Court holds that Greek scheme of prior authorisation for acquisition of voting rights in strategic public limited companies and of ex post control is contrary to freedom of establishment
>> Article 11 of the Greek Law 3631/2008 required prior authorisation for the acquisition of voting rights representing 20% or more of the share capital in certain strategic public limited companies which operated national infrastructure networks within a monopoly context. There was provision for ex post control in regard to the adoption of certain decisions.
According to the Commission, the Greek scheme applicable to certain strategic companies which were quoted on the stock exchange included restrictions on the freedom of establishment as well as on the free movement of capital. In particular, the ex post control had the effect of restricting the effective participation of shareholders in the management of the undertakings.
The Court reiterated that the national of a Member State with a holding in the capital of a company established in another Member State, allowing him to exert a definite influence on that company’s decisions and to determine its activities, is exercising his right of establishment. Furthermore, national legislation not intended to apply only to those shareholdings which enabled the holder to exert a definite influence on a company’s decisions and to determine its activities but which applied irrespective of the size of the holding which the shareholder had in a company might fall within the scope of both Article 43 EC (now Article 49 TFEU) and Article 56 EC (now Art. 63 TFEU) (Case C‑212/09 Commission v Portugal ).
The Court found that the prior authorisation scheme at issue covered only the acquisition of holdings in a strategic public limited company which granted voting rights representing 20% or more of the total share capital, with the result that only those shareholders who were able to exert a definite influence over the management and control of such a company are affected.
The Court pointed out that by fixing at 20% of the share capital the threshold of the acquisitions subject to the prior authorisation scheme, the scheme prevented investors from reaching the level required to control and manage a strategic company and influence its decisions. The Court thus found that Article 43 EC alone applied to the prior authorisation scheme at issue.
However, Greece disputed the applicability of that fundamental freedom on the ground that the prior authorisation scheme provided for in Article 11(1) of Law 3631/2008 is intended primarily to control speculative hostile acquisitions by sovereign wealth funds established in non-member countries.
The Court held that Article 11(1) of Law 3631/2008 applies to all potential investors, including those established in the EU Member States, and not only to investors established in non-member countries. Greece, moreover, has not identified any other legislative provision from which it follows that the scope of that scheme applies only to investors established in non-member countries.
The Court furthermore rejected the argument put forward by Greece that the prior authorisation scheme provided for in Article 11(1) of Law 3631/2008 did not limit the acquisition of shareholdings as such and therefore did not, for that reason, constitute a restriction on the freedom of establishment, since it related only to the voting rights relating to those shareholdings.
The Court reiterated that such a restriction existed if a prior authorisation scheme had the effect of preventing or restricting the exercise of voting rights attached to shares held since these constitute one of the principal means for the shareholder to participate actively in the management of an undertaking or in its control (see Case C-274/06, Commission v. Spain, [2008).
In the second place, as regards the arrangements for ex post control, the Court had already held that such a scheme must be assessed only under Article 43 EC since it related to decisions within the scope of the management of the company and therefore concerned only those shareholders capable of exerting a definite influence on it. Moreover, even if the effects of such a scheme were restrictive of the free movement of capital, those effects would be the unavoidable consequence of any restriction on freedom of establishment and would not warrant independent examination in the light of Article 56 EC (Case C‑326/07 Commission v Italy ).
Therefore, the Court found that Article 43 EC alone applied to those control arrangements.
The Court furthermore held that in the case of undertakings carrying out activities and supplying public services in the petroleum, telecommunications and energy sectors, the objective of guaranteeing the security of supply of such products or the supply of such services in the event of a crisis, on the territory of the Member State at issue, might constitute a public security reason and, therefore, possibly justify an obstacle to the free movement of capital. Moreover, the Court found that pursuit of general interests which concerned public policy, public security and public health might possibly justify certain restrictions on the fundamental freedoms. (Case C-274/06, Commission v. Spain, (2008)).
However, as regards an objective linked to the security of supply of energy, the Court pointed out that this could be relied on only if there was a genuine and sufficiently serious threat to a fundamental interest of society (Case C-274/06, Commission v. Spain, ).
The Court reiterated that the mere acquisition of a holding of more than 10% of the capital of a company operating in the energy sector or any other acquisition conferring significant influence on such a company cannot, as a general rule, be regarded as a real and serious enough threat to security of supply (Case C‑326/07 Commission v Italy ).
However, the Court found that the scheme at issue produced its effects before the company had even adopted a decision, namely without a risk being established, even a potential one, of interference with the security of supply. Moreover, at the time of issuing the authorisation, it was not certain that all the cases of real and serious threats to the security of energy supply might be identified and taken into account. Moreover, the limitation to the exercise of voting rights, even, if necessary, the refusal to recognise those rights which gave rise to the mechanism provided for in Article 11(1) of Law 3631/2008, applied to all decisions giving rise to a vote by shareholders and not only those capable of specifically threatening the stated objective of that law.
The Court thus concluded that by laying down the requirements referred to in Article 11(1), read in conjunction with Article 11(2), and those referred to in Article 11(3) of Law 3631/2008, Greece had failed to fulfil its obligations under Article 43 EC on the freedom of establishment.