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Polónia
Poland – Liability of company directors and Business judgement rule
11 Setembro 2022
- Empresa
What a director of a company in Spain must do to resign? Is it enough to send a communication to the company stating his resignation? Or does he have to call a Shareholder’s Meeting to appoint a substitute? Or does he even have to do something else?
A recent Supreme Court ruling dated July 12, 2022 (STS 561/2022) has resolved an interesting case related to the resignation of a sole director of an LLC, confirming that resigning is not as simple as it may seem.
The SC, indeed, established that a sole director, to resign, must not only prove that he validly called a Shareholders’ Meeting for the appointment of a substitute, but he must also prove that he did everything necessary during the interim period (i.e.: the time between the resignation and the holding of the Meeting) to meet the needs of management and representation of the company and to avoid damages. Even, and this is the case discussed in the STS, requiring the presence of a notary at the Meeting, if so required by shareholders representing at least 5% of the share capital.
The case recently ruled by the SC involved a company with two shareholders: the majority partner with 75% of the capital, and the minority partner (and sole administrator) with 25%. The sole administrator resigned and called a Shareholder’s Meeting to appoint a substitute. The majority shareholder required the presence of a Notary at the Meeting; but the resigning director refused, stating that – following his resignation – he had no obligation regarding the Meeting.
On the day of the Meeting, the majority shareholder was present, but neither the resigning administrator nor the Notary were, therefore the Shareholder’s Meeting was not held.
The administrator filed the deed of resignation with the Commercial Registry and the majority shareholder – at the same time – filed a document denouncing that the resigning administrator had not requested the presence of a Notary at the Meeting, despite having been requested to do so.
Thereafter, several resolutions with very different contents were issued. The Commercial Registrar suspended the registration of the resignation, but the “Dirección General del Notariado y de los Registros” (General Directorate of Notaries and Registries) decided that the resignation should be registered. The Commercial Court of Barcelona confirmed this last decision, and so did the Provincial Court. But the Supreme Court finally gave reason to the Mercantile Registrar.
The rulings in favor of the registration of the resignation argued, firstly, that the outgoing administrator exhausted his responsibilities by convening the Shareholder’s Meeting; and secondly, that the Registrar must examine only if a document may be entered in the register, without considering the “extra-registry reality”, such as the document presented by the majority shareholder complaining about the administrator’s actions.
The Supreme Court disagreed, stating that the absence of a Notary, validly requested by the majority shareholder, rendered ineffective all the resolutions of the Shareholder’s Meeting. Based on this, the Supreme Court considered it “logical” that in such a case the administrator should not only call the Shareholder’s Meeting but also require the presence of a Notary, in order to grant the validity of the resolutions of the Shareholder’s Meeting. With respect to the second controversial issue, the Supreme Court ruled that the Registrar, although exceptionally, can take into account certain circumstances or facts of which he has “registry evidence”, even if they do not appear by virtue of documents presented for their inscription, as long as they are related to the “inscribable” document.
In short, this interesting case shows that resigning as an administrator is not an easy activity. In general, although there is no specific provision on the subject in the Spanish system, the resigning administrator must not only call a Shareholder’s Meeting, but also remain administrator on an interim basis and attend to his obligations until the Shareholder’s Meeting is held; then, if the Shareholder’s Meeting is not held due to the non-attendance of the shareholders or if the shareholders do not appoint a substitute administrator, nothing more is required from the resigning administrator.
A member of the management board or the supervisory board of a Polish LLC or a joint-stock company is liable to the company for damage caused by an act or omission contrary to the law or the articles of association, unless they are not at fault. In the performance of their duties, they are obliged to take the care due to the professional nature of their activities. In other words, the standard of care is high and they cannot release themselves from the liability indicating that they had no sufficient knowledge or experience.
The burden of proof of the damage and the lack of due dilligence of the board member lies with the company. A board member is liable if their conduct is culpable. However, the company does not have to prove this. It is the board member who must demonstrate that the damage caused by their act or omission was not culpable.
When running a business, board members naturally often move within the boundaries of a certain risk and make various business decisions, the consequences of which are often unforeseeable at the time they are made. They can result in both substantial gains and substantial losses for the company. However, with a high standard of due diligence, it is more difficult to demonstrate a lack of culpability.
A recent amendment of the Polish Code of Commercial Companies and Partnerships which enters into force on 13 October 2022 has articulated the so called „business judgement rule” which has already appeared to a limited extent in case law.
This rule assumes that a member of the management board and supervisory board may act within the limits of reasonable business risk. They are not in breach of their duty of professional care as long as they act in loyalty to the company.
The new law indicates that the assessment of the board member may be made on the basis of information, analyses and opinions available to them when making decisions. The new law may contribute to the collection of documentation in defence of the position (so-called defence file). The board members may protect themselves against the liability towards the company by demonstrating that their actions or omissions were based on expert’s opinions and at the time when they were undertaken they did not exceed the limits of the reasonable business jugdement.
Summary
One of the issues when setting up a (subsidiary) company in Spain which creates more practical difficulties is the question of powers of attorney: What is a power of attorney, are they necessary and how do they work? In Spain this question is of practical relevance and its operation does not always coincide with what happens in other countries. In this commentary, we will give you some ideas on how to act with these powers of attorney when setting up a company.
What is a power of attorney? A power of attorney allows a person (attorney-in-fact or representative) to act on behalf of a company. The attorney-in-fact may, for example, sign a contract on behalf of a company if that company has given him or her the power (authority) to do so. For example, borrowing money from a bank.
To do this the company will have two types of representatives: an “organic representative” (the directors) and “voluntary representatives” (attorneys-in-fact).
First, a company must have at least one director
The director(s) is the “organic representative”. In other words, he/she is an organ (management body) of the company, represents it and can contract on its behalf.
This “organ” may be a single person (a single director), it may be several persons acting individually or jointly, or it may be a board of directors (“collegial body”). The power of representation resides in the “organ”. It is the body that represents the company and not necessarily its members.
The first task, therefore, is to decide on the structure of the body, and this is taken when the company is incorporated, although it can be changed later. In this way, the sole director will have all the powers to represent the company, the individual directors will also have them if they are “joint and several” or will have to act jointly if they are “joint” directors, and the board will also have them, but as a body (not each director individually).
This last remark (the powers are held by the body and not necessarily by its members) is important when the company is managed by a board of directors. The fact that there is a board of directors does not imply that each member has the powers to represent the company, but that they are held by the body as a whole. The board may, however, delegate them. When the board delegates the powers to one of its directors (it is possible, but not obligatory to appoint one), the latter becomes a “managing director” (Consejero Delegado). This director may then represent the company in all matters delegated to him/her.
Secondly, in addition to the directors, the company may have (not compulsory) other “proxies” (empowered person)
These are the “voluntary representatives”, i.e. appointed “at the will” of the company.
