Tuesday, 30 December 2008

Regulatory competition in company law in China?

When I teach about regulatory competition in company law, I focus on the US (Delaware etc) and the EU (ECJ case law etc). Often I don't feel good about it because I have a number of students from China. I have therefore always been wondering whether there is anything remotely similar in China. I haven't come to a convincing result, but since I am leaving Hong Kong tomorrow, let's speculate a little bit.
In mainland China the codified company law does not differ between regions. There has been some experimentation in the past (laws predating the 1993 Act; and more recently on derivative suits) but I guess that the 2005 Act is really uniform across China. However, courts and commercial registers are likely to differ in their efficiency, and therefore companies may prefer to choose their place of incorporation in big cities.
What about Hong Kong (or Macau)? A proper treatment would have to take the following points into account: (1) Here the company law is substantially different from the mainland. (2) Registration of a Hong Kong company does not require that you have your headquarters in Hong Kong (see the registration requirements of the Companies Ordinance). (3) Unfortunately, there appears to be no hard data available on the number of foreign-based Hong Kong-incorporated companies (whereas data are available on foreign-incorporate companies doing business in Hong Kong). And the fact that overall the numbers of companies has been growing (see here) may just be a result of a growing economy. (4) Hong Kong is interested in keeping its company law up-to-date (see e.g. the consultations here), which may indicate some market pressure. (5) In the Hong Kong newspapers there are ads by advisors who promote incorporation in Hong Kong or elsewhere (see below). This may indicate some regulatory competition – although it may not be driven by company law but, for instance, by tax law or bank secrecy rules.


A friend of mine just sent me a comment which I would like to share:

"I think for the China case, instead of court efficiency, it may be better to take some political considerations (to be exact, guanxi) into account. For example, I would believe that Mengniu (a dairy product company) and Little Sheep (a hot pot chain restaurant), both originated in Inner Mongolia, would hardly move their place of incorporation to large cities. It is because they can receive more favourable treatment due to local protectionism. Their economic importance is so overwhelming that the management can affect the decisions of some senior local officials and even the judges. According to the new Capital Market Development Report (below, p.279), even the CSRC contemplates the difficulties in investigation at local levels.
This is a bi-lingual version: http://www.csrc.gov.cn/n575458/yjzx/zgzbscfzbg.pdf

As for the Hong Kong case, I don't think Hong Kong Company Law has imposed some As for the Hong Kong case, I don't think Hong Kong Company Law has imposed some over-onerous burden on local companies nor the company law regime in BVI or Cayman Island is particularly appealing. Not having really investigated the issue, I just guess that tax avoidance is the main reason (though Hong Kong tax rate is already very low). Indeed, Hong Kong companies have had a long tradition to incorporate in these tax havens. By looking at the Listing Rule (Appendix 13), you can see that Bermuda, Cayman Island, as well as China are recognised overseas legal regimes, in which, the stock exchange have some types of streamline procedures for them. On the other hand, suprisingly, if you are incorporated in the US and UK, you will have a hard time to figure out what you should do to meet the requirements for overseas issuers.
http://www.hkex.com.hk/rule/listrules/vol2.htm .."

Monday, 22 December 2008

Cartesio: Daily Mail still good law!

For company and European lawyers this heading is self-explanatory but for others it may sound quite cryptic: It refers to the important decision by the European Court of Justice in Cartesio which – to the surprise of many observers – just decided that
"Articles 43 EC and 48 EC are to be interpreted as not precluding legislation of a Member State under which a company incorporated under the law of that Member State may not transfer its seat to another Member State whilst retaining its status as a company governed by the law of the Member State of incorporation".
This confirms the 1988 decision in Daily Mail but goes against the trend of a number of more recent ECJ decisions. To be sure, one may argue that the ECJ has not been inconsistent because these other cases concerned different situtations. I have explained this point in a 2007 article (available here), in particular in the following table, in which I have now added Cartesio:
Finally, one should of course note that Cartesio was not actually about a company but a partnership. This was almost completely ignored by the ECJ, but – as explained elsewhere – it is not straight forward of whether the same principles apply to companies and partnerships.

Thursday, 18 December 2008

RAE and Hong Kong

Presumably all UK academics are just discussing how the RAE results (published today) should be interpreted …. really all academics? … well, I managed to escape it because I am currently visiting at the Chinese University of Hong Kong – enjoying a nice library, a fascinating city and, last but not least, a climate that we only have in England in the middle of July ....

Monday, 8 December 2008

Update on European Private Company (SPE)

Half a year ago the EU Commission published a proposal for a Regulation on a European Private Company (SPE, Societas Privata Europaea) (available here; see also my previous post), supplementing the European (Public) Company (SE, Societas Europaea). Now, the European Council has endorsed these proposals (see here at pp. 6 and 14). This gives me the chance to promote two of “my” works on the SPE: the first one is an article, published in the German journal Der Konzern and co-authorered with Leif Herzog and Erik Rosenhäger (see reference here at p. 13). And secondly, I was a member of private working group drafting a response to the Commission's proposal, which is available in English (see here) and which was also just published in the German law journal NZG (see link here).

Friday, 5 December 2008

My book in one picture

I just copied my book Convergence in Shareholder Law into Wordle (“a toy for generating ‘word clouds’ from text that you provide. The clouds give greater prominence to words that appear more frequently in the source text.”). That’s the result:

Monday, 1 December 2008

What do KKR, EDF and CDS have in common?

Answer: they are all part of a quiz for trainee lawyers starting with the law firm Freshfields. Convincingly, it is said that “a person who claims to be a commercial lawyer but who doesn't have much of a handle on what is going on in the commercial world isn't, in the end, going to be fantastically credible to clients,” For the full quiz see today’s Times.