NOTES PART 5

TOPIC: TERMINATION OF MEMBERSHIP AND

A.

TERMINATION OF COMPANY
Withdrawal and ex !l"i#n #$ a %e%&er The withdrawal or expulsion are available just for Limited Liability Companies The members' right to withdraw from the ompany and the ompany's right to expel a member may n#t &e re"tri'ted &( the Stat!te !Alt 1"# !2$ ACL$. The basi prin iple is that withdrawal or expulsion is only justified if there is a rea"#na&le )r#!nd that ma%es the '#ntin!ati#n #$ %e%&er"hi !na''e ta&le for the member who wishes to withdraw or for the other members in the ase of expulsion.

1. 2.

#.

Withdrawal
a.

*r#!nd

not a small a harm a onsiderable one

!1$ A member may withdraw from the ompany if there is a reasonable ground whi h renders the ontinuation of membership una eptable for the member& in parti ular' !a$ if other members the ompany have 'a!"ed da%a)e to him by their a tions !b$ if the member ha" &een re+ented $r#% exer'i"in) hi" ri)ht" in the ompany ! $ if the ompany has imposed !nrea"#na&le #&li)ati#n" on him
b.

Pr#'ed!re

1. submission of a noti e of his withdrawal to the ompany in writing and stating the reasons for his withdrawal 2. upon re eipt of this noti e the administrator has to immediately onvene a general meeting "in order to decide if the member will receive liquidation of his share due to his valid withdrawal"

#. (f the general meeting a epts the withdrawal and agrees with the withdrawing member on the amount of ompensation for his share& there will be no ourt pro eedings. ). if the *+ does not ta%e a de ision'
a.

la % of ,uorum b$ thin%s that there is no reasonable ground

Art 1"1 !)$ ACL enables the withdrawing member to initiate pro eedings before the ompetent ourt re,uesting from the ompany the repayment of his share be ause of his valid withdrawal. Ex !l"i#n
a.

*r#!nd

The general meeting may render an ordinary de ision re,!e"tin) the '#% etent '#!rt t# ex el a %e%&er !2$ -u h other reasonable ground under .aragraph 1 of the present Arti le shall in lude& but not be limited to& ases where a member' !a$ has deliberately or due to gross negligen e infli ted damage to the ompany or other members/ !b$ has deliberately or due to gross negligen e violated the -tatute or obligations pres ribed by law $ is involved in an underta%ing whi h renders the ontinuation of business relationships between the ompany and the member impossible/ d$ by his a tions has damaged or hindered the ompany's business to a signifi ant extent.0 &- Pr#'ed!re a$ the initiative must be sei1ed by the other %e%&er" or by the ad%ini"trat#r"
b.

formal step 2 a )eneral %eetin) must be onvened to ta%e a de ision on the re,uest to expel the member 2 this de ision re,uires a "i% le %a.#rit( #$ +#te" #$ the arti'i atin) members. The pro edure for ex lusion always re,!ire" a '#!rt de'i"i#n& as Art 1"2 !1$

ACL states that "the general meeting may request the competent court to expel a member".

'/ C#% en"ati#n: Withdrawal The issue of ompensation is a bit un lear& however the prin iple is that'

The member is entitled to re eive the value of the share in ash.

wh# "h#!ld r#+ide the 'a"h0 After all& the withdrawal of a member with a large share will re,uire a orrespondingly large amount of ash. (n most ases& an a tive business d#e" n#t har&#r lar)e 'a"h re"er+e" & be ause ash holdings tend to be an unprodu tive investment of members' apital
1.

3ne possibility would be to re,uire the other members to buyout the withdrawing member and ta%e over his share.

But this is clearly not the course of action envisaged by Art 103 1! A"#$ which spea%s of the termination of the membership rights$ rather than their transfer to other members. Thus
2.

member's right to ompensation for the value of his share is indeed dire ted against the ompany& whi h may for e the ompany to li,uidate some of its assets in order to raise the ash.

4ut this may be dangerous for the ompany5 C#nditi#n: the ompany's assets will fully over its liabilities ompany will have suffi ient li,uid assets to ma%e payments of its liabilities as the( $all d!e in the next twel+e %#nth" !whi h is to be attested by a solven y ertifi ate issued by the administrators$. (f the ompany is unable 6 pay the ompensation in in"tall%ent" #+er a eri#d #$ ti%e 2 with the attendant ris% for the member that the ompany be omes insolvent during this time& but this is a onse,uen e of the reditor prote tion fun tion of Art 77 ACL.