A proxy is someone to whom the company gives powers to represent it. Powers to do certain things.
As we said at the beginning, in Spain, acting by proxy is quite strict, so that a company cannot normally be represented by anyone who does not have the power to do so. For example, if the company authorises (empowers) a person only to sign banking contracts, he/she will not be able to sign contracts with employees.
The powers granted to a person must therefore be express. If a person is authorised to open a bank account, he/she is not supposed to be able to borrow money. And in this way, the powers serve as a framework for action: what the attorney-in-fact can do and what the limits are. And sometimes these limits come from the power itself (opening a bank account does not authorise borrowing) or can be quantitative (borrowing, but only up to 100,000 euros), or temporary (borrowing, but until 31 December 2025) or even requiring more than one person to act (borrowing, but co-signing with person “Z”). And, of course, a combination of all of them: attorney-in-fact “X” can take out loans by signing with attorney-in-fact “W” up to 100,000 euros, and with attorney-in-fact “Z” up to 1,000,000 euros.
When setting up a company in Spain, it is therefore highly advisable to think about how the powers are to be granted, especially if the administrative body does not reside in our country. As we have seen from experience, it is not uncommon to set up a company by appointing an administrator resident abroad without appointing a proxy in Spain. This is legally valid, but, in a way, it hinders the functioning of the company: the only person to sign contracts and represent the company resides abroad, which, from a practical point of view, will be a major disadvantage.
The procedure for empowering a person is simple. All it takes is a decision of the administrative body, formalisation before a notary and registration in the Commercial Register. In this way, anyone can verify that the person appointed can represent the company in that particular act. This does require a person of trust to be found (an employee, a resident partner, a third party), but the risk can be modulated by the limitation possibilities described above.
In conclusion
When setting up a company in Spain, if the administrator will not be resident in Spain, consider how to organise the powers of attorney, whom to empower and how to limit, if necessary, their powers.
And the powers of attorney that you will need most and most urgently are:
- (a) those that will allow you to contract with banks (opening and managing bank accounts),
- (b) those relating to employees (hiring, registration with social security, payment of salaries),
- (c) those for supply contracts (electricity, water, telephone) and other general contracts (rental, vehicles, distribution contracts); and
- (d) managing the company’s electronic signature (relations with public administrations, tax payments).
Failure to take this decision in a timely manner could delay or hinder the activity being started.
And if in doubt, it is best to consult a local lawyer.
There were hardly even a few businesses worldwide not affected by the corona pandemic. As lockdown measures were expanding from March 2020, dozens of visitor-dependent (including retail, public transportation, HoReCa, leisure, entertainment & sport) companies’ value dropped astonishingly. This immediately resulted in numerous RFPs coming in and out NPL funds and distress investors being ready as never to pluck those companies ripe enough.
Well, at least that is how the things should have been.
A general picture of M&A demand remains with no great changes. According to the recent DataSite EMEA report first 2021 quarter shown 40 % deal value increase and 14 percent deal volume growth. Some sceptic experts already highlighted that Q1 references are insufficient – as Q1 2020 was painted in an unseen uncertainty and hard-model governmental interference whilst Q1 2021 came in much more predictable conditions with vaccination campaigns being successful and more lockdowns lightened.
The 2020 picture for the distressed part of the global (and particularly EMEA) part of M&A market is quite the same. With hundreds of companies still receiving governmental support and financial institutions still having a wide liquidity, the 2020 data from Bloomberg reports show no Big Bang in distress deals (either arising from pre-pack agreements between debtors and creditors or from formal insolvency processes), at least if compared with 2007-8 recession years.
Nevertheless Bloomberg themselves recognize that 2021 market might become red-hot. Whether this prognosis will materialize soon – here are four basic tips to hold in mind when thinking on insolvency-sed distress M&A deal on either – buyer or seller side:
- asset or going-concern purchase. A key business decision is understanding of whether a target business is viable enough and fits in the buyer’s existing\planned portfolio to be bought as a going-concern company. Should there be no certainty – a rule of thumb with almost always be to stick with the asset deal being more secured and the target itself much easier to allocate.
On the other hand, for a manufacturing target license and related IP rights holding might constitute a large part of the business’ value – without which the desired asset appears to be a no-hand pot.
- watch for exclusivity – as asset-based distressed purchase might lack one because of the procedural obligation of going through bidding process.
- beware of easy ways. With so-called reverse vesting orders and free-and-clean sales an SP process might look very comfortable for a buyer eager to obtaining the target clean of any burdens (liens, mortgages, tax liabilities). Might look – but rarely be such within FSU and a part of CEE countries where a big chance of facing clawback action exists, especially with a huge state (tax\duty) interest at stake.
- do post-deal homework. When purchasing a going concern company it is for the newly-appointed management to be concerned the most: in a number of jurisdictions they might be boomeranged with management-liability claims resulting from previous management\shareholders cadence.
- have an insurance company over the seller’s back. In case any post-closing tails appear, this will give a substantial level of calmness for both sides relying on the insurance to cover a part of the purchase price or post-deal liabilities.
With the post-pandemic distress M&A yet to come and investors being ready as never, these rules will certainly be of use. As S&P 500 non-financials, in late 2020 corporate balance sheets reflected more than $2 trillion of cash – guess if there are funds for making your deal as well? Just remember: there is no one-size-fits-all approach in doing the distress deal and there always is a place for bespoke solutions given by true professionals.
The Spanish government has recently approved two new rules on equal pay and equality plans which will come into force in January and April 2021 and affect all companies.
1. Royal Decree 901/2020, of October 13, which regulates the equality plans and their registration
An “equality plan” is understood to be that ordered set of measures adopted after carrying out a situation diagnosis, aimed at achieving equal treatment and opportunities between women and men in the company, and eliminating discrimination based on sex.
All companies that have 50 or more workers are obliged to draw up and apply an equality plan, its implementation being voluntary for other companies. In any case, equality plans, including previous diagnoses, must be subject to negotiation with the legal representation of the workers, in accordance with the procedure legally established for that purpose.
Regarding the content of the plans, they must include, among others, definition of quantitative and qualitative objectives, description of the specific measures to be adopted, identification of means and resources, calendar of actions, monitoring and evaluation systems, etc. In addition, they must be subject to mandatory registration in a public registry.
This new Royal Decree will enter into force on January 14, 2021.
2. Royal Decree 902/2020, of October 13, of equal pay between women and men
The purpose of this new Royal Decree is to implement specific measures that make it possible to enforce the right to equal treatment and non-discrimination between women and men in matters of remuneration.
For this, the companies and collective agreements must integrate and apply the so-called “principle of remuneration transparency“, which applied to the different aspects that determine the remuneration of workers, allows obtaining sufficient and significant information on the value attributed to such remuneration.
