The group of companies, efficiency and the law

J

European University Institute

Department of Law

J o h a n n e s L ü b kin g

The Group of Companies, Efficiency and the Law

S upe rviso r: Prof. G ü n th e r T e u b n e r

LLM.Thesis

Florence 1994

European University Institute

LAW

European University institute

Department of Law

- O S S O

Johannes Lübking

The G roup of C o m p a n ies, E fficiency an d th e Law

Supervisor: Prof. Gunther Teubner

LLM.Thesis

Florence 1994

ibliography... 4

bbreviations ... 18

Introduction ... 19

I. The Importance o f the Group in Economic Life ... 23

II.

Groups between Economie Organisation and Legal Structure . . . . 24

III. Structure of the Study ... 33

Economie Organisation of an Enterprise... 35

I. Market and Hierarchies in Terms of E fficie n c y ... 35

1. Economies of Scale and S c o p e ... 38

2. Economising on Transaction Costs ... 40

a. Basis of Transaction Costs E co n o m ics... 40

b. Behavioural Assumptions and Distinguishing Dimensions o f T ransaction s... 42

c. Dimensionalizing Governance and Discriminating Alignment ... 44

3. Implications of Information for the Choice o f the Organisation... 46

4. Results for the Functions of an Enterprise ... 51

II. Internal Organisation of an Enterprise ... 56

1. Multidivisional-form ... 56

a. Effects of the M-form for the Top Management . . . 58

b. Profit Centre Standing of the Divisions and Responsibilities of their Management ... 60

c. Advantages o f the Decentralised S tru ctu re... 63

2. Disadvantages of Loose Forms of O rganisations... 65

3. C onclu sion... 66

Table of Contents

m

III. Economie Organisation of the G ro u p ... 67

1. Organisational Structure o f the G r o u p ... 69

a. Economic Types of G r o u p s ... 70

b. Transfer of the M -form to Groups, and its Developments... 72

2. Divisions of Responsibilities -... 74

a. Strategic and Financial M anagem ent... 75

b. M an ag em en t In stru m e n ts and D e g re e o f Centralisation... 77

aa. General Management Instruments... 78

bb. Accounting and A uditing... 79

cc. Personnel P o lic y ... 81

dd. Financial Management ... 82

ee. Coordination Instruments... 85

c. Other Areas o f Central M anagem ent... 85

3. Advantages of the Group as Organisational Form - Unity and Variety in Economic and Legal R e sp e cts... 87

a. Advantages o f the Group Structure for Internal Organisation...*... 89

b. Other A dvantages... 93

c. Conclusion o f the Advantages of the Group as an Organisational Structure... 95

IV. Conclusions to the Economic Section ... 96

Efficient Law for the G r o u p ... 99

I. The

GmbH

as an Affiliated Company in the G ro u p ... 99

II. The

GmbH

in a Group based on a C o n tr a c t...101

III. The

GmbH

in a de facto G roup... 107

1. Legal Structure of the

GmbH

with regard to its Standing in the Group as an Affiliated C o m p an y ... 107

2. The Profit Centre in the Form o f a Legal Person and a

G m b H

... 116

3. Personnel P o lic y ...119

4. Financial M anagem ent... 123

5. Accounting and Inform ation...127

6. Shift of Entrepreneurial Functions from the Subsidiary to Other Group M em bers... ' ...127

7. C o n clu sio n ... 128

IV . Extension of Liability in a De Facto Group With Affiliated

G m b H

... 129

1. Concept o f the Qualified De Facto Group According to the

BGH

...131

2. Legal Rationale for a Special Group L iability... 138

a. Protection of the Creditors by Organisational Law ... 141

b. Direct Protection of Creditors by Provisions for the Maintenance of Capital ...147

c. Compatibility o f the Organisational Structure with the Legal Requirements o f Limited Liability ... 152

d. Compatibility o f the Criteria for the Qualified De Facto Group with the F in d in g s...157

e. French Law ... 160

f. Categorizing the C o n cep t... 162

3. Economic Rationale for a Group Liability ...163

a. Substitution o f a Special Liability Rule for the Group by the M arket...165

b. Justification o f Limited Liability for Subsidiaries in a G ro u p ...168

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BGHZ EC EEC FAZ OJ

NJW

sz

ZIP

Abbreviations

Entscheidungen des Bundesgerichtshof (Collected decisions o f the German Federal High Court)