if a member of a ompany 'a!"e" an( da%a)e to the ompany through his withdrawal due to la % of reasonable grounds& he ha" t# '#% en"ate the ompany for that damage. The ompany may laim damages8 even he may laim ompensation is the ompany aused his withdrawal !apart from the value of his shares$ Ex: A and 4 hold 79: and 29:& respe tively& of ompany ;. The value of the business on a going2 on ern basis is 122% le3e. A engages in prohibited ompetition with the business of ompany ; and auses lasting damage to the ompany's business relationships. As a result& the going2 on ern value of the business drops to 42% le3e. (f A's ondu t has violated his fidu iary obligations towards ompany ; under Art 1) ACL& the ompany has a laim for ompensation against A to the value of 52% le3e. (f this laim is ta%en into a ount in order to establish the value of 4's share in the ompany !as it should be& in our view$& 4 is entitled to a ompensation for the value of his share that amounts to 29: of 1""m le%e. In thi" 'a"e6 there i" n# rea"#n $#r B t# re'ei+e additi#nal '#% en"ati#n $r#% A #r $r#% '#% an( 7 !nder Art 121 89/ AC:-

Ex !l"i#n the ontinuation of the membership of this person has be ome una eptable for the other members. need not ne essarily be the result of some grave wrongdoing

for ex' they agreed to parti ipate all in the administration and he annot do so be ause of an illness<.

A and 4 hold 79: and 29:& respe tively& of ompany ;.

The value of the business on a going2 on ern basis is 1""m le%e. A ordingly& 4's share in ompany ; is worth 29m le%e. 4 engages in prohibited ompetition with the business of ompany ; and auses lasting damage to the ompany's business relationships. As a result& the going2 on ern value of the business drops to !a$ ="m le%e 8 !b$ >"m le%e& while 4's profit from the ompeting business a tivity amounts to !a$ 2"m le%e 8 !b$ )"m le%e. Assuming that 4's ondu t has violated his fidu iary obligations towards ompany ; under Art 1) ACL& the ompany has a laim for ompensation against 4 to the value of !a$ 2"m le%e 8 !b$ )"m le%e. ?nder Art 1"2 ACL& 4 may offset this ompensation against the value of his share !worth 29m le%e if the ompensation from 4 to ompany ; is ta%en into a ount$. The result in situation !a$ is that 4 may %eep 2"m le%e by virtue of the set2off& but suffers a net loss of 9m le%e& be ause the value of his lost share is not fully overed by the set2off against his obligation to pay damages. A& on the other hand& has made a net gain of 9m le%e& be ause he now holds the only share in ompany ;& whose business is worth ="m le%e !after 4's damaging a tivity$& whereas& previously& A's original share of 79: in ompany ; !before 4's damaging a tivity$ was only worth 7-m le%e. The expulsion has led to a value transfer from 4 to A to the amount of 9m le%e. 4ut the result annot be justified on grounds of 0punishment0 for 4's ondu t& as is demonstrated by ontrasting situation !a$ with situation !b$. The result in situation !b$ is that 4 must pay (sm le%e in damages to the ompany& ta%ing the entire value of ompany ; in the hands of A to 7-m le%e !>"m le%e value of the business after 4's damaging a tivity plus (sm le%e in ompensation from 4$. 4& on the other hand& may %eep 2sm le%e by virtue of the set2off& whi h represents the full value of his share in ompany ;. The supposed 0punishment0 for 4 disappears if 4 has been ruthless enough to infli t so mu h damage on the ompany that it e,uals the value of his share. The message is lear' As soon as 4 learns about A's intention to expel him from the ompany& 4 has every in entive to intensify his damaging a tivities against ompany ; in order to prote t his own finan ial interest.

Di""#l!ti#n 8 ri"h.a/ $#r ::C ; <SC

1. the ex ir( #$ the eri#d $#r whi'h the '#% an( wa" e"ta&li"hed= A provision that the company is only established for a certain period$ at the expiry of which it will be automatically dissolved$ must be contained in the &tatute of the company and registered accordingly Art 3' 1! g! ()" #aw!. As a default rule$ companies are$ therefore$ established for an indefinite time. 5- The de'i"i#n #$ the *eneral Meetin) t# di""#l+e the '#% an( A resolution of the *eneral meeting to dissolve the company requires a qualified ma+ority of three quarters of the votes of members,shareholders- the &tatute may set a higher$ but not a lower ma+ority Alt ./ 1! and Art 10& 1! A"#!.
#.

