The European Court of Justice dismissed the European Commission’s action against the Federal Republic of Germany to impose penalties for failure to fully comply with the Court's earlier ruling on the anti-takeover Volkswagen law. In its opinion, the German federal legislation enacted after the Court’s ruling fully complied with that ruling. (European Commission v. Federal Republic of Germany, No. C-95-12, Oct. 22, 2013)
The Volkswagen law was hammered out in 1960 with the participation of workers and trade unions that, in return for relinquishing their claim of ownership rights in the company, secured protection against any large shareholder gaining control. The legislation allows the federal government and Lower Saxony to each appoint two members of the supervisory board and gave them each a 20 percent stake.
In 2007, the Court of Justice ruled that Germany’s Volkswagen Law restricted the free cross-border movement of capital through the intervention of the public sector. The Court found that capping the voting rights of every shareholder at 20 percent regardless of their shareholding violated the requirement that there be a correlation between shareholding and voting rights. The Court also held that provisions in the law conferring two seats each on the company’s supervisory board (equivalent to the board of directors in the US) for the German Federal Republic and the State of Lower Saxony, regardless of their shareholding, also constituted a restriction on the cross-border movement of capital. (European Commission v. Federal Republic of Germany, No. C-112/05).
Subsequent to the Court’s opinion, Germany enacted legislation abolishing the provisions providing for the representation of public authorities on the board and the 20 percent voting cap. But the Commission contends that the legislation did not modify the provision establishing a 20 percent blocking minority in favor of Lower Saxony. Further, no changes were foreseen to the VW Articles of Association, which contain majority voting requirements mirroring the VW law and which were considered as a State measure by the Court.
According to the Court, it is apparent from both the operative part of the 2007 judgment, which contains the decision of the Court, and the grounds for that decision that the Court did not establish that there had been a failure to fulfill; obligations resulting from the provision relating to the lower blocking minority, considered in isolation, but established that there had been such a failure solely as regards the combination of that provision with the provision relating to the cap on voting rights.
Consequently, by repealing both the provision of the Volkswagen Law relating to the appointment, by the Federal Republic of Germany and the State of Lower Saxony, of members to the supervisory board and the provision relating to the cap on voting rights, thereby putting an end to the combination between that latter provision and the provision relating to the lower blocking minority, Germany did fulfill, within the period prescribed, the obligations that follow from the 2007 judgment.
Moreover, the Court rejected as inadmissible the Commission’s complaint that Germany should also have amended Volkswagen’s Articles of Association, which still contain a clause relating to the lower blocking minority, which is essentially analogous to that in the Volkswagen Law, on the ground that the 2007 judgment related exclusively to the compatibility of certain provisions of the Volkswagen Law with E.U. law and did not relate to that company’s Articles of Association.