany' is intended to make it more difficult, 107. Although the WFBV's provisions or at least less attractive, to carry on relating to minimum capital and directors' business. As understandable as this motive liability are thus incompatible with the might be, at the current stage of develop- Treaty provisions relating to freedom of ment of Community law, the absence of establishment, it is none the less appropri- harmonisation in this area means that this ate to consider briefly the other features the constitutes a restriction on freedom of national court highlighted, namely regis- establishment. The same applies as regards tration in the commercial register of for- the designation 'formally foreign company' mally foreign companies as such and the on documents. corresponding requirement relating to des- ignation in documents. At the oral hearing, Inspire Art Ltd and the United Kingdom Government submitted that such regis- tration stigmatised the companies con- cerned.

111. The next question is as to whether these restrictions on freedom of establish- 1. Justification under Article 46 EC ment are to be regarded as justified. Article 46 EC provides that freedom of establishment may be restricted by laws, regulation and administrative provisions laying down different rules for foreign nationals on the ground of public order, safety or health. Moreover, the Court has 113. Article 46 EC does not expressly consistently held that Community law may mention creditor protection. Moreover, not be relied upon for improper or fraudu- the Court has consistently held that the lent purposes. 40 The Court has also recog- protection of economic interests does not nised that national measures liable to fall within the concept of public order or hinder or make less attractive the exercise safety. 42 For that reason, there is no of fundamental freedoms guaranteed by the justification available under Article 46 EC. Treaty are lawful provided that they fulfil the following conditions. They must be applied in a non-discriminatory manner, they must be justified by imperative requirements in the general interest, they must be suitable for securing the attainment 114. The same applies as regards protect- of the objective which they pursue and they ing the revenue and safeguarding the integ- must not go beyond what is necessary in rity of trade. order to attain it. 41

2. Justification of combating abuse of free- dom of establishment

112. As appears from the travaux prépara- toires, the WFBV's principal objective is to protect creditors of foreign companies. The Netherlands Government also relies on its ancillary objectives of preventing abuse of 115. As is emphasised principally by the Kamer van Koophandel and the Nether- lands Government, the WFBV is also 40 — Centros (cited above, footnote 3), paragraph 24, with intended to prevent abuse consisting of further references. 41 — C a s e C-19/92 Kraus [1993] ECR I-1663, paragraph 32, Case C-55/94 Cebhard [1995] ECR I-4165, paragraph 37, and Centros (cited above, footnote 3), paragraph 34. 42 — Centros (cited above, footnote 3), paragraph 34.

117. However, it has always stated that the 120. This conclusion is consistent with the lawfulness of such measures depends on the judgment in TV 10, 47 on which the existence of an actual basis for concluding Netherlands Government relied at the oral there to have been abuse in the individual hearing. The decision in that reference for a case. It has rejected abstract, general assess- preliminary ruling likewise turned on its ment under a statutory provision, and has own facts. The Commissariaat voor de indeed emphasised that such an assessment Media refused to recognise TV 10 (the is inadequate. 45 plaintiff in the main proceedings) as a foreign broadcaster for the purposes of the Mediawet (Law on the Media), since although it broadcast radio and television programmes in the Netherlands, it was established in Luxembourg, and it was 118. It has also held that the fact that a obvious that the purpose for establishing national of a Member State who wishes to it in Luxembourg was to avoid the appli- set up a company chooses to form it in the cation of Netherlands law. Thus, the Member State whose rules of company law decision in that case also turned on its seem to him the least restrictive and to set particular facts. Moreover, in its judgment up branches in other Member States can- the Court referred to its existing case-law, according to which Article 49 EC does not deprive a Member State of the right to take 43 — Centros (cited above, footnote 3), paragraph 24, with measures to prevent the exercise by a further references. person providing services in an individual 44 — Segers (cited above, footnote 4), paragraph 17; Centros (cited above, footnote 3), paragraph 24, with further references. 45 — Centros (cited above, footnote 3), paragraph 25; Über- seering (cited above, footnote 26), paragraph 92 ('in 46 — Centros (cited above, footnote 3), paragraph 27. certain circumstances and subject to certain conditions'). 47 — Cited above, footnote 24.