European Community

European Economic Community Frankfurter Allgemeine Zeitung Official Journal

Neue Juristische Wochenschrift Süddeutsche Zeitung

A. Introduction

"Das Wesen des Konzerns hat etwas unbestimmt Schillemdes. Es wird vergebene Muhe

sein, eine allgemein verwertbare juristische Definition herausarbeiten zu wo lien,

"*

The group o f companies (

Konzern

) is characterized by the unity o f the whole and the

*

variety of its members.1 2 The members are different companies, all legally independent and with their own legal personallity. They are unified in a group since -according to the German definition- the parent company manages the group on a unified basis,3 while the subsidiaries are controlled by the parent company according to the original English4 and French5 definitions. The original English and French definitions took a more formal approach in describing the group phenomenon. Control was mainly considered to exist if the parent company had the majority of the subsidiary company’s voting rights or the right to appoint the majority o f the directors on the board of the subsidiary.6 Some years ago the 7th EC Directive7 on Company Law (with regard to consolidated group accounts) has taken a broader approach to define the group. By transforming the direction, French legislation included further means o f exercising

1 H a c h e n b u r g i n D ü r i n g e r / H a c h e n b u r g ( e d s . ) , Das Handelsgesetzbuch ( 1 9 3 4 ) , 3 r d e d . , V o l . 3 , i n t r o d u c t i o n , n o t e 1 3 8 .

2 S e e c l a s s i c a l f o r m u l a t i o n b y R a i s e r , " D i e K o n z e r n b i l d u n g a l s G e g e n s t a n d r e c h t s - u n d

w i r t s c h a f t s w i s s e n s c h a f t l i c h e r U n t e r s u c h u n g e n " , Schriften des Vereins für Socialpolitic N . F . 3 3 ( 1 9 6 4 ) , p . 5 4 : " E i n h e i t d e s G a n z e n u n d V i e l h e i t d e r G l i e d e r " .

■' S e e t h e d e f i n i t i o n i n t h e Aktiengesetz, Gesetz vom 6. September 1965 (BGBL 1 p. 1089), h e r e i n a f t e r c i t e d as AktG,§ 1 8 ( 1 ) f o r a "Konzern",t h i s d e f i n i t i o n i s v a l i d f o r a l l c a t e g o r i e s o f c o m p a n i e s b u t i s r a t h e r l i m i t e d i n i t s f i e l d o f a p p l i c a t i o n ; s e e a l s o t h e d e f i n i t i o n i n t h e Handelsgesetzbuch, Gesetz

vom 10. Mai 1897 (RGBL p. 219), h e r e i n a f t e r c i t e d a s HGB, a s a m e n d e d b y Gesetz vom 19. Dezember

1985 (BGBl I p. 2355), §§ 2 7 1 ( 2 ) , 2 9 0 f o r a c c o u n t a n c y p u r p o s e s ( a s t r a n s f o r m a t i o n o f t h e 7 t h E C D i r e c t i v e o n C o m p a n y L a w ) .

4 See the definitions of "parent undertaking" and "subsidiary undertaking" in Companies Act from

11 March 1985, hereinafter cited as CA 1985, s. 258, amended by Companies Act from 16 November 1989, hereinafter cited as CA 1989, s. 21, only for consolidated group accounts; and the definitions of "subsidiary company" and "holding company" in CA 1985 s. 736, 736A, inserted by CA 1989 s. 144, in general for all other fields of applications; "group" consists of a subsidiary and a holding company as given in CA 1985 s. 736, see CA 1989 s. 53 (1).

5 See the definition of "filiale" in Lot n* 66-537 du 24 Ju illet 1966, hereinafter cited as Loi 1966, art. 354; new definition of "controle" in Loi 1966, art. 355-1, as amended by Loi n° 85-705 du 12 juillet 1985, and art. 357-1, as amended by Loi n° 85-11 du 3 janvier 1985, only for a consolidated group account, art. 355-1 has a limited field of application, e.g. with regard to the cross-holding of shares and duties to inform other shareholders about the own participation.

