Bus203 Notes Part 5

8/13/2019 Bus203 Notes Part 5

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NOTES PART 5

TOPIC: TERMINATION OF MEMBERSHIP

AND TERMINATION OF COMPANY

A. Withdrawal and ex!l"i#n #$ a %e%&er

1. The withdrawal or expulsion are available just for Limited Liability Companies

2. The members' right to withdraw from the ompany and the ompany's right to

expel a member may n#t &e re"tri'ted &( the Stat!te!Alt 1"# !2$ ACL$.

#. The basi priniple is that withdrawal or expulsion is only justified if there is a

rea"#na&le )r#!ndthat ma%es the '#ntin!ati#n #$ %e%&er"hi !na''eta&lefor the member who wishes to withdraw or for the other members in the ase of

expulsion.

Withdrawal

a. *r#!nd not a small a harm a onsiderable one

!1$ A member may withdraw from the ompany if there is a reasonable ground whihrenders the ontinuation of membership unaeptable for the member& in partiular

!a$ if other members the ompany have 'a!"ed da%a)eto him by their ations

!b$ if the member ha" &een re+ented $r#% exer'i"in) hi" ri)ht"in the ompany

!$ if the ompany has imposed !nrea"#na&le #&li)ati#n"on him

b. Pr#'ed!re

1. submission of a notie of his withdrawal to the ompany in writing and stating thereasons for his withdrawal

2. upon reeipt of this notie the administrator has to immediately onvene a generalmeeting "in order to decide if the member will receiveliquidation of his share

due to his valid withdrawal"


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ACL states that "the general meeting may request the competent court to expel a

member".

'/ C#%en"ati#n:

Withdrawal

The issue of ompensation is a bit unlear& however the priniple is that

The member is entitled to reeive the value of the share in ash.

wh# "h#!ld r#+ide the 'a"h0

After all& the withdrawal of a member with a large share will re,uire a orrespondingly

large amount of ash.

(n most ases& an ative business d#e" n#t harr lar)e 'a"h re"er+e"& beause ash

holdings tend to be an unprodutive investment of members' apital

1. 3ne possibility would be to re,uire the other members to buyout the withdrawing

member and ta%e over his share.

But this is clearly not the course of action envisaged by Art 103 1! A#$ which spea%s of

the termination of the membership rights$ rather than their transfer to other members.

Thus

2. member's right to ompensation for the value of his share is indeed direted

against the ompany& whih may fore the ompany to li,uidate some of its assetsin order to raise the ash.

4ut this may be dangerous for the ompany5

C#nditi#n: the ompany's assets will fully over its liabilities

ompany will have suffiient li,uid assets to ma%e payments of its liabilitiesas the( $all d!e in the next twel+e %#nth" !whih is to be attested by a solveny

ertifiate issued by the administrators$.

(f the ompany is unable 6 pay the ompensation in in"tall%ent" #+er a eri#d #$ ti%e

with the attendant ris% for the member that the ompany beomes insolvent during this

time& but this is a onse,uene of the reditor protetion funtion of Art 77 ACL.


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if a member of a ompany 'a!"e" an( da%a)eto the ompany through his withdrawal

due to la% of reasonable grounds& he ha" t# '#%en"atethe ompany for that damage.

The ompany may laim damages8 even he may laim ompensation is the ompanyaused his withdrawal !apart from the value of his shares$

Ex:A and 4 hold 79: and 29:& respetively& of ompany ;.

The value of the business on a goingonern basis is 122% le3e.

A engages in prohibited ompetition with the business of ompany ; and auses lasting

damage to the ompany's business relationships.

As a result& the goingonern value of the business drops to 42% le3e.

(f A's ondut has violated his fiduiary obligations towards ompany ; under Art 1)

ACL& the ompany has a laim for ompensation against A to the value of 2% le3e.

(f this laim is ta%en into aount in order to establish the value of 4's share in theompany !as it should be& in our view$& 4 is entitled to a ompensation for the value of

his share that amounts to 29: of 1""m le%e.

In thi" 'a"e6 there i" n# rea"#n $#r B t# re'ei+e additi#nal '#%en"ati#n $r#% A #r

$r#% '#%an( 7 !nder Art 121 89/ AC-

Ex!l"i#n

the ontinuation of the membership of this person has beome unaeptable for

the other members.

need not neessarily be the result of some grave wrongdoing

for ex they agreed to partiipate all in the administration and he annot do so beause of

an illness


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The value of the business on a goingonern basis is 1""m le%e.

