Groups of Companies - A Comparative Study on the Economics, Law and Regulation of Corporate Groups

The phenomenon of groups of companies is very common in modern corporate reality. The empirical data on groups of companies are heterogeneous because they are collected for very different regulatory and other objectives. Two main agency problems arise in groups of companies: between the controlling shareholder and the minority shareholders and between the shareholders and the creditors. There are three regulatory models for dealing with groups of companies: regulation by general corporate and/or civil law (prototype: the UK); regulation by special group law (prototype: Germany); and regulation by areas of the law such as banking, competition, and tax law (to be found in many countries, either combined with the first or the second model). The main strategy for dealing with groups of companies is disclosure and group accounting. It is effectuated by special investigation with a group dimension and by the help of auditors and independent experts. A fair amount of international convergence, at least for listed companies, can be observed as far as shareholder protection is concerned. Related party transactions are a key area of concern for corporate and group law, usually dealt with by specific disclosure and consent requirements. In addition, appropriate standards for directors and controlling shareholders for dealing with agency conflicts in groups of companies have been developed in many countries. These standards become stricter, if insolvency is approaching. The concept of the shadow director plays an important role in extending liability to the controlling shareholder and the parent. Other mechanisms for creditor protection, both in the independent company and in groups of companies, are indemnification, veil-piercing, subordination and substantive consolidation. Creditor protection is still very path-dependent, and convergence is much less advanced.