EC Company Law and the Fears of a European Delaware

Abstract

A long-standing and increasingly debated question among European company law scholars is whether we can expect (fear) a Delaware-like scenario within the EU, especially after Centros and its progeny of cases: a scenario in which States supposedly compete to attract (re) incorporations. This paper shows how unlikely such a scenario actually is and draws implications on the role of the European Community as a policy maker in this area. I argue that the implausibility of regulatory competition makes the case for harmonised EC company law rules designed to do anything more than facilitate companies' mobility and cross-border integration much less compelling. In fact, the most traditional and most popular justification for harmonisation appears to be that such rules are needed to avoid a race for the bottom. If there is no race under way, and none is likely to develop, then there is simply nothing to avoid. The paper mainly focuses on listed companies and companies at the IPO stage, essentially for two reasons. First, these are the special targets of recent initiatives by the EC commission following scandals such as Enron in the US and Ahold and Parmalat in Europe. Second, regulatory competition in the US mainly involves listed companies, so that the US experience and studies can teach us more about competition for them than for closely held ones. In any event, most of the arguments can also be extended to closely held companies. In order for a market for corporate law to form, firms must be able and willing to shop for a friendlier company law than the default law of their home State by reincorporating elsewhere. Part II enquires whether this option is available to European listed companies, not only as a matter of law but in actual practice, in light of the possible legal and non-legal obstacles. Regulatory arbitrage of this sort cannot be ruled out altogether, but it is bound to be much less common than in the United States. Even having established that there is indeed a demand, however little, for a friendlier company law, it is far from sure that a European Delaware will emerge. Part III shows that it is most unlikely that any EU Member State will emerge as an active player in the market for corporate law, owing to a number of features of the European institutional framework that were absent more than a century ago when some US States engaged in a race for (re)incorporations. Part IV concludes, highlighting that the race for the bottom argument for harmonisation is unconvincing because no race can reasonably be expected to develop among EC Member States in the field of company law.