Aordingly& 4's share in ompany ; is worth 29m le%e.

4 engages in prohibited ompetition with the business of ompany ; and auseslasting damage to the ompany's business relationships. As a result& the goingonern

value of the business drops to !a$ ="m le%e 8 !b$ >"m le%e& while 4's profit from the

ompeting business ativity amounts to !a$ 2"m le%e 8 !b$ )"m le%e.

Assuming that 4's ondut has violated his fiduiary obligations towards ompany ;

under Art 1) ACL& the ompany has a laim for ompensation against 4 to the value of

!a$ 2"m le%e 8 !b$ )"m le%e.

?nder Art 1"2 ACL& 4 may offset this ompensation against the value of his share !worth

29m le%e if the ompensation from 4 to ompany ; is ta%en into aount$.

The result in situation !a$ is that 4 may %eep 2"m le%e by virtue of the setoff& but suffers

a net loss of 9m le%e& beause the value of his lost share is not fully overed by the setoffagainst his obligation to pay damages. A& on the other hand& has made a net gain of 9m

le%e& beause he now holds the only share in ompany ;& whose business is worth ="m

le%e !after 4's damaging ativity$& whereas& previously& A's original share of 79: inompany ; !before 4's damaging ativity$ was only worth 7-m le%e.

The expulsion has led to a value transfer from 4 to A to the amount of 9m le%e. 4ut the

result annot be justified on grounds of 0punishment0 for 4's ondut& as is demonstratedby ontrasting situation !a$ with situation !b$. The result in situation !b$ is that 4 must

pay (sm le%e in damages to the ompany& ta%ing the entire value of ompany ; in the

hands of A to 7-m le%e !>"m le%e value of the business after 4's damaging ativity plus(sm le%e in ompensation from 4$. 4& on the other hand& may %eep 2sm le%e by virtue of

the setoff& whih represents the full value of his share in ompany ;. The supposed

0punishment0 for 4 disappears if 4 has been ruthless enough to inflit so muh damageon the ompany that it e,uals the value of his share. The message is lear As soon as 4

learns about A's intention to expel him from the ompany& 4 has every inentive to

intensify his damaging ativities against ompany ; in order to protet his own finanial

interest.

Di""#l!ti#n 8ri"h.a/ $#r C ;


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1. the exir( #$ the eri#d $#r whi'h the '#%an( wa" e"ta&li"hed=

A provision that the company is only established for a certain period$ at the expiry of

which it will be automatically dissolved$ must be contained in the &tatute of the companyand registered accordingly Art 3' 1! g! () #aw!. As a default rule$ companies are$

therefore$ established for an indefinite time.

- The de'i"i#n #$ the *eneral Meetin) t# di""#l+e the '#%an(

A resolution of the *eneral meeting to dissolve the company requires a qualified

ma+ority of three quarters of the votes of members,shareholders- the &tatute may set ahigher$ but not a lower ma+ority Alt / 1! and Art 1& 1! A#!.

#. the #enin) #$ an in"#l+en'( r#'ed!re=

he opening of an insolvency procedure happens by order of the Ban%ruptcy ourt

pursuant to Art '2 Ban%ruptcy #aw. here is an additional ground for dissolution in Art1 3! Ban%ruptcy #aw$ which is not explicitly mentioned in the lists contained in Art

and Art 1/ A#, namely that the company is also dissolved by virtue #$ a $inalde'i"i#n #$ the Ban3r!t'( C#!rtrefusing the initiation of the insolvency procedure

if there is evidence that the company's assets are in"!$$i'ient t# '#+er '#"t"of the

insolvency procedure.

). the '#%an( ha" n#t 'arried #!t an( &!"ine"" a'ti+itie" $#r tw# (ear" and ha" n#t

n#ti$ied it" ina'ti+e "tat!" NRCaw

5- a '#!rt de'i"i#n > ourt dissolves the ompany for a reason other than insolveny

9- #ther rea"#n" r#+ided &( the Stat!te-

(t is very important to understand that the di""#l!ti#n #$ the '#%an(in the sense of Art

@@ and Art 1=7 ACL d#e" n#t ter%inate the le)al er"#nalit( #$ the '#%an(. The

ompany ontinues to exist as a legal person during the li,!idati#n r#'ed!re!Art 1")&

Artt 1@" to 2"9 ACL$ as well as during any insolveny proedure. The legal personalityof the ompany only ends with the 'an'ellati#n #$ the '#%an(from the register !Artt

2"2& 2") ACL/ Art 9# BC Law$

The di""#l!ti#n #$ the '#%an( i" $#ll#wed &( the li,!idati#nr#'ed!re" !nle"" an in"#l+en'( r#'ed!re ha" &een #ened

A- i,!idati#n #$ "#l+ent '#%anie"


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Pr#'ed!re

The main ompany organ during the li,uidation is the li,uidator& who assumes theplae of the administrator!s$.

