Internecine Warfare

The political world seems to be full of civil wars and fighting at the moment.

The commercial world is not far behind and in Romania that is also the case, whether we like it or not.  Romania is not very different. Inside companies often shareholders fall out and civil war is there. Then Romanian lawyers become involved to try and resolve the issues from a Romanian law perspective.

Fortunately, Romanian law Company 31 of 1990 when it was drafted the draftsmen were aware of this potential problem and initial provisions were drafted into the law which allowed for a form of dispute resolution.  A number of changes have been made in the law since 1990 which have improved the legal position and given further protection to minority interests in this regard.

One of the major areas of contention was the failure of Romanian companies to have general meetings as they are required to do in accordance with the law. Decisions were taken inside a company by the administrators which were theoretically within the powers and authority of the General meetings  but were ignored. General meetings were required but not often called or convened. The original law was deficient in that there were confused provisions as to what minority shareholders could do, if at all. Things have improved and I make no comment on transparency as that is the subject for another blog post.

Romanian entrepreneurs and major shareholders are like entrepreneurs and major shareholders the world over. They often own or control through their families the majority of the shares; they have the ideas for developing the company and they see the company as an extension of themselves. I have written before about shareholders who become confused as to their roles and those of the company. Often they talk about my company when they own just more than 50% of the shares. I have found it hard to explain to clients that owning shares in a company does not mean you own the company.

Fortunately, now the law does allow minority shareholders to call for a general meeting of shareholders if they feel that something is wrong and they wish to discuss this within the company.

Article 195 of Law 31 allows shareholders who own at least  25% of the shares of a company to call for the convening of a general meeting of the company. But there are practical issues around this.

To call the meeting, the shareholders have to give written notice to the Company requesting the meeting and setting out what is to be discussed at that meeting. The important point to make here is that the request is addressed to the Company. The company is represented by the administrator(s). In many cases the administrator will be the majority shareholder  whose actions are to be discussed. One can imagine how he will feel receiving a request to convene a meeting to discuss his actions and he is the person who can control the calling of that meeting. Some administrators knowing that they control more than 50% of the shares may not have an issue with this.

There are issues where the administrator does not control 50% of the shares and relies on third parties for their support. The other administrators may have acquiesced in the decisions for their own reasons but now these will be examined. There is the possibility if there are a number of shareholders that the actions of the minority shareholders become an action by the majority and then the administrator’s position can be in jeopardy.

We have advised in cases where the administrator has refused to call the meeting.  In this event then it is open to the minority shareholders to go to the court and ask for the court to call for the holding of the meeting.  This is the only remedy if the administrator will not call the meeting. 

If there is more than one administrator the problem is not so difficult to resolve as any administrator can call a meeting. In this case often the other administrator will call the meeting.

Sometime the calling of the meeting is seen as a “Nuclear Option” but I am pleased to say that we have experience where the calling of the meeting has  brought into the open issues which were festering and have been resolved and the company has moved forward.  As Winston Churchill once noted “jaw, jaw jaw, is better than war, war, war”.

 

Do you need legal advice or representation in court?

 

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