the # enin) #$ an in"#l+en'( r#'ed!re=

1he opening of an insolvency procedure happens by order of the Ban%ruptcy "ourt pursuant to Art '2 Ban%ruptcy #aw. 1here is an additional ground for dissolution in Art 13 3! Ban%ruptcy #aw$ which is not explicitly mentioned in the lists contained in Art 33 and Art 1./ A"#, namely that the company is also dissolved by virtue #$ a $inal de'i"i#n #$ the Ban3r! t'( C#!rt refusing the initiation of the insolvency procedure if there is evidence that the company's assets are in"!$$i'ient t# '#+er '#"t" of the insolvency procedure. ). the '#% an( ha" n#t 'arried #!t an( &!"ine"" a'ti+itie" $#r tw# (ear" and ha" n#t n#ti$ied it" ina'ti+e "tat!" NRC:aw 5- a '#!rt de'i"i#n > ourt dissolves the ompany for a reason other than insolven y 9- #ther rea"#n" r#+ided &( the Stat!te(t is very important to understand that the di""#l!ti#n #$ the '#% an( in the sense of Art @@ and Art 1=7 ACL d#e" n#t ter%inate the le)al er"#nalit( #$ the '#% an(. The ompany ontinues to exist as a legal person during the li,!idati#n r#'ed!re !Art 1")& Artt 1@" to 2"9 ACL$ as well as during any insolven y pro edure. The legal personality of the ompany only ends with the 'an'ellati#n #$ the '#% an( from the register !Artt 2"2& 2") ACL/ Art 9# ABC Law$

The di""#l!ti#n #$ the '#% an( i" $#ll#wed &( the li,!idati#n r#'ed!re" !nle"" an in"#l+en'( r#'ed!re ha" &een # ened

A- :i,!idati#n #$ "#l+ent '#% anie"

Pr#'ed!re

The main ompany organ during the li,uidation is the li,uidator& who assumes the pla e of the administrator!s$. The powers and duties of the administrator are transferred to the li,uidator on his appointment. The li,uidator is appointed by the general meeting/ if the general meeting fails to appoint a li,uidator within #" days after the dissolution& any interested person may re,uest the ourt to appoint the li,uidator. Any interested person has the right to re,uest the ourt to repla e the li,uidator appointed by the general meeting if he shows suffi ient reasons that the li,uidation obje tive might be impaired (f the ompany is dissolved by a ourt de ision& the ourt appoints the li,uidator.

D?TY > The li,uidator's essential tas% is to lose up the business by bringing the urrent business transa tions to a lose& olle ting laims in luding outstanding ontributions& selling remaining assets and paying reditors The li,uidator may on lude new business transa tions for the purpose of bringing urrent transa tions to a lose The li,uidator is the legal representative of the ompany (f there are several li,uidators& they exer ise their rights and duties jointly& unless their appointment envisages them to a t also independently. The li,uidation pro edure is arried out for the ultimate benefit of the members8shareholders of the ompany as the residual laimants& meaning that they are entitled to re eive the assets left after all the reditors have been paid& 2 the 'lai%" #$ the 'redit#r" ha+e ri#rit(This order of priorities an be seen from a number of provisions'
1.

The li,uidator must invite the ompany's reditors to file their laims with respe t to the dissolution of the ompany. The ompany has to publish the ann#!n'e%ent twi'e6 with a @2> da(" interval& on the website of the Aational Begistration Centre and& if appli able& on the ompany's website.

2.

#.

The announ ement must de lare that laims must be filed within #" days from the last announ ement. if& based on laims filed by reditors as referred to in Art 1@981= the li,uidator finds that ompany assets in luding outstanding ontributions are n#t "!$$i'ient t# "ettle the"e 'lai%" & he has to suspend the li,uidation pro eedings and file a re,uest to the ompetent ourt to # en an in"#l+en'( r#'ed!reli,uidator may not distribute the remaining assets among members8shareholders ri#r t# the ex irati#n #$ @ %#nth" from the publi ation of the se ond all to the reditors to file their laims. (n ase a reditor %nown to the li,uidator does not laim his rights& the amount due has to be deposited at the ourt and goods have to be deposited in a spe ified publi warehouse. (f& for the time being& an obligation annot be settled or if it is ontroversial& the assets may only be distributed among members8shareholders if the reditor has been granted ade,uate se urity.

).

9.

>.

7.

on e the ompany's obligations towards reditors have been settled& remaining assets have to be distributed among members or shareholders a ording to their lights in profit2 sharing unless preferen es are granted by the -tatute. Si% li$ied li,!idati#n r#'ed!re !ris%y$ who will ontrol ourt58administrator held liable for three years
a. b.

There is no need to appoint a li,uidator a !nani%#!" de ision by all members or shareholders 2 not just the three2,uarters majority that is suffi ient for the de ision on the voluntary dissolution . identi al statements from ea h member or shareholder before the ourt that all ommitments of the ompany on erning its reditors and employees have been settled.

In"#l+en'( 8$ali%enti%i/ Beasons' 1. 'insolven y' !gjendja e paaftesise paguese$2 The debtor is deemed insolvent if he is unable to pay his debts on the date of their maturity.

2. 'imminent insolven y' !gjendja e paaftesise paguese ne nje te ardhme te afert$ The debtor fa es imminent insolven y if he will &e !na&le to pay his debts on the date of their maturity. #C 'over2indebtedness' !mbingar%esa me borxhe$ This is a omplex definition whi h ombines two riteria' tneeds to be 'a state where it is shown that his assets do not over the obligations towards the third parties'. b. a ording to the ir umstan es& 'the ontinuation of the a tivities is no longer possible'.
a.