The powers and duties of the administrator are transferred to the li,uidator on hisappointment.

The li,uidator is appointed by the general meeting/

if the general meeting fails to appoint a li,uidator within #" days after the

dissolution& any interested person may re,uest the ourt to appoint the li,uidator.

Any interested person has the right to re,uest the ourt to replae the li,uidator

appointed by the general meeting if he shows suffiient reasons that the

li,uidation objetive might be impaired

(f the ompany is dissolved by a ourt deision& the ourt appoints the li,uidator.

D?TY >The li,uidator's essential tas% is to lose up the business by bringing the urrent

business transations to a lose& olleting laims inluding outstanding ontributions&

selling remaining assets and paying reditors

The li,uidator may onlude new business transations for the purpose of bringing

urrent transations to a lose

The li,uidator is the legal representative of the ompany

(f there are several li,uidators& they exerise their rights and duties jointly& unless theirappointment envisages them to at also independently.

The li,uidation proedure is arried out for the ultimate benefit of themembers8shareholders of the ompany as the residual laimants& meaning that they are

entitled to reeive the assets left after all the reditors have been paid& the 'lai%" #$ the'redit#r" ha+e ri#rit(-

This order of priorities an be seen from a number of provisions

1. The li,uidator must invite the ompany's reditors to file their laims withrespet to the dissolution of the ompany.

2. The ompany has to publish the ann#!n'e%ent twi'e6 with a @2> da("interval& on the website of the ational Begistration Centre and& if

appliable& on the ompany's website.


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#. The announement must delare that laims must be filed within #" days

from the last announement.

). if& based on laims filed by reditors as referred to in Art 1@981= the

li,uidator finds that ompany assets inluding outstanding ontributions

are n#t "!$$i'ient t# "ettle the"e 'lai%"& he has to suspend the li,uidationproeedings and file a re,uest to the ompetent ourt to #en an

in"#l+en'( r#'ed!re-

9. li,uidator may not distribute the remaining assets among

members8shareholders ri#r t# the exirati#n #$ @ %#nth" from the

publiation of the seond all to the reditors to file their laims.

>. (n ase a reditor %nown to the li,uidator does not laim his rights& the

amount due has to be deposited at the ourt and goods have to be

deposited in a speified publi warehouse.

7. (f& for the time being& an obligation annot be settled or if it is

ontroversial& the assets may only be distributed amongmembers8shareholders if the reditor has been granted ade,uate seurity.

one the ompany's obligations towards reditors have been settled& remaining assetshave to be distributed among members or shareholders aording to their lights in profit

sharing unless preferenes are granted by the -tatute.

Si%li$ied li,!idati#n r#'ed!re

!ris%y$ who will ontrol ourt58administrator held liable for three years

a. There is no need to appoint a li,uidator

b. a !nani%#!" deision by all members or shareholders not just the three,uartersmajority that is suffiient for the deision on the voluntary dissolution

. idential statements from eah member or shareholder before the ourt that all

ommitments of the ompany onerning its reditors and employees have been

settled.

In"#l+en'( 8$ali%enti%i/

Beasons

1. 'insolveny' !gjendja e paaftesise paguese$ The debtor is deemed insolvent if he isunable to pay his debts on the date of their maturity.


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debts& yet failed to ta%e the neessary steps to ensure that the ompany had suffiient

apital to meet its ommitments as against third parties !above& ((.#.#.$.

