Discriminating Shareholders through the Exclusion of Pre-emption Rights? - The European Infringement Proceeding against Spain (C-338/06)

This article addresses a European infringement proceeding against Spain, which was joined by other Member States in 2007, including Finland, the United Kingdom and Poland. The European Commission alleges a violation of the Second Company Law Directive through a discrimination of shareholders. It argues that Spanish companies are allowed to issue shares below the market value and exclude the pre-emption rights of the existing shareholders. Such share issues result in a wealth transfer from old to new shareholders(often referred to as a dilution of shareholdings), contrary to the equal treatment clause of the Second Directive. This article shows that the dispute is partly due to a misunderstanding of Spanish law, including legal culture. It also finds that the allegations have merit to some extent but crucially depend on the fact finding of the European Court of Justice.