Initiati#n #$ in"#l+en'( r#'ed!re every reditor of the ompany the ompany itself& as the 0debtor0 may re,uest 4an%rupt y Law 2 entitles 'members of the governing body' or a 'li,uidator' to present a petition to the ourt The re,uest to the ourt is formally made by the ompetent organ a ting as the legal representative of the ompany. ea'h %e%&er #$ the )#+ernin) &#d( #$ a le)al er"#n t# re,!e"t the i%%ediate initiati#n #$ an in"#l+en'( r#'ed!re n#t later than 51 da(" $r#% the date the le)al er"#n &e'#%e" in"#l+ent6 alth#!)h thi" d!t( #nl( ari"e" where the '#% an( &e'#%e" #+er>inde&ted a" de$ined in Art 1@ 8A/ Ban3r! t'( :aw(f it an be shown that the ompany was over2indebted at a ertain point of time& the members of the governing body who failed in their duty to re,uest the opening of an insolven y pro edure within 21 days after that point of time will be personally liable to ompensate the reditors for any loss arising after the time when they ame under a duty to re,uest the opening of an insolven y pro edure !i.e. over2indebtedness plus 21 days$. Administrators and members of the 4oard of Administration are obliged to ompensate the ompany in damages if they let the ompany ontinue to do business when& in the light of the finan ial situation& it should have been foreseen that the ompany would be unable to pay its debts. All provisions that merely render the administrators liable to ompensate any damage aused by their failure to respond properly to the ompany's insolven y appear to be trumped by the mu h more extensive liability in Art 1> !1$ ! $ ACL& whi h renders administrators and members of the 4oard of Administration liable for all ompany ommitments if they %new or must have %nown of the ompany's inability to pay its

debts& yet failed to ta%e the ne essary steps to ensure that the ompany had suffi ient apital to meet its ommitments as against third parties !above& ((.#.#. $. Tax a!th#ritie" 3n pe uliar feature of Albanian law is the strong !theoreti al$ role of the tax authorities with regard to the initiation of ban%rupt y pro eedings. (n omparable systems of insolven y law& tax authorities !and so ial se urity servi es$ may re,uest the opening of insolven y pro edures if they are reditors (n a ordan e 'with the se ond senten e in Art 1) !1$& the tax authorities may re,uest the opening of an insolven y pro edure i$ there i" a B&alan'e "heet #$ l#""B $#r a @>(ear eri#d"1he tax administration requests at court the start of insolvency proceedings commercial companies sub+ect to the tax laws a$ two years after they have been passed into passive status by the ABC/ b$ whose tax obligation is de lared un olle tible/ $ whi h de lare a result of losses of their own apitals for at least three onse utive years/ d$ whi h have not performed any ommer ial a tivity for a period of at least two years from the date of entering into for e of this law/ e$ whi h have outstanding obligations towards the tax administration for at least two years from the date of entering into for e of this law.0

CORPORATE RESTR?CT?RIN* Mer)er" 8&a"h3i%i/ For both JSC and Llc

merger is a transa tion in whi h one or more ompanies !the a ,uired ompany$ tran"$er all their a""et" and lia&ilitie" to another ompany !the a ,uiring ompany$ and then ease to exist without going into li,uidation. (n ex hange for the re eived !net$ assets& the a ,uiring ompany i""!e" "hare" t# the shareholders of the a ,uired ompanies.

-u h an operation di$$er" $r#% the a',!i"iti#n #$ #ne '#% an(C" "hare" by another ompany not only be ause the a ,uired ompany 'ea"e" t# exi"t& but also be ause& as a result of the transa tion& the a ,uiring ompany su eeds in the a ,uired ompany's legal position. +ergers have to be approved &( %a.#rit( +#te #$ &#th '#% anie"C shareholders. A merger hiefly affe ts two important groups of sta%eholders of the ompanies involved' the "hareh#lder" #$ the '#% anie" and the 'redit#r" #$ the '#% anie". -hareholders typi ally oppose a merger in one of the following ases' D They d#!&t the $airne"" #$ the relati+e +al!ati#n !i.e. they thin% that the share ex hange ratio is unfair to their disadvantage$. (n pra ti e& this is by far the most important reason for shareholder opposition. D They doubt the e onomi rationality of the proposed merger and thin3 that their '#% an( w#!ld er$#r% &etter with#!t the '#%&inati#n of the two ompanies' businesses. D They might also fear negative onse,uen es of the merger resulting from a 'han)e in the di"tri&!ti#n #$ +#tin) ri)ht" a%#n) the "hareh#lder" & for instan e& if a minority shareholder holds >: in the a ,uiring ompany& but& as a result of the merger& his shareholding will be diluted !Eredu ed$ to #:. Share ex'han)e rati# "hareh#lder" #$ the %er)in) '#% anie" end ! '#% an(

h#ldin) "hare" in the a',!irin)

The legal re,uirements help to a hieve the goal of providing a fair and reasonable share ex hange ratio.

