Constraining Dominant Shareholders' Self-Dealing: The Legal Framework in France, Germany, and Italy

Abstract

All jurisdictions supply corporations with legal tools to prevent or punish asset diversion by those, whether managers or dominant shareholders, who are in control. As previous research has shown, these rules, doctrines and remedies are far from uniform across jurisdictions, possibly leading to significant differences in the degree of investor protection they provide. Comparative research in this field is wrought with difficulty. It is tempting to compare corporate laws by taking one benchmark jurisdiction, typically the US, and to assess the quality of other corporate law systems depending on how much they replicate some prominent features. We take a different perspective and describe how three major continental European countries (France, Germany, and Italy) regulate dominant shareholders' self-dealing by looking at all the possible rules, doctrines and remedies available there. While the doctrines and remedies reviewed in this article are familiar enough to corporate lawyers and legal scholars from the respective countries, this is less true for many participants in the international discussion, which remains dominated by Anglophone legal scholars and economists. We suggest that some of these doctrines and remedies, namely the German prohibition against concealed distributions, the role of minority shareholders in the prosecution of abus de biens sociaux in France, and nullification suits in all three countries have not received the attention they deserve.

Related party transactions in continental European countries: Evidence from Italy

“…A common feature is that the ownership structure of fi rms operating in these countries is often characterized by the presence of a dominant shareholder ( Conac et al , 2008 ). At the same time, Continental European companies, particularly France and Italy, have little access to equity and debt fi nancing because of the weakness of their capital markets ( La Porta et al , 1997 ).…”

Preventing Abuse by Controlling Shareholders

“…Whether this court could serve that function, I do not know, but it certainly has some desirable characteristics (Jitta et al, 2004, Kroese, 2007: it has experience with listed foreign companies (albeit with a registered office in the Netherlands), a business attitude, it has non-lawyers on board, and it decides quickly and in a nonbureaucratic fashion. Comparing this with the description of the Milan court in Enriques (2002), it seems that the contrast could not be larger.…”

“…"Stranger than fiction" is the impression that one is left with after having read accounts, such as Johnson et al (2000), Ferrarini and Giudici (2005) and Conac et al (2007), about how courts in several European countries deal with self-dealing of CSs. One can only be shocked about how easy it apparently is (or has been) to divert corporate assets at the expense of others.…”

Constraints on Private Benefits of Control: Ex Ante Control Mechanisms versus Ex Post Transaction Review

“…PBC extracted through inter-company dealings 6 Enriques (2000) surveys European legal regimes concerning director self-dealing. 7 EU member states also limit the terms of the transactions through which controlling shareholders may extract PBC (see Enriques, 2000, andConac, Enriques, andGelter, 2007). We stress later, however, the terms of the substantive law are of limited significance in the absence of effective judicial review.…”