Brussels, 14 March 2011
Free movement of capital: Commission seeks Portugal's compliance with Court ruling on special powers in Energías de Portugal
The European Commission has decided today to ask Portugal for information on measures taken to comply with a November 2010 Court of Justice ruling (C-543/08), which found that the Portuguese State's special rights in Energías de Portugal (EDP) were in breach of EU rules on the free movement of capital and the right of establishment. The Court ruled that the Portuguese State's 'golden' shares amounted to an unjustified restriction on the free movement of capital and, that by maintaining them in force, Portugal had failed to fulfil its Treaty obligations. Portugal now has two months to inform the Commission of measures taken to comply with the ruling. If Portugal does not comply, the Commission may refer the case back to the Court for a second time, at which point a lump sum and/or penalty payment could be imposed on Portugal.
What is the aim of the EU rules in question?
Free movement of capital is at the heart of the Single Market and constitutes one of its "four freedoms". It allows for more open, integrated, competitive and efficient markets and services in Europe. For citizens, it means the ability to undertake a range of operations abroad, such as opening a bank account, buying shares in non-domestic companies, investing where the best return is, or purchasing real estate. For companies, it means the ability to invest in and own companies in other European countries, and allows them the option to play an active role in the management of those companies.
How is Portugal not respecting this rule?
The legal framework governing the privatisation of EDP and the Articles of Association provide for special rights for the State in the company, including:
veto rights on (a) resolutions to amend the company's articles of association, including capital increases, mergers, divisions and winding-up; (b) resolutions on entering into parity and subordination group contracts; (c) resolutions on abolishing or limiting shareholders' rights of preference as regards capital increases;
the right to oppose the election of a number of directors and the right to appoint a director in the company.
The Articles of Association of the company impose a limit on voting rights in the general assembly for all shareholders holding more than 5% of the capital of the company, except for the State/equivalent entities.
In 2008 the Commission considered that these special powers constituted unjustified restrictions on the free movement of capital and the right of establishment (Articles 63 and 49 of the Treaty on the Functioning of the EU), in so far as they hinder both direct investment and portfolio investment and referred the case to the European Court of Justice (IP/08/1357).
The subsequent November 2010 ruling found that Portugal had failed to fulfil its obligations regarding the free movement of capital and rejected Portugal's defence that maintaining special state rights in the company was a matter of public security and security of energy supply.
How are citizens and businesses suffering as a result?
Due to the special rights maintained by the Portuguese state, investors are prohibited from effectively participating in the management and control of EDP. In addition, shares held by individuals may be adversely affected by the risk that the state may veto important company decisions, which the management deems in the best interests of the company.
Free movement of capital
Latest information on infringement proceedings concerning all Member States
For more information on infringement procedures, see MEMO/11/162