The Continuing Tale of the Volkswagen Law

By: Natalie Anderson


If you think that the issue on Volkswagen law is finished then you are mistaken. In the Case C-112/05, Commission of the European Communities versus Federal Republic of Germany, the Advocate General Mr. Ruiz-Jarabo is one with the opinion stating that the Volkswagen law restricts the free movement of capital. According to the advocate the German Legislation has helped the Federal Government and the Land of Lower Saxony in hindering any form of intervention in the management of Volkswagen. However it is important to note the Advocate General's opinion will not have any effect on the Court.

It was last March 4, 2005 when an action against the Federal Republic of Germany was brought to the Court of Justice of the European Communities by the Commission of the European Communities stating that the Volkswagen law hinders the flow of free capital. Some of the points presented by the Commission are as follows:

--- The fact that Federal Government and the Land of the Lower Saxony as long as they are shareholders regardless of whether they still own shares in VW or not as in the case of the Federal Government can each appoint two members at the supervisory board of the company.

--- The 20% limitation of the voting rights of shareholders regardless of whether they have the largest stakes owned at Volkswagen;

--- The increase to not more than the 80 percent of the share capital represented for the adoption of resolutions of the general shareholders' meeting.

Mr. Ruiz-Jarabo said that in his opinion, that in any means by which a State influences the productivity of the country either through the intervention of the public sector is also subject to the requirement of respect for the system of property ownership in the national legal order, enshrined in the EC Treaty. He also continued by saying that in the present case, it is clear that the requirement is not respected and to think that the provisions of the German law tend to keep the property in the hands of those who own it in the face of a hostile takeover bid.

The Advocate General also goes to the extent of analyzing the restrictions of which the commission complains. With regards to the representation of the Federal Government and the Land on the supervisory board of the company, the Advocate General is also one with the view that says the German law discourages those who wants to acquire more shares in Volkswagen and this is clearly embodied by the fact that among the ten members assigned to the supervisory board, there would be four representatives of public authority owning a marginal number of shares.

And the fact that the Federal Government has sold its entire shares eliminates its right to appoint members of the supervisory board unfortunately with the Volkswagen law even without shares, the Federal Government is still given the right likened to that of a major shareholder which is unfair to other Volkswagen stake holders that possess the necessary amount of shares to seat on the supervisory board and to have the appointing powers that should have been theirs.

With regards to the blocking of minority and the limitation of voting rights, Advocate Jarabo also points out the reduction in the voting rights to 20% corresponds to the percentage of shares both the Federal Government and the Land of Lower Saxony hold at that time when the law was passed.

The Advocate further stated that with the Volkswagen law particularly with its 20% only voting rights for shareholders, anyone who may want to purchase large number of shares in the company would have doubt about acquiring more than a fifth of the capital since he would not be given any voting rights above that ceiling. And if ever he did succeed in mobilizing the rest of the small shareholders still there would be no possibility of achieving any change since the Federal Government and the Land of Saxony could hinder it with their minority holdings.

Despite the what seem to be a never ending discussion on the Volkswagen law, Europe's largest automaker is unaffected by all this, as a fact its Audi and Skoda subsidiaries have announced that they have recorded net profit sales for 2006 and for the first two months of this year, 2007. Volkswagen has also continued with its production of quality vehicles and renowned auto parts like the which are famous for their quality and durability.

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