The main instruments are' D shareholder information prior to the merger D valuation by independent experts D the re,uirement of shareholder approval with ,ualified majority D a sell2out right for the minority shareholders& who may demand that their shares are bought by the ompany at the mar%et pri e Ex: The $#ll#win) 8"i% li$ied/ exa% le #int" #!t the rele+an'e #$ the +al!ati#n a" the ne'e""ar( $ir"t "te #$ the deter%inati#n #$ the "hare ex'han)e rati#' Two joint2sto % ompanies& 0A2-hA0 and 042-hA0 de ide to merge. A2-hA's only asset is a &an3 de #"it #$ @62226222 Le% and it has no liabilities !the #&"""&""" Le% onsist of ontributions of A2-hA's shareholders and undistributed profits$. 42 -hA holds se urities with a mar%et value of 9&"""&""" Le% and has liabilities !a ban% loan$ of 2&"""&""" Le%& so its net asset value is @62226222 :e3& the same as for A2-hA. (rrespe tive of the type of merger the net2value of the two ompanies' ombined wealth will amount to >&"""&""" Le%& as the a ,uiring ompany will hold assets valued =&"""&""" Le% !# +io. Le% ban% a ount F 9 +io. Le% se urities$ and liabilities of 2&"""&""" Le% !the ban% loan$. A fair and reasonable share ex hange ratio& therefore& should assure that the shareholders of A2-hA and 42-hA hold an e,ual interest in the ombined ompany !the a ,uiring ompany$& meaning that after the pro ess has been ompleted& A>ShAC" and B>ShAC" "hareh#lder" %!"t ea'h ha+e 52D #$ the "hare" in that '#% an(3therwise either A2-hA's or 42-hA's shareholders would learly lose value by entering into the transa tion.

The value of a ompany that runs an a tive business annot normally be determined by simply adding up the values of the items owned by the ompany and subtra ting the ompany's debts.

(nstead& the value of a ompany 2 in a ordan e with investment theory 2 is based on the ex e'ted $!t!re 'a"h>$l#w" )enerated by it. As future is always un ertain& this method of valuation ne essarily brings onsiderable room for argument with it and will often lead to a range of possible valuations& whi h

may all be justifiable' "1he 4experts56 statement 4...6 must indicate the values arrived at using each method and give an opinion on the relative importance attributed to such methods in arriving at the value decided on"!. (t is very important to understand& that valuation is not an exa t s ien e and that it annot deliver one single orre t result.

reditors of the ompanies involved. At first sight& one might believe that this is e" e'iall( rele+ant t# the 'redit#r" #$ the a',!ired '#% an( & as these reditors lose their original debtor.

The liabilities of the a ,uired ompany are transferred to the a ,uiring ompany& whi h now su eeds the a ,uired ompany in its relations vis2a.2vis third parties. The reditors of the a ,uired ompany now have their laims against the a ,uiring ompany. They have not& however& agreed to this su ession. Gven though all the assets of the reditor's original debtor !the a ,uired ompany$ have been transferred to its new debtor !the a ,uiring ompany$& this does not ne essarily mean that the reditor's ris% has not hanged !i.e. worsened$ from an e onomi point of view. (magine a merger between a highly solvent and profitable ompany !;2 shA$ and a ompany& whi h has already lost most of its e,uity in the ourse of its business and whi h has a large amount of debt apital !H2shA$. +erging these two ompanies would learly lie in the interest of H2shA's reditors& as the ris% of losing part or all of the money borrowed to H2shA is redu ed signifi antly. Irom the viewpoint of ;2shA's reditors& however& the ombination of all assets and liabilities of the two ompanies is learly less attra tive. Mer)er &( a',!i"iti#n A merger by a ,uisition is an operation by whi h one or more ompanies transfer all their assets and liabilities to an existing company$ whi h issues shares to the shareholders who previously held shares in the a ,uired ompany. Exa% le: (magine two joint2sto % ompanies' Albanian *as -hA and Albanian 3il -hA. (f it is de ided to merge Albanian 3il -hA 'in to5 Albanian *as -hA& the result will be an 'enlarged' Albanian *as -hA& whi h ombines both ompanies' assets and liabilities. Let us assume that Albanian *as -hA is substantially !four times$ 'larger' !i.e. the ompany's value is substantially higher$ than Albanian 3il -+. The onse,uen es of a merger for the shareholders are demonstrated by the following figure'

The 'old' shareholders of Albanian *as -hA in total hold an interest of )89 !=":$ of the post2merger Albanian *as -hA& whereas the former shareholders of Albanian 3il -hA hold 189 !2":$ of the postmerger Albanian *as -hA. To arrive at this point& when setting the share ex hange ratio& one has to ta%e into a ount not only the relati+e +al!e #$ the tw# '#% anie" & but also the n!%&er #$ i""!ed "hare" #$ &#th '#% anie".

