Since the enactment of the European Council’s Regulation 2157/2001 and Directive 2001/86/EC introducing the European Company (“Societas Europaea” or “SE”) as a new available corporate form for companies registered in a Member State, more than a hundred SEs have been incorporated throughout the Union. France ranks in the third position, behind Germany and Austria, for the number of SEs already incorporated on its territory.

 

With the enactment of Directive 2005/56/EC specifically dedicated to regulate cross-border mergers, which will be implemented in France in the upcoming[1] months, groups located in Europe will have two complementary options for their cross-border reorganizations (I) although the SE status is more ambitious and offers greater possibilities even for groups outside Europe (II) and France is active in the improvement of the SE status (III).

 

 

I. Two instruments for international groups to carry-out cross-border transactions

 

(a)           Two instruments with a different scope and purpose

 

The Directive 2005/56/EC adopted on October 26, 2005 (the “Directive”) and the EC Regulation 2157/2001 (the “Regulation”) have different scopes and do not have the same purpose.

 

The Directive only governs cross-border mergers within the European Union.

 

It only aims to facilitate synergies between companies located within Europe by making cross-border mergers more accessible to all sort of companies (small and medium-sized companies as well as European groups).

 

The Regulation remains an effective way for companies to carry-out internal corporate reorganizations by incorporating a SE but its scope is broader (see II hereunder) than the Directive’s.

 

Under the Regulation, cross-border mergers are only one of the four available means of creating a SE.

 

Furthermore, the Directive applies to many different type of corporations unlike the Regulation which is limited to companies organized as “société anonyme” and its corresponding corporate entities in other Member States.

 

The Regulation has been a major step forward in the implementation of cross-border mergers between companies located in two or more different Members States by providing a unified legal regime for these transactions, under the legal regime of the universal transfer of assets and liabilities, and by limiting the applicability of relevant local laws of the Member States involved to issues not covered by the Regulation.

 

The SE status can be of particular interest for the corporate reorganization of European groups with a purpose of simplifying internal corporate structures by replacing, for example, the absorbed subsidiaries with branches and thereby (i) reduce redundancies in both internal and external control procedures, (ii) optimize management costs in order to improve the overall competitiveness with more flexible corporate structures, (iii) reduce or limit the presence of minority shareholders, (iv) ensure a smooth circulation of dividends within the group and avoid the issues relating to price transfers and VAT within the same, (v) simplify the overall corporate governance of a group.

 

In practice the SE has shown to be an interesting vehicle for financial and insurance groups. By facilitating internal reorganization so as to operate through branches instead of subsidiaries, it allows them to significantly reduce external control requirements (e.g., reporting to only one authority at the holding European Company level, better anticipating equity capital requirements and associated risks).

 

The SE status has been incorporated into French law by the Loi Breton No.2005-842 dated July 26, 2005 and its implementing decrees, mainly the decree No.2006-448 dated April 14, 2006 with respect to corporate law matters and the decree No.2006-1360 dated November 9, 2006 regarding the involvement of employees in the SE.

 

By incorporating in France three SEs in July and August 2007, the Scor Group created the first French SE listed on Euronext Paris S.A.’s Eurolist and on the New York Stock Exchange by way of conversion (Scor SE) and created the first French SE by way of a three-party merger involving three different jurisdictions (France, Germany and Italy).

 

Scor Global P&C, the Group’s operational subsidiary operating in the non-life reinsurance business, absorbed its Italian and German 100 % subsidiaries and became Scor Global P&C SE. The absorbed subsidiaries disappeared and branches were put into place in Italy and Germany.

 

Following the acquisition of Revios on November 21, 2006 the Scor Group decided to create Scor Global Life SE through the absorption of its Deutsch subsidiary Scor global Life Rûckversicherung AG by Scor Global Life, the French subsidiary of Scor operating in the life reinsurance business.

 

For the Scor Group, the creation of SEs in France was carried out mainly with a view of simplifying the Group’s legal structures and improving flexibility in relation to financial matters and capital allocation in order to anticipate new solvency restrictions resulting from the draft “Solvency II” Directive which will soon apply to insurance and reinsurance companies.

 

(b) Two instruments which are complementary

 

Where the Directive and the Regulation have different scopes and do not have the same purpose, they appear to be complementary instruments for purposes of corporate restructuring.

 

Once the Directive will be incorporated in the local laws of the Member States, cross-border mergers will be implemented without the need to incorporate a SE.