Tax a!th#ritie"

3n peuliar feature of Albanian law is the strong !theoretial$ role of the tax authoritieswith regard to the initiation of ban%rupty proeedings. (n omparable systems of

insolveny law& tax authorities !and soial seurity servies$ may re,uest the opening of

insolveny proedures if they are reditors

(n aordane 'with the seond sentene in Art 1) !1$& the tax authorities may re,uest the

opening of an insolveny proedure i$ there i" a &alan'e "heet #$ l#"" $#r a @>(ear

eri#d-

"he tax administration requests at court the start of insolvency proceedings commercial

companies sub+ect to the tax laws

a$ two years after they have been passed into passive status by the BC/

b$ whose tax obligation is delared unolletible/

$ whih delare a result of losses of their own apitals for at least three onseutiveyears/

d$ whih have not performed any ommerial ativity for a period of at least two years

from the date of entering into fore of this law/

e$ whih have outstanding obligations towards the tax administration for at least two

years from the date of entering into fore of this law.0


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CORPORATE RESTR?CT?RIN*

Mer)er" 8&a"h3i%i/

For both JSC and Llc

merger is a transation in whih one or more ompanies !the a,uired ompany$tran"$er all their a""et" and lia&ilitie" to another ompany !the a,uiring

ompany$ and then ease to exist without going into li,uidation.

(n exhange for the reeived !net$ assets& the a,uiring ompany i""!e" "hare" t#the shareholders of the a,uired ompanies.

-uh an operation di$$er" $r#% the a',!i"iti#n #$ #ne '#%an(" "hare"by anotherompany not only beause the a,uired ompany 'ea"e" t# exi"t& but also beause& as a

result of the transation& the a,uiring ompany sueeds in the a,uired ompany's legal

position.

+ergers have to be approved &( %a.#rit( +#te#$ th '#%anie"shareholders.

A merger hiefly affets two important groups of sta%eholders of the ompaniesinvolved the "hareh#lder" #$ the '#%anie"and the 'redit#r" #$ the '#%anie".

-hareholders typially oppose a merger in one of the following ases

D They d#!&t the $airne"" #$ the relati+e +al!ati#n !i.e. they thin% that the share

exhange ratio is unfair to their disadvantage$. (n pratie& this is by far the most

important reason for shareholder opposition.

D They doubt the eonomi rationality of the proposed merger and thin3 that their

'#%an( w#!ld er$#r% &etter with#!t the '#%&inati#n of the two ompanies'businesses.

D They might also fear negative onse,uenes of the merger resulting from a 'han)e inthe di"tri&!ti#n #$ +#tin) ri)ht" a%#n) the "hareh#lder"& for instane& if a minorityshareholder holds >: in the a,uiring ompany& but& as a result of the merger& his

shareholding will be diluted !Eredued$ to #:.

Share ex'han)e rati#

"hareh#lder" #$ the %er)in) '#%anie" end ! h#ldin) "hare" in the a',!irin)

'#%an(

The legal re,uirements help to ahieve the goal of providing a fair and reasonableshare exhange ratio.


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The main instruments are

D shareholder information prior to the merger

D valuation by independent experts

D the re,uirement of shareholder approval with ,ualified majority

D a sellout right for the minority shareholders& who may demand that their shares arebought by the ompany at the mar%et prie

Ex: The $#ll#win) 8"i%li$ied/ exa%le #int" #!t the rele+an'e #$ the +al!ati#n a"

the ne'e""ar( $ir"t "te #$ the deter%inati#n #$ the "hare ex'han)e rati#

Two jointsto% ompanies& 0A-hA0 and 04-hA0 deide to merge.

A-hA's only asset is a &an3 de#"it #$ @62226222Le% and it has no liabilities !the#&"""&""" Le% onsist of ontributions of A-hA's shareholders and undistributed

profits$.

4 -hA holds seurities with a mar%et value of 9&"""&""" Le% and has liabilities !a ban%

loan$ of 2&"""&""" Le%& so its net asset value is @62226222 e3& the same as for A-hA.

(rrespetive of the type of merger the netvalue of the two ompanies' ombined wealthwill amount to >&"""&""" Le%& as the a,uiring ompany will hold assets valued

=&"""&""" Le% !# +io. Le% ban% aount F 9 +io. Le% seurities$ and liabilities of

2&"""&""" Le% !the ban% loan$.

A fair and reasonable share exhange ratio& therefore& should assure that the shareholders

of A-hA and 4-hA hold an e,ual interest in the ombined ompany !the a,uiringompany$& meaning that after the proess has been ompleted& A>ShA" and B>ShA"

"hareh#lder" %!"t ea'h ha+e 52 #$ the "hare" in that '#%an(-

3therwise either A-hA's or 4-hA's shareholders would learly lose value by enteringinto the transation.

The value of a ompany that runs an ative business annot normally bedetermined by simply adding up the values of the items owned by the ompany

and subtrating the ompany's debts.

