A Continuing analysis of the Never-Ending Story: Golden Shares after Italian elections

Jelena Ganza

PhD candidate, Dickson Poon School of Law, KCL

 

‘Golden shares’ challenged

The ‘golden shares’ (hereafter GS) were created at the time of privatisation when the EU Member States’ Governments were actively disposing of their shareholdings in former state monopolies, such as energy companies and telecoms. Under the normal operation of company laws a loss of share ownership would normally trigger a loss of control.  However, since many of the privatised companies were operating in strategic industries which provided public services, the Governments sought to retain their controlling grip via ‘golden shares’. Being a special class share, GS grants its holder (usually the Minister responsible for the relevant industry) with a wide range of special powers that allows them to control the company. Such State-driven interventions could make acquisitions in companies less attractive, thus the use of (non-discriminatory) golden shares could be justified only by the existence of overriding public interests and only if applied in a legally certain and proportional way.[i] The striking majority of GS, which were put to the scrutiny of the Court of Justice, have failed to pass this justification test, the only exception being case C-503/99 Commission v Belgium.[ii]

 

Passing the justification test

In Belgium the GS in two strategic energy companies SNTC and Distigaz were implemented by virtue of two Royal Decrees of 10 June 1994[iii] and of 16 June 1994[iv] respectively, allowing the Minister for Energy to exercise limited special powers. The Minister had the right to be notified in advance on any transfer of company’s system of lines and conduits or on any dealings in other strategic assets of the company, which are essential for the domestic distribution of energy products.[v]  Within 21 days after receiving prior notification the Minister could oppose any of the above operations in cases where they could have adverse effects to the national interests in the energy sector.[vi]  The GS also empowered the Minister to appoint two non-voting representatives of an ‘advisory capacity’ to the board of directors, which could propose the annulment of any decision that is deemed contrary to the national energy policy.[vii] The Belgian GS have passed the narrow justification test since they granted the Minister with special powers which were limited to certain decisions concerning specific strategic assets of particular companies, and were limited by time. Apart from Belgian GS, no other arrangement of such kind has been justified. In spite of the narrow justification criteria some Member States were eager to retain their GS following the condemning judgement: they sought to adjust national laws to match those of Belgium.

 

Obstinate and insufficient: Italian golden shares

Italy could be seen as an example of persistent non-compliance with the Court’s judgements, since the Government held on to its GS while continuously amending their scope and application in quest for passing of the strict justification tests.[viii] Due to this tactics the golden share Decree-Law 332/1994[ix] (created back in 1994) became an obstinate piece of legislation. GS created by the foresaid Decree were repeatedly overruled by the Court delivering condemning rulings in 2000 (Case C-58/99)[x] and 2009 (Case C-326/07)[xi]. Over the course of the infringement proceedings the Italian Government has shown its loyalty to the EU law by revealing an inclination to comply and amend its GS. Nevertheless, for nearly a decade, the Government’s willingness to conform was not supported by adequate compliance initiatives. Since the first ruling the Italian GS have undergone a number of makeovers, yet those amendments proved to be  ‘bad laws’, while being inadequate and insufficient to remedy the breaches established by the Court.[xii] The compliance initiative by former Prime Minister Silvio Berlusconi[xiii] of 20 May 2010 proved to be insufficient[xiv] and the Commission has pursued a penalty action under Article 260 TFEU. When the new technocratic government (led by former EU Competition Commissioner Mario Monti) has been appointed in November 2011 to implement necessary austerity measures, the final compliance on GS could have been envisaged. Monti has confirmed that in time of the general elections the new golden share law would be drafted and implemented. Monty has stood up to his promise and on 16th of March 2012 (one year prior to general elections scheduled for April 2013) a new golden share Decree-Law No.21 entered into force (hereinafter – the Law).[xv] The Law sought bringing the national GS in proximity to the justified Belgian measures: the long-awaited urgent compliance measure recasts original GS of Decree-Law 332/1994.

 

The new golden share law

The new law has limited the discretionary powers reserved for the Italian authorities to veto and approve certain important decisions in companies which operate in defence and national security and in companies which hold strategic assets in energy, transport and communications industries. Firstly, the execution of special powers is now divided between the two types of companies/assets and two separate Articles provide detailed rules for each of the types, guaranteeing legal certainty as found in Belgian law. Secondly, the Law has a wider scope of application: it applies to any company operating in defence or national security and to all companies that hold ‘strategically important assets’. The latter innovation extends the applicability of the GS beyond the boundaries prescribed by Belgian law (which applied only to two companies). Lastly, the exercise of special powers appears to be less generic and is limited to time-limited, specific circumstances. For example, Article 1 of the Law states that special powers in defence and national security companies could be ‘triggered’ in case of a serious threat to the essential interests of defence and security of the Italian State. In case of such a threat the Italian government has special powers to (a) impose specific conditions on the purchase of an interest; (b) power to veto resolutions of the General Meeting or the Board of Directors concerning important decisions; and (c) power to oppose a purchase of shares by any person if such acquisition could jeopardize the interests of the defence and national security.