122. At the oral hearing the German Gov- 3. Justification by other imperative require- ernment's representative asked the Court to ments in the general interest state in the present case, in the light of the judgments in Centros and Überseering, how Member States could combat the formation of brass plate companies sus- pected of being an abuse of freedom of establishment. 125. There remains to be considered whether the WFBV is justified by any other 48 — TV 10 (cited above, footnote 24), paragraph 20. imperative requirements in the general 49 — Case C-483/99 [2002] ECR I-4781. interest.

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126. The Netherlands Government has Netherlands law. Both are required to relied on four imperative requirements in satisfy certain provisions of Netherlands the general interest, namely creditor pro- company law regarded as mandatory. At tection, protection of the revenue, preven- the oral hearing the German Government tion of fraud and prevention of abuse. added that the WFBV creates identical Prevention of abuse has already been dis- conditions of competition for undertakings. cussed. The other three grounds concern the protection of the company's public and private creditors. It follows that they can be considered together under the heading of creditor protection.

50 — Centros (cited above, footnote 3), paragraphs 32 ff. 51 — Centros (cited above, footnote 3), paragraph 34. 52 — Memorie van Toelichting (cited above, footnote 31), p. 9.

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be dissolved by the court (see Article 2:185 134. However, it must be observed that of the Civil Code). The directors do not even where a company incorporated under incur any liability in that situation. Netherlands law is dissolved by the court, the company's directors are not liable for the company's debts. The personal joint and several liability which the WFBV imposes on directors is fundamentally out of place in the current system of limiting liability to company capital, and can be 131. Because Netherlands law applies the enforced only in very exceptional circum­ incorporation principle, a foreign company stances. cannot be dissolved by such a decision of a Netherlands court. Its existence is deter­ mined by the law of the country in which it is i n c o r p o r a t e d . For t h a t r e a s o n , in Article 4(4) of the WFBV the Netherlands legislature has imposed liability on direc­ tors as a 'suitable alternative' for formally foreign companies to the sanction imposed 135. Admittedly, the WFBV does not on companies incorporated under Nether­ impose liability on directors automatically. lands law. 53 It requires to be established by the court in each individual case. 54 However, the explanatory note to Article 2 of the WFBV indicates that the legislature intended the sanction under Article 4(4) of the WFBV, which also applies to failure to comply with the obligations under Article 2 of the 132. T h i s difference in t r e a t m e n t of WFBV (in other words prior to registration Netherlands and foreign companies at once in the commercial register), to have a refutes the proposition that the effect of the deterrent effect. The purpose of the WFBV WFBV is to put foreign companies in the is to deter economic participants from same position as companies incorporated acting through formally foreign companies. under Netherlands law. It was intended to impose a sanction that would have an even greater deterrent effect than a criminal penalty. 5 5

of the WFBV as an extraordinary measure create identical conditions of competition. that could be taken in order to impose Admittedly, the effect of applying the liability in similar circumstances on those WFBV is that Netherlands company law responsible for carrying on the business of a is applied to all companies whose activity is company incorporated under Netherlands carried on entirely, or almost entirely, law. Instead, the provision was intended to within the Netherlands. However, that have a greater deterrent effect than criminal eliminates competition between the differ- penalties. That the imposition of personal ent systems of the Member States. Yet at liability for the company's transactions is a the present stage of development of Com- suitable means of attaining this objective munity law there is no reason for restricting needs no further explanation. the freedom of citizens of the Union to incorporate their companies under the legal system most suitable for their particular plans.

