The European Court of Justice has ruled against Germany's protective 'Volkswagen Law', paving the way for Porsche to take control of the continent's biggest car maker.
Striking down the 40-year-old law, which prevents Volkswagen from being taken over, will allow fellow German car maker Porsche to raise its 31% stake to a majority.
'Germany has failed to fulfil its obligations in respect of the free movement of capital,' Europe's top court said in its judgement on the case, brought by the European Commission.
Porsche has made no secret of its desire to expand beyond its traditional luxury sports car market to create a truly global group.
The law was introduced in 1960 as Volkswagen, which was founded before World War II, was being privatised, and was designed to shield the company from foreign attempts to control it.
The crux of the law is that regardless of the amount of capital it owns, a shareholder cannot hold more than 20% of the voting rights in a company.
The law also stipulates that the authorities in Lower Saxony, the German state where Volkswagen is based, have the right to appoint two members to VW's supervisory board, allowing them to block the majority needed to adopt resolutions.
The Luxembourg-based court pointed out that the free movement of capital may be limited by national measures 'that are justified by legitimate interest'. But it ruled that Germany had failed to explain why the law concerned was necessary.
