Germany Risks EU Fine for Failing to Comply With VW Law Ruling

Germany may be forced to pay millions of euros in penalties by the European Union’s highest court for failing to change its so-called Volkswagen law to conform to EU rules.

Germany’s changes to a law that shielded Volkswagen AG (VOW) from takeovers since 1960 continue to violate the bloc’s rules because government veto powers at the company still exist, the European Commission argued in a lawsuit at the EU Court of Justice. Instead of scrapping three provisions that were ruled unlawful by the court, the country abolished two and kept the blocking minority, the commission said.

“The commission has tried for more than 12 years to overturn this law,” Gerald Braun, a lawyer for the Brussels- based EU executive authority, told the Luxembourg-based court’s 15-judge panel, which is reserved for the most important cases. “The court already clearly established in a first ruling that the contested provisions in the VW law were unlawful.”

The EU’s top court in October 2007 overturned the law that protected Wolfsburg, Germany-based Volkswagen by capping shareholder’s voting rights at 20 percent, regardless of the size of their holdings. That matched the stake held during the previous four decades by the German state of Lower Saxony, where Wolfsburg is located. Germany now faces a fine for failing to end Lower Saxony’s blocking minority at the carmaker when it modified the law in 2008.

‘Piecemeal Approach’

The commission, which won the 2007 case, sued Germany in 2012 again over its “piecemeal approach” to changing the law. The EU executive authority wants Germany to pay a penalty of 31,114 euros-a-day ($40,535) from the 2007 ruling until it complies or until the ruling in today’s case, and a 282,725 euro daily fine from the ruling in today’s case until the VW law is in line with EU rules.

For Germany, the whole case hinges on these three words: “in conjunction with,” Juergen Schwarze, a lawyer for the German government, told the court.

The court’s 2007 ruling gave Germany the choice of eliminating some and not all of the contested provisions in the VW law by saying that they were unlawful only taken “in conjunction with” the others, said Schwarze. Germany eliminated two provisions and kept one.

Judge Alexander Arabadjiev, who will write the draft ruling that will be the basis for the final decision, asked why Germany chose to scrap the voting rights cap provision and not the minority blocking rights one.

Porsche Deal

Germany could change the law, by the end of this year, if it lost its case, said Schwarze.

“We have checked the timing and while it’s ambitious, it’s feasible to change the law by the end of the year,” he said.

The 2007 court ruling cleared the way for Porsche SE to take over Volkswagen. The bid failed and Porsche is today facing lawsuits alleging the 911 sports-car maker lied about its intentions to buy the larger carmaker. Porsche agreed to combine with Volkswagen in a deal completed last year after racking up more than 10 billion euros of debt in its unsuccessful takeover attempt.

Nils Wahl, an advocate general that advises the EU court, said he expects to finish his non-binding opinion on the case by May 29. Court rulings normally follow within four to six months after an opinion.

The case is: C-95/12, European Commission v. Federal Republic of Germany.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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