138. Contrary to the German Govern- ment's submissions, the WFBV does not

56 — Centros (cited above, footnote 3), paragraph 20, with 140. As an interim conclusion, it is to be further references. held that the WFBV discriminates against I - 10190

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foreign companies and is therefore an and Irish law do not give minimum capital unjustified restriction on freedom of estab- any importance at all. Finally, reference is lishment. to be made to the report of the Winter Group. This report (named after Jaap Winter, chairman of the Committee of Experts that produced it) was delivered to the Commission only recently, and explains that the concept of minimum capital is (b) Suitability generally seen as one of the cornerstones of safeguarding creditor protection and share- holders' interests. However, the Committee of Experts concluded that minimum capital rules fulfil only one function. They deter individuals from light-headedly forming companies. By contrast, they confer only 141. It is also doubtful whether the WFBV limited protection on creditors against ill- is suitable for ensuring consumer protec- considered capital investment, and do not tion. Admittedly, those who argue that it is confer any protection at all where capital is are correct in pointing out that by means of used to write off losses. Creditors and the Second Directive and Council Regu- shareholders would be better protected if lation (EC) No 2157/2001 of 8 October an adequate solvency test were devel- 2001 on the Statute for a European com- oped. 60 pany (SE), 57 Community law has recog- nised that minimum capital requirements are a means of ensuring adequate capitali- sation. 58 Where a company's minimum capital has been paid up, then at least at the time of incorporation that amount is available to creditors.

147. Finally, the restrictions imposed by the WFBV would be justified only if there were no less restrictive means of attaining the objective of creditor protection.

145. There is also significant doubt as to whether registration of a formally foreign company as such and the requirements as regards how its name must appear on documents are suitable for protecting credi- tors. Disclosure of the fact that the com- pany does not carry on any business outside 148. It is doubtful whether the provisions the Netherlands does not increase or safe- relating to registration of a formally foreign guard the capital available in respect of company as such in the commercial register liabilities to creditors. and to how the company's name is to appear on documents which it issues are necessary. Inspire Art Ltd was registered in the commercial register as a limited liability company governed by English law. It uses the word 'limited' in its name in the course of its business. The market is thus made 146. For these reasons, the provisions relat- aware that it is not a company incor- ing to minimum capital, registration as a porated under Netherlands law. Any addi- formally foreign company and the com- tional warning given by the designation pany's name are not to be regarded as 'formally foreign company' appears suitable for securing the attainment of the unnecessary for safeguarding the interests of the company's creditors or for safe- guarding the integrity of trade. To that 61 — Centros {cited above, footnote 3), paragraph 35. extent, the rules are disproportionate. I - 10192

153. Admittedly, these two provisions ensure that the applicable provision is always the one more favourable to credi- tors. However, particularly for company directors, they create an almost incalcu- 151. Finally, there is one other point which lable risk. Particularly because of their suggests that the WFBV is disproportion- unforeseeable consequences for directors, ate. The Law applies to companies which the rules appear disproportionate. carry on their activities entirely, or almost entirely, within the Netherlands. However, it contains no rules for determining whether that condition is satisfied. If 10%, or 15%, or even 20% or more of activity is carried on outside the Netherlands, is activity still 'almost entirely' within the 154. The answer to be given to the second Netherlands? The absence of a definition question is that neither Article 46 EC, nor creates uncertainty as to whether the combating abuse, nor imperative require- WFBV is applicable to any particular com- ments in the general interest justify the pany. A measure that is uncertain to such restrictions on freedom of establishment in an extent cannot be a suitable measure for Articles 2 to 5 of the Wet op de formeel buitenlandse vennootschappen.

62 — See the consideration of this point in Centros (cited above, footnote 3), paragraph 36. 64 — Memorie van Toelichting (cited above, footnote 31), p. 6, 63 — Centros (cited above, footnote 3), paragraph 37. relating to Article 1.

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VI — Conclusion

155. On the basis of the foregoing considerations, it is suggested that the questions referred be answered as follows: