To integrate the European aquis communautaire and the OECD Principles on Corporate Governance into Romanian legislation, the Ministry of Justice has initiated a legislative project to amend the Romanian Company Law 31/1990. The proposed amendments do not make fundamental changes to the Company Law, but they are intended to provide investors with clearer guidelines, as a means to promote economic growth in Romania and a better understanding of the mechanisms of Romanian corporate law. The issues that the project aims to improve include:
- clarifying directors' rights and obligations, in order to improve the overall efficiency of a company;
- increasing shareholders' protection to aid the decision-making process; and
- harmonizing provisions related to mergers and acquisitions with EU legislation, to further integrate the Romanian market into the single European market.
Directors' rights and obligations
To clarify the status of directors in Romanian companies, the amendments to the Company Law expressly require directors to work under a transparent management agreement, containing specific information related to fees, termination and the executive and representative functions of the directors. Under the project's provisions, an excerpt from the management agreement containing the minimum data mentioned above must be filed with the Trade Registry. Transparency is also achieved by introducing definitions of censors and internal auditors into the Company Law. The amendments further require that supplementary information on auditors such as identification data or appointment details are included in a company's bylaws. The project also contemplates that all requests for registration with the Trade Registry bearing an electronic signature may be sent and registered by electronic mail.
The administration system under the Company Law has changed, as new provisions on related-party transactions, mandates and prohibitions on competition are inserted. The structure of the board of directors is better organized, with a clear distinction between the executive and non-executive duties, and the roles of the president of the board and of the general manager are further clarified. The intended harmonization introduces statutory fiduciary duties to the extent that the directors are expressly required to act with due diligence and care, in the best interests of the company they serve and to preserve and maintain the confidentiality of all company trade secrets.
The project modifies the duties that the general meeting of the shareholders (the GMS) can delegate to the board of directors. According to the project, the board of directors will no longer be able to exercise, after decision by the GMS, a change in the social capital of the company or the conversion of company shares into another category of shares. However, the GMS will still be able to delegate to the board of directors the power to establish or close the secondary headquarters of the company.
The project also aims to ensure the necessary protection of shareholders and their rights. The amendments set out an improved convening system, new rules on voting in absentia or by electronic means and a different decision-making procedure with new quorum and majority requirements.
Minority shareholders' interests are better protected by allowing a GMS to be convened upon their request, by providing for a general right to request the addition of new items to the GMS agenda and by introducing a rule on piercing the corporate veil when appropriate – a rule that was previously applied in practice yet never expressly provided for under the Romanian law. The project reforms the right to sell out and prohibits the existence in the company's bylaws of any restrictions related to the shareholders' right of first refusal with regard to the company's shares.
The minimum number of shareholders in a joint stock company will be reduced from five to two. According to the project, dividends must be distributed six months after the financial statements were approved, instead of eight months as currently provided. Also, one of the main attributions of the GMS will be to approve the employees' participation in the company's profit.
Clarifications to the Company Law provisions concerning treasury shares are also proposed. The project contains provisions that allow a company, based solely on the board of directors' decision subsequently confirmed by the GMS, to purchase its own shares in extraordinary circumstances such as: (i) to prevent an "imminent and material threat" to the company; and (ii) the assignment of shares in the company in favour of the company's personnel. The purchase of treasury shares with the purpose of regulating the value of the Stock exchange is to be repealed. No restrictions will be imposed on the purchase of treasury shares: (i) free of charge; or (ii) for the sole purpose of decreasing the share capital.
Starting from January 1 2007, financial statements need only be deposited both in writing and in electronic format with the Trade Registry. It will no longer be necessary to lodge copies with the Ministry of Public Finances.
Mergers and acquisitions
To reduce the possibility that creditors will oppose a merger or division, the project provides that any creditor of a company that is undergoing a merger or division is entitled to obtain proper security for the payment of their claim. Only if no proper security has been provided for their claims may creditors file an opposition to the proposed merger/division.
The project also allows for an annulment of the merger/division to be requested within six months from the date that the Trade Registry publicity requirements related to the merger/division are met.
It is not clear whether the project will be adopted in the form proposed by the Ministry of Justice. However, the Ministry should be commended on its efforts to harmonize the current Romanian Company Law with the appropriate EU standards and best practices.
Radu Cocea and Ileana Glodeanu
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