For the application of the aforementioned principle, the Royal Decree provides, fundamentally, two instruments:
- remuneration registry: All companies must have an accessible remuneration registry for the legal representation of workers. It must include the average values of salaries, salary supplements and extra-salary perceptions of the entire workforce (including managers and senior positions) disaggregated by sex.
- remuneration audit: Those companies that draw up an equality plan must include a remuneration audit in it. Its purpose is to check if the company’s remuneration system complies with the effective application of the principle of equality, defining the needs to avoid, correct and prevent obstacles and difficulties that may exist.
The measures contained in this new standard will come into effect on April 14, 2021.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
Summary: Article 44 of Decree Law No. 76 of July 16, 2020 (the so-called “Simplifications Decree“) provides that, until June 30, 2021, capital increases by joint stock companies (società per azioni), limited partnerships by shares (società in accomandita per azioni) and limited liability companies (società a responsabilità limitata) may be approved with the favorable vote of the majority of the share capital represented at the shareholders’ meeting, provided that at least half of the share capital is present, even if the bylaws establish higher majorities.
The rule has a significant impact on the position of minority shareholders (and investors) of unlisted Italian companies, the protection of which is frequently entrusted (also) to bylaws clauses establishing qualified majorities for the approval of capital increases.
After describing the new rule, some considerations will be made on the consequences and possible safeguards for minority shareholders, limited to unlisted companies.
Simplifications Decree: the reduction of majorities for the approval of capital increases in Italian joint stock companies, limited partnerships by shares and limited liability companies
Article 44 of Decree Law No. 76 of July 16, 2020 (the so-called ‘Simplifications Decree‘)[1] temporarily reduced, until 30.6.2021, the majorities for the approval by the extraordinary shareholders’ meeting of certain resolutions to increase the share capital.
The rule applies to all companies, including listed ones. It applies to resolutions of the extraordinary shareholders’ meeting on the following subjects:
- capital increases through contributions in cash, in kind or in receivables, pursuant to Articles 2439, 2440 and 2441 (regarding joint stock companies and limited partnerships by shares), and to Articles 2480, 2481 and 2481-bis of the Italian Civil Code (regarding limited liability companies);
- the attribution to the directors of the power to increase the share capital, pursuant to Article 2443 (regarding joint stock companies and limited partnerships by shares) and to Article 2480 of the Italian Civil Code (regarding limited liability companies).
The ordinary rules provide the following mayorities:
(a) for joint stock companies and limited partnerships by shares: (i) on first call a majority of more than half of the share capital (Art. 2368, second paragraph, Italian Civil Code); (ii) on second call a majority of two thirds of the share capital presented at the meeting (Art. 2369, third paragraph, Italian Civil Code);
(b) for limited liability companies, a majority of more than half of the share capital (Art. 2479-bis, third paragraph, Italian Civil Code);
(c) for listed companies, a majority of two thirds of the share capital represents-to in the shareholders’ meeting (Art. 2368, second paragraph and Art. 2369, third paragraph, Italian Civil Code).
Most importantly, the ordinary rules allow for qualified majorities (i.e., higher than those required by law) in the bylaws.
The temporary provisions of Article 44 of the Simplifications Decree provide that resolutions are approved with the favourable vote of the majority of the share capital represented at the shareholders’ meeting, provided that at least half of the share capital is present. This majority also applies if the bylaws provide for higher majorities.
Simplifications Decree: the impact of the decrease in majorities for the approval of capital increases on minority shareholders of unlisted Italian companies
The rule has a significant impact on the position of minority shareholders (and investors) in unlisted Italian companies. It can be strongly criticised, particularly because it allows derogations from the higher majorities established in the bylaws, thus affecting ongoing relationships and the governance agreed between shareholders and reflected in the bylaws.
Qualified majorities, higher than the legal ones, for the approval of capital increases are a fundamental protection for minority shareholders (and investors). They are frequently introduced in the bylaws: when the company is set up with several partners, in the context of aggregation transactions, in investment transactions, private equity and venture capital transactions.
Qualified majorities prevent majority shareholders from carrying out transactions without the consent of minority shareholders (or some of them), which have a significant impact on the company and the position of minority shareholders. In fact, capital increases through contributions of assets reduce the minority shareholder’s shareholding percentage and can significantly change the company’s business (e.g. through the contribution of a business). Capital increases in cash force the minority shareholder to choose between further investing in the company or reducing its shareholding.
The reduction in the percentage of participation may imply the loss of important protections, linked to the possession of a participation above a certain threshold. These are not only certain rights provided for by law in favour of minority shareholders[2], but – with even more serious effects – the protections deriving from the qualified majorities provided for in the bylaws to approve certain decisions. The most striking case is that of the qualified majority for resolutions amending the bylaws, so that the amendments cannot be approved without the consent of the minority shareholders (or some of them). This is a fundamental clause, in order to ensure stability for certain provisions of the bylaws, agreed between the shareholders, that protect the minority shareholders, such as: pre-emption and tag-along rights, list voting for the appointment of the board of directors, qualified majorities for the taking of decisions by the shareholders’ meeting or the board of directors, limits on the powers that can be delegated by the board of directors. Through the capital increase, the majority can obtain a percentage of the shareholding that allows it to amend the bylaws, unilaterally departing from the governance structure agreed with the other shareholders.
The legislator has disregarded all this and has introduced a rule that does not simplify. Rather, it fuels conflicts between the shareholders and undermines legal certainty, thus discouraging investments rather than encouraging them.
Simplifications Decree: checks and safeguards for minority shareholders with respect to the decrease in majorities for the approval of capital increases
In order to assess the situation and the protection of the minority shareholder it is necessary to examine any shareholders’ agreement in force between the shareholders. The existence of a shareholders’ agreement will be almost certain in private equity or venture capital transactions or by other professional investors. But outside of these cases there are many companies, especially among small and medium-sized enterprises, where the relationships between the shareholders are governed exclusively by the bylaws.
In the shareholders’ agreement it will have to be verified whether there are clauses binding the shareholders, as parties to the agreement, to approve capital increases by qualified majority, i.e. higher than those required by law. Or whether the agreement make reference to a text of the bylaws (attached or by specific reference) that provides for such a majority, so that compliance with the qualified majority can be considered as an obligation of the parties to the shareholders’ agreement.
In this case, the shareholders’ agreement will protect the minority shareholder(s), as Article 44 of the Simplifications Decree does not introduce an exception to the clauses of the shareholders’ agreement.
The protection offered by the shareholders’ agreement is strong, but lower than that of the bylaws. The clause in the bylaws requiring a qualified majority binds all shareholders and the company, so the capital increase cannot be validly approved in violation of the bylaws. The shareholders’ agreement, on the other hand, is only binding between the parties to the agreement, so it does not prevent the company from approving the capital increase, even if the shareholder’s vote violates the obligations of the shareholders’ agreement. In this case, the other shareholders will be entitled to compensation for the damage suffered as a result of the breach of the agreement.