(f& for instan e& Albanian *as -hA had issued 562226222 !A22 222 222;562226222E522 le3;"hare/ shares prior to the merger and Albanian 3il -hA had issued 1&"""&""" shares& the value of ea h share of Albanian *as -hA is 522 :e3 whereas the value of ea h share in Albanian 3il -+ is 122 :e3. (t follows that two shares in pre2merger Albanian 3il -+ have the same value as one share in pre2merger Albanian *as -hA& and from this relative value of the shares& the share ex hange ratio has to be al ulated at 2'1. This means that the shareholders of Albanian 3il -hA re eive one share of Albanian *as -+ for every two shares of Albanian 3il -hA they hold& whereas the 'old' shareholders of Albanian *as -hA %eep their shares. Albanian *as -hA has to issue 5226222 "hare" !1+io. divided by two$& and the total number of shares issued would in rease 2&9""&""" 2 whi h is in line with the valuation given above. Ea'h "hare #$ the Cenlar)edC 8i-e- #"t>%er)er/ Al&anian *a" ShA i" "till w#rth 522 :e3 852262226222 di+ided &( 5 522 222/1he merger therefore has no impact on the value of the shares of Albanian *as &7. 1his shows that the nominal value of the shares is not essential to the determination of the share exchange ratio. Ior the reditors of Albanian *as -hA there is no hange in their legal position !although their e onomi position an alter substantially& as des ribed above$. Creditors of Albanian 3il -hA& however& lose their debtor& sin e Albanian 3il -hA does no longer exist as a legal entity after ompletion of the transa tion. Jowever& Albanian *as -+ a ts as its legal su essor& thus former reditors of Albanian 3il -hA now have the same laims against Albanian *as -+ as they had against Albanian 3il -hA. Mer)er &( the $#r%ati#n #$ a new '#% an(

A merger by formation of a new ompany is the operation by whi h two or more ompanies transfer all their assets and liabilities to a newly2founded ompany& whi h issues shares to the shareholders of the a ,uired ompanies. (f we ta%e the example above ! f. a$& Albanian *as -hA and Albanian 3il -+ ould also de ide to merge by formation of a new ompany !'Aew Albanian 3il K *as'$.

Thi" "h#w" that the #"t>%er)er "tr!'t!re i" al%#"t identi'al t# the tran"a'ti#n de"'ri&ed a&#+e 8'$- a/-/6 ex'e t $#r the le)al identit( #$ the a',!irin) '#% an(4oth Albanian *as -+ and Albanian 3il -+ ease to exist as a result of the merger& and all of their assets and liabilities are now transferred to& and subse,uently owned by& Aew Albanian *as K 3il -hA. Another modifi ation has to be made with respe t to the share ex hange ratio. As pointed out& the distribution of the shares in the new ompany must refle t the relative values of the merging ompanies !) +io. Le% and 1+io. Le% in our example$. Thus& 2": of the shares will be assigned to the former Albanian 3il -hA shareholders& whereas =": of the shares will be assigned to the former Albanian *as -+ shareholders.

H#we+er6 a" the a',!irin) '#% an( i" newl( $#r%ed in the '#!r"e #$ the %er)er6 the t#tal n!%&er #$ "hare" i""!ed %a( &e "et at any 8rea"#na&le/ n!%&er(n our example& the total number of shares issued by the Aew Albanian *as K 3il -hA shall be set at 9&"""&""". Thus& 1 +io. shares are assigned to the former Albanian 3il -+ shareholders& whereas ) +io. shares are as signed to the former Albanian *as -hA shareholders. This also ma%es lear that we now need two different share ex hange ratios' Albanian 3il -hA shareholders will be able to ex hange one of their shares for every share of the new ompany !ex hange ratio1'1$ whereas the share ex hange ratio for Albanian *as -hA shareholders will have to be set at 1'2& assigning them two shares of Aew Albanian *as K 3il -hA for every share the hold in Albanian *as -hA. The same e onomi effe t an be a hieved if the number of shares is set at 1" +io.& of whi h 2 +io. go to the Albanian 3il -hA shareholders and = +io. go to the Albanian *as -hA shareholders. A ordingly& the share ex hange ratios would be 1'2 for the Albanian 3il -hA shareholders and 1') for the Albanian *as -hA shareholders.

Di+i"i#n

B( a di+i"i#n6 the a""et" #$ #ne '#% an( are " lit ! and tran"$erred t# tw# #r %#re exi"tin) #r new '#% anie" 8a',!irin) '#% anie"/The former type of division an also be seen as a ombination of two steps of a restru turing' a division by transfer to a newly2founded ompany followed by a merger of the newly founded ompany !as a ,uired ompany$ with an existing ompany !the a ,uiring ompany$.

