Companies moving their registered seat to another EU country must be given equal treatment with companies established in that country, according to the ECJ.
The ECJ delivered this preliminary ruling on an issue referred by the Supreme Court of Hungary whether the national legislation of one member state may prohibit a company established in another member state from transferring its seat there and continuing to operate under the laws of that state.
The case concerned VALE Costruzioni Srl, a company established in Italy under Italian law which was deleted from the Italian commercial register, and its director then founded VALE Építési Kft. (with someone else) as a limited liability company under Hungarian law.
However, its application for registration in the Hungarian company register was rejected by the Hungarian court on the grounds that the Hungarian law did not permit a company to be registered as the legal successor of a non-Hungarian company by moving its registered seat to Hungary.
The ECJ ruled that:
- companies are creatures of national law and may require strict legal and economic continuity between the predecessor and successor company, such as requirements to draw up lists of assets and liabilities and property inventories
- when examining a company’s application for registration, the authorities of the host member state must take due account of documents showing whether or not the converting company complied with the requirements of the authorities in the member state of origin
- national laws that treat companies differently according to whether the conversion is domestic or cross-border are likely to deter companies with their seat in another member state from exercising the freedom of establishment
- whatever detailed rules are applied under national law to determine the incorporation and functioning of companies must adhere to the principles of equivalence and freedom of movement
- the refusal to register VALE Építési Kft. in Hungary as the successor company to VALE Costruzioni Srl because it was not a Hungarian company was a restriction of the freedom of establishment and the principle of equivalence
The Hungarian Supreme Court has yet to deliver its final decision in the appeal by VALE Építési Kft. against the order rejecting its application for registration. The court is obliged to take the ECJ’s decision into account, which may entail further amendments of national legislation.
Although Hungarian law does not yet permit foreign companies to transfer their seat to Hungary, cross-border mergers between foreign and Hungarian companies have been possible in Hungary since 2008 and are widely used as a means of effecting cross-border transfers of companies.