Free movement of companies and Polbud. The CJEU is not for turning.

When I reviewed Kokott AG’s Opinion in C-106/16 Polbud, I flagged that Ms Kokott concluded that the freedom of establishment provided for in Articles 49 and 54 TFEU only applies to an operation whereby a company incorporated under the law of one Member State transfers its statutory seat to another Member State with the aim of converting itself into a company governed by the law of the latter Member State, in so far as that company actually establishes itself in the other Member State, or intends to do so, for the purpose of pursuing genuine economic activity there. In other words she proposed a test along the lines suggested by Darmon AG in Daily Mail, but rejected by La Pergola AG in Centros.

The CJEU today held along La Pergola lines. It thus indeed facilitates forum /applicable (lex societatis) shopping (argument made also by Gillis Lindemans) for companies. The writing was very clearly on the wall when the Court (in Grand Chamber nota bene) started citing the old chestnuts of Daily Mail, Centros and Inspire Art. That no business is actually being conducted by Polbud in the host Member State is viewed by the court as irrelevant (at 37 ff). In the absence of harmonisation of EU law, the definition of the connecting factor that determines the national law applicable to a company or firm falls, in accordance with Article 54 TFEU, within the powers of each Member State (at 34).

Freedom of establishment is applicable (third question);  that freedom has been restricted (first question); and that restriction (transfer of the registered office of a company incorporated under the law of one Member State to the territory of another Member State, for the purposes of its conversion into a company incorporated under the law of the latter Member State, in accordance with the conditions imposed by the legislation of that Member State, is subject to the liquidation of the first company) is not justifiable (second question).


(Handbook of) EU Private international law, 2nd ed. 2016, Chapter 7.

3 Replies to “Free movement of companies and Polbud. The CJEU is not for turning.”

  1. This reminds me of paragraph 99 of the EFTA Court’s Olsen Judgment of 9 July 2014, especially the final sentence:

    “Whether the entity in question conducts a real and genuine economic activity cannot be answered in the abstract. It depends on the actual terms of the entity’s statutes, such as, in the case at hand, the trust’s deed, and the actual activities of that entity and its management. If a specific assessment reveals, for example, that the trust is involved in the management of a group’s companies or other activities for a group, such as managing a pool of resources, and its actual incorporation reflected its actual activities, it has to be regarded as a real and genuine economic activity, which constitutes establishment. As the Commission stated in response to a question from the bench, it is not required that the economic activities take effect in the EEA State of establishment. It suffices that they take effect in the EEA.”

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