Authors: Monica Stătescu (Counsel, Filip & Company), Simona Ungureanu (Associate, Filip & Company)
Until now, the structure and timetable of any transaction for the acquisition of a company have been largely dictated by the form of the target company: joint stock company (SA) or limited liability company (SRL). The form of the company was very relevant since the formalities for the transfer of shares in a Romanian joint stock company (SA) were significantly simpler than those for the transfer of shares in an SRL.
While the transfer of shares in an SA is made, in principle, by simply registering such transfer in the shareholders’ register, the transfer of shares in an SRL required the fulfilment of the following two conditions: (1) the transfer needed to be approved by the shareholders representing at least three fourths of the company’s share capital, and (2) the transfer became effective only on the date of expiry of an opposition period of 30 days as of the publication in the Official Gazette of the shareholders’ resolution approving such transfer, or on the date of the final decision rejecting the opposition, if such opposition was filed. The target company's creditors and any other persons who could justify an interest had the right to oppose the transfer.
On 30 October 2020, the President of Romania promulgated Law no. 223/2020 for the simplification and de-bureaucratisation of the transfer of shares and payment of the share capital by amending Companies Law no. 31/1990, which will enter into force 3 days after its publication in the Official Gazette (it has been published on 2 November 2020). According to Law no. 223/2020, the two conditions mentioned above have been amended, the first one being made more flexible and the second one being eliminated in full.
The relaxation of the condition regarding the approval of the transfer by the other shareholders
Previously under Companies Law no. 31/1990 (hereinafter the “Companies Law”), any transfer of shares in a Romanian limited liability company to a person who was not already shareholder of such company had to be approved by the shareholders representing ¾ of the share capital. In practice, this meant that the shareholders holding that majority could block the transfer intended by the selling shareholder.
Law no. 223/2020 significantly relaxes this condition by enabling the shareholders of a limited liability company to establish via the articles of association, a lower majority of shareholders required for the approval of the transfer, or even to eliminate in full such condition. In practice, this change allows the shareholders not having very close relationships or not depending on each other in the management of the company to establish that the sale to third parties can be made freely, each shareholder having the possibility to dispose of its shares independently of the will of the other shareholders.
Creditors’ right to oppose the transfer
So far, the transfer of shares to third parties followed a lengthy and bureaucratic procedure that involved the submission to the Trade Registry and publication in the Official Gazette of the shareholders’ resolution approving the transfer and then waiting for the opposition period of 30 days as of the date of publication to expire. It could take about two to three weeks from the submission to the Trade Registry of the resolution until its publication in the Official Gazette, so that, in practice, the procedure could take about a month and a half, sometimes even two months. Of course, if oppositions to the transfer were filed within the 30-day deadline, the whole procedure was extended for months, until the final settlement of the opposition by the court.
Since this procedure has become a significant obstacle to the effective and swift completion of the sales of shares in SRLs, in practice, various methods, more or less borderline illegal, to try and avoid this procedure, have occurred. The most used of these methods is the increase of the share capital with an insignificant value, to which the future buyer contributed, thus becoming a shareholder of the SRL, followed by the transfer of shares between the seller and buyer (the operation that was actually intended by the parties). Since at the time of the sale, the buyer had become an existing shareholder of the SRL, the creditors’ right of opposition was no longer applicable. The courts have repeatedly considered that this succession of transactions is a fraudulent way of attempting to transfer shares in a limited liability company, without respecting the creditors’ right of opposition, which is why such transfers have been declared null and void.
Another option to avoid the application of the procedure that included the right to oppose the transfer was to transform the SRL into an SA in order to benefit from the extremely simple transfer procedure applicable to the SAs. However, this involved a number of drawbacks related to the more onerous requirements imposed by law on an SA - e.g. the requirement of a minimum share capital of RON 90,000, the appointment of auditors or of a financial auditor, etc.
In reality, few creditors became aware of the intended transfer since checking periodically the Official Gazette is not a common activity. Therefore, the only creditor who could become aware of the intended transfer was ANAF, which was notified directly by the Trade Registry regarding the existence of the shareholders’ resolution approving such transfer. In fact, the entire opposition procedure was included in the legislation, in particular, in order to enable ANAF to recover its receivables.
ANAF took full advantage of its right to file opposition claims, so that this procedure became a real way of collecting state budget debts. If the target company had any debts to the state budget, it was very likely that ANAF would oppose the transfer, regardless of the amount of the debt (there have been opposition claims even for amounts below RON 100) and even if ANAF had no justified concerns regarding the possibility for recovering the receivables against the company. In general, ANAF waived the opposition if, meanwhile, the target company paid its outstanding debts to the state budget.
In the cross-border M&A transactions, this procedure was an even greater impediment since the transfer in a Romanian company became very difficult to synchronize with the transfer procedures from other states (where, as a rule, the transfer takes place immediately or within a deadline that can be anticipated accurately).
Law no. 223/2020 eliminates in full the opposition procedure, which means that, as of the date of its entry into force, the transfer of shares to third parties will be possible only on the basis of the agreement of the shareholders holding a majority of ¾ of the share capital (if the shareholders have not decided otherwise under the articles of association), without the need to grant the opposition period.
We believe that these legislative changes are more than opportune and in line with the need for expedience, efficiency and predictability in the implementation of the M&A transactions, as required by the business environment. We believe that these changes will help streamline and simplify the transfer of shares in SRLs and stimulate investment, in a context where investors can now take control of the desired business without going through a complex, bureaucratic and largely unjustified process.
Law no. 223/2020 also includes other amendments to the Companies Law, of which:
elimination of the minimum threshold of the share capital amount of RON 200 at the time of setting up an SRL;
simplification of the registration procedure of an SRL by eliminating the requirement to provide the proof of the share capital payments;
elimination of the obligation to previously register with ANAF, upon the registration and change of the registered office of a company, the document attesting the right to use the premises designated as registered office;
elimination of the obligation to register with the Trade Registry the share transfer deed and of the articles of association updated with the identification details of the new shareholders, in order to simplify the share transfer process.