5.4 The Legal Capital Regime Under EU Company Law 145holders or not regarded as distributions. If designed properly, an equity-insolvency
test can thus cover a broader range of transactions.
Legal capital regime v contracts. From the perspective of the company’s share-
holders, no contracts with creditors’ can replace a legal capital regime as a corpo-
rate governance tool. Whether contracts can replace a legal capital regime as a
creditor protection mechanism is another matter. Typically, contracts can replace a
legal capital regime if the company has only one contract party (or only one syn-
dicated block of contract parties) and both parties can agree on the terms of the
contract. Where the company has many independent contract parties, the situation
is less clear. The situation of creditors becomes even weaker where they are invol-
untary creditors who do not agree on anything rather than voluntary creditors who,
in principle, could agree on something.^51
5.4 The Legal Capital Regime Under EU Company Law
The US and the Member States of the EU have adopted radically different ap-
proaches to legal capital as far as large companies are concerned. Community law
provides for a legal capital regime for public limited-liability companies. This re-
gime consists of core corporate governance rules as well as minimum capital
rules. When adopted, the SPE Regulation will introduce a flexible company form
for private-limited liability companies. The proposed SPE Regulation contains a
flexible legal capital regime. In the US, the lack of a legal capital regime is mir-
rored by shareholders lacking effective veto rights.^52
General remarks. In a broad sense, the European legal capital regime for public
limited-liability companies (for the proposed legal capital regime for SPEs, see be-
low) consists of: the existence of legal capital;^53 statutory minimum capital re-
quirements; restrictions on the use and distribution of legal capital; rules prohibit-
ing circumvention; as well as shareholders’ decision rights, pre-emptive rights and
rights to information.^54
The legal capital regime for public limited-liability companies is based on the
Second Company Law Directive. It is complemented by the Merger Directives
and the Directive on divisions (section 10.4). Member States are not required to
impose any legal capital rules on private limited-liability companies or other en-
(^51) See, for example, Peter Mankowski, Reicht das Vertragsrecht für einen angemessenen
Schutz der Gesellschaftsgläubiger und ihrer Interessen aus? In: Lutter M (ed), op cit, pp
488–507.
(^52) See Bebchuk LA, The Case for Increasing Shareholder Power, Harv L R 118 (2005) pp
833–914.
(^53) See Article 2 of Directive 77/91/EEC (Second Company Law Directive). See also Arti-
cles 7, 8(1), and 6(1).
(^54) Compare Enriques L, Macey JR, Creditors Versus Capital Formation: The Case Against
the European Legal Capital Rules, Cornell L R 86 (2001) pp 1174–1183; Werlauff E,
EU Company Law. Second Edition. DJØF Publishing, Copenhagen (2003); Schwarz
GC, Europäisches Gesellschaftsrecht. Nomos, Baden-Baden (2000).