Page 146 - Albanian law on entrepreuners and companies - text with with commentary

Fifth, the Law addresses the problem of hidden dividends. A transaction between the
company and its shareholders may be used as a disguised transfer of wealth from the company
to the shareholders. Therefore, it is prohibited for the company to pay any amount exceeding
the market value of a transaction to shareholders, Article 130.
Sixth, Article 131 especially provides that a shareholder who granted debt financing to
the company on terms less favourable than usual are excluded from asking repayment in case
of insolvency, where such repayment would reduce the capital of the company to below its
basic capital. If repayment has already occurred during the year preceding the bankruptcy of
the company, shareholders are obliged to refund the payment, Article 132. The same rules
apply to loans granted by third parties for which shareholders have provided guarantee,
Article 131 (2) and 132 (2). Article 131 (3) extends the effect of Article 131 (1) and (2) to
similar transactions.
Seventh, Article 133 (1) 1 and (2) prohibit the subscription by the company or by one
of its subsidiaries of the company’s own shares. Likewise acquisition of own shares is only
allowed in cases envisaged by this Law. We will come back to this question in Comments to
Article 133 below.
Eighth, in this context we must also recall the special organizational duties of
management which were mentioned in the Comments to Article 98 on the fiduciary duties of
Managing Directors in LLCs. As regards the context of capital maintenance in the context of
JSC directors’ fiduciary duties, the duties listed by Article 163 (4), provide that management
is specifically prevented from engaging in any transaction which may lead to the depletion of
the company's capital. Moreover, Article 158 (5) requires Managing Directors to convene the
General Meeting in the cases provided by paragraphs (3) to (5) of Article 136: if annual or
interim accounts show or if it is clear that losses amount to 50% of the basic capital, or if
there is a danger that the company’s assets will not cover its liabilities within the next three
months; where there is a proposal to sell or otherwise dispose of assets amounting to more
than 5% of the company’s assets resulting from the last certified financial statements; when
the company, within the first two years after registration, proposes to purchase assets which
belong to a shareholder and which amount to 5% of the company’s assets resulting from the
last certified financial statements. Responsibility for the creation of an early warning system
(Article 158 (3) (5) and for the probity of financial statements and other key data (Article
164), are other indirect legal capital protection devices.
Ninth, insolvency procedures should also be mentioned here. Whenever the assets no
longer cover the company’s capital, the company is no longer doing business at the risk of the
shareholders—whose investment is lost in this case—but at the risk of the company’s
creditors. The legal solution of this problem lies in insolvency procedures: a company which
has lost its capital must be compelled to exit the market. Insolvency procedures are therefore
an indispensable element of a viable system of corporate governance. Articles 43, 99 and 187
make sure that any company is dissolved in case of insolvency.

145