Banks like to tout themselves as one-stop shopping centres for their corporate clients’ every need. If you are looking to invest in Europe or get involved in the vast corporate restructuring taking place on the Continent, almost any sizeable UK or international bank can take you by the hand across the Channel. However, the one function they will not guide you through is very often the most crucial to the success of your business abroad – the legal pitfalls awaiting UK corporates in a supposedly harmonised European Union.
It comes as no small irony that Belgium – the country that to most people symbolises the EU – shackles the potential investor with a raft of user-unfriendly company law. The problems arise on two levels: corporate governance issues and the legal system. On the corporate governance front, most of Belgium’s public companies are majority controlled by a small group of investors who are quite often family shareholders. And the shareholders are the company decision-makers.
“As regards the legal issues, it is Belgium’s federalist system that impacts on corporate transactions,” says Wim Dejonghe, a partner at law firm Allen & Overy’s Brussels office. “This is particularly relevant in areas such as environmental legislation. The laws are quite specific in the Flemish region, virtually non-existent in the Brussels region and they are just being framed in the Walloon region,” he says.
Then there is the legal problem of dealing with a multi-language country. All corporate documents must be drawn up in the language of the region of origin. “In the case of acquiring a Belgian company with operations in the three regions, three sets of rules and languages may apply,” says Dejonghe.
In Germany, on the other hand, the stumbling blocks come more in the form of corporate governance issues. Investors need to be on their guard when dealing with a listed German company and its two-tier management structure. The day-to-day running of the company is the responsibility of the management board and it is with this body that any investor must deal. But the management board’s work is supervised by the aptly named supervisory board, whose members may be professional advisers and representatives of major shareholders.
The management board is empowered to decide on disposals, joint ventures and the like, subject to the approval of the supervisory board. The supervisory board’s power can become irksome in companies with more than 500 employees, since at that threshold the board must take on a number of union and employee representatives. This has often thrown a spanner in merger and disposal deals involving foreign companies.
“The highest risk comes from the shareholders themselves,” says a German lawyer. “Any investor is entitled to delay a management board resolution put forth at an AGM. A legal challenge from a shareholder very nearly scuppered the Daimler merger with Chrysler, so it is no joking matter.
The truth is that this situation is getting worse as companies are being blackmailed into offering cash compensation to disruptive shareholders who travel from one AGM to another.”
In France the pitfalls are not as onerous. However, problems tend to arise when an acquirer tries to retain the management of the target company.
Unlike the UK, French law does not allow for fixed-term contracts. Work contracts can be terminated by the company’s directors, which means that the new owners could find themselves without an experienced management team on board.
However, the real stumbling blocks are the Workers’ Councils. French workers can be militant and one of the first hurdles a foreign buyer will have to overcome is the meeting with these workers. French law sets out a generous package of benefits and negotiations on these issues can be highly delicate.
One development of immediate concern is the change to the takeover code that comes into effect in mid-October. Until now a foreign acquirer and its French target company were required to notify the Finance Ministry if their combined international turnover exceeded Ffr7bn, or Ffr2bn in the French market.
The threshold is now being lowered to Ffr150m and Ffr25m, respectively.
Failure to notify the authorities could cause a needless legal hassle.
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