(nstead& the value of a ompany in aordane with investment theory is based on the

exe'ted $!t!re 'a"h>$l#w" )eneratedby it.

As future is always unertain& this method of valuation neessarily brings onsiderable

room for argument with it and will often lead to a range of possible valuations& whih


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may all be justifiable "he 4experts56 statement 4...6 must indicate the values arrived at

using each method and give an opinion on the relative importance attributed to such

methods in arriving at the value decided on"!. (t is very important to understand& thatvaluation is not an exat siene and that it annot deliver one single orret result.

reditors of the ompanies involved. At first sight& one might believe that this ise"e'iall( rele+ant t# the 'redit#r" #$ the a',!ired '#%an( & as these reditors

lose their original debtor.

The liabilities of the a,uired ompany are transferred to the a,uiring ompany& whih

now sueeds the a,uired ompany in its relations visa.vis third parties.

The reditors of the a,uired ompany now have their laims against the a,uiringompany.

They have not& however& agreed to this suession. Gven though all the assets of the

reditor's original debtor !the a,uired ompany$ have been transferred to its new debtor!the a,uiring ompany$& this does not neessarily mean that the reditor's ris% has not

hanged !i.e. worsened$ from an eonomi point of view.

(magine a merger between a highly solvent and profitable ompany !; shA$ and a

ompany& whih has already lost most of its e,uity in the ourse of its business and whihhas a large amount of debt apital !HshA$.

+erging these two ompanies would learly lie in the interest of HshA's reditors& as the

ris% of losing part or all of the money borrowed to HshA is redued signifiantly. Iromthe viewpoint of ;shA's reditors& however& the ombination of all assets and liabilities

of the two ompanies is learly less attrative.

Mer)er &( a',!i"iti#n

A merger by a,uisition is an operation by whih one or more ompanies transfer alltheir assets and liabilities to an existing company$ whih issues shares to the shareholders

who previously held shares in the a,uired ompany.

Exa%le: (magine two jointsto% ompaniesAlbanian *as -hA and Albanian 3il -hA.

(f it is deided to merge Albanian 3il -hA 'in to5 Albanian *as -hA& the result will be an'enlarged' Albanian *as -hA& whih ombines both ompanies' assets and liabilities.

Let us assume that Albanian *as -hA is substantially !four times$ 'larger' !i.e. theompany's value is substantially higher$ than Albanian 3il -+. The onse,uenes of a

merger for the shareholders are demonstrated by the following figure


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The 'old' shareholders of Albanian *as -hA in total hold an interest of )89 !=":$ of thepostmerger Albanian *as -hA& whereas the former shareholders of Albanian 3il -hA

hold 189 !2":$ of the postmerger Albanian *as -hA.

To arrive at this point& when setting the share exhange ratio& one has to ta%e into aount

not only the relati+e +al!e #$ the tw# '#%anie"& but also the n!%&er #$ i""!ed "hare"#$ th '#%anie".

(f& for instane& Albanian *as -hA had issued 62226222 !22 222 222;6222622222

le3;"hare/ shares prior to the merger and Albanian 3il -hA had issued 1&"""&"""

shares& the value of eah share of Albanian *as -hA is 22 e3whereas the value of

eah share in Albanian 3il -+ is 122 e3.

(t follows that two shares in premerger Albanian 3il -+ have the same value as one

share in premerger Albanian *as -hA& and from this relative value of the shares& theshare exhange ratio has to be alulated at 21.

This means that the shareholders of Albanian 3il -hA reeive one share of Albanian *as-+ for every two shares of Albanian 3il -hA they hold& whereas the 'old' shareholders of

Albanian *as -hA %eep their shares.

Albanian *as -hA has to issue 5226222 "hare" !1+io. divided by two$& and the totalnumber of shares issued would inrease 2&9""&""" whih is in line with the valuation

given above.

Ea'h "hare #$ the enlar)ed 8i-e- #"t>%er)er/ Al&anian *a" ShA i" "till w#rth 22

e3 852262226222 di+ided &( 522 222/-

he merger therefore has no impact on the value of the shares of Albanian *as &7. hisshows that the nominal value of the shares is not essential to the determination of the

share exchange ratio.

Ior the reditors of Albanian *as -hA there is no hange in their legal position !althoughtheir eonomi position an alter substantially& as desribed above$.

