Home Knowledge Use of “Societas Europaea” Companies – An Increasingly Popular Choice for Insurance/Reinsurance Structures

Use of "Societas Europaea" Companies - An Increasingly Popular Choice for Insurance/Reinsurance Structures

1. Overview
A “Societas Europaean” (an “SE”) is a new type of European public limited company (limited by shares) having all the standard company law benefits of incorporation.  It is a “pan-European” form of company.  There are plans at EU level for a European private limited company – the more typical type of company structure seen – however this is still some time away.

2. Why consider an SE structure?
The difficulties encountered by individual EU countries arising out of the financial crisis has given focus to potential movements of head office and other functions out of one State and into another.  SEs can facilitate these types of concern, as well as offering other benefits such as around tax.  There are however specific criteria around when an SE structure can be formed.
As part of re-visiting an existing holding structure (e.g. in changes to a group perhaps looking towards capital efficiencies in the context of Solvency II) it may be worth using the opportunity to convert to SE status.  Whist a new type of company, an SE has the same general nature as other forms of Irish company (in particular, public limited companies).

3. Main features of an SE
A broad summary of the features of SEs is as follows:

  • The capital of the SE, shares, bonds and other securities remain governed by the national Member State laws in which the SE is registered, being governed by those applicable to public limited companies.  These would therefore be of Ireland
  • Member States must treat an SE as if it is a public limited company formed in accordance with the law of the Member State in which it has its registered office.  It should be noted that there are some specific requirements relevant to public limited companies (e.g. around ability to make distributions) and (re)insurance companies would need to satisfy these criteria (although generally this should not be a difficultly)
  • An SE must have its registered office and the head office (“seat”) in the same Member State. The registered office must be the true centre of operations of the SE (e.g. in the context of a (re)insurance entity, where its ‘heart and mind’ and main underwriting activity are located)
  • An SE can transfer its seat and registered office from one Member State to another without winding up and re-creating itself.  This can have advantages – e.g. potential “speed to market” or if there is a need to move a head office function for regulatory, tax or other reasons.  It may also not be a crystallising event, for example in the context of CGT, as could occur in restructuring other types of groups
  • To form an SE it must have a minimum paid-up share capital of €120,000.  Obviously, in the case of a regulated (re)insurance undertakings owing to solvency requirements the paid-up capital can be expected to be materially more in any event
  • There is currently no EU-wide register of SEs. An SE is registered on the national register of the Member State in which it has its head office. The registration of an SE has to be published in the European Union Journal

4. Uses of SEs to date
Since the implementation of the EU Directive into Member State domestic legislation in the mid-2000s, SEs have become popular both as a holding entity and at operating (re)insurance company level.  A sample in the insurance and reinsurance area is as follows:

  • Aviva Group announced plans in 2009 for its European business (excluding the UK) to capitalise on growth opportunities in the region.  As part of the set-up of the structure, Aviva has established a single SE holding company for its European operations in Ireland with plans for subsidiary SEs at operating level (e.g. Aviva Life and Pensions Europe SE is now authorised by the Central Bank of Ireland to carry on life insurance business)
  • Allianz SE (the parent company of the Allianz Group, headquartered in Munich) became the first company in the EURO STOXX 50 Index to adopt the legal form of a Societas Europaean in 2006.  Allianz Group has publicly referred to the benefits of an SE structure as assisting in the elimination of administrative costs and moves away from a complex network of subsidiaries governed by different national laws
  • The global reinsurer SCOR Group adopted the SE status both at holding company and top operating company level in 2007 (SCOR SE, SCOR Global P&C SE and SCOR Global Life SE).  It has referred to the structure as assisting in the creation of European branch operations, the reinforcement of its European identity and in gaining access to the “single passport” (home country control) provided for by the reinsurance directive.

5. Formation of an SE

5.1 An SE cannot typically be formed “from scratch”.  Instead, there are five ways in which an SE may come into being.  As it is a pan-European structure, a key requirement is that there must be two or more companies or branches already in existence involving at least two different Member States. 
The options for creation of an SE are as follows:

(a) Merger
Public limited companies formed under the law of a Member State, with registered offices and head offices within the EU, may form an SE by means of a merger, provided that at least two of them are from different Member States.  For example, one might therefore be able to re-register existing companies in differing jurisdictions, each as public limited companies and then “merge” them by absorption through the two plc’s becoming a single SE in one of these two countries.  Mergers are facilitated through the European Mergers Directive, although the use of the process requires applications to the High Court (or equivalent bodies in other Member States).

(b) Formation of an SE Holding Company
Public and private limited companies with registered offices and head offices within the EU, may promote the formation of an SE holding company, provided that each of least two of them is from a different Member State or has for at least two years had a subsidiary or branch in another Member State. 