 

In this regard, European groups will be able to perform a cross-border merger under the Directive’s regime even if they do not intend to create a SE.

 

In addition cross-border mergers performed under the Directive could also be just a preliminary step of a larger restructuring plan before the creation of a SE.

 

Consequently, once incorporated a SE could use the Directive’s provisions in order to merge with another company located in a different Member State for instance.

 

(c) An available instrument versus an instrument waiting for integration

 

The capacity of companies located in different Member States to implement cross-border mergers under the Directive will directly depend on the number of Member States to actually incorporate the provisions of the Directive into their local laws.

 

At the date hereof, many Member States did not yet comply with the December 15, 2007 deadline, including France.

 

On the other hand, rules applicable to SEs have now been integrated into the national laws of the Member States.

 

The SE status is now effective and constitutes a currently available instrument of European business law.

 

II. The SE’s ambitions over cross-border mergers

 

(a) An interesting instrument for strengthening  clients and investors’ trust

 

Beyond purely legal and financial considerations, most companies in Europe that have created a SE highlight the positive effect for them in terms of modern corporate image, which may entail an additional commercial and marketing value by strengthening the image with their clients and investors.

 

By creating three SEs in France the Scor Group for instance was thereby putting forward its ambition to be a company with European roots, global reach and transnational identity.

 

Furthermore, with its supra-national identity and its set of rules provided for by the Regulation and applicable notwithstanding the Member State where the SE is located, the SE allows protection of the sensitiveness of the various parties involved in the context of politically tense transactions involving different major groups or in the context of a takeover.

 

For instance, the use of a SE was scheduled in the context of the takeover bid launched in August 2005 by Suez on its subsidiary Electrabel.

 

The SE also appeared as a sound cooperation vehicle between public and private entities.

 

As an example, subsidies from the European Union for the design and construction of the Brennerbasis Tunnel (the largest project of railway tunnel in Europe) were made conditional upon the creation of a SE between Austria and Italy. This SE is currently registered in Austria as Galleria di Brennero Brennerbasistunnel BBT SE.

 

(b) An interesting instrument for free localization within Europe

 

The SE status is also an interesting instrument for transferring the registered office in another Member State, without resulting in dissolution of the company or to the creation of a new legal entity, in order to benefit from a more favorable legal regime in another jurisdiction (e.g., stronger anti-takeovers rules, more protection under insolvency procedures, etc.).

 

Nevertheless, provisions of French law on SE such as (i)  the obligation for the registered office and the head office of the SE to have a single location and (ii)  the right of certain shareholders opposing the transfer to have their shares repurchased by the company, could be seen as obstacles.

 

(c) An interesting instrument for non-European companies to enter into the European market

 

More than a simple legal status, the SE can turn into an actual brand for companies with ambitions on the European market.

 

This makes the SE a truly interesting corporate vehicle not only for European companies or groups but also for foreign (i.e., non-European) companies intending to carry out activity with the European market.

 

As example, in 2006 Narada, a Chinese manufacturer of batteries for telecommunication, electronics and information equipment sectors, incorporated a joint venture subsidiary under the SE form (Narada Europe SE) with its European partner Eltek, a supplier of energy and transmissions systems to the telecommunication industry. Although the details of this transaction were not disclosed, we understand that Narada Europe SE is currently held at 60% by Narada and 40% by Eltek.

 

We can imagine that Chinese, Indian or Russian groups intending to enter into the European market would be very interested in creating a SE with European actors in the close future.

 

III. France is active in the improvement of the status of the SE

 

(a) The improvement of internal law for SEs located in France

 

French authors have revealed certain difficulties and legal uncertainties faced in practice by companies contemplating the creation of a SE in France due to the incorporation of the European regulations into French law.

 

The Minister of Justice has addressed those difficulties in order to settle the main legal uncertainties.

 

Practice, through the registration of seven SEs with the Trade and Companies Registers, reveals that French legislation has built a sound playing field for hosting SEs.

 

(b) The improvement of the status of the SE

 

In her report of January 2007 to the Minister of Justice, Ms. Noëlle Lenoir, former member of the French Conseil Constitutionnel and Minister of the European Affairs, made useful suggestions in order to remove the remaining restrictive provisions and improve the SE status in France.

 

Those suggestions will be submitted to the European Commission, which has to present a report to the Council and to the European Parliament by October 8, 2009 at the latest on proposed amendments to the Regulation.

 

 

Hence, France is definitely a place that European or non-European groups carrying out activities in Europe need to consider when deciding to establish a SE within the Union.

 

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