Europe: EU law and penalties on public company shareholders

The European Court of Justice delivered its opinion in Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis (Case C‑81/09) earlier this week: see here. The court found that the imposition of penalties on the shareholders of public companies operating television stations was contrary to the principles of freedom of establishment and free movement capital, as (now) found in Articles 49 and 63 of the Treaty on the Functioning of the European Union. A summary of the opinion is available here (pdf).

Under the Greek law in question, shareholders in companies operating television stations were subject to a maximum holding of 25% and those shareholders holding over 2.5% of the share capital were potentially subject to penalties where the company infringed certain broadcasting rules. This latter rule was introduced to create an incentive for shareholders to ensure companies' compliance.

The court held that the First Company Law Directive (68/151/EEC) did not prohibit rules under which shareholders were held liable for a fine imposed on a company. It found, however, that the liability rule had a deterrent effect on investors, affecting their access to the equity market. The court observed (at paras. 57 to 59);

The national measure allows shareholders of a public limited company in the television sector to be held liable for fines imposed on that company in order that they see to it that the company observes Greek legislation and rules of good conduct, whereas the powers accorded to those shareholders by the rules applicable to the operation of public limited companies’ organs do not actually give them a possibility of so doing.

Furthermore, although the measure is applicable without distinction to Greek investors and investors from other Member States, its deterrent effect is greater for investors from other Member States than for Greek investors.

Inasmuch as the objective of the Law is to induce shareholders to ally themselves with other shareholders in order to be able to influence the decisions of the company’s management, even though this option is applicable to all shareholders it is indisputably much more difficult for use to be made of it in the case of investors from other Member States who know less about the realities of media life in Greece and are not necessarily acquainted with the various groups or alliances represented amongst the shareholders of a company holding a licence to found, establish and operate a television station".