(c) Formation of a Subsidiary SE
Public and private limited companies with registered offices and head offices within the EU, may form a subsidiary SE by subscribing for its shares, provided that each of least two of them is from a different Member State or has for at least two years had a subsidiary or branch in another Member State.  For example, a new subsidiary could be formed as an SE into which existing business of another company might be dropped.

d) Conversion of a Public Limited Company into an SE
A public limited company, which has its registered office and head office within the EU, may be converted into an SE if it has had a subsidiary in another Member State for at least two years.

(e) An SE formed as the Subsidiary of another SE
An SE itself may set up one or more subsidiaries in the form of SEs. Most notably, the requirement that a public limited company must have more than one shareholder shall not apply to a subsidiary SE.

6. Regulatory aspects

6.1 The underlying EC regulations around SEs provide that, to the extent an entity is a nationally regulated “financial institution” (for these purposes, including (re)insurance activities), the equivalent regulation of application to other types of companies in that Member State also applies (e.g. in the context of Ireland, this will be the EC life, non-life or reinsurance regulations 1994-2006 as applicable, and the other relating legislation).

6.2 While the SE regime facilitates easy movement of corporate “seat” and registered office from one Member State to another, in the context of a regulated activity it will generally be treated as a new authorisation (i.e. a new (re)insurance licence application) by the “transferee” jurisdiction’s regulator.   The transferee jurisdiction’s regulator will then, when authorised, become the home state regulator.  The need to exit one country’s (re)insurance regime and migrate as though it were a fresh establishment to the transferee country is likely to be an exercise which needs careful thought in each instance.  It may also give rise to timing issues.

6.3 As with companies, SEs can have the branches in different jurisdictions.  Indeed, there is a generally lighter approach around branches of SEs than for other forms of company under the EC branch regulation requirements.

7. Corporate governance of SEs

7.1 An SE comprises of shareholders and either an administrative board (one-tier system) or a supervisory board and a management board (two-tier system). The latter would be a model more typically seen in continental European companies.  Two-tier systems are relatively unheard of in Ireland or the United Kingdom.

7.2 Members of an administrative board and supervisory board will be regarded and treated as if they were directors of a public limited company and shall have and discharge the responsibilities of such directors.

7.3 Detailed below are the key points of the two management systems as well as rules common to both:

7.3.1 One-Tier System

  • The administrative board shall manage the SE
  • It shall also meet at least once every three months to discuss the progress and foreseeable development of the SE’s business

7.3.2 Two-Tier System

  • The management board shall be responsible for managing the SE
  • The member or members of the management board shall be appointed and removed by the supervisory board
  • No person may at the same time be a member of both the management board and the supervisory board of the same SE
  • The supervisory board shall supervise the work of the management board. It may not itself exercise the power to manage the SE
  • The management board shall report to the supervisory board at least once every three months on the progress and foreseeable development of the SE’s business
  • The management board shall promptly inform the supervisory board of any information on events likely to have an appreciable effect on the SE

7.3.3 Common Rules for the One-Tier and Two-Tier Systems

  • Members of company boards shall be appointed for a period laid down in the statutes not exceeding six years
  • Subject to any restrictions laid down in an SE’s statutes, members of the boards may be reappointed once or more than once for a six year period
  • An SE’s statutes shall list the categories of transactions which require authorisation of the management board by the supervisory board or an express decision by the administrative board in the one-tier system

8. Need for Employee Participation

8.1 A perceived extra dimension to the SE structure is that creation requires employee involvement where a public limited company decides to register as an SE.

8.2 The procedure for the involvement of employees provides that an agreement must be negotiated between the participating companies and a special negotiating body representing the employees. The special negotiating body represents the employees in the negotiations with the participating companies in order to reach a written agreement on the involvement of employees in the coming SE. It is created after the companies’ managements have announced their plans to establish an SE.

8.3 Negotiations are expected to start as soon as possible after the companies embark on plans to set up an SE. They may take up to six months and can be extended up to a total of one year (after the establishment of the special negotiating body).

9. European Commission Proposal for a European Private Company

9.1 Small and medium-sized enterprises represent 99.8% of all companies in the EU.  The concept of a Societas Privata Europaea (“SPE”) aimed at facilitating the needs of these enterprises has been discussed since the 1990s. As mentioned above, there is currently a proposal at EU level which would see SPEs exist as well as SEs.  This new structure would be of use to insurance and reinsurance businesses and might be preferred to an SE).

9.2 An SPE will generally the same key features as an SE, save that it will have a “lighter” set of requirements around areas such as minimum share capital and corporate governance issues (unlikely to be particularly relevant in any event in regard to (re)insurance).

9.3 As with an SE, these types of companies will allow a European label that is easily recognisable throughout the EU.  Unlike an SE, it is proposed that an SPE’s registered seat can be transferred to another Member State while maintaining its legal personality in the original State. As the registered seat and the corporate head office of an SPE do not need to be in the same Member State (unlike those of an SE) such a transfer will mean additional flexibility potentially for (re)insurance structures and generally in the context of restructurings

9.4 The formation of an SPE will be through broadly the same process as with an SE (as described above).