Creditors of Albanian 3il -hA& however& lose their debtor& sine Albanian 3il -hA doesno longer exist as a legal entity after ompletion of the transation. Jowever& Albanian

*as -+ ats as its legal suessor& thus former reditors of Albanian 3il -hA now have

the same laims against Albanian *as -+ as they had against Albanian 3il -hA.

Mer)er &( the $#r%ati#n #$ a new '#%an(


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A merger by formation of a new ompany is the operation by whih two or more

ompanies transfer all their assets and liabilities to a newlyfounded ompany& whih

issues shares to the shareholders of the a,uired ompanies.

(f we ta%e the example above !f. a$& Albanian *as -hA and Albanian 3il -+ ould also

deide to merge by formation of a new ompany !'ew Albanian 3il K *as'$.

Thi" "h#w" that the #"t>%er)er "tr!'t!re i" al%#"t identi'al t# the tran"a'ti#n

de"'ri&ed a+e 8'$- a/-/6 ex'et $#r the le)al identit( #$ the a',!irin) '#%an(-

4oth Albanian *as -+ and Albanian 3il -+ ease to exist as a result of the merger& and

all of their assets and liabilities are now transferred to& and subse,uently owned by& ew

Albanian *as K 3il -hA.

Another modifiation has to be made with respet to the share exhange ratio.

As pointed out& the distribution of the shares in the new ompany must reflet the relative

values of the merging ompanies !) +io. Le% and 1+io. Le% in our example$.

Thus& 2": of the shares will be assigned to the former Albanian 3il -hA shareholders&

whereas =": of the shares will be assigned to the former Albanian *as -+ shareholders.


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H#we+er6 a" the a',!irin) '#%an( i" newl( $#r%ed in the '#!r"e #$ the %er)er6 the

t#tal n!%&er #$ "hare" i""!ed %a( &e "et at any 8rea"#na&le/ n!%&er-

(n our example& the total number of shares issued by the ew Albanian *as K 3il -hA

shall be set at 9&"""&""".

Thus& 1 +io. shares are assigned to the former Albanian 3il -+ shareholders& whereas )

+io. shares are as signed to the former Albanian *as -hA shareholders.

This also ma%es lear that we now need two different share exhange ratios Albanian

3il -hA shareholders will be able to exhange one of their shares for every share of the

new ompany !exhange ratio11$ whereas the share exhange ratio for Albanian *as

-hA shareholders will have to be set at 12& assigning them two shares of ew Albanian*as K 3il -hA for every share the hold in Albanian *as -hA.

The same eonomi effet an be ahieved if the number of shares is set at 1" +io.& of

whih 2 +io. go to the Albanian 3il -hA shareholders and = +io. go to the Albanian *as-hA shareholders.

Aordingly& the share exhange ratios would be 12 for the Albanian 3il -hA

shareholders and 1) for the Albanian *as -hA shareholders.

Di+i"i#n

B( a di+i"i#n6 the a""et" #$ #ne '#%an( are "lit ! and tran"$erred t# tw# #r %#re

exi"tin) #r new '#%anie" 8a',!irin) '#%anie"/-

The former type of division an also be seen as a ombination of two steps of a

restruturing a division by transfer to a newlyfounded ompany followed by a merger of

the newly founded ompany !as a,uired ompany$ with an existing ompany !the

a,uiring ompany$.

(f the assets of the divided ompany are transferred to a newlyfounded ompany&

shareholders of the divided ompany naturally reeive all of the shares of the

newly founded ompany. !why is needed may hange the objet$


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The "hare" 'an either &e all#'ated in r##rti#n t# the "hareh#ldin)" in the di+ided

'#%an( 8r##rti#nal di+i"i#n/ #r de+iate $r#% thi" r##rti#n 8n#n>r##rti#nal

di+i"i#n/-

The following hart shows simplified examples of proportional and nonproportional

divisions.

(t assumes that the ompany to be divided has two shareholders& eah holding 9": of theshares.

(t further assumes that the a,uiring ompanies are newly founded.


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-urprisingly& the ACL does not provide for divisions& where the ompany to be divided

remains in existene. (nstead& Art 227 !1$ re,uires the ompany being divided to ease to

exist. This means& that the soalled "in>#$$& whih is the most important form of a

division in most +ember -tates& is not provided for by the text of the Albanian law.

#.

The Miretive on rossborder mergers failitates the rossborder mergers of both publiand private ompanies.

The only re,uirement is that a merger between suh types of ompanies is possibleaording to the national laws of the relevant +ember -tates.