* See CA 1985 s. 736 and Loi 1966art. 354, 355.

c o n tr o l in to th e d e fin itio n o f a g ro u p , the E n g lis h d e fin itio n to o k e v e n u p th e term " u n ifie d m a n a g e m e n t" {einheitliche Leitung). T h e le g a l o rd e rs do n o t th u s o n ly p o in t to n a rro w ly d e fin e d le g a l m e a n s f o r d e fin in g th e p h e n o m e n o n but to a c c e p tin g ( d e fa c t o ) c o n tr o l b y w h ic h m e a n s s o e v e r a s th e d e c is iv e p o in t f o r th e g ro u p s tr u c tu r e .8

T h e s e d e fin itio n s h a v e d if f e r e n t sta rtin g p o in ts a n d c a n b e a p p lie d o n ly to lim ite d an d p a r tia lly d iffe r e n t f ie ld s . T h e y do n o t g r a s p th e p h en o m en o n p r e c is e ly , th e m o st illu m in a tin g d e s c rip tio n s t il l s e e m s to b e th a t a g ro u p is b a se d o n a u n ifie d m a n a g e m e n t o f th e d iffe r e n t m e m b e r c o m p a n ie s . T h is is n o t a w e ll-d e fin e d le g a l term and h a s b e e n ta k e n fro m th e e c o n o m ic s p h e r e in to la w ; s c h o la rs o f th e d iffe r e n t c o u n tr ie s a g r e e that it is a m in im u m c rite rio n f o r a g r o u p that the m e m b e r c o m p a n ie s are s u b m itte d to a s in g le d e c is io n -m a k in g p r o c e s s - o n w h a te v e r m e a n s th is is b a s e d .9 T h e le a d in g r o le in th is p r o c e s s is g iv e n to the g ro u p m a n a g e m e n t w h ich in flu e n c e s the m a n a g e m e n t o f the c o n tro lle d c o m p a n ie s and g iv e s a d v ic e to them in o rd e r to e s ta b lis h a m o re o r le s s u n ifo rm m a n a g e m e n t.10 H o w e v e r, d e sp ite th e se d e s c r ip tio n s the q u e stio n re m a in s op en to w h at e x t e n t -o n the s p e c tru m b e tw e e n c o m p le te c e n tr a lis a tio n and c o m p le te d e c e n tra lis a tio n - th e m e m b e r c o m p a n ie s m u st b e c o o r d in a te d an d the s u b s id ia r ie s ’ c o m p a n ie s m a n a g e m e n t m u st b e in flu e n c e d to co m p ly w ith th is term . M o re im p o rta n t is the e c o n o m ic a lly assu m ed e f f e c t o f th e u nified m a n a g e m e n t w h ich is to b e d e s c r ib e d by the term " u n ifie d m a n a g e m e n t": th e group as a w h o le is v ie w e d in e c o n o m ic term s as a u n ifo rm e n te rp rise , d e sp ite th e m em b er c o m p a n ie s b e in g s e p a ra te e n t it ie s .11 A s a c o n s e q u e n c e , the m e re h o ld in g o f sh ares o f o n e c o m p a n y by

* See the inclusion of "dominant influence" and "managed on a unified basis" in CA 1985 s. 258, amended by CA 1989 s. 21. In L oi 1966 art. 357-1, as amended by Lot n° 85-11 du 3 jan vier 1985, the exercise of control by a control contract or by provisions contained in the undertaking’s memorandum or articles is included.

g See for France, Guyon, "The Law on Groups of Companies in France", in Wymeersch (ed.)

Groups o f Companies in the EEC (1993), p. 141; for Great Britain Gower, Principles o f Modern Company Law (1992), 5th. ed., p. 121, 126ff.; for Germany Wiedemann, Die Unternehmensgruppe im Privatrecht(1988), p. 6f.

10 See the economic definition of unified management by Scheffler, "Konzemleitung aus

betriebswirtschaftlicher Sicht", D er B etrieb 38 (1985), p. 2005, "the coordination and influencing of the member companies’ management according to plan".