In the absence of a shareholders’ agreement that binds the shareholders to respect a qualified majority for the approval of the capital increase, the minority shareholder has only the possibility of challenging the resolution to increase the capital, due to abuse of the majority, if the resolution is not justified in the interest of the company and the majority shareholder’s vote pursues a personal interest that is antithetical to the company’s interest, or if it is the instrument of fraudulent activity by the majority shareholders aimed at infringing the rights of minority shareholders[3]. A narrow escape, and a protection certainly insufficient.
[1] The Simplifications Decree was converted into law by Law no. 120 of September 11, 2020. The conversion law replaced art. 44 of the Simplifications Decree, extending the temporary discipline provided therein to capital increases in cash and to capital increases of limited liability companies.
[2] For example: the percentage of 10% (33% for limited liability companies) for the right of shareholders to obtain the call of the meeting (art. 2367; art. 2479 Italian Civil Code); the percentage of 20% (10% for limited liability companies) to prevent the waiver or settlement of the liability action against the directors (art. 2393, sixth paragraph; art. 2476, fifth paragraph, Italian Civil Code); the percentage of 20% for the exercise by the shareholder of the liability action against the directors (art. 2393-bis, Civil Code).
[3] Cass. Civ., 12 December 2005, no. 27387; Trib. Roma, 31 March 2017, no. 6452.
Summary – While China’s economy bore the brunt of the initial economic impact, the COVID-19 outbreak is bringing both direct and indirect complications for economies around the world. With China’s key role in the supply chain and manufacturing, in combination with lockdowns restricting movement, trade and business – fiscal authorities are implementing new measures to protect and stimulate their respective economies.
The Australian Government has announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis. The International Monetary Fund and the Organisation for Economic Co-operation and Development forecast Australia’s growth outpacing many comparable countries, including France, Canada, Japan, Germany, and the UK – all without endangering Australia’s debt sustainability.
Australia’s Response
The Australian Federal Government has, in a series of announcements, revealed a consolidated package of $320 billion AUD or $200 billion USD[1] support – equivalent to 16.4% of the country’s nominal GDP. They have made a clear stance that Australia is prepared to protect its national interest and respond to the broad and prolonged impact of the outbreak.
The stimulus measures can be considered in three separate categories, each with an intended purpose:
- support businesses;
- support the flow of credit; and
- support individuals and households.
The measures come with consideration of varying factors, including helping with the management of short-term cash flow, assist severely affected communities and regions, to prop up individuals and households dealing with sudden loss of employment, maintaining employees’ connections with business, and to ensure the continued flow of credit.
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 and Coronavirus Economic Response Package Omnibus (Measures No. 2) were passed by parliament on 8 April 2020. More legislation is expected to come as Australian authorities continue to study the broader prolonged impacts of COVID-19.
State and local governments within Australia have also announced a wide range of measures in addition to those announced by the Federal Government.
[1] Based on AUD-USD exchange rate 21 April 2020
Support for Businesses
JobKeeper Subsidy
The Australian government has committed $130 billion in ongoing support to business through the JobKeeper subsidy. The payment is available to businesses that are suffering a reduction in turnover to keep Australians employed during the outbreak. The JobKeeper subsidy is a gross fortnightly payment of $1,500 for each eligible employee for a 6-month period. The full $1,500 payment is to be paid to each eligible employee, either as a partial subsidy if their wage is greater than $1,500, or as a full subsidy if their wage was previously less than $1,500. The gross payment will be taxed at normal rates, although employers are not obliged to make additional superannuation contributions.
The scheme includes sole traders as well as businesses and not-for-profits (NFP).
Boosting Cash Flow for Employers
Small and medium businesses, as well as NFP are eligible for cashflow boosts to further assist in retaining employees. Tax-free cash flow boosts of $20,000 to $100,000 will be delivered to eligible businesses and organisations with aggregated annual turnover under $50 million. The Government has specifically acknowledged the increasing demand for NFP services during this crisis.
In a series of two payments, each payment will be equivalent to the business’ withheld salary and wages, with a minimum of $10,000 and maximum of $50,000. The first cashflow boost is set to be available between March and July 2020; the second boost will be made to businesses who received the first and will be of an equal sum, to be paid between June to September 2020. By splitting the support into two equal payments, the intention is to provide continued cash flow support over a longer period – increasing confidence and assisting businesses to maintain their operations.
Temporary Relief for Financially Distressed Businesses
Recognising the need for a safety net to allow businesses to resume operation post-crisis, this measure provides legislative support to financially distressed businesses. The temporary changes include reducing thresholds for creditors to issue statutory demands and initiate bankruptcy proceedings, increasing time available to respond to statutory demands, relieving directors from personal liability for trading while insolvent, and providing flexibility in the Corporations Act 2001 when dealing with unforeseen circumstances stemming from the COVID-19 crisis.
The Australian Taxation Office is willing to tailor solutions for directors and owners currently suffering. These may include reductions in payments or deferrals and withholding enforcement actions.
Changes to Asset Write-Off and Depreciation Deductions
The threshold for instant asset write-off is increased from $30,000 to $150,000 and access is expanded to businesses with aggregated annual turnover less than $500 million (previously $50 million) until the end of the 2019-20 financial year (i.e. 30 June 2020).
Up until the end of the 2020-21 financial years, depreciation deductions are accelerated for businesses under the same $500 million threshold. Upon installation of assets, 50% can be deduced with existing depreciation deduction rates to the balance. This measure is considered an investment incentive for businesses.
Supporting Apprentices and Trainees
Eligible employers may have 50% of an apprentice’s or trainee’s wage subsidised between 1 January 2020 and 30 September 2020. When businesses are unable to retain their apprentice or trainee, the subsidy can be provided to a new employer. As a part of this program, Australia’s National Apprentice Employment Network will provide further support in coordinating re-employment of workers affected by the COVID-19 crisis.
Support for Affected Regions and Industries
$1 billion of stimulus funds is reserved to support regions that are most impacted by the COVID-19 crisis. The purpose is to provide assistance during both the outbreak and the recovery. Further, the Australian airline industry is receiving tax and fee relief, with an estimate value of $715 million.
Support Flow of Credit
Immediate Cash Flow Needs for SMEs
The Government is providing guarantees of 50% for SME lenders to encourage new short-term unsecured loans for SMEs. By increasing lender’s willingness to provide credit, Australian businesses will be in a better position to secure loans and increase their cash flow.
Quick and efficient access to credit for small business
Small businesses will have more and faster access to credit as an exemption is provided to ‘responsible lending’ requirements.