TRANSFORMATION

Art 22= deal with the transformation of N-Cs and LLCs. 4y transformation& a N-C an beonverted into a LLC and vie versa

4y transformation a ompany simply hanges its legal form without losing its identity.

Therefore& the transformed ompany does not 0sueed in the legal position0 of theexisting ompany/ notwithstanding the hange of its legal form& the ompany %eeps its

legal identity.


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?pon registration& the ompany ontinues to exist in the legal form hosen& while all

shareholders or members stay members or shareholders of the transformed ompany.

Also& the rights of third parties with regard to the shares held by shareholders8members

ontinue to exist regarding the new shares.

This last rule ensures that third party rights& espeially pledges and other means of

seurity& are automatially onferred on the 0new0 bundle of membership rights.

Ta%e the different rules on apital inreases for N-Cs and LLCs as an example

Ohereas shareholders of a N-C are entitled to subsribe newly issued shares in proportionto their previous shareholding in ase of a apital inrease& no suh rules exist for LLCs.

A minority shareholder of a N-C that is about to be transformed into a LLC ould&

therefore& depending on the sie of his share !e.g. 2":$& experiene a deterioration of hisposition visa.vis the ompany and his fellow shareholders.

These differenes render it neessary to provide for ertain proedural mehanisms to

ensure that the position of the ompany's sta%eholders does not deteriorate as a result ofthe transformation. The main fous of the proedural rules set out in Art 22@ ACL is to

ensure this outome.

a. A tran"$#r%ati#n re,!ire" ar#+al &( the )eneral %eetin)-

b. The vote re,uires a three,uarter majority. The -tatute may provide for a higher&

but not a lower majority re,uirement.

. rior to the general meeting& the administrators have to draw up a reportexplaining the "legal and economiground for the proposed trasnformation".

The strongest instrument of shareholder protetion an be found in Alt 22@ !9$ ACL&however. 4y referene to the merger regulation& this provision gives an exit right to eah

shareholder8member who opposes the transformation.

Gah shareholder8member opposing the transformation may re,uire the ompany to buy

his shares at the mar%et prie.

As there is yet no sto% exhange in Albania& a mar%et prie will often not exist.

(n this ase& the prie has to be set by an independent expert appointed by the ourt at the

shareholders'8members' re,uest.

-hareholders8members who did not attend the *eneral +eeting may submit their

opposition to the transation up to >" days after a speial announement.


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The referene to Art 221 ACL results in an unonditional right of eah single reditor to

obtain& upon submission of his laims in writing& ade,uate safeguards for these laims

from the ompany. Oe have already pointed out that this right overshoots the target withrespet to mergers/ it seems even more inappropriate as far as transformations are

onerned. The finanial situation of the ompany annot& after all& deteriorate as a diret

onse,uene of this form of orporate restruturing.As mentioned above& the true ris% to the reditors of a ompany lies in the different

regimes of apital maintenane and the different distribution rules between N-C and LLC.

III- *RO?PS OF COMPANIES

Oithin the meaning of the ACL& two ompanies form a group if one ompany either has

at least #": of the voting rights in the other ompany !e,uity group$

3r

if one ompany "regularly behaves and acts sub+ect tothe directions or instructions ofanother company of another company"!ontrol group$.

Advantages

very pratial to organie different parts of the business operations in the form of

separate ompanies so as t# e"ta&li"h 'lear area" of responsibility for the

administrators of the various ompanies of the group

separate legal personality onferred on these ompanies also limits potential

problems with the abuse of the power of representation in a largesale business&as it does not re,uire every single person who ats within his sphere of

responsibility to have the authority to represent the whole entity

running a business as a group of ompanies permits the raising of e,uity apital

from third parties !minority shareholders$ with respet to ertain parts of the

business

A. C#ntr#l *r#!

The ontrolling influene may instead arisefrom a ontratual relationship

or from pure eonomi dependeny& for instane

De$initi#n:3ne ompany !the subsidiary ompany$ behaves and ats subjet to thediretions or instrutions of another ompany !the parent ompany$.

based on the onept of !fatual$ 0ontrolling influene0


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the law does not re,uire the parent ompany to hold shares of the subsidiary at all

C#n"e,!en'e":

a- Compensation for Annual Losses& Creditors' BightsThe provision learly aims at the protetion of the reditors and the minority shareholders

of the subsidiary ompany.