11 See Gower (1992), supra note 9, p. 126-129; Ripert/Roblot/Germain, Traité de D roit

Commercial (1993), 15th ed., p. 581; Wiedemann (1988), supra note 9, p. 6; Immenga, "The Law of Groups in the Federal Republic of Germany", in Wymeersch (ed.), Groups o f C om panies in the EEC

(1993), p. 97f.; for the connection between economic unity of the group and unified management see Slongo, D er B eg riff d er einheitlichen Leitung a Is B estandteil d es Konzernbegriffs (1980), p. Iff.,

a n o th e r a s a p u re fin a n c ia l in v e s tm e n t is n ot s u f f ic ie n t to fu fil th e n o tio n o f a g ro u p , n o tw ith s ta n d in g th e f a c t th a t u n if ie d m a n a g e m e n t o f a g ro u p is m o stly b a s e d o n m a jo r ity s h a r e h o ld in g . A ll th e s e d e s c r ip tio n s d o n o t r e s u lt in a c le a r d e fin itio n , b u t th e y sh o u ld b e s u f f ic ie n t to illu stra te th e p r o b le m .* 12

T h e v ie w o f the g ro u p a s a u n ity and a s a s in g le e c o n o m ic a c to r p o s e s p ro b le m s fo r th e n o tio n o f a co m p a n y in tra d itio n a l c o m p a n y la w . T h is c o n c e p t, w h ic h is the sta rtin g p o in t f o r th e c o m p a n y la w s o f a ll c o u n trie s, is c h a r a c te r is e d b y the m o d e l o f th e c o m p a n y a s a se p a ra te le g a l e n t i t y .13 T h e le g a l e n tity is c o n stru cte d as e c o n o m ic a lly in d e p e n d e n t w ith an a u to n o m o u s o rg a n is a tio n w h ic h is d ire c te d b y a w ill fo r m e d o n ly a m o n g its m e m b e r s . T h e g u id e lin e f o r a ll c o m p a n y a c t iv it ie s is th e c o m p a n y in te re s t, w h re re b y th e p rim ary in te re st o f th e c o m p a n y is to e m p lo y re s o u rce s to m a x im iz e p ro fits . T h e m a n a g e m e n t o f th e c o m p a n y is b o u n d b y th e c o m p a n y in te re st and is n ot a llo w e d to t a k e o u tsid e in te re s ts in to c o n s id e r a tio n .14

T h is c o n c e p t c a n n o t, h o w e v e r , b e s u c c e s s fu lly a p p lie d to c o m p a n ie s w h ic h a re m e m b e rs o f a g ro u p . T h e s e a re n o lo n g e r e c o n o m ic a lly in d ep en d en t s in c e a lin k - u su a lly b a se d o n the p a re n t’ s h o ld in g o f an a ffilia te d c o m p a n y ’s sh a re s, a lth o u g h it can a lso b e b a s e d on other m e a n s s u c h as in te rlo c k in g d ire c to ra te s o r c o n tr a c ts - e x is ts b e tw e e n the c o m p a n ie s fo r e c o n o m i c p u rp o se s. T h e p r e c is e aim o f the g ro u p is to c o m b in e the re s o u r c e s o f its m e m b e r c o m p a n ie s to e n a b le them to c o o p e r a te c lo s e ly . T h e c e n tra l g ro u p m a n a g e m e n t d e te rm in e s -m o r e o r le s s - the m a n a g e m e n t o f the

especially p. 94f.; see for the scene in the United States Blumberg, The Law o f C orporate Groups

,

Substantive Law (1987), p. 4.

12 The description of the economic phenomenon may bring out the problems of this organisational form. For the impossibility to develop a comprehensive legal definition of the group (Konzern) due to its indefinite essence, see the quotation at the beginning by Hachenburg (1934), supra note 1, and CREDA,

Les Groupes d e Sociétés

-

Une Politique Législative (1975), p. 193, the title of part 2, section 2; "La Vaine R echerche d ’une Definition du G roupe en Droit F ran çais" and its explication.

11 For Great Britain Gower, supra note 9, p. 97ff.; for France Guyon, Droit des A ffaires (1990),

6th ed., p. 128f.; for Germany Wiedemann, G esellschaftsrecht (1980), Vol. 1, p. 196f.

