(Reference for a preliminary ruling — Freedom of establishment — Cross-border conversion of a company — Transfer of its registered office without transfer of its real head office — Refusal to remove it from the commercial register — National legislation whereby removal from commercial register is dependent on the winding up of a company after a liquidation procedure — Scope of freedom of establishment — Restriction on freedom of establishment — Protection of the interests of creditors, minority shareholders and employees — Prevention of abusive practices)
SOURCE: Court of Justice of the European Union, Annual report 2017
In its judgment in Polbud-Wykonawstwo, delivered on 25 October 2017, the Grand Chamber of the Court held that Articles 49 and 54 TFEU apply to the transfer of the only registered office of a company incorporated under the law of one Member State to the territory of another Member State, even if that company conducts its main, if not entire, business in the first Member State and retains its real head office there. At issue in the main proceedings was the decision to refuse the application submitted by Polbud-Wykonawstwo (‘Polbud’), a limited liability company governed by Polish law, to remove it from the Polish commercial register following the transfer of its registered office to Luxembourg. Polish legislation provides for the mandatory liquidation of a national company when it transfers its registered office abroad. The removal of Polbud from the Polish commercial register had therefore been refused on the ground that the documents relating to its liquidation had not been submitted. Polbud challenged that refusal arguing that it had not lost its legal personality and continued to exist as a company incorporated under Luxembourg law. The Sąd Najwyższy (Polish Supreme Court) therefore referred a question to the Court for a preliminary ruling concerning the applicability of freedom of establishment to the instant case and the compatibility of the Polish legislation with EU law.
First of all, the Court noted that Articles 49 and 54 TFEU extend the benefit of freedom of establishment to companies or firms formed in accordance with the legislation of a Member State and having their registered office, central administration or principal place of business within the European Union. The Court made clear that this fundamental freedom encompasses the right of a company, like Polbud, formed in accordance with the legislation of a Member State to convert itself into a company governed by the law of another Member State, provided that the conditions laid down by the legislation of that other Member State are satisfied and, in particular, that the test adopted by the latter State to determine the connection of a company to its national legal order is satisfied.
Secondly, the Court ruled that Articles 49 and 54 TFEU preclude national legislation, such as that as issue here, whereby the transfer of the registered office of a company is dependent on its mandatory liquidation. According to the Court, such legislation is liable to impede, if not prevent, the cross-border conversion of a company and therefore constitutes a restriction on freedom of establishment. The Court accepted that such a restriction may, as a rule, be justified by overriding reasons in the public interest. However, it considered that the Polish legislation at issue goes beyond what is necessary to achieve the objectives of protecting the interests of creditors, minority shareholders and employees. In particular, the Court pointed out that that legislation prescribes, in general, mandatory liquidation, there being no consideration of the actual risk of detriment to those interests and no possibility of choosing less restrictive measures capable of protecting them.
Lastly, the Court rejected the justification based on the objective of preventing abusive practices. In its view, the fact that either the registered office or real head office of a company was established in accordance with the legislation of a Member State for the purpose of enjoying the benefit of more favourable legislation does not, in itself, constitute abuse. Moreover, the mere fact that a company transfers its registered office from one Member State to another cannot be the basis for a general presumption of fraud and cannot justify a measure that adversely affects the exercise of a fundamental freedom guaranteed by the Treaty. In this case, the Court took the view that the general obligation to implement a liquidation procedure amounts to establishing such a presumption, with the result that the national legislation is disproportionate in the light of that objective.