EU court rules Germany's 'Volkswagen' law illegal UPDATE

EU court rules Germany's 'Volkswagen' law illegal UPDATE

	Published : Tue, 23 Oct 2007 09:03 By : Agencies Print this Story

LUXEMBOURG (Thomson Financial) - The EU's highest court, the European Court of Justice (ECJ), has ruled against the 'Volkswagen law', upholding a European Commission claim that Germany has prevented the free movement of capital by effectively protecting the car giant against takeover.

The ECJ said in a court document that Germany 'failed to fulfil its obligations in respect of the free movement of capital'.

The commission brought the action against Germany in March 2005, claiming that the VW law, dating from 1960, contains provisions regarding the shareholding and management of the group which differ from standard company laws.

The offending provisions say that no single shareholder can have more than 20 pct of the voting rights in the company, that Germany and the state of Lower Saxony, which is a major Volkswagen shareholder, are each entitled to appoint two members to VW's supervisory board and that the majority required to pass a resolution at a general shareholders' meeting is over 80 pct, rather than 75 pct.

The court found that the provisions were liable to have a deterrent effect.

On the capping of voting rights at 20 pct and fixing the blocking minority at 20 pct, the court said that the two provisions, taken individually, may operate both to the benefit and detriment of any shareholder of the company.

But, taken together, the provisions enable Germany and Lower Saxony to 'exercise considerable influence over the affairs of Volkswagen', due to a lower level of investment than would be required under general law.

The court ruled that this situation is liable to deter direct investors from other member states.

On the supervisory board representatives, the ECJ said the possibility for Germany and Lower Saxony each to appoint two representatives to the board places those public shareholders in a privileged position compared with general company law, under which they would only be allowed to appoint three representatives.

'Furthermore, on condition that they hold shares in the company, they enjoy the right of appointment irrespective of the level of their shareholding,' the court said in a document.

It would therefore be possible for Germany and Lower Saxony to exercise influence which exceeds their levels of investment and reduce the influence of other shareholders.

The verdict could unblock the route for Porsche AG to acquire majority control of Volkswagen AG, as well as for a possible consolidation of the European trucks sector.

nina.chestney@thomson.com

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