Opinion in Case C-112/05, Commission v Germany

AG Ruiz-Jarabo today argued that the Volkswagen law restricted the free movement of capital.

I have written on this case
before. The so called Volkswagen-Gesetz is a federal statute which guarantees both the federal government and the state government of Lower Saxony a veto over major decisions at Volkswagen.

They are for instance each entitled to appoint two members of the supervisory board Volkswagen, provided that they hold shares in the company.

The Commission also criticizes that Resolutions of the general shareholders' meeting of Volkswagen AG, for which a majority of 75 % of the share capital represented at the time of voting is required, require a majority of more than 80% of the share capital represented.

A third point of criticism is the fact that the law limits, by way of derogation from the provisions of the German Company Law, each shareholder's voting rights to a maximum of 20% of the share capital.

According to the Commission, the statute therefore infringes Articles 56 EC and 43 EC.

Advocate General Ruiz-Jarabo agrees. In his Opinion, he argues that the law dissuades those wishing to acquire a significant number of shares in the company, given that, amongst the ten members assigned on the basis of capital to the supervisory board, there would be four representatives of public authority, owning a marginal number of shares.

The reduction of the voting rights to 20% coincides with the percentage of shares held by the Federal and state governments at the time the law was adopted. Anyone wishing to acquire a sufficient number of shares in the company to sit on the management bodies would have serious doubts about acquiring more than 20% of the capital because he would have no voting rights above that ceiling.

Even if he would succeed in mobilising every small shareholder, there would be no real possibility of achieving any change with more than four fifths of the company capital in the shareholders’ meeting because the Federal Government and the Land could block it with their minority holding.

The national legislation thus prevents any intervention in the management of the company and only strengthens the position of the Federal Government and the Land, thereby restricting the free movement of capital.