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Free movement of capital: Commission calls on United Kingdom to apply Court of Justice ruling

European Commission - IP/04/17   07/01/2004

Other available languages: FR DE

IP/04/17

Brussels, 7th January 2004

Free movement of capital: Commission calls on United Kingdom to apply Court of Justice ruling

The European Commission has decided to remind the United Kingdom of its obligation to comply with a Court of Justice ruling of 13 May 2003, which found that by maintaining in force provisions limiting the possibility of acquiring voting shares in BAA plc as well as the procedure requiring consent to the disposal of the company's assets, to control of its subsidiaries and to winding-up, the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under EC Treaty rules on the free movement of capital (Article 56). The request for information on the UK's compliance with the Court ruling will take the form of a so-called 'letter of formal notice' under EC Treaty infringement procedures related to compliance with Court of Justice rulings.

Under the Airports Act 1986 the British Airports Authority, which owned and operated a number of important international airports in the United Kingdom, was privatised. Under that Act, the Secretary of State had power to approve with or without modifications the Articles of Association of the company nominated to take over the British Airports Authority's functions. BAA plc was formed for that purpose in 1987. The Articles of Association of BAA conferred special powers on the State as well as setting a limit on stakes in the company.

In its ruling of 13 May 2003 in Case C-98/01, the Court of Justice found that the United Kingdom of Great Britain and Northern Ireland has, by maintaining in force the provisions limiting the possibility of acquiring voting shares in British Airports Authority plc, as well as the procedure requiring consent to the disposal of the company's assets, to control of its subsidiaries and to winding-up, failed to fulfil its obligations under EC Treaty rules on the free movement of capital (Article 56). The Court pointed out that in so far as the rules in question entail restrictions on freedom of establishment (Article 43 EC), such restrictions are a direct consequence of the obstacles to the free movement of capital considered, to which they are inextricably linked.

It considered that rules which limit the acquisition of shareholdings in the way that Article 40 of BAA's Articles of Association does, or which restrict in some other way the scope for participating effectively in the management of a company or in its control, as is the case of the system of prior approval provided for in Article 10(2) of the Articles, constitute a restriction on the free movement of capital. Although the relevant restrictions on investment operations apply without distinction to both residents and non-residents, the Court held that they affected the position of a person acquiring a shareholding as such and were thus liable to deter investors from other Member States from making such investments and, consequently, affect access to the market.

It considered that the restrictions at issue did not arise as the result of the normal operation of company law and that the Member State acted in its capacity as a public authority.

In reply to a Commission request for information on measures taken to comply with the Court ruling, the Commission was notified in October 2003 that the UK Government had announced on 16 September that it is to redeem the Special (or "Golden") Share that it holds in the airports operator and that the process for formal redemption of the share was expected to be completed by mid-October. However, no information was provided on any amendments made, or to be made, in the Articles of Association of BAA plc., and in particular, Article 40 thereof, which prevents any person (other than a Permitted Person) from acquiring or being interested in BAA shares carrying the right to more than 15% of voting rights in the company. Neither has any indication been received by the Commission of the time scale envisaged for full compliance. The Commission has therefore decided to initiate new infringement proceedings under Article 228 of the EC Treaty in order to ensure that the provisions in question are brought into line with Community law.


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