At the end of last week the Ministry of Finance has published for public debate a draft Government Ordinance (Draft Ordinance) meant to address the companies whose net assets – computed as a difference between the aggregate value of the company’s assets and aggregate value of its liabilities – fall below half of its share capital.
In this respect, the Draft Ordinance is intended to supplement and amend certain provisions of Law no. 31/1990 on companies (Company Law), and also of Law 82/1991 on accounting, the most significant envisaged changes being presented below.
Mandatory conversion into shares of the loans granted to the company by its shareholders
New provisions are to be included in the Company Law for the companies that registered net assets below half of the share capital. Thus, in case of companies that register debts towards shareholders, resulting from loans or other financing, it will be mandatory to convert such debts into shares by the end of the financial year during which the losses were acknowledged. Failure to proceed as detailed above triggers the dissolution of the company by the court upon the request of the Ministry of Finance through the National Agency for Fiscal Administration (ANAF).
The increase of the share capital by debt-to-equity swap shall be made with the observance of the preference right. The general meeting of shareholders needs to adopt a resolution to this end within 90 days as of the approval of the annual financial statements.
In case of companies where the Romanian State is a shareholder, the debts towards the shareholders indicated above do not include debts towards the general consolidated budget, respectively the loans that the companies receive, according to the law, from the privatization proceeds. These provisions shall apply as well to the companies where the administrative-territorial units act as shareholders. For these types of companies, the conversion, the procedure and the conditions of conversion are to be established by Government decision or by decision of the general/local council, as applicable.
The companies that distribute dividends on a quarterly basis cannot grant loans or advance payments to the shareholders or other affiliates until adjustment of such distributed amounts
According to the Draft Ordinance, the companies that choose to distribute dividends quarterly, based on provisional financial statements, will not be able to grant any loans or advance payments to the shareholders or other affiliates until the amounts distributed as dividends are adjusted based on the annual financial statements. However, such prohibition is not intended for advance payments made in connection with the economic activities carried out by the company.
New rules on distribution of dividends
According to the Draft Ordinance, the companies that registered profit at the end of the financial year, but cumulatively have registered losses carried forward, may distribute dividends from the profit of the current financial year only after (i) establishment of the legal reserves; (ii) coverage of the loss carried forward; and (iii) establishment of reserves in accordance with statutory requirements.
Distribution of reserves and profits as dividends
The Draft Ordinance expressly provides that statutory and voluntarily reserves, as well as profit carried forward may be distributed as dividends.
Dissolution procedure of the companies that fail to perform the recapitalization
Pursuant to the Draft Ordinance, by the end of the year following that for which the companies prepared their annual financial statements, the Ministry of Finance will publish a list comprising the companies whose net assets fall below half of the share capital. The information contained on the list shall be sent to Trade Registry for registration.
Should a company be listed two years in a row, the Ministry of Finance, through ANAF, will initiate dissolution procedures against such company. Same procedure will apply for the companies that do not submit for two years in a row the annual financial statements within 6 months as of the deadline for submitting the annual financial statements for the second financial year.
Dissolution by the Trade Registry
The Trade Registry, ex officio or upon request of any interested person, including the company, as applicable, shall be able to decide the dissolution of the company in certain cases. Currently only the court is allowed to decide the dissolution upon the request of the Trade Registry or of any interested person.
The cases of dissolution remain the same:
- the company no longer has statutory bodies or such bodies can no longer gather;
- the shareholders are missing or their domicile or residence are not known;
- the conditions regarding the headquarters are no longer met, including as a result of expiration of the duration of the act attesting the right of use over the premises used as registered office or the transfer of the right of use or ownership right over the premises used as registered office;
- company’s activity ceased or was not resumed after a period of temporary inactivity, notified to the fiscal bodies and registered in the Trade Registry, which period cannot exceed three (3) years as of the date of registration in the Trade Registry;
- the company did not reconstitute the share capital according to the law.
The list of companies with respect to which the Trade Registry shall decide on the dissolution shall be published on the online web portal of the Trade Registry at least 15 calendar days in advance and shall be sent to the Ministry of Public Finance – ANAF.
In addition, the Ministry of Public Finance – ANAF or any interested person could request the Trade Registry to dissolve the company, if:
- the company failed to submit its annual financial statements or the accounting reports, as applicable, to the territorial units of the Ministry of Public Finance, within the deadline established by the law, if the delay period exceeds 60 business days;
- the company failed to submit to the territorial units of the Ministry of Public Finance, within the deadline established by the law, the statement according to which no activity was performed as of establishment, if the delay period exceeds 60 business days.
The list of companies with respect to which the Trade Registry shall decide on the dissolution shall be published on the webpage of the Ministry of Public Finance – ANAF, at least 15 calendar days prior to the registration of the request for dissolution.
New sanctions for failure to comply
Failure to comply with the interdiction to grant loans or advance payments to the shareholders or other affiliates until adjustment of distributed amounts will trigger fines ranging from 10% to 20% of the amounts distributed as dividends. Failure to comply with the new rules on distribution of dividends shall trigger fines ranging from 5% to 10% of the amounts distributed as dividends.
Furthermore, failure by a company to increase the share capital by mandatory conversion into shares of the loans granted by the shareholders to the company, within the term provided by the law, will be sanctioned by fines ranging from 5% to 10% of the value of the debts.
Such fines shall be borne by the director / legal representative of the company or any other person responsible for non-compliance with the legal procedures.
Associate DLA Piper