Reserve Bank of Australia Measures to Support Credit Flow
The Reserve Bank of Australia (RBA) has made funding available for banks at a fixed interest rate of 0.25%. This measure will reinforce a lower cash rate, helping to reduce interest rates for borrowers. The RBA funding is incentivised to banks who expand their business lending, especially for new loans to SMEs. To complement the interest rate cut, the RBA is taking active steps to achieve a 0.25% yield on Australian Government securities
Support for Non-ADI and smaller ADI lenders in the securitisation market
The Australian Office of Financial Management (AOFM) is receiving $15 billion in funding to invest in structured finance markets. The target of this measure is smaller authorised deposit taking institutions (ADI) and non-ADI lenders.
Australian Prudential Regulatory Authority (APRA) Supporting Lending
APRA is temporarily changing their expectations of a banks’ capital ratios in order to support their lending.
Supporting Individuals and Households
JobSeeker Payment
In response to a sudden and sharp increase in the number of unemployed Australians, a new streamlined processing of JobSeeker claims was introduced. JobSeeker is a pre-existing welfare payment available to eligible Australians while they are unemployed and in the active pursuit of gainful employment.
An employee cannot be in simultaneous receipt of JobKeeper and JobSeeker payments.
Changes to Other Income Support Payments
Recipients of income support payments are eligible for an additional fortnightly payment of $550 for a temporary six-month period. At the same time, eligibility for the payments has been expanded to allow for more Australians to receive the income support, and the supplementary fortnightly payment.
In addition to the ongoing payments, two separate $750 payments may be made to Australian income support recipients. The first payment was made on 31 March 2020, and the second payment is scheduled for 13 July 2020. The second payment is not available to recipients of the $550 fortnightly supplement. These stimulus injections are intended to increase confidence and domestic demand in the economy.
Changes to Superannuation
Australia’s superannuation program mandates wage contributions to a superfund in the purpose of supporting retirees and ensuring they have the financial means to survive and maintain quality of life. With the COVID-19 outbreak, two new measures have been introduced to allow Australian retirees to manage the impact of recent downturn on their superannuation and financial circumstances.
The first measure is allowing individuals to withdraw up to $10,000 from their superannuation in 2019-20 and an additional $10,000 in the following financial year. This withdrawal will not be taxed, nor will it affect income testing for income support payments.
The second measure is a temporary reduction of Superannuation drawdown requirements for retirees with account-base pensions. A reduction of 50% applies in both 2019-20 and 2020-21. This will lower the need to sell investment assets to fund minimum drawdown requirements.
Reduction of Social Security Deeming Rates
Both upper and lower social security rates were dropped by 0.5% on 12 March 2020. Another reduction has been announced, from 1 May 2020 the upper rate will be 2.25% and the lower 0.25%. This measure is in response to lowering interest rates and the reduction of savings income. Practically, this will mean an average increase of $105 in the Age Pension during the first year.
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The incorporation of limited liability companies in The Netherlands and in Spain
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Scrivi a Agata
Spain – Powers of Representation of Companies
3 Junho 2021
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Espanha
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What a director of a company in Spain must do to resign? Is it enough to send a communication to the company stating his resignation? Or does he have to call a Shareholder’s Meeting to appoint a substitute? Or does he even have to do something else?
A recent Supreme Court ruling dated July 12, 2022 (STS 561/2022) has resolved an interesting case related to the resignation of a sole director of an LLC, confirming that resigning is not as simple as it may seem.
The SC, indeed, established that a sole director, to resign, must not only prove that he validly called a Shareholders’ Meeting for the appointment of a substitute, but he must also prove that he did everything necessary during the interim period (i.e.: the time between the resignation and the holding of the Meeting) to meet the needs of management and representation of the company and to avoid damages. Even, and this is the case discussed in the STS, requiring the presence of a notary at the Meeting, if so required by shareholders representing at least 5% of the share capital.
The case recently ruled by the SC involved a company with two shareholders: the majority partner with 75% of the capital, and the minority partner (and sole administrator) with 25%. The sole administrator resigned and called a Shareholder’s Meeting to appoint a substitute. The majority shareholder required the presence of a Notary at the Meeting; but the resigning director refused, stating that – following his resignation – he had no obligation regarding the Meeting.
On the day of the Meeting, the majority shareholder was present, but neither the resigning administrator nor the Notary were, therefore the Shareholder’s Meeting was not held.
The administrator filed the deed of resignation with the Commercial Registry and the majority shareholder – at the same time – filed a document denouncing that the resigning administrator had not requested the presence of a Notary at the Meeting, despite having been requested to do so.
Thereafter, several resolutions with very different contents were issued. The Commercial Registrar suspended the registration of the resignation, but the “Dirección General del Notariado y de los Registros” (General Directorate of Notaries and Registries) decided that the resignation should be registered. The Commercial Court of Barcelona confirmed this last decision, and so did the Provincial Court. But the Supreme Court finally gave reason to the Mercantile Registrar.
The rulings in favor of the registration of the resignation argued, firstly, that the outgoing administrator exhausted his responsibilities by convening the Shareholder’s Meeting; and secondly, that the Registrar must examine only if a document may be entered in the register, without considering the “extra-registry reality”, such as the document presented by the majority shareholder complaining about the administrator’s actions.
The Supreme Court disagreed, stating that the absence of a Notary, validly requested by the majority shareholder, rendered ineffective all the resolutions of the Shareholder’s Meeting. Based on this, the Supreme Court considered it “logical” that in such a case the administrator should not only call the Shareholder’s Meeting but also require the presence of a Notary, in order to grant the validity of the resolutions of the Shareholder’s Meeting. With respect to the second controversial issue, the Supreme Court ruled that the Registrar, although exceptionally, can take into account certain circumstances or facts of which he has “registry evidence”, even if they do not appear by virtue of documents presented for their inscription, as long as they are related to the “inscribable” document.
In short, this interesting case shows that resigning as an administrator is not an easy activity. In general, although there is no specific provision on the subject in the Spanish system, the resigning administrator must not only call a Shareholder’s Meeting, but also remain administrator on an interim basis and attend to his obligations until the Shareholder’s Meeting is held; then, if the Shareholder’s Meeting is not held due to the non-attendance of the shareholders or if the shareholders do not appoint a substitute administrator, nothing more is required from the resigning administrator.
A member of the management board or the supervisory board of a Polish LLC or a joint-stock company is liable to the company for damage caused by an act or omission contrary to the law or the articles of association, unless they are not at fault. In the performance of their duties, they are obliged to take the care due to the professional nature of their activities. In other words, the standard of care is high and they cannot release themselves from the liability indicating that they had no sufficient knowledge or experience.
The burden of proof of the damage and the lack of due dilligence of the board member lies with the company. A board member is liable if their conduct is culpable. However, the company does not have to prove this. It is the board member who must demonstrate that the damage caused by their act or omission was not culpable.
When running a business, board members naturally often move within the boundaries of a certain risk and make various business decisions, the consequences of which are often unforeseeable at the time they are made. They can result in both substantial gains and substantial losses for the company. However, with a high standard of due diligence, it is more difficult to demonstrate a lack of culpability.
