23-04-2013

Mergers And Transformations Of Companies

Authors

  • Arjola Goxhaj, Senior Lawyer
    Alban Bello, Lawyer
    KPMG Albania Sh.p.k.

What is the basic legal framework for mergers and transformations of companies in Albania?

The main law that governs mergers and transformations of companies in Albania is Law No. 9901 dated 14 April 2008 on Entrepreneurs and Commercial Companies with the respective amendments. Part IX of this Law is dedicated to the essence and procedures for reorganization of limited liability and joint stock companies. The other laws that apply to mergers and transformations of companies include Law No. 9723 dated 3 May 2007 on the National Registration Centre (NRC) with the respective amendments, Law No. 9121 dated 28 July 2008 on the Protection of Competition with the respective amendments and Law No. 9879 dated 21 February 2008 on Securities. Instruments of secondary legislation such as decisions of the Council of Ministers, instructions and orders of ministers are issued in application of the said laws to provide in detail for merger and transformation procedures.

1. MERGER OF COMPANIES

What types of mergers does the Law provide for?

The Law provides for two types of mergers: merger by acquisition and merger by formation of a new company.

a) Merger by acquisition

A merger by acquisition is an operation where one or more companies transfer all their assets and liabilities to an existing company which issues shares to the shareholders who previously held shares in the acquired company or companies.

b) Merger by formation of a new company

A merger by formation of a new company is an operation where two or more companies transfer all their assets and liabilities to a newly-founded company which issues shares to the shareholders of the acquired companies.

What steps and procedures should be followed to register a merger?

The Law sets out the same steps and procedures for the registration of both types of mergers.

  • The initial step of the merger process is the preparation of a Draft Merger Agreement by the representatives of the companies involved in the merger and preparation of the relevant report on the Draft Agreement.

Pursuant to the Law, the Draft Agreement defines the following:

a. Company names and registered offices of the merging companies

b. Agreement on the transfer of the assets of each company to be acquired in exchange for the interests of the acquiring company

c. Share exchange ratio and amount of any cash payment

d. Terms related to the allotment of shares in the acquiring company

e. Rights stemming from the shares in the acquiring company

f. Rights conferred by the acquiring company on the holders of shares and on holders of special rights, or the measures proposed concerning them

g. Any special privileges granted to managing directors, members of the Board of Directors or the Supervisory Board and auditing experts

h. Consequences of the merger for the employees and their representatives and the measures proposed concerning them.

The report should explicitly detail the legal and economic basis for the preparation of the Draft Agreement and the exchange ratio of the shares/quotas or special rights. It also describes any special valuation difficulties which have arisen. The report must also set out the impact that the merger will have on the employees of the companies involved.

  • Αs a second step, the representatives of the companies involved in the merger appoint licensed independent experts to examine the Draft Merger Agreement. The experts may be appointed for each company involved or jointly for all of them.

The experts draw up a written report which should state their opinion on the fairness of the share exchange ratio. The report must also: 1) indicate the method or methods used to arrive at the share exchange ratio proposed, 2) state whether such method or methods are adequate in the case in question, 3) 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, and 4) describe any special valuation difficulties which have arisen.

  • The Draft Merger Agreement, the report of the representatives of the companies and the report of the experts on the Draft Agreement should be filed with the NRC and published on the website (if any) of each company involved at least one month before the date of the General Assembly of Shareholders to approve the Draft Merger Agreement. The companies involved should also submit their annual financial statements and performance reports for the last three years to the NRC and publish them on their websites within the abovementioned term.
  • Τhe following step is the approval of the Draft Merger Agreement by the respective General Assemblies of Shareholders of the companies involved so that the Draft Agreement may have legal effect.
  • Τhe final step that the legal representatives of the involved companies should take is to file the Merger Agreement together with the respective resolutions of the companies involved and the minutes of the General Assemblies of Shareholders regarding the approval of the merger as well as the approvals by special rights shareholders, if any, with the NRC.

What other approval is required?

Mergers of companies must comply with the requirements of the Law on the Protection of Competition. Therefore, if the merger of companies constitutes a concentration of enterprises as laid down in the said Law and requires the respective authorization, before filing the Merger Agreement with the NRC, the representatives of the companies involved must notify the Competition Protection Authority about it.

What are the consequences of a merger?

After the registration of the merger with the NRC, the companies involved in it face the following consequences:

  1. Transfer to the acquiring company of all assets and liabilities of the company being acquired.
  2. The shareholders of the company being acquired become shareholders of the acquiring company.
  3. The company being acquired ceases to exist and is wound up in accordance with the Law on the NRC without undergoing the liquidation procedure.

2. TRANSFORMATION OF COMPANIES

Is transformation of companies allowed in Albania?

In accordance with the Albanian legislation, transformation of companies is allowed for limited liability and joint stock companies. Unlike mergers and divisions, transformations involve neither the creation of a new company nor the winding-up of an existing company. In a transformation, a company simply changes its legal form without losing its identity. Therefore, notwithstanding the change of its legal form the transformed company keeps its legal identity. Commercial companies may change their legal form through transformation as follows:

  1. Limited liability companies may transform into joint stock companies and vice versa.
  2. A joint stock company with private offer becomes a joint stock company with public offer and vice versa. Such transformation must also comply with the requirement of the Law on the NRC and the Law on Securities.

What is the transformation procedure?

  • Αs the first step in the transformation of the company, the administrator prepares a detailed report explaining the legal and economic grounds for the transformation and the impact of such transformation on the employees of the company. It would be advisable for the administrator to include the new draft Articles of Association in the report considering that the form of the company will change along with the applicable law provisions.
  • The second step is the approval of the decision about the transformation by the General Assembly of Shareholders. The decision about the transformation should be taken by the General Assembly of Shareholders by a majority of three-fourths representing at least 75 percent of the shares in the company. The Articles of Association of a company may provide for a higher majority but not lower. During the transformation procedure, the administrators should take into account the rights of creditors. In such a case, the approval of creditors is required for the decision about the transformation to have a legal effect.
  • The next and final step is the registration of the decision with the NRC. This is done together with the minutes of the General Assembly of Shareholders, the modified Articles of Association and the administrator’s detailed report. The decision should also be published on the company’s website, if available.

What are the legal effects of the transformation?

The transformation of a company entails the following legal effects:

a) The company continues its existence in the legal form as provided for in the transformation decision.

b) The participation of the shareholders/partners in the company is governed by the provisions of the commercial law related to the new form of the company.

c) Third parties’ rights over the company’s shares remain unaltered.

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