(f the assets of the divided ompany are transferred to a newly2founded ompany& shareholders of the divided ompany naturally re eive all of the shares of the newly founded ompany. !why is needed 2 may hange the obje t$

The "hare" 'an either &e all#'ated in r# #rti#n t# the "hareh#ldin)" in the di+ided '#% an( 8 r# #rti#nal di+i"i#n/ #r de+iate $r#% thi" r# #rti#n 8n#n> r# #rti#nal di+i"i#n/The following hart shows simplified examples of proportional and non2proportional divisions. (t assumes that the ompany to be divided has two shareholders& ea h holding 9": of the shares. (t further assumes that the a ,uiring ompanies are newly founded.

L -urprisingly& the ACL does not provide for divisions& where the ompany to be divided remains in existen e. (nstead& Art 227 !1$ re,uires the ompany being divided to ease to exist. This means& that the so2 alled " in>#$$& whi h is the most important form of a division in most +ember -tates& is not provided for by the text of the Albanian law. #. The Mire tive on ross2border mergers fa ilitates the ross2border mergers of both publi and private ompanies. The only re,uirement is that a merger between su h types of ompanies is possible a ording to the national laws of the relevant +ember -tates. TRANSFORMATION Art 22= deal with the transformation of N-Cs and LLCs. 4y transformation& a N-C an be onverted into a LLC and vi e versa 4y transformation a ompany simply hanges its legal form without losing its identity. Therefore& the transformed ompany does not 0su eed in the legal position0 of the existing ompany/ not2withstanding the hange of its legal form& the ompany %eeps its legal identity.

?pon registration& the ompany ontinues to exist in the legal form hosen& while all shareholders or members stay members or shareholders of the transformed ompany. Also& the rights of third parties with regard to the shares held by shareholders8members ontinue to exist regarding the new shares. This last rule ensures that third party rights& espe ially pledges and other means of se urity& are automati ally onferred on the 0new0 bundle of membership rights. Ta%e the different rules on apital in reases for N-Cs and LLCs as an example' Ohereas shareholders of a N-C are entitled to subs ribe newly issued shares in proportion to their previous shareholding in ase of a apital in rease& no su h rules exist for LLCs. A minority shareholder of a N-C that is about to be transformed into a LLC ould& therefore& depending on the si1e of his share !e.g. 2":$& experien e a deterioration of his position vis2a.2vis the ompany and his fellow shareholders. These differen es render it ne essary to provide for ertain pro edural me hanisms to ensure that the position of the ompany's sta%eholders does not deteriorate as a result of the transformation. The main fo us of the pro edural rules set out in Art 22@ ACL is to ensure this out ome.
a. b.

A tran"$#r%ati#n re,!ire" a r#+al &( the )eneral %eetin)The vote re,uires a three2,uarter majority. The -tatute may provide for a higher& but not a lower majority re,uirement. . .rior to the general meeting& the administrators have to draw up a report explaining the "legal and economi ground for the proposed trasnformation".

The strongest instrument of shareholder prote tion an be found in Alt 22@ !9$ ACL& however. 4y referen e to the merger regulation& this provision gives an exit right to ea h shareholder8member who opposes the transformation. Ga h shareholder8member opposing the transformation may re,uire the ompany to buy his shares at the mar%et pri e. As there is yet no sto % ex hange in Albania& a mar%et pri e will often not exist. (n this ase& the pri e has to be set by an independent expert appointed by the ourt at the shareholders'8members' re,uest. -hareholders8members who did not attend the *eneral +eeting may submit their opposition to the transa tion up to >" days after a spe ial announ ement.

The referen e to Art 221 ACL results in an un onditional right of ea h single reditor to obtain& upon submission of his laims in writing& ade,uate safeguards for these laims from the ompany. Oe have already pointed out that this right overshoots the target with respe t to mergers/ it seems even more inappropriate as far as transformations are on erned. The finan ial situation of the ompany annot& after all& deteriorate as a dire t onse,uen e of this form of orporate restru turing. As mentioned above& the true ris% to the reditors of a ompany lies in the different regimes of apital maintenan e and the different distribution rules between N-C and LLC.

III- *RO?PS OF COMPANIES Oithin the meaning of the ACL& two ompanies form a group if one ompany either has at least #": of the voting rights in the other ompany !e,uity group$ 3r if one ompany "regularly behaves and acts sub+ect to the directions or instructions of another company of another company" ! ontrol group$. Advantages'

very pra ti al to organi1e different parts of the business operations in the form of separate ompanies so as t# e"ta&li"h 'lear area" of responsibility for the administrators of the various ompanies of the group separate legal personality onferred on these ompanies also limits potential problems with the abuse of the power of representation in a large2s ale business& as it does not re,uire every single person who a ts within his sphere of responsibility to have the authority to represent the whole entity running a business as a group of ompanies permits the raising of e,uity apital from third parties !minority shareholders$ with respe t to ertain parts of the business C#ntr#l *r#!

A.

