As momentum builds in the Romanian business environment, reorganisations by way of spin-off or merger have become increasingly attractive options for companies, mainly in their attempt to consolidate positions and streamline resources.
The growing interest in mergers and spin-offs highlights several ambiguities in the relevant legislation – some of which are summarised in this update, together with solutions that are typically implemented in practice in order to alleviate risks associated with this lack of legislative clarity.
According to the Companies Law (31/1990), the effective date of a merger or spin-off depends on whether new companies are established as a result of the reorganisation procedure. Thus, if the reorganisation results in the creation of one or more new companies, the effective date is the date on which the resulting company (or the last of the new companies, if there are more than one) is entered in the Trade Register.
If no new company is created as a result of the reorganisation, the effective date is the date on which the last resolution of the shareholders of the companies involved in the reorganisation is entered in the Trade Register. However, in this case the Companies Law allows the parties to establish a conventional effective date of the reorganisation, provided that such date is set during the current financial year of the absorbing/beneficiary company.
While choosing a conventional effective date may be convenient from a commercial and even tax perspective, several unclear aspects and practical consequences are associated with this option. These arise mainly from the long time that it takes for a reorganisation to be approved and subsequently entered in the Trade Register (one to three months or more). These unclear aspects and unforeseeable consequences include the following:
- It remains unclear whether the conventional effective date must be included in the reorganisation project or may be decided, at a later stage, upon approval of the project by the shareholders of the companies involved in the merger. The exact date on which the conventional effective date is established also affects the timeframe in which it may be set. For example, if the project is published at the end of one financial year and approved by the shareholders at the beginning of the next financial year, the 'current financial year' during which the conventional effective date must be set may differ.
- It is not fully clear what happens if the conventional effective date of the reorganisation is set before the date on which the reorganisation is approved and – even more debateable – if approval is denied. For example, the law is unclear as to how the rights and liabilities of the beneficiary company acquired during the period between the conventional effective date of the reorganisation and the date on which approval is denied are split between the initial companies. Further, setting an effective date before approval of the reorganisation implies, from a practical perspective, keeping two sets of accounting records at the level of the concerned companies.
- In the case of a merger by way of absorption, if the effective date is set before the date of approval of the merger, it is unclear whether the absorbed company shall cease to exist (and should therefore be deregistered from the Trade Register) as of the effective date or the date on which this decision is entered in the Trade Register. Under a reasonable interpretation, the absorbed company should cease to exist as of the effective date; but in practice, the relevant authorities are typically reluctant to apply this interpretation. Thus, it is unlikely that the Trade Register will accept deregistration of the absorbed company as of the effective date, because it is practically impossible to reverse the deregistration if the reorganisation is not approved.
As a rule, the reorganisation project or an excerpt therefrom must be published in the Official Gazette at least 30 days before the shareholders' meetings to approve the reorganisation. By way of exception, the reorganisation project may be published on the company's website.
The Companies Law provides that the creditors of companies involved in the reorganisation may file oppositions to the reorganisation within 30 days of publication in the Official Gazette. However, it makes no mention of any alternative opposition period should the project be published on the company website instead of in the Official Gazette. Given this legislative inconsistency, publication of the reorganisation project in the Official Gazette is still recommended.
Romanian legislation governing corporate reorganisations remains unclear. Mechanisms which were intended to provide flexibility for the parties involved have limited applicability in practice, given the risks associated with the ambiguous and inconsistent provisions which govern them.
Parties should take an approach which complies with the interpretations of the relevant provisions issued by the various authorities (eg, the Trade Register). However, the cases in which such interpretations are flexible are usually limited.
For further information on this topic please contact Ana Andreiana or Eliza Baias at PeliFilip by telephone (+40 21 527 2000) or email (email@example.com or firstname.lastname@example.org). The PeliFilip website can be accessed at www.pelifilip.com.
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