14 See for the concept of traditional company law, its implications, and its conflict with the group structure, each of them on a comparative basis, Geßler, "Die rechtlichen Möglichkeiten internationaler Untemehmensverbindungen in der EWG", in Lutter (ed.), R echt und Steuer der internationalen Unternehmensverbindungen(1972), p. 13, 20; Druey, "Aufgaben eines Konzern rechts", in Schweizerischer Juristenverein, R eferate und Mitteilungen 114 (1980), p. 303-313; Immenga, "Company Systems and Affiliations", International Encyclopedia o f Com parative Law (1985), Vol. XIII, ch. 7, note 3.

t'iìtil ÜÜ Jülf 11 lí M MMMr -- *~‘~'~,~J J*1 rf ti r

a ffilia te d c o m p a n ie s ; th e ir d ir e c to r s , w h o le g a lly a re a lo n e r e s p o n s ib le f o r th e m a n a g e m e n t o f th e c o m p a n y , d o n o lo n g e r (e n tir e ly ) ta k e th e m a n a g e m e n t d e c is io n s f o r th e a ffilia te d c o m p a n ie s . T h e g e n e r a l a s s e m b ly is n o r m a lly e n tir e ly d o m in a te d b y th e p a re n t c o m p a n y , a s w e ll as a s u p e r v is o r y b o a rd i f it e x is t s . T h e o r g a n is a tio n a l o r d e r o f th e c o m p a n y w h ic h is a g ro u p m e m b e r is th e r e fo r e c h a n g e d , s in c e it is n o lo n g e r d ire c te d b y an in d e p e n d e n t d e c is io n - m a k in g p r o c e s s b u t is su b o rd in a te d to ( q u a s i) in stru c tio n s o f th e p a re n t c o m p a n y - a ll th is in s tr ik in g c o n tr a s t to th e s in g le e n tity d o c tr in e . T h e c h e c k s and b a la n c e s in th e c o m p a n y a c h ie v e d b y th e d if f e r e n t c o m p e te n c e s o f th e c o m p a n y in s titu tio n s are th e r e fo r e d is to rte d b y th e d o m in a n t p o sitio n o f th e p a r e n t in th e m .

J T

T h e c o m p a n y in terest m a y a ls o b e n o lo n g e r the u ltim a te g u id e lin e fo r th e d e c is io n s tak en b y th e a ffilia te d c o m p a n y ’ s d ir e c to r s . A s th e p aren t c o m p a n y p u rsu e s its ow n s p e c if ic e n tre p re n e u ria l in te r e s ts , it w ill a ls o d e te r m in e -to a g re a te r o r le s s e r e x te n t- th e in te r e s t o f the a ffilia te d c o m p a n y ; an o u tsid e in te re s t m ay su p e rs e d e the in terest in the c o m p a n y . T h e p ro fit m a x im iz a tio n p r in c ip le o n w h ich all s h a re h o ld e rs o f a c o m p a n y n o rm a lly ag ree a n d w h ic h a ls o s e r v e s the in te r e s ts o f the c re d ito rs m a y b e d iffe re n t in the c a s e o f g ro u p s: m a x im iz in g p ro fits o n b e h a lf o f the g ro u p is n o t a lw a y s sy n o n y m o u s w ith m a x im iz in g p ro fits f o r th e a ffilia te d c o m p a n y . S u c h a s h ift o f th e s u b s id ia r y ’ s p r o fits (and a s s e ts ) m a y b e fa c ilita te d b y th e o fte n c lo s e e c o n o m ic c o o p e ra tio n in th e g ro u p w h ic h a llo w s th e tra n sfe r o f p r o fits an d a s s e ts in the fo rm o f n o rm al b u s in e s s tra n s a c tio n s . H o w e v e r , th is v ie w o n ly o f th e d a n g ers o f the g ro u p fo r the co m p a n y is ra th e r o n e -s id e d as it d o e s n o t m a k e a llo w a n c e s fo r th e p o s s ib le (la r g e ) a d v a n ta g e s fo r th e a ffilia te d c o m p a n y re s u ltin g fro m its b e in g p art o f a g ro u p . T h i s is sim p ly a sh o rt su m m a ry o f h o w th e n o tio n o f a u n ifie d m a n a g e m e n t a n d the e c o n o m i c u nity o f th e g ro u p c a n c h a n g e th e c o n c e p t o f th e c o m p a n y a s a se p a ra te le g a l e n tity and m ay c a u s e d a n g e rs fo r the o th e r p a r tie s w h ic h h a v e a s ta k e in th e a ffilia te d c o m p a n y .15

