Free Movement in the EU and the Abuse of Companies

Published in Abuse of Companies, edited by Hanne S. Birkmose, Mette Neville, Karsten Engsig Sørensen, Kluwer Law International, 2019

Nordic & European Company Law Working Paper No. 21-01

28 Pages Posted: 7 Jan 2021

See all articles by Karsten Engsig Sørensen

Karsten Engsig Sørensen

Aarhus University – Aarhus BSS, Department of Law

Date Written: 2019

Abstract

This contribution examines how the Court of Justice of the European Union has allowed Member States to tackle abuse of companies. The Court has done this by using two different approaches. First, by allowing that certain forms of free movement are not covered by the freedom of establishment and, second, by allowing Member States to deny the companies to rely on the freedom of establishment (or other EU rights) when abuse exists. Originally, the first method seemed to give the Member State ample room for not allowing different forms of mobility that were not accompanied by either the movement of the real seat or an economic activity. However, over time, the former ample room has shrunk and, as a result, the only element left is that Member States may require a connecting factor from companies incorporated in the specific Member State. This may still be a way of ensuring that companies are not abused, but the fact is that many Member States do not enforce such a requirement. Consequently, this approach to tackling abuse of companies seems to play a less important role. The second approach is still feasible, but the general principle prohibiting abuse is difficult to apply. So far, in company law cases it has been a very narrow exception and difficult for the Member States to apply. However, as the chapter illustrates, there has been some indication of when the principle can be used, and even though the CJEU has not been helpful in suggesting what constitutes abuse of EU law in this area, there is no doubt that it is possible to encounter some kind of abuse of corporate mobility in the EU. The amendment of the CCLD will partly operationalise how to tackle abuse in the context of cross-border conversions, mergers, and divisions and this will make it more likely that abuse of companies in these types of transactions will be tackled.

Keywords: free movement, abuse of companies

JEL Classification: K22

Suggested Citation

Sørensen, Karsten Engsig, Free Movement in the EU and the Abuse of Companies (2019). Published in Abuse of Companies, edited by Hanne S. Birkmose, Mette Neville, Karsten Engsig Sørensen, Kluwer Law International, 2019, Nordic & European Company Law Working Paper No. 21-01, Available at SSRN: https://ssrn.com/abstract=3761700

Karsten Engsig Sørensen (Contact Author)

Aarhus University – Aarhus BSS, Department of Law ( email )

Bartholins Allé 16, Building 1410, Room 246
DK-8000 Aarhus C
Denmark

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