VW Law faces court showdown as Porsche, EU await

BRUSSELS (Reuters) - The European Union's top court will rule on Tuesday on the legality of a German law that shields Volkswagen (VOWG.DE) from takeover in a decision with wider implications for corporate Europe.

An adviser to the European Court of Justice said in February the "VW Law" hindered the free flow of capital in the 27-nation EU by capping voting rights and limiting board seats. The court typically backs its advisers in a majority of cases.

The ruling by the full court is due around 0730 GMT.

It is eagerly anticipated on two levels -- its implications for future ownership of Europe's biggest carmaker, and the huge boost a decision against the law would give the European Commission's crackdown on "golden shares".

The EU executive is using the court to stop member states using strategic stakes in companies to thwart takeovers.

Ending the 1960 law would pave the way for rival German carmaker Porsche (PSHG_p.DE) to cement its control over VW by boosting its 31 percent stake to a majority.

Under the VW Law, Porsche's voting rights are capped at 20 percent -- the maximum allowed for any single shareholder.

The law also stipulates that Germany and VW's home state of Lower Saxony are each entitled to appoint two members to VW's supervisory board. The German federal government is no longer a VW shareholder, but Lower Saxony is its second-biggest investor.

In addition, the majority needed to adopt resolutions -- such as agreeing to a takeover -- is over 80 percent, rather than the typical 75 percent, thus giving Lower Saxony a veto.

The law's demise could end decades of cozy ties between management and labor at VW in a system called co-determination that gives workers a major say in how the company is run.

The Berlin government and Lower Saxony call for maintaining the legislation, which they say does not violate EU law.