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Protecting creditors of public limited companies (part II)

The Albanian Company Law has certain provisions on situations in which a company may decide to reduce its subscribed capital, and has made this transaction subject to stringent requirements to ensure that no capital is returned to shareholders illegally, a concern that is at the heart of the capital maintenance principle.

According to the Company Law, when the reduction is motivated by losses, capital is not returned to shareholders because what has been lost cannot be returned. In this case, a reduction of the subscribed capital can prove useful to the company. So the Law has not imposed strict rules on the reduction of capital motivated by losses.

In the case of a reduction of share capital that is not motivated by losses, the Law recognizes a creditor's right to oppose the reduction. It states that creditors whose claims antedate the general meeting's decision to reduce capital have the right to oppose the reduction in the court within 30 days from the date of the decision.

From the moment that the creditors make that step, the reduction procedure is suspended and it cannot resume unless the court so decides. The court may decide to strike down the creditors' appeal, or direct the company to pay back the loans to the creditors or grant guarantees to them. The company has to file a copy of its decision to reduce capital with the court. From the moment that a copy is filed, the 30-day period for opposing the reduction begins.

After the court approves the company's decision to reduce capital, the decision must be published in the Official Gazette, the only authorized paper for publishing company decisions. However, this requirement is often not met and companies usually publish their decision in Albania's daily newspapers instead. This practice is hindering the proper functioning of the Law, and it can also prejudice the interests both of shareholders and creditors.

To conclude, the Law's provisions relating to distributions to shareholders are generally in line with the requirements of the Second EC Directive on Company Law (1976). However, the provision relating to a company's acquisition of its own shares only covers a company acquiring shares to reduce its share capital.

The concept of providing financial assistance to third parties with a view to acquiring shares is missing. The law does not address the issue.

But the provisions relating to the reduction of capital are adequate and reflect the requirements of the Directive. The Law contains provisions for the reduction of capital motivated or not motivated by losses. It grants creditors the right to oppose the decision for the reduction of capital not motivated by losses and the court may ask the companies to secure or give guarantees to creditors before reducing their capital.

Elis Tarelli

This briefing is the second in a two-part series. Part I appeared in the January 2006 edition of IFLR.

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