The ontrolling influen e may instead arise from a ontra tual relationship or from pure e onomi dependen y& for instan e De$initi#n: 3ne ompany !the subsidiary ompany$ behaves and a ts subje t to the dire tions or instru tions of another ompany !the parent ompany$. based on the on ept of !fa tual$ 0 ontrolling influen e0

the law does not re,uire the parent ompany to hold shares of the subsidiary at all C#n"e,!en'e": a- Compensation for Annual Losses& Creditors' Bights The provision learly aims at the prote tion of the reditors and the minority shareholders of the subsidiary ompany. Pery problemati The subsidiary's right to re eive ompensation for its annual losses is a ompanied by the right of the subsidiary's 'redit#r" t# re,!ire the arent '#% an( t# "tand "e'!rit( $#r their 'lai%" at an( ti%e. This further underpins the notion that& within a ontrol group& the parent ompany in effe t will be liable for the individual ompanies in the group. eliminates limited liability as far as the ompanies in the group are on erned& be ause the business ris% that materialises in the losses of the subsidiary will always shift dire tly onto the parent ompany. minority shareholders of a subsidiary should be entitled by law to their share in the ompany's profits& but at the same time have their ris% of losing their investment hedged away by the parent ompany's obligation to ompensate them for all losses in urred.

&- -ell2out Bight A ording to Alt 2"= !2$ ACL& partners& members or shareholders of the subsidiary have at any time the right to re,uire the parent ompany to buy their se urities. Iirst& from the viewpoint of the parent ompany& the obligation to buy the shares of the minority shareholders an onstitute a heavy and ontinuing finan ial burden& as the parent ompany must hold enough li,uidity at any time to a ede to a re,uest by one or more of its minority shareholders. The provision does not spe ify the pri e to be paid for the shares. (f this were to mean that the pri e may be set by the parent ompany at its dis retion& it would effe tively render the sell2out right provided for in Art 2"= !2$ ACL worthless. 3ne might assume that 2 in the absen e of a spe ifi provision regulating the !minimum$ pri e to be offered by the parent ompany 2 a 0fair pri e0 has to be determined& for instan e through valuation of the ompany by an independent expert. 4ut it is un lear how the sell2out right in Art 2"= !2$ ACL and the sell2out right provided for in Art 212 ACL relate to ea h other.

The latter only applies if the parent ompany holds @": or more of the subsidiary's shares/ in whi h ase the law orders the parent ompany to buy the shares of the subsidiary's minority shareholders 0at the mar%et pri e0. Oe therefore assume that the rights onferred to minority shareholders under Art 212 ACL are already in luded in Art 2"= !2$ ACL& and that both provisions re,uire the parent ompany to offer at least the urrent mar%et pri e for the shares !if su h a pri e an be determined$.
4.

E,!it( *r#!

De$initi#n: if one ompany !the parent ompany$& based on its apital share in another ompany !the subsidiary ompany$ or based on an agreement with that ompany& has the right to appoint at least #": of the members of the 4oard of Administration or supervisory board or of the administrators of that ompany& or if it has at least #": of the votes at the general meeting. C#n"e,!en'e": n#t a" ri)id a" in '#ntr#l )r#! "
a.

Iidu iary duties' the ba %ground of the general fidu iary duties of an administrator ct. P.2.2.b$& the provision in Art 2"@ !1$ and !#$ ACL have to be understood as re,uiring a parent ompany's management to ta%e into onsideration not only the interests of the parent ompany& but also the interests of the subsidiary ompanies and the group as a whole. Ohat remains unanswered& however& is the ,uestion whose interests should prevail in ase of onfli ting interests. The answer is apparently left to the ourts to be de ided on a ase2by2 ase basis.

E!r# ean C#% an( :aw

Qfreedom of establishmentR Ior the first time in the Treaty of Bome 6 reated the Guropean Community 1@97

(t prohibits restri tions on the freedom of establishment of nationals of a +ember -tate in the territory of another +ember -tate !primary freedom of establishment$. +oreover& it prohibits restri tions on the setting2up of agen ies& bran hes or subsidiaries by nationals of any +ember -tate established in the territory of any +ember -tate !se ondary freedom of establishment$.

Art )=' Companies or firms formed in a ordan e with the law of a +ember -tate and having their registered offi e& entral administration or prin ipal pla e of business within the Community are to be treated in the same way a" nat!ral er"#n" who are nationals of +ember -tates.

(n this ontext& 0 ompanies or firms0 means ompanies or firms onstituted under ivil or ommer ial law& in luding ooperative so ieties& and other legal persons governed by publi or private law& save for those whi h are non2profit2ma%ing. (n 1@=> the -ingle Guropean A t amended the 1reaty of )ome and introdu ed the new aim of progressively establishing the internal mar%et& whi h omprises an area without internal frontiers in whi h the free movement of goods& persons& servi es and apital is ensured !Arti le 1) GC2Treaty$. (t enables the Community to adopt Mire tives with a view to a hieving freedom of establishment.