Pery problematiThe subsidiary's right to reeive ompensation for its annual losses is aompanied by the

right of the subsidiary's 'redit#r" t# re,!ire the arent '#%an( t# "tand "e'!rit( $#rtheir 'lai%" at an( ti%e. This further underpins the notion that& within a ontrol group&

the parent ompany in effet will be liable for the individual ompanies in the group.eliminates limited liability as far as the ompanies in the group are onerned& beause

the business ris% that materialises in the losses of the subsidiary will always shift diretly

onto the parent ompany. minority shareholders of a subsidiary should be entitled by law

to their share in the ompany's profits& but at the same time have their ris% of losing theirinvestment hedged away by the parent ompany's obligation to ompensate them for all

losses inurred.

&- -ellout Bight

Aording to Alt 2"= !2$ ACL& partners& members or shareholders of the subsidiary have

at any time the right to re,uire the parent ompany to buy their seurities.

Iirst& from the viewpoint of the parent ompany& the obligation to buy the shares of theminority shareholders an onstitute a heavy and ontinuing finanial burden& as the

parent ompany must hold enough li,uidity at any time to aede to a re,uest by one or

more of its minority shareholders.

The provision does not speify the prie to be paid for the shares. (f this were to mean

that the prie may be set by the parent ompany at its disretion& it would effetively

render the sellout right provided for in Art 2"= !2$ ACL worthless.

3ne might assume that in the absene of a speifi provision regulating the !minimum$

prie to be offered by the parent ompany a 0fair prie0 has to be determined& forinstane through valuation of the ompany by an independent expert. 4ut it is unlear

how the sellout right in Art 2"= !2$ ACL and the sellout right provided for in Art 212

ACL relate to eah other.


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The latter only applies if the parent ompany holds @": or more of the subsidiary's

shares/ in whih ase the law orders the parent ompany to buy the shares of the

subsidiary's minority shareholders 0at the mar%et prie0.

Oe therefore assume that the rights onferred to minority shareholders under Art 212

ACL are already inluded in Art 2"= !2$ ACL& and that both provisions re,uire the parentompany to offer at least the urrent mar%et prie for the shares !if suh a prie an be

determined$.

4. E,!it( *r#!

De$initi#n: if one ompany !the parent ompany$& based on its apital share in another

ompany !the subsidiary ompany$ or based on an agreement with that ompany& has theright to appoint at least #": of the members of the 4oard of Administration or

supervisory board or of the administrators of that ompany& or if it has at least #": of the

votes at the general meeting.

C#n"e,!en'e": n#t a" ri)id a" in '#ntr#l )r#!"

a. Iiduiary duties the ba%ground of the general fiduiary duties of an

administrator ct. P.2.2.b$& the provision in Art 2"@ !1$ and !#$ ACL have to be

understood as re,uiring a parent ompany's management to ta%e intoonsideration not only the interests of the parent ompany& but also the interests of

the subsidiary ompanies and the group as a whole. Ohat remains unanswered&

however& is the ,uestion whose interests should prevail in ase of onfliting

interests. The answer is apparently left to the ourts to be deided on a asebyase basis.

E!r#ean C#%an( aw

Qfreedom of establishmentRIor the first time in the Treaty of Bome 6 reated the Guropean Community 1@97

(t prohibits restritions on the freedom of establishment of nationals of a +ember-tate in the territory of another +ember -tate !primary freedom of establishment$.

+oreover& it prohibits restritions on the settingup of agenies& branhes or

subsidiaries by nationals of any +ember -tate established in the territory of any+ember -tate !seondary freedom of establishment$.

Art )= Companies or firms formed in aordane with the law of a +ember -tate andhaving their registered offie& entral administration or prinipal plae of business within

the Community are to be treated in the same way a" nat!ral er"#n"who are nationals

of +ember -tates.


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(n this ontext& 0ompanies or firms0 means ompanies or firms onstituted under ivil or

ommerial law& inluding ooperative soieties& and other legal persons governed by

publi or private law& save for those whih are nonprofitma%ing.

(n 1@=> the -ingle Guropean At amended the reaty of )ome and introdued the new

aim of progressively establishing the internal mar%et& whih omprises an area withoutinternal frontiers in whih the free movement of goods& persons& servies and apital is

ensured !Artile 1) GCTreaty$.

(t enables the Community to adopt Miretives with a view to ahieving freedom of

establishment.

Bus203 Notes Part 5

Documents

Transcript of Bus203 Notes Part 5