A recent amendment of the Polish Code of Commercial Companies and Partnerships which enters into force on 13 October 2022 has articulated the so called „business judgement rule” which has already appeared to a limited extent in case law.
This rule assumes that a member of the management board and supervisory board may act within the limits of reasonable business risk. They are not in breach of their duty of professional care as long as they act in loyalty to the company.
The new law indicates that the assessment of the board member may be made on the basis of information, analyses and opinions available to them when making decisions. The new law may contribute to the collection of documentation in defence of the position (so-called defence file). The board members may protect themselves against the liability towards the company by demonstrating that their actions or omissions were based on expert’s opinions and at the time when they were undertaken they did not exceed the limits of the reasonable business jugdement.
Summary
One of the issues when setting up a (subsidiary) company in Spain which creates more practical difficulties is the question of powers of attorney: What is a power of attorney, are they necessary and how do they work? In Spain this question is of practical relevance and its operation does not always coincide with what happens in other countries. In this commentary, we will give you some ideas on how to act with these powers of attorney when setting up a company.
What is a power of attorney? A power of attorney allows a person (attorney-in-fact or representative) to act on behalf of a company. The attorney-in-fact may, for example, sign a contract on behalf of a company if that company has given him or her the power (authority) to do so. For example, borrowing money from a bank.
To do this the company will have two types of representatives: an “organic representative” (the directors) and “voluntary representatives” (attorneys-in-fact).
First, a company must have at least one director
The director(s) is the “organic representative”. In other words, he/she is an organ (management body) of the company, represents it and can contract on its behalf.
This “organ” may be a single person (a single director), it may be several persons acting individually or jointly, or it may be a board of directors (“collegial body”). The power of representation resides in the “organ”. It is the body that represents the company and not necessarily its members.
The first task, therefore, is to decide on the structure of the body, and this is taken when the company is incorporated, although it can be changed later. In this way, the sole director will have all the powers to represent the company, the individual directors will also have them if they are “joint and several” or will have to act jointly if they are “joint” directors, and the board will also have them, but as a body (not each director individually).
This last remark (the powers are held by the body and not necessarily by its members) is important when the company is managed by a board of directors. The fact that there is a board of directors does not imply that each member has the powers to represent the company, but that they are held by the body as a whole. The board may, however, delegate them. When the board delegates the powers to one of its directors (it is possible, but not obligatory to appoint one), the latter becomes a “managing director” (Consejero Delegado). This director may then represent the company in all matters delegated to him/her.
Secondly, in addition to the directors, the company may have (not compulsory) other “proxies” (empowered person)
These are the “voluntary representatives”, i.e. appointed “at the will” of the company.
A proxy is someone to whom the company gives powers to represent it. Powers to do certain things.
As we said at the beginning, in Spain, acting by proxy is quite strict, so that a company cannot normally be represented by anyone who does not have the power to do so. For example, if the company authorises (empowers) a person only to sign banking contracts, he/she will not be able to sign contracts with employees.
The powers granted to a person must therefore be express. If a person is authorised to open a bank account, he/she is not supposed to be able to borrow money. And in this way, the powers serve as a framework for action: what the attorney-in-fact can do and what the limits are. And sometimes these limits come from the power itself (opening a bank account does not authorise borrowing) or can be quantitative (borrowing, but only up to 100,000 euros), or temporary (borrowing, but until 31 December 2025) or even requiring more than one person to act (borrowing, but co-signing with person “Z”). And, of course, a combination of all of them: attorney-in-fact “X” can take out loans by signing with attorney-in-fact “W” up to 100,000 euros, and with attorney-in-fact “Z” up to 1,000,000 euros.
When setting up a company in Spain, it is therefore highly advisable to think about how the powers are to be granted, especially if the administrative body does not reside in our country. As we have seen from experience, it is not uncommon to set up a company by appointing an administrator resident abroad without appointing a proxy in Spain. This is legally valid, but, in a way, it hinders the functioning of the company: the only person to sign contracts and represent the company resides abroad, which, from a practical point of view, will be a major disadvantage.
The procedure for empowering a person is simple. All it takes is a decision of the administrative body, formalisation before a notary and registration in the Commercial Register. In this way, anyone can verify that the person appointed can represent the company in that particular act. This does require a person of trust to be found (an employee, a resident partner, a third party), but the risk can be modulated by the limitation possibilities described above.
In conclusion
When setting up a company in Spain, if the administrator will not be resident in Spain, consider how to organise the powers of attorney, whom to empower and how to limit, if necessary, their powers.
And the powers of attorney that you will need most and most urgently are:
- (a) those that will allow you to contract with banks (opening and managing bank accounts),
- (b) those relating to employees (hiring, registration with social security, payment of salaries),
- (c) those for supply contracts (electricity, water, telephone) and other general contracts (rental, vehicles, distribution contracts); and
- (d) managing the company’s electronic signature (relations with public administrations, tax payments).
Failure to take this decision in a timely manner could delay or hinder the activity being started.
And if in doubt, it is best to consult a local lawyer.
There were hardly even a few businesses worldwide not affected by the corona pandemic. As lockdown measures were expanding from March 2020, dozens of visitor-dependent (including retail, public transportation, HoReCa, leisure, entertainment & sport) companies’ value dropped astonishingly. This immediately resulted in numerous RFPs coming in and out NPL funds and distress investors being ready as never to pluck those companies ripe enough.
Well, at least that is how the things should have been.
A general picture of M&A demand remains with no great changes. According to the recent DataSite EMEA report first 2021 quarter shown 40 % deal value increase and 14 percent deal volume growth. Some sceptic experts already highlighted that Q1 references are insufficient – as Q1 2020 was painted in an unseen uncertainty and hard-model governmental interference whilst Q1 2021 came in much more predictable conditions with vaccination campaigns being successful and more lockdowns lightened.
The 2020 picture for the distressed part of the global (and particularly EMEA) part of M&A market is quite the same. With hundreds of companies still receiving governmental support and financial institutions still having a wide liquidity, the 2020 data from Bloomberg reports show no Big Bang in distress deals (either arising from pre-pack agreements between debtors and creditors or from formal insolvency processes), at least if compared with 2007-8 recession years.
Nevertheless Bloomberg themselves recognize that 2021 market might become red-hot. Whether this prognosis will materialize soon – here are four basic tips to hold in mind when thinking on insolvency-sed distress M&A deal on either – buyer or seller side:
- asset or going-concern purchase. A key business decision is understanding of whether a target business is viable enough and fits in the buyer’s existing\planned portfolio to be bought as a going-concern company. Should there be no certainty – a rule of thumb with almost always be to stick with the asset deal being more secured and the target itself much easier to allocate.
On the other hand, for a manufacturing target license and related IP rights holding might constitute a large part of the business’ value – without which the desired asset appears to be a no-hand pot.
- watch for exclusivity – as asset-based distressed purchase might lack one because of the procedural obligation of going through bidding process.
