10 Important Novelties Introduced by Amendments to the Company Law
On 8 June 2018 the Law on Changes and Amendments of the Company Law has been adopted (hereinafter: the “Amended CL”) bringing significant changes to the applicable Company Law (hereinafter: the “CL”).
On the one hand, amendments to the CL were caused by the adopted Negotiating Position of the Republic of Serbia ("RoS") for the Intergovernmental Conference on the Accession of the Republic of Serbia to the European Union for Chapter 6 - "Companies Law", which obliged the Republic of Serbia to take over the legal acquis of the European Union laws in corporate law area with which domestic regulations in this field have not been harmonized so far:
- Council Regulation (EC) no. 2157/2001 of 8 October 2001 on the Statute of the Societas Europaea - (SE);
- Council Regulation 1985/2137 / EEC on the European Economic Interest Grouping (EEIG), and
- Directive 2005/56 / EC of the European Parliament and the Council of 26 October 2005 i.e. Directive (EU) 2017/1132 of the European Parliament and the Council of 14 June 2017 codifying Directive 2005/56 / EC of the European Parliament and the Council of 26 October 2005.
On the other hand, the Amended CL was drafted based on the previous analysis of the application of existing solutions from the CL in practice, as well as the analysis of comments, suggestions and proposals of domestic and foreign business entities in order to improve some of the valid solutions that were recognized as an obstacle to the effective application of the CL and which in that regard needed to be removed. In addition, another reason for the adoption of the Amended CL is to harmonize the provisions of the currently applicable CL with other regulations.
Herein below are provided 10 important novelties introduced by the Amended CL:
- New legal forms of companies. The Amended CL introduces in the legal system of the RoS new legal forms of companies, i.e., regulates the legal position of the European Joint Stock Company (Societas Europaea) and the European Economic Interest Grouping. In addition, cross-border mergers and acquisitions of capital companies established in RoS with capital companies from other EU Member States are also regulated. The Amended CL provides that the respective provisions will apply from 1 January 2022, when the RoS is expected to close all opened negotiating chapters.
- Additional conditions for authorization of a legal transaction or action involving personal interest. The Amended CL pays special attention to improving the rights of minority shareholders in accordance with the Action Plan for Improving the Ranking of Serbia on the World Bank's “Doing Business” list, as well as the rights of minority shareholders of a limited liability company, thus, inter alia, imposing a new obligation for the company related to entering into legal transactions or taking legal actions in a case of the existence of a personal interest of shareholders of a company that have a significant share interest in the company's share capital, or who have a controlling influence on the business of another person, as well as persons performing the function of representation and supervisory function in the bodies of the company, procurators and liquidation administrators. Namely, before approving of entering into a legal transaction or taking a legal action in a case of the existence of personal interest, when the value of the subject of the respective transaction or legal action amounts more than 10% of the book value of the total assets of that company stated in the latest annual balance sheet, the company is obliged to obtain a report on the assessment of the market value of assets or rights that are the subject of such legal transaction or legal action, that forms an integral part of the decision on approval of the legal transaction or legal action in case of the existence of a personal interest. Moreover, there is also an obligation for the company to publish on its website or on the website of the business entities register a notice of the legal transaction entered into or a legal action taken, in the case of the existence of a personal interest, with a detailed description of that transaction or action as well as all relevant facts about nature and the scope of personal interest, within 15 days from the date of entering into that legal transaction, or of taking such legal action.
- Compulsory purchase of all shares of the remaining shareholders of a company. In addition to the aforementioned provisions that significantly improve the protection of the rights of minority shareholders, the Amended CL additionally specifies Article 515 of the CL by prescribing that the decision on the compulsory purchase of all shares of the remaining shareholders of a company shall be made irrespective of encumbrances, disposal prohibition, restrictions and rights of third parties on those shares, because in practice, previous formulation caused doubts as to whether the shares on which the pledge was established, could be the subject of compulsory redemption. In this regard, amended Article 516 of the CL prescribes that the transferred shares are transferred to the acquirer free of any encumbrance, disposal prohibition, restrictions and rights of third parties previously existing on those shares.
- Deadline for dividend payment. The Amended CL defines the deadline for dividend payment that cannot be longer than six months from the date of the decision on dividend payment, in order to avoid the cases where a dividend, on the basis of a decision on dividend payment, is payable to shareholders for several years after the issuance of such decision, or even never, which was a common case in practice.
