Public shareholdings in privatised companies

On 13 May 2003 the European Court of Justice ("ECJ") issued two judgments in which it found United Kingdom and Spanish regulations governing disposal of public shareholdings in privatised companies to be in breach of EC Treaty provisions on the free movement of capital and the freedom of establishment.

Articles of Association of a privatised British airport company in which the government holds a "Special Share" were subject of the ECJ’s assessment in Case C-98/01. Provisions limiting acquisition of voting rights and introducing procedure that makes disposal of the company’s assets, the control of subsidiaries and winding-up of the company subject to consent of the "Special Share" holder were of main concern.

The challenged Spanish legal regulation governs the privatisation of undertakings in the public sector with specified public shareholding. It introduced a system of prior administrative approval relating to (i) voluntary winding up, demerger or merger of the undertaking, (ii) any kind of disposal or charging of the assets or shareholdings necessary for the attainment of the undertaking’s object and which are defined as such, and (iii) change in the undertaking’s object.

ECJ confirmed its established approach that there may be justification for retention by Member States of a degree of influence within undertakings that were initially State held and subsequently privatised, where those undertakings are active in fields involving the provision of services in the public interest or strategic services. Free movement of capital may be restricted only exceptionally, by national rules that are justified by reasons referred to in Article 58 (1) of the EC Treaty or by overriding requirements of the general interest. Under all circumstances, the restrictions must be in full compliance with the principle of proportionality. However, with respect to the above cases, the exception was considered to be either not applicable or not justified.