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May 27, 2008

GERMANY: Government approves new Volkswagen law

The German government has approved the redrafting of the Volkswagen Law, thereby reinforcing the decision-making role of the second largest shareholder after Porsche, the State of Lower Saxony.

The German government has approved the redrafting of the Volkswagen law, thereby reinforcing the decision-making role of the second largest shareholder after Porsche, the state of Lower Saxony.

The state, which has a shareholding of just over 20% in Volkswagen AG, will retain its power of veto. However, to avoid potential conflict with the European Union, whose European Court of Justice ruled the previous version of the law illegal last year, the German government has agreed that the blocking minority of the state could be removed if the European Commission (EC) took legal steps to make this happen, according to news agency dpa.

Justice minister Brigitte Zypries, who drafted the law, said that an 80% majority on major decisions remains in place. This means that when Porsche takes majority control of the company, as it plans to do later this year, it will still need the support of Lower Saxony to carry major decisions.

A 75% majority is normal practice in German companies. Porsche announced today (27 May) that it is mounting legal action against Volkswagen to change its articles of association so that a blocking minority is in line with normal German company law.

Speaking after the announcement of the German government decision, Charlie McCreevy, European Commissioner responsible for internal market and services, said that, if the law remains as it is, the EC would have no choice but to take the German government to court, according to dpa.

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