| European SE company structure can cut down a group’s regulatory complexity |
|
| The Societas Europaea (SE) company structure has been a feature of European law since 2001 but take-up was initially slow says Eoin Caulfield, however companies are beginning to realise some of the advantages of being an SE company. |
During 2012, William Fry was involved in the innovative use of the European merger regime to facilitate the creation of two Irish 'societas europaea' or European 'SE' companies. The entities involved - previously Irish private limited companies - now operate as AXIS Re SE and AXIS Specialty Europe SE and are the Irish (re)insurance platforms of AXIS. | | Eoin Caulfield |
What is an SE?
The ability to form an SE or European company (known by the Latin name 'Societas Europaea') has been a feature of European law since 2001, although the take-up was initially relatively slow. There are currently about 1,430 SEs registered across Europe, with many household names in the financial services area. The rationale behind the concept is simple - the removal of the obstacles caused by disparities in national company law throughout the EU.
The key benefit of an SE is that it brings with it a European 'brand' and is a corporate structure designed to assist business across the European market. For regulated entities, such as insurance providers using branch or local subsidiary structures, the SE approach has potential advantages in reducing the number of regulatory layers. Indeed, SEs operating in the financial services sectors account for almost a quarter of all registered SEs.
A SE also has an ability to transfer its registered office from one member state to another as it adapts to its European market without having to engage in the transfer of assets and liabilities, dissolution and re-incorporation necessary with the traditional migration of companies. This can typically be done without, for example, crystallising a capital gains tax disposal and there can be other cost savings. To date, about 66 SEs have transferred their 'corporate seat' between different Member States.
So where’s the hitch?
Under the European SE Regulation, an SE will have many of the features of a locally-incorporated public limited company (PLC). However, unlike a PLC, it cannot usually be incorporated on a stand-alone basis through the Companies Registration Office. Instead, SEs must be formed from pre-existing limited liability entities with an existing cross-border relationship.
There are five methods of formation laid down in the SE regulation:
- Merger - Two or more PLCs in the EU can merge to form an SE, provided at least two of them are governed by the law of different member states. The merger may be carried out in either of two ways: by the acquisition of one company by another, or by the formation of a new company.
- Creation of a 'holding SE' - Public and private limited companies in the EU may promote the formation of a SE holding company provided that each of at least two of them is from a different member state or has for at least two years a subsidiary or branch in another member state. This method is accomplished by shareholders in the promoting companies exchanging their interests for shares in the holding SE.
- Creation of a 'subsidiary SE' - Public and private limited companies in the EU may form a subsidiary SE by subscribing for its shares provided that each of at least two of them is from a different member state or has for at least two years a subsidiary or branch in another EU state.
- Conversion of a PLC - A PLC may be converted into an SE if it has a subsidiary in another member state for at least two years. This is the most popular method of forming an SE, accounting for 42 per cent approximately of all new SEs.
- An existing SE setting up an SE subsidiary - An SE itself may set up one or more subsidiaries in the form of an SE.
Given the constraints in fitting the 'boxes' in the SE Regulation, the advantages can therefore be difficult to access. For example, the criteria typically require activities (meaning separate companies) in at least two member states for the past two years. It was therefore helpful to see the Irish High Court approve schemes in 2012 using the merger of PLCs incorporated in two European jurisdictions - but one of which was a new shelf PLC, solely incorporated for the purpose of the SE process - as allowing the SE formation requirements be treated satisfied.
Treatment of employees
While well-intentioned, a complexity in the creation of SEs is the process around employee consultation. There is recognition of this at European level, although amending legislation is some time away.
Separate from the SE Regulation, a European directive on SE employee participation exists, implemented in Ireland since 2006. As a result of this, when companies draw up a plan for the establishment of an SE, they must start negotiations with all affected European employees on possible arrangements for their involvement in the SE. Practically speaking the process involves, on a country-by-country basis, employees electing from amongst themselves representatives to a ‘special negotiating body’ which will then engage with the company intending re-registration. The company must facilitate the election of the representatives by secret ballot and give the body detailed information about the proposed SE.
In theory, where the employee representatives do not opt to maintain only existing rights and instead wish to seek to broaden arrangements through the process, a period of up to six months may have to pass. While the requirement is that employees be at the least unaffected, any disagreement in the negotiation may stall or halt the creation of the SE.
Where regulated entities like credit institutions and (re)insurance undertakings are involved, a further layer in creating an SE - and later restructuring plans, such as moving a 'corporate seat' to another European jurisdiction - will be the need for regulatory clearances. The Central Bank of Ireland has however already shown good familiarity with SE companies, with a growing number of Irish regulated undertakings now established as SEs. |
Eoin Caulfield is a partner at William Fry.
|
|
|