- beware of easy ways. With so-called reverse vesting orders and free-and-clean sales an SP process might look very comfortable for a buyer eager to obtaining the target clean of any burdens (liens, mortgages, tax liabilities). Might look – but rarely be such within FSU and a part of CEE countries where a big chance of facing clawback action exists, especially with a huge state (tax\duty) interest at stake.
- do post-deal homework. When purchasing a going concern company it is for the newly-appointed management to be concerned the most: in a number of jurisdictions they might be boomeranged with management-liability claims resulting from previous management\shareholders cadence.
- have an insurance company over the seller’s back. In case any post-closing tails appear, this will give a substantial level of calmness for both sides relying on the insurance to cover a part of the purchase price or post-deal liabilities.
With the post-pandemic distress M&A yet to come and investors being ready as never, these rules will certainly be of use. As S&P 500 non-financials, in late 2020 corporate balance sheets reflected more than $2 trillion of cash – guess if there are funds for making your deal as well? Just remember: there is no one-size-fits-all approach in doing the distress deal and there always is a place for bespoke solutions given by true professionals.
The Spanish government has recently approved two new rules on equal pay and equality plans which will come into force in January and April 2021 and affect all companies.
1. Royal Decree 901/2020, of October 13, which regulates the equality plans and their registration
An “equality plan” is understood to be that ordered set of measures adopted after carrying out a situation diagnosis, aimed at achieving equal treatment and opportunities between women and men in the company, and eliminating discrimination based on sex.
All companies that have 50 or more workers are obliged to draw up and apply an equality plan, its implementation being voluntary for other companies. In any case, equality plans, including previous diagnoses, must be subject to negotiation with the legal representation of the workers, in accordance with the procedure legally established for that purpose.
Regarding the content of the plans, they must include, among others, definition of quantitative and qualitative objectives, description of the specific measures to be adopted, identification of means and resources, calendar of actions, monitoring and evaluation systems, etc. In addition, they must be subject to mandatory registration in a public registry.
This new Royal Decree will enter into force on January 14, 2021.
2. Royal Decree 902/2020, of October 13, of equal pay between women and men
The purpose of this new Royal Decree is to implement specific measures that make it possible to enforce the right to equal treatment and non-discrimination between women and men in matters of remuneration.
For this, the companies and collective agreements must integrate and apply the so-called “principle of remuneration transparency“, which applied to the different aspects that determine the remuneration of workers, allows obtaining sufficient and significant information on the value attributed to such remuneration.
For the application of the aforementioned principle, the Royal Decree provides, fundamentally, two instruments:
- remuneration registry: All companies must have an accessible remuneration registry for the legal representation of workers. It must include the average values of salaries, salary supplements and extra-salary perceptions of the entire workforce (including managers and senior positions) disaggregated by sex.
- remuneration audit: Those companies that draw up an equality plan must include a remuneration audit in it. Its purpose is to check if the company’s remuneration system complies with the effective application of the principle of equality, defining the needs to avoid, correct and prevent obstacles and difficulties that may exist.
The measures contained in this new standard will come into effect on April 14, 2021.
Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:
- Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
- Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
- By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).
The types of international contracts concluded with a French party can be:
(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)
In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,
(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,
In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;
(c) Other international contracts not belonging to (a) or (b),
In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).
Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?
This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.
There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).
International sales contract can set aside the maximum payment ceilings of article L441-10.I
Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.
- In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.
The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.
This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.
For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?
The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.
Again the Government and the CEPC took a stance on this issue, but not that clear.
- In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
- The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:
– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.
– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.
To conclude on the here above, (except for contracts – sales excluded – concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.
Summary: Article 44 of Decree Law No. 76 of July 16, 2020 (the so-called “Simplifications Decree“) provides that, until June 30, 2021, capital increases by joint stock companies (società per azioni), limited partnerships by shares (società in accomandita per azioni) and limited liability companies (società a responsabilità limitata) may be approved with the favorable vote of the majority of the share capital represented at the shareholders’ meeting, provided that at least half of the share capital is present, even if the bylaws establish higher majorities.
The rule has a significant impact on the position of minority shareholders (and investors) of unlisted Italian companies, the protection of which is frequently entrusted (also) to bylaws clauses establishing qualified majorities for the approval of capital increases.
After describing the new rule, some considerations will be made on the consequences and possible safeguards for minority shareholders, limited to unlisted companies.
Simplifications Decree: the reduction of majorities for the approval of capital increases in Italian joint stock companies, limited partnerships by shares and limited liability companies
Article 44 of Decree Law No. 76 of July 16, 2020 (the so-called ‘Simplifications Decree‘)[1] temporarily reduced, until 30.6.2021, the majorities for the approval by the extraordinary shareholders’ meeting of certain resolutions to increase the share capital.
The rule applies to all companies, including listed ones. It applies to resolutions of the extraordinary shareholders’ meeting on the following subjects:
- capital increases through contributions in cash, in kind or in receivables, pursuant to Articles 2439, 2440 and 2441 (regarding joint stock companies and limited partnerships by shares), and to Articles 2480, 2481 and 2481-bis of the Italian Civil Code (regarding limited liability companies);
- the attribution to the directors of the power to increase the share capital, pursuant to Article 2443 (regarding joint stock companies and limited partnerships by shares) and to Article 2480 of the Italian Civil Code (regarding limited liability companies).
The ordinary rules provide the following mayorities:
(a) for joint stock companies and limited partnerships by shares: (i) on first call a majority of more than half of the share capital (Art. 2368, second paragraph, Italian Civil Code); (ii) on second call a majority of two thirds of the share capital presented at the meeting (Art. 2369, third paragraph, Italian Civil Code);
(b) for limited liability companies, a majority of more than half of the share capital (Art. 2479-bis, third paragraph, Italian Civil Code);
(c) for listed companies, a majority of two thirds of the share capital represents-to in the shareholders’ meeting (Art. 2368, second paragraph and Art. 2369, third paragraph, Italian Civil Code).
Most importantly, the ordinary rules allow for qualified majorities (i.e., higher than those required by law) in the bylaws.
The temporary provisions of Article 44 of the Simplifications Decree provide that resolutions are approved with the favourable vote of the majority of the share capital represented at the shareholders’ meeting, provided that at least half of the share capital is present. This majority also applies if the bylaws provide for higher majorities.
Simplifications Decree: the impact of the decrease in majorities for the approval of capital increases on minority shareholders of unlisted Italian companies
The rule has a significant impact on the position of minority shareholders (and investors) in unlisted Italian companies. It can be strongly criticised, particularly because it allows derogations from the higher majorities established in the bylaws, thus affecting ongoing relationships and the governance agreed between shareholders and reflected in the bylaws.
Qualified majorities, higher than the legal ones, for the approval of capital increases are a fundamental protection for minority shareholders (and investors). They are frequently introduced in the bylaws: when the company is set up with several partners, in the context of aggregation transactions, in investment transactions, private equity and venture capital transactions.
