On April 13 2000 the Saeima (Parliament) of the Republic of Latvia passed the Commercial Law. January 1 2001 was intended as its effective date. In order to ensure that the business community could reorient itself in accordance with the new law's requirements, it was intended that a second law be enacted which would provide guidance on the law's implementation and on the transition to compliance with the new legal framework. This second law was to enter into force before the Commercial Law took effect.
Unfortunately, the Latvian legislature was forced to change its plans with respect to the Commercial Law and its supplementary legislation. Since the business and legal communities continued to discuss many issues regarding the terminology used in the Commercial Law, and the substance of various provisions in both laws, the Saeima amended the Commercial Law to provide that it would not take effect until April 1 2001.
As April 1 drew closer, the provisions of the Commercial Law remained the subject of heated public debate, and new proposals were submitted to the Saeima on amendments and additions to several of its provisions. Further, the Saeima had still not yet adopted the transition law, without which the Commercial Law's entry into force would prove problematic.
As a result, and after much deliberation, the Saeima again extended the effective date of the Commercial Law, this time to July 1 2001.
Many proposals submitted to the Saeima with regard to amendments to the Commercial Law are still pending resolution. Below are some examples.
Firstly, specialists at the Latvian State Language Centre contend that certain terms used in the new Commercial Law must be changed to take account of the constraints of the Latvian language. They argue that these terms may be misunderstood in Latvian and thus may be incorrectly interpreted in practical application. They propose that the language be tightened in order to avoid confusion and limit the possibility of misinterpretation.
Other significant proposals relate to the chapter of the Commercial Law that deals with joint stock companies. It is alleged that in several instances the text of the law is incomplete with respect to the rights of minority shareholders, and that under the existing text the rights of minority shareholders would be restricted. For example, one of the proposals is to include a provision whereby preference shares may not be exchanged (converted) for the common shares of a company. As it stands, the wording of the Commercial Law does not expressly restrict the conversion of preferred shares. Consequently, shareholders with preferred shares have an opportunity to increase their share of the voting rights in a company, thus diluting the interests of minority shareholders. This same argument forms the basis of a proposal to include a provision whereby convertible bonds will be the sole debt security which a company may exchange for its shares. Those in favour of this proposal also suggest that the exchange of employee shares for other company shares be prohibited, as this too would ensure that the rights of minority shareholders are better protected.
Still other proposals concern the duties of the supervisory board of a joint stock company as stipulated by the Commercial Law, specifically the provision whereby shareholders that together represent at least one-tenth of the company's voting rights are entitled to request the supervisory board to inspect the activities of the board of directors. It is suggested that the law be amended to allow these shareholders to request the supervisory board to inspect both the activities of the board of directors and all transactions concluded by the company. If the shareholders are not satisfied with the response, they may submit this matter for consideration at the shareholders meeting. If they are not satisfied with the decision of the shareholders meeting, then they should be entitled to invite an external auditor to inspect these matters at their own expense. The proposal is based on the argument that one of the most essential issues for the protection of minority shareholders is transparency. To ensure the transparency of the activities of a joint stock company, the proposed text would provide minority shareholders with an opportunity to examine not only the work of the board of directors, but also company transactions in the widest possible sense. It is proposed that minority shareholders be permitted to engage their own auditors if they are not satisfied with an audit controlled by a majority shareholder.
These proposals are just a few of many which have been submitted to the Saeima, and, it cannot be assumed that they will eventually be accepted. However, it is evident that the new Commercial Law has sparked much interest and public debate, which will arguably continue even once the law has entered into force.
The supplementary law which is to accompany the Commercial Law still remains to be adopted. Since almost 70 proposals involving this additional law have also been submitted, and have prompted much discussion in the Saeima, the majority of Saeima deputies have voted to extend the term for the submission of proposals to May 1 2001.
For further information on this topic please contact Filip Klavins or Sanda Lace at Klavins & Slaidins by telephone (+371 703 5222) or by fax (+371 703 5252) or by email ([email protected] or[email protected]).
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