9.01  This book has sought to sustain one main argument: freedom of establishment is not unlimited. Never before have companies enjoyed so many opportunities for crossing borders and creating establishments in other Member States at such a low cost. However, after a brief period of encouraging corporate mobility in Europe, the ECJ and other EU institutions have recently taken steps to demarcate the boundaries of freedom of establishment.

9.02  The refinement of the doctrine of abuse in relation to letter-box companies and the enactment of the Services Directive mark the beginning of another trend in freedom of establishment for companies. The European institutions have demonstrated their wish to limit the access of letter-box companies to the benefits of freedom of establishment and, simultaneously, to guarantee a universal enjoyment of these benefits to all other companies.

9.03  This refinement and enactment have coincided with the greatest economic crisis the world has known since the Great Depression of 1929 and the European sovereign debt crisis. Although some analysts, economists, and bankers appear positive about the recovery of the economy in the immediate future, it is absolutely certain that attitude towards companies and corporate mobility is dependent on the economic prosperity of States.

9.04  In such adverse economic conditions, it is not surprising that corporations, and especially letter-box and offshore companies, have been frequently accused of having contributed to the financial difficulties faced by several members of the Eurozone. Whether this is true or not, such a popular perception exists, and national governments might respond to this popular demand by taking measures to prevent mobility that allows corporations to subject themselves to less stringent corporate and insolvency regimes. It is also certain that States are taking and will probably continue to take measures to ensure that corporate activity does not take forms that facilitate tax avoidance and evasion. Letter-box and offshore companies are amongst the first ‘victims’ of this urgent need for cash that States are now facing, especially the ones facing a severe sovereign debt crisis.

(p. 266) 9.05  In this context, the ECJ has recognized the validity of the real seat theory and has allowed Member States to restrict the exit of companies incorporated there, unless they are to take up legal personality in the Member State of destination. This shows how the ECJ is keen on preserving real ties between companies and their State of incorporation by not allowing for the real seat to be moved to another Member State without altering the law applicable to corporate matters. If this were allowed, it would have made the creation of letter-box companies possible with the blessings of the Court.

9.06  Likewise, letter-box companies and other artificial formations may not enjoy the benefits of the insolvency law of their State of incorporation. However, not only should the transfer of the COMI to another Member be possible when the debtor is acting in agreement with the creditors, but it is also guaranteed by the EU fundamental freedoms. Allowing Member States to prevent companies from moving their real seat out of the jurisdiction is a mechanism which prevents the transfer of the COMI solely by the debtor without the consent of the creditors. When the transfer is conducted by general agreement, there are other mechanisms, such as the CBM Directive, to allow the shift to be performed.

9.07  In this context, regulatory competition for corporate law remains possible. However, its nature will be very different to that which takes place in the US. European regulatory competition is EU-regulated. Unlike the USA, in Europe, the EU institutions may promote regulatory competition, while States may observe a positive, neutral, or negative stance. For the moment, reincorporation is not a mechanism which is generally available. Companies that wish to migrate to another Member State and establish their registered office will more often than not have to employ the means provided to them either by the CBM Directive or the SE Regulation. This requires a level of publicity and consultation with other stakeholders that affects the way in which corporate wars are conducted.

9.08  In parallel with all the corporate law reasons that might push companies to migrate or to establish themselves in a cross-border manner, lies insolvency law. There are strong reasons for companies to migrate to other Member States so as to benefit from more efficient insolvency regimes. There are also equally strong reasons for creditors to consent to transfers that will increase firm value and subsequently recovery of the debt.

9.09  Insolvency law in Europe is far from harmonized. Additionally, there are acute differences between the English, German, and French insolvency regimes. The variety of options that are available to debtors and creditors is very rich. This is indeed a good thing. Even if it turns out that Member States are not keen on engaging in a regulatory competition, debtors and (p. 267) creditors have a lot to gain from the polymorphy of insolvency law in Europe. As Roberta Romano argued for American corporate law, federalism will appear to be the genius of European insolvency law.

9.10  Despite the sovereign debt crisis it is currently facing, the EU has modified its approach to freedom of establishment. Such approach is characterized by modesty and caution in regulating corporate mobility. Tax, insolvency, and corporate policies of Member States and the EU, perhaps in this particular order, affect the shaping of freedom of establishment.

9.11  At one end of the spectrum—ie taxation—Member States wish to preserve complete authority over the ways in which companies move in and out of their jurisdiction. At the other end—ie corporate affairs—the EU is pushing for corporate mobility, which pursues some genuine economic activity. Member States are allowed to intervene and thwart the decisions of private individuals to a much more restricted extent. Insolvency lies in the middle.

9.12  All this shows that the canvas of State and company relations is dominated by the historic debate of delineating the boundaries between the public and the private sphere. State interest is opposed to private autonomy. Perhaps the next phase of freedom of establishment will be one in which private autonomy will gain more ground to the detriment of State interest. This will depend largely on the state of the economy in Europe and the prosperity of Member States.

9.13  Although corporate mobility in Europe increasingly has become intrinsically linked with freedom of establishment and thus acquires a public law profile, the significance of private international law is not impaired. The Cartesio case has clearly shown that the choice of law rules do not matter from a perspective of freedom of establishment. Instead, the applicable substantive law is scrutinized. As the debate shifts from private international law to substantive law, the case for regulatory competition becomes stronger. In this context, it will be crucial to deter the European institutions from harmonizing the law and thus establishing ‘a Stalinist monoculture’.¹