 

Defence and security companies

As a pre-condition for exercise of special powers in defence and security companies the seriousness of a potential threat to the essential interests has to be evaluated and the following assessed: the purpose of the resolution, the strategic assets or businesses subject to the transfer, suitability of the defence system and national security, information security relating to military defence, international interests of the State, protection of the national territory or critical infrastructure.[xvi]  In order to evaluate the seriousness of a potential threat the Government shall, in accordance with the principles of proportionality and reasonableness, apply a ‘fit and proper test’ in light of the buyer’s potential influence on society, taking into account the adequacy and the reliability of the buyer. Monti’s Law sets the prior notification obligation similar to Belgian GS: any operation that has the potential to be vetoed has to be notified to the Government within ten days prior to implementation of such operation. The Government can exercise its veto power within fifteen days following notification if any of the risks mentioned above become evident. The veto power could be exercised in form of imposition of specific conditions sufficient to safeguard the essential interests of defence and national security.

 

Energy, transport and communication companies

Article 2 of the Law governs special powers in strategic companies operating in energy, transport and communications sectors, covering companies, plants, assets and relationships which are of strategic importance, are dealing with network industries and are vital to ensure the minimum supply and the continuity of essential public goods and services of strategic importance. The prior notification obligation also applies to the above companies and it has to be made within 10 days prior to important operations.[xvii] The Government could veto any of such operations within 15 days of receiving the notification, if such operation could possess actual and serious threat to the public interests of safety and operation of networks, services and plants and possess threat to continuity of vital supply of any such services. The Government is also entitled to impose conditions or veto purchases of ‘strategic assets’ for companies or residents originating from a non-EU country.[xviii] Any such acquisitions must be notified to the Italian Government within 10 days prior to transaction and it could then either veto or make such an acquisition subject to specific conditions within 15 days from receiving notification. The power to veto/impose specific conditions could be exercised only in exceptional situations where the public interest relating to the safety and operation of any ‘strategic asset’ may be materially jeopardized. In case of Article 2 a ‘fit and proper test’ will be carried out in light of the buyer’s potential influence on the society.

 

New golden share doomed?

Monti’s new GS Law aimed at establishing a comprehensive, legally certain and precise investment control regime in the strategic sectors. More than a decade of inadequate compliance initiatives have seemed to come to an end. However, in order to be fully effective the Law had to be ‘activated’ by further Decrees of the Prime Minister, specifying which companies and ‘strategic assets’ are subject to new regime.[xix] The deadline for implementation of Decrees was in September (for companies operating in energy, transport and telecoms) and August (for defence and security sector) 2012, but no such Decrees were implemented, rendering Monti’s ‘good law’ ineffective.

Due to the new developments on Italian political arena, in spite of the technocratic Government’s promises, the ‘activating’ Decrees could not be implemented in time: Italian politicians have prevented this from happening. Berlusconi blamed Monti’s Government for driving Italy into further recession and after losing the support of major parties, Monti had to resign on 8 December 2012 leaving the GS issue unsettled.Following Monti’s resignation, the Italian Parliament has been dissolved while the elections which followed in February 2013 culminated in ‘political stalemate’.

The necessary Decrees on golden shares are not likely to be implemented in the foreseeable future, since the political party, which won a majority in Italian Chamber of Deputies, does not have a majority in the Senate (both majorities are necessary for the Law to be implemented). The EU Commission is currently looking at the Monti’s Law, but with reservation for further Decrees, the new GS regime as a whole could only be evaluated if (and after) all legislative measures are implemented.

 

Concluding remarks

For nearly two decades the GS are in place and over the years the Italian Government has repeatedly tested the patience of the EU Commission while engaging with procrastination and non-compliance with the condemning judgements on GS. At the time of implementation of first Italian GS, Berlusconi’s Government was in office and over years it has resisted to fully withdraw unjustified laws. Monti’s Law had a possibility of a bright future – it could have started a new chapter on GS justification. However, the latest elections precluded this from happening since Berlusconi’s protectionist influence is yet again back on political scene. The ‘loyalty to the EU principle’ enshrined in Article 4(3) TEU is seems to be, once again, neglected.

 


[i]         See, to that effect, Joined Cases C-163/94, C-165/94 and C-250/94 Sanz de Lera and Others [1995] E.C.R. I-4821, para. [23]; Case C-54/99 Église de Scientologie de Paris and Another v. Prime Minister [2000] E.C.R. I-1335, para. [18]; Case C-326/07 Commission v. Italy [2009] E.C.R. I-02291, para. [14]; Case C-367/98 EC Commission v. Portugal [2002] E.C.R. I-04731, para. [48].