IS Groups also provide an institutional distortion at the level of the parent company, see especially the Lutter school, Lutter, "Organzuständigkeiten im Konzern", in Festschrift für Walter Stimpel (1985),

p. 825ff.; Timm, D ie A ktien g esellsch aft als K onzernspitze (1980); Hommelhoff, Die

Konzernleitungspflicht(1982); however, as this study will not deal with this problem a further analysis is not necessary.

In o rd e r to s e e h o w r e le v a n t th e p ro b le m is in r e a lity a n d to w h a t e x te n t th e g ro u p h as r e p la c e d th e m o d e l o f the in d e p e n d e n t c o m p a n y , it is u se fu l to ta k e a lo o k a t d a ta a b o u t th e im p o r ta n c e o f g ro u p s in th e e c o n o m ic li f e o f F r a n c e , G e r m a n y , an d G re a t B r it a in , r e p r e s e n ta tiv e c o u n tr ie s o f th e M e m b e r S t a t e s o f th e E u ro p e a n U n io n .

I. The Importance of the Group in Economic Life

D u e to th e p o o r d e fin itio n o f th e g ro u p , its g re a t fle x ib ility a n d d iv e rsità th e re a r e n o c o m p re h e n s iv e a n d c o m p a r a b le o f f i c i a l s ta tis tic s a b o u t th is p h e n o m e n o n .

In G e r m a n y , 5 1 1 g ro u p s w e re o b lig e d to s e t u p a c o n s o lid a te d g ro u p a c c o u n t in 1 9 8 6 fo llo w in g an a t th at tim e a p p lic a b le la w ; 2 8 0 o f th o se c o n tr o lle d 5 5 8 2 s u b s id ia r ie s , thu s on a v e ra g e a b o u t 2 0 p e r p aren t. T h e to tal tu rn o v e r o f th e se g ro u p s w a s 1 1 0 0 b illio n s D M , 2 .2 b illio n s D M p er g r o u p , an d th e ir sh a re o f th e total tu rn o v e r o f a ll G e rm a n e n te r p r is e s w a s a p p ro x im a te ly 2 8 % . T h e n u m b e r o f th e g ro u p s in to tal d id n o t g ro w v ery m u ch b e tw e e n 1 9 7 0 and 1 9 8 6 , alth o u g h the n u m b e r o f the s u b s id ia r ie s p e r p aren t g re w r a p id ly .16 A c c o r d in g to a ro u g h e s tim a te , b e tw e e n 7 5 % an d 9 0 % o f th e p u b lic c o m p a n ie s ( A G s ) in G e rm a n y a r e m e m b e rs o f a g ro u p , at le a st th e sa m e a m o u n t as the p riv ate lim ite d c o m p a n ie s (<GmbHs) . 17 G e n e ra l o p in io n is th e re fo re th a t fo r m e d iu m -siz e o r la r g e e n te rp rise s the g ro u p is the m o s t w id e ly u sed s tr u c tu r e .18

A s im ila r situ a tio n c a n b e fo u n d in F r a n c e . L in k s b e tw e e n c o m p a n ie s a re v e ry c o m m o n an d the e c o n o m ic s c e n e is d o m in a te d b y la rg e g ro u p s . It is e s tim a te d th a t th e m a jo r g ro u p s h o ld o n a v e ra g e a b o u t 4 0 0 s u b s id ia r ie s 19. In re c e n t y e a r s , the g ro u p stru ctu re h a s no lo n g e r b e e n used o n ly b y la rg e c o m p a n ie s ; m e d iu m -s iz e and s m a ll fa m ily b u s in e s s e s a ls o m ak e u se o f th is te c h n iq u e o f o r g a n is a tio n , in w h ic h a ll fo r m s

10 (Callfass, "Ökonomische Analyse der Konzembildung", in Mestmäcker/Bchrens (eds.), D as Gesellschaftsrecht d er Konzerne im internationalen Vergleich (1991), p. 20-23.

