Last reviewed 27 September 2012

Neil Baylis looks at Case C-378/10:VALE Építési kft, on moving a company to the commercial register of another country.

Background

VALE Costruzioni (VC) was a limited liability company governed by Italian law, registered in the Rome commercial register. Discontinuing business in Italy, VC requested to be removed from this register to re-register in Hungary. The Rome register complied, writing in the registry, under the heading "Removal and transfer of seat", "The company has moved to Hungary".

VC adopted Hungarian articles of association as VALE Építési kft (VE), paying up share capital to the extent required by Hungarian law for company registration.

VE applied to the Budapest Metropolitan Court to register as a Hungarian company. The application stated VC was the predecessor in law to VE. The court rejected the application. VE appealed at the Regional Court of Appeal of Budapest, which upheld the decision, stating Hungarian law did not include the category of "non-Hungarian predecessors in law" as one of the pieces of information that could be entered on the Hungarian commercial register.

VE appealed to the Hungarian Supreme Court, submitting infringement of Articles 49 and 54 of the Treaty on the Functioning of the European Union (TFEU). The court rejected the appeal, stating a company's conversion, ie reincorporation under Hungarian law, cannot be regarded as legal conversion where a non-Hungarian predecessor in law is submitted. Hungarian law on conversion applies only to domestic situations.

The Hungarian Supreme Court referred the case to the ECJ.

The law

TFEU Article 49 prohibits any restrictions on the freedom of establishment of nationals of one Member State in another Member State of the EU.

Article 54 states that companies that are validly registered under the laws of a Member State shall be treated in the same way as nationals of a Member State.

Under Hungarian law, paragraph 25(1)(g) of Law V of 2006 on Company Information, Company Registration and Winding-up Proceedings, there is no mention of "non-Hungarian predecessors in law" (or similar) as one of the pieces of information that can be entered on the Hungarian commercial register.

Judgment of the Court

The ECJ held that Article 49 (freedom of establishment) does apply to national legislation enabling companies to convert, because companies only exist by virtue of national legislation determining their incorporation and function (see Case 81/87 Daily Mail and General Trust [1988] ECR 5483, paragraph 19). The court further held that the above Hungarian law is likely to deter companies from exercising their freedom of establishment. The law therefore amounts to a restriction within the meaning of Article 49, and is precluded by that article. Furthermore, the ECJ confirmed that as EU law does not specify rules governing cross-border conversions, such laws should be determined by each Member State and must operate in accordance with Article 49.

The ECJ established that regardless of national legislation, Member State authorities must take account of documents obtained from a company's Member State of origin, in this case the Rome commercial register's note that "The company has moved to Hungary".

Conclusion

The effect of Articles 49 and 54 of the TFEU is to preclude national legislation denying companies governed by the law of one Member State from re-registering as a company governed by the law of another Member State. Member States may determine national law applicable in such cases but such law is precluded from refusing to take account of documents obtained from the authorities of other Member States, and from refusing to record in the commercial registry predecessor companies from other Member States.

The case was returned for a final decision to the Hungarian courts, and it appears an amendment to the Hungarian company law is likely to be required.