[ii]        Case C-503/99 EC Commission v. Belgium [2002], E.C.R. I-04809,  (golden shares justified); Case C-483/99 EC Commission v. France [2002] E.C.R. I-04781; Case C-98/01 Commission v. United Kingdom [2003] E.C.R. I-04641; Joined cases C-282/04 and C-283/04 EC Commission v. Netherlands [2006] E.C.R. I-09141; Case C-58/99 EC Commission v. Italy [2000] E.C.R. I-03811; Case C-174/04 EC Commission v Italy [2005] E.C.R. I-04933; Case C-326/07 EC Commission v. Italy, see (i) above; Joined cases C-463/04 and C-464/04 Federconsumatori v. Commune di Milano [2007] E.C.R. I-10419; Case C-463/00 EC Commission v. Spain [2003] E.C.R. I-04581;  Case C-274/06 EC Commission v. Spain [2008] E.C.R. I-00026; Case C-207/07 EC Commission v. Spain [2008] E.C.R. I-00111; Case C-367/98 EC Commission v. Portugal, see (i) above; Case C-171/08 EC Commission v. Portugal [2010] E.C.R. I-0000, Case C-543/08 EC Commission v. Portugal [2010] E.C.R. I-11241; Case C-212/09 EC Commission v. Portugal [2011] E.C.R. I-00000; Case C-112/05 EC Commission v. Germany [2007] E.C.R. I-08995.

[iii]        Moniteur Belge of 28 June 1994, p. 17333

[iv]       Moniteur Belge of 28 June 1994, p. 17347

[v]        Case C-503/99 Commission v. Belgium, see (ii) above, para. [9]-[10]

[vi]       ibid

[vii]       ibid

[viii]      See Jelena Ganza on ‘Italian Golden Shares – a Never-Ending Story?’ http://kslr.org.uk/blogs/europeanlaw/2013/01/15/italian-golden-shares-a-never-ending-story/#_edn9

[ix]       (Italian Privatisation Law as amended), Decreto del Presidente del Consiglio dei Ministri, definizione dei criteri di esercizio dei poteri speciali, di cui all’art. 2 del decreto-legge 31 maggio 1994, n. 332, convertito, con modificazioni, dalla legge 30 luglio 1994, n. 474; Decree-Law No 332 of 31 May 1994 (GURI No 126 of 1 June 1994), converted, after amendment, into Law No 474 of 30 July 1994, (GURI No 177 of 30 July 1994)

[x]        Case C-58/99 Commission v. Italy, see (ii) above

[xi]       Case C-326/07 Commission v. Italy, see (i) above

[xii]       First amendment: Article 66 of Financial Law No 488 of 23/12/1999 and Decree on 11/02/2000 aimed to bringing legal certainty to when the special powers of Decree-Law 332/1994 could be used, (in Italian) at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:1999;488 Gazzetta Ufficiale, n. 302 del 27-12-1999; for Decree 11/02/2000 see http://gazzette.comune.jesi.an.it/2000/40/5.htm; Second amendment: Article 4(227) to (231) Finance Law No 350 of 24/12/2003 and implementing Decree of 10/06/2004; (‘Urgent provisions to ensure the liberalisation and privatisation of specific public service sectors’, GURI No 170 of 24 July 2001), published in Italian Official Gazette No 120 on 25 May 2001, the original text could be found at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto-legge:2001;192; For Berluscony’s Decree in Italian see Decreto Del Presidente Del Consiglio Dei Ministri 20 maggio 2010 (published in Italian Official Gazette n.117 del 21-5-2010 ) (10A06506).

[xiii]      Decreto Del Presidente Del Consiglio Dei Ministri 20 maggio 2010 (published in Italian Official Gazette n.117 del 21-5-2010 ) (10A06506);

[xiv]      See Jelena Ganza, (viii) above

[xv]      Decreto-Legge 15 marzo 2012, n. 21  Norme in materia di poteri speciali sugli assetti societari nei settori della difesa e della sicurezza nazionale, nonche’ per le attivita’ di rilevanza strategica nei settori dell’energia, dei trasporti e delle comunicazioni. (12G0040) (published in Italian Official Gazette n.63 of 15-3-2012).

[xvi]      See Article 1 of Decree-Law No. 21, (xv) above

[xvii]     Actions such as changes in ownership structure, winding up, merger or de-merger, transfer of the head office abroad, change the corporate purpose, dissolution of the company, change of statutory provisions, transfer of subsidiaries.

[xviii]     Article 2(5) and (6) of Decree-Law No. 21, (xv) above

[xix]      According to Article 1(7) of Decree-Law No. 21, (xv) above, the list of companies subject to golden shares has to be updated at least every three years.