Qualified majorities prevent majority shareholders from carrying out transactions without the consent of minority shareholders (or some of them), which have a significant impact on the company and the position of minority shareholders. In fact, capital increases through contributions of assets reduce the minority shareholder’s shareholding percentage and can significantly change the company’s business (e.g. through the contribution of a business). Capital increases in cash force the minority shareholder to choose between further investing in the company or reducing its shareholding.
The reduction in the percentage of participation may imply the loss of important protections, linked to the possession of a participation above a certain threshold. These are not only certain rights provided for by law in favour of minority shareholders[2], but – with even more serious effects – the protections deriving from the qualified majorities provided for in the bylaws to approve certain decisions. The most striking case is that of the qualified majority for resolutions amending the bylaws, so that the amendments cannot be approved without the consent of the minority shareholders (or some of them). This is a fundamental clause, in order to ensure stability for certain provisions of the bylaws, agreed between the shareholders, that protect the minority shareholders, such as: pre-emption and tag-along rights, list voting for the appointment of the board of directors, qualified majorities for the taking of decisions by the shareholders’ meeting or the board of directors, limits on the powers that can be delegated by the board of directors. Through the capital increase, the majority can obtain a percentage of the shareholding that allows it to amend the bylaws, unilaterally departing from the governance structure agreed with the other shareholders.
The legislator has disregarded all this and has introduced a rule that does not simplify. Rather, it fuels conflicts between the shareholders and undermines legal certainty, thus discouraging investments rather than encouraging them.
Simplifications Decree: checks and safeguards for minority shareholders with respect to the decrease in majorities for the approval of capital increases
In order to assess the situation and the protection of the minority shareholder it is necessary to examine any shareholders’ agreement in force between the shareholders. The existence of a shareholders’ agreement will be almost certain in private equity or venture capital transactions or by other professional investors. But outside of these cases there are many companies, especially among small and medium-sized enterprises, where the relationships between the shareholders are governed exclusively by the bylaws.
In the shareholders’ agreement it will have to be verified whether there are clauses binding the shareholders, as parties to the agreement, to approve capital increases by qualified majority, i.e. higher than those required by law. Or whether the agreement make reference to a text of the bylaws (attached or by specific reference) that provides for such a majority, so that compliance with the qualified majority can be considered as an obligation of the parties to the shareholders’ agreement.
In this case, the shareholders’ agreement will protect the minority shareholder(s), as Article 44 of the Simplifications Decree does not introduce an exception to the clauses of the shareholders’ agreement.
The protection offered by the shareholders’ agreement is strong, but lower than that of the bylaws. The clause in the bylaws requiring a qualified majority binds all shareholders and the company, so the capital increase cannot be validly approved in violation of the bylaws. The shareholders’ agreement, on the other hand, is only binding between the parties to the agreement, so it does not prevent the company from approving the capital increase, even if the shareholder’s vote violates the obligations of the shareholders’ agreement. In this case, the other shareholders will be entitled to compensation for the damage suffered as a result of the breach of the agreement.
In the absence of a shareholders’ agreement that binds the shareholders to respect a qualified majority for the approval of the capital increase, the minority shareholder has only the possibility of challenging the resolution to increase the capital, due to abuse of the majority, if the resolution is not justified in the interest of the company and the majority shareholder’s vote pursues a personal interest that is antithetical to the company’s interest, or if it is the instrument of fraudulent activity by the majority shareholders aimed at infringing the rights of minority shareholders[3]. A narrow escape, and a protection certainly insufficient.
[1] The Simplifications Decree was converted into law by Law no. 120 of September 11, 2020. The conversion law replaced art. 44 of the Simplifications Decree, extending the temporary discipline provided therein to capital increases in cash and to capital increases of limited liability companies.
[2] For example: the percentage of 10% (33% for limited liability companies) for the right of shareholders to obtain the call of the meeting (art. 2367; art. 2479 Italian Civil Code); the percentage of 20% (10% for limited liability companies) to prevent the waiver or settlement of the liability action against the directors (art. 2393, sixth paragraph; art. 2476, fifth paragraph, Italian Civil Code); the percentage of 20% for the exercise by the shareholder of the liability action against the directors (art. 2393-bis, Civil Code).
[3] Cass. Civ., 12 December 2005, no. 27387; Trib. Roma, 31 March 2017, no. 6452.
Summary – While China’s economy bore the brunt of the initial economic impact, the COVID-19 outbreak is bringing both direct and indirect complications for economies around the world. With China’s key role in the supply chain and manufacturing, in combination with lockdowns restricting movement, trade and business – fiscal authorities are implementing new measures to protect and stimulate their respective economies.
The Australian Government has announced a series of new regulatory, legislative and administrative changes that strengthen the country’s position moving through the crisis. The International Monetary Fund and the Organisation for Economic Co-operation and Development forecast Australia’s growth outpacing many comparable countries, including France, Canada, Japan, Germany, and the UK – all without endangering Australia’s debt sustainability.
Australia’s Response
The Australian Federal Government has, in a series of announcements, revealed a consolidated package of $320 billion AUD or $200 billion USD[1] support – equivalent to 16.4% of the country’s nominal GDP. They have made a clear stance that Australia is prepared to protect its national interest and respond to the broad and prolonged impact of the outbreak.
The stimulus measures can be considered in three separate categories, each with an intended purpose:
- support businesses;
- support the flow of credit; and
- support individuals and households.
The measures come with consideration of varying factors, including helping with the management of short-term cash flow, assist severely affected communities and regions, to prop up individuals and households dealing with sudden loss of employment, maintaining employees’ connections with business, and to ensure the continued flow of credit.
The Coronavirus Economic Response Package (Payments and Benefits) Act 2020 and Coronavirus Economic Response Package Omnibus (Measures No. 2) were passed by parliament on 8 April 2020. More legislation is expected to come as Australian authorities continue to study the broader prolonged impacts of COVID-19.
State and local governments within Australia have also announced a wide range of measures in addition to those announced by the Federal Government.
[1] Based on AUD-USD exchange rate 21 April 2020
Support for Businesses
JobKeeper Subsidy
The Australian government has committed $130 billion in ongoing support to business through the JobKeeper subsidy. The payment is available to businesses that are suffering a reduction in turnover to keep Australians employed during the outbreak. The JobKeeper subsidy is a gross fortnightly payment of $1,500 for each eligible employee for a 6-month period. The full $1,500 payment is to be paid to each eligible employee, either as a partial subsidy if their wage is greater than $1,500, or as a full subsidy if their wage was previously less than $1,500. The gross payment will be taxed at normal rates, although employers are not obliged to make additional superannuation contributions.
The scheme includes sole traders as well as businesses and not-for-profits (NFP).
Boosting Cash Flow for Employers
Small and medium businesses, as well