- Convening a session of the assembly of a limited liability company. The Amended CL enables to shareholders of a limited liability company who own or represent 10% (instead of the previous 20%) of the share in the company's share capital, to convene a session of the company’s assembly, if a memorandum of association does not define that this right is also reserved for shareholders who jointly own or represent a lower percentage of votes. In addition, the Amended CL provides that one or more shareholders of a company who own or represent at least 5% (instead of the previous 10%) share in a company's share capital may, by written notice, place additional items on the agenda of the session of the assembly.
- Procedure for the decrease of share capital in a limited liability company. The Amended CL precisely regulates the procedure for decrease of share capital in a limited liability company, since the practice so far has shown that the application of the provisions related to the reduction of share capital in joint stock companies is not possible. Now, the reasons for decrease of a company's share capital are precisely prescribed. In addition, it is stipulated that the decision to decrease a company's share capital is made by a majority which cannot be less than the simple majority of the total number of votes of shareholders of a company that have the right to vote on a certain issue. Also, the Amended CL explicitly regulates issues of protection of creditors regarding limited liability company. Namely, the decision on decrease of a company’s share capital has to be published in the business entity register for a continuous period of three months, whereby creditors whose claims, irrespective of due date, arise before the expiration of deadline of 30 days from the decision publishing day, may request in writing from a company to secure these claims until the expiration of the period for publishing the decision on decrease of share capital. The Amended CL, inter alia, also defines cases when the provisions on protection of creditors are not applicable.
- Acquisition and disposal of material value assets. The Amended CL also prescribes significant changes of the provisions of Article 470, related to issue of acquisition and disposal of material value assets. Namely, the respective article is amended with the two new provisions that define more precisely what is considered as related acquisition, i.e. what will not be considered as single acquisition. Thus, inter alia, it is stipulated that a simultaneous establishment of a pledge, mortgage or other means of security provided by a company in order to secure its own obligation under a credit agreement, loan or other legal transaction is not considered as single acquisition, i.e. the disposal of material value assets. In that case, the highest value of single legal action, or of the legal transaction is taken as a value by which a material value asset is determined. Since the previously applicable provision of Article 470 of the CL has caused a number of problems during its application in practice, it was necessary to specify what is considered as related acquisition, i.e, to solve a problem that put creditors and investors in doubt and dangerous position due to their inability to know and be certain whether certain disposal is considered to be the disposal of material value assets.
- Forced liquidation. The Amended CL specifies the provisions that regulate forced liquidation, through interventions and closely defining the reasons for initiating the procedure of forced liquidation, as well as through prescription of the obligation of the registrar to publish on the business entities register website, notice about a company that fulfils the requirements for forced liquidation, prior to initiation of the forced liquidation procedure. This notice is registered along with an invitation to the company that within 90 days from the date of publication of that notice, remove the reasons that are removable according to the CL and to register changes of the relevant data in accordance with the law on registration. Failure of a company to submit the annual financial reports for two consecutive business years preceding the year in which the financial reports are submitted to the competent registry by the end of the previous financial year is specified as a reason for the initiation of the forced liquidation procedure. This reason is prescribed since according to the available data of the Business Registers Agency, many companies that have repeatedly failed to submit financial reports have actually had blocked accounts for several years, i.e., they practically do not operate, and none of creditors have initiated the bankruptcy proceedings against such companies. Failure to submit annual financial reports by the end of the previous financial year for the two consecutive business years indicates that such companies have de facto no business activity, and that many of them do not actually exist at their registered addresses.
- Data related to persons that have to be registered according to the CL. Another novelty introduced by the Amended CL refers to the issue of data related to persons that have to be registered according to the CL, which determines the legal authorization for processing such data for the purpose of harmonization with the Law on Personal Data Protection. Namely, the Law on Personal Data Protection prescribes that the processing of personal data is not allowed, inter alia, if processing is performed without legal authority. The new Article 9a of the CL is harmonized with the Law on Foreigners in terms of data related to the personal number for a foreigner, or the passport number or the identity card of the citizen and the country of its issuance.
- Electronic registration of incorporation of business entities. The Amended CL creates the legal basis for the electronic registration of incorporation of business entities by enabling that, in case of electronic registration of company’s incorporation, notarization of signatures on a memorandum of association, being the electronic document, can be replaced by qualified electronic signature of shareholders of a company, thus eliminating the costs of founders for notarization of signatures. At the same time, the obligation for a company to have an e-mail address has been prescribed, and that the regularity of submitting an electronic document to a company is determined in accordance with the law related to electronic documents. This solution enables a more efficient system of communication of state authorities with the economy and between mere businesses entities, as well as the creation of preconditions for the elimination of "paper business", while reducing costs and at the same time contributing to the economy, efficiency and effectiveness of business.