17 Ordelheide, "Der Konzern als Gegenstand betriebswirtschaftlicher Forschung",

Betriebswirtschaftliche Forschung und Praxis 38 (1986), p. 294; Theisen, D er Konzern (1991), p. 1.

18 Wiedemann (1988), supra note 9, p. 7; Theisen, "Konzernorganisation", Die Betriebswirtschaft

46 (1986) p. 747; Ordelheide, ibid., p. 294.

19 Cf. the study of 32 groups in France and their holding of shares in other companies,

CREDA (1975), supra note 12, p. I3ff., 341 ff,; for a survey cf. Antunes, Liability of Corporate Groups (1991), p. 71.

of companies can be involved20.

A study of the situation in the United Kingdom shows that in 1981 the 50 largest British groups each had on average 230 subsidiaries, partly on many different levels and in extremely complex structures.21 A survey from 1993 listed 100.000 UK registered companies, which were part of groups headed by a UK company.22 British scholars have therefore concluded that there might be some evidence to suggest that the use of the group form may be more widespread in the United Kingdom than in other comparable economies.23

T h i s su m m a ry sh o w s th e o v e r w h e lm in g im p o rta n c e o f th e g ro u p fo rm f o r n a tio n a l e c o n o m ie s . S t ill g r e a te r is th e s ig n if ic a n c e o f th e grou p stru c tu re fo r in te rn a tio n a l b u s in e s s o rg a n isa tio n s. S e tt in g up s u b s id ia rie s a lm o s t is the o n ly p o s s ib ility fo r an e n te rp ris e to carry o u t b u s in e s s on its o w n in fo r e ig n m a rk ets, th e r e fo r e the g ro u p is the m o s t im p o rtan t o r g a n is a tio n a l stru c tu re f o r in te rn a tio n a l e n te r p r is e c o o p e r a tio n and fo r in te g ra tin g m a r k e ts (w ith e x c e p tio n o f the m a rk e t i t s e l f ) .24 F u rth e r m o re , it s h o w s that in re a lity th e m o d e l fo r e c o n o m ic o rg a n isa tio n is no lo n g e r th e s in g le in d e p e n d e n t c o m p a n y , b u t th e g ro u p stru c tu re w ith se v e ra l s u b s id ia r ie s - at le a st fo r m e d iu m -s iz e and la rg e e n te r p r is e s .

II. Groups between Economic Organisation and Legal Structure

T h e law h a s re a c te d to the o v e r w h e lm in g im p o rta n c e o f g r o u p stru ctu re s by m e a n s o f n a tio n a l an d E u ro p e a n le g isla tio n fo r d if f e r e n t Fields, e s p e c ia lly in tax la w , b a n k in g an d c a p ita l m a rk e t la w , la b o u r la w , and -a lr e a d y m e n tio n e d - a c c o u n ta n c y la w . In c o m p a n y law -a s th e o r ig in a l fie ld fo r th e c la s s if i c a t i o n o f g ro u p s - s u c h d e v e lo p m e n ts d id n o t

20 Guyon (1993), supra note 9, p. 142f.

11 Tricker, C orporate Governance (1984), Ch.5.

22 Kompass, The Authority o f British Industry

-

Parents and Subsidiaries 199311994 3rd ed. (1993), especially the introduction.

13 See Hadden, The Control o f C orporate Groups (1983), p. I, 11; Prentice, "A Survey of the Law Relating to Corporate Groups in the United Kingdom", in Wymeersch (ed.), Groups o f C om panies in the EEC (1993), p. 279.

24 See fourth reason for the draft proposal of the Ninth Directive in Company Law from 1984; published in Zeitschrift fiir Unternehmens- und Cesellschaftsrecht 14 (1985), p.446.

take place to a great extent; in 1965, Germany enforced a special regime which

acknowledges the unity of the group but is only applicable for groups in which

AG s

are

subsidiaries, only Brasil, Portugal, and Hungary followed its example. The German approach was thought to be comprehensive for

AGs

, but proved to be incomplete and in some regards insufficient even in its limited field of application.25 In other countries where no special regime for groups has been established, legislation has been adopted for a few, very specific points regarding groups, but, in general, in these countries and to a large extent also in Germany the phenomenon of the group is still dealt with by traditional company laws, in modified in part by courts. The question therefore still remains as to what the guiding considerations for company law with regard to groups should be. Different approaches can be found in order to determine the functions and the tasks the law has to fulfil in dealing with groups.

One approach which is mainly based on legal considerations views the group primarily as a distortion of company’s legal structure and the just balance of interests produced by these structures, as shown above. It is therefore especially concerned with the interests of minority shareholders and creditors of the affiliated company. As it is no longer possible to prohibit the formation of groups, especially by forbidding the shareholding of one company in another company, the protection of the affiliated company and, at the same time, of the interests of creditors and minority shareholders against the -at least detrimental- influence of the parent is to be seen as one way of assuring this; detriments which have arisen have to be copensated by the parent. This solution holds to the model of the company as an autonomous entity, whose independence should also be maintained by company law in a group. Consequently, the situation in which the company would be if it were not member of a group is reference point for balancing detriments, as a form of extending liability on the parent.

25 This approach accepts a unitary view of the group for groups based on contracts, AktG

§§ 291 ff.; the provisions for de facto groups are oriented on the model of the company according to traditional company law, AktG §§311 ff. No allowances are made for changes by the group structure on the level of the parent company, see for the shortcomings of the treatment of groups in the AktG 1965 Schneider, "Der Konzern als Rechtsform für Unternehmen1', in Mestmäcker/Behrens (eds.), D as Gesellschaftsrecht d er Konzerne im internationalen Vergleich (1991), p. 563-565.

1

i r

r

1 , . ( V . y:,'

WT- "

Another approach is especially concerned with large enterprises and in particular groups as powerful private institutions whose power for "private government" is not publicly or democratically legitimized. Here, the managers strive in particular for an increase o f their power and use their managerial discretion for the unregulated creation o f industrial empires. The main task for the law with respect to groups would thus be the establishing o f a strict legal control over these or to integrate representatives of all

>

affected interests, especially representatives of the public interest, in the decision­ making process o f the group.26

A more modest approach would take the function o f the group as a starting point, namely that it is a form of business organisation. From the economic point of view, a business organisation especially serves reasons o f efficiency27; thus the main purpose o f a business organisation is to provide an organisation for an efficient28 allocation o f resources, in a market economy efficient business organisations are especially characterised (and, at the same time, their efficiency is measured) by their success in the market(s) and a maximization of their profits by market transactions. Business organisations may also serve further goals, but their structure has to be aligned particularly to the predominant goal o f efficiency and market success.

By providing the economic organisations which are necessary for an efficient resource allocation, the power which is inevitably inherent in a large enterprise/group

26 For the corporation see Mason, The Corporation in M odem Society (1960), p. 7-9; Steinmann, "The Enterprise as a Political System", in Hopt/Teubner (eds.), C orporate G overn an ce an d D irectors’Liability (1985), p.401ff.; for groups Hadden (1983), supra note 23, passim; id., "Inside Corporate Groups", 12 International Jou rn al o f the Sociology o f law (1984), p. 271 ff.; Bercusson. "The Significance of the Legal Form of the Group Enterprise in the United Kingdom", in Sugarman/Teubner (eds.), Regulating Corporate Groups in E urope (1990), p.267ff.. With a different starting point Hommelhoff (1982), supra note 15, p. 499, who attempts to use internal organisation law for the group in order to install checks and balances for the power inherent in the group, especially by granting greater competences to the general assembly in all questions which are relevant for group matters.

27 See only Williamson, "The Modem Corporation", 19 Jo u rn al o f Economic Literature (1981), p. 1537f., 1564.

28 For the main definitions of efficiency by Pareto and Kaldor-Hicks see Posner, Econom ic Analysis o f Law (1992), 4. ed., p. 12-14; Kiiblcr, "Effizienz als Rechtsprinzip", in Baur et al. (eds.),

Festschrift Steindorff (1990), p. 694f. In this study the term "efficiency" will be used in the sense of the Kaldor-Hicks concept, therefore an allocation of resources is efficient if the benefit of the winners is greater than the harm done to others, so that the winners could compensate the others. For a special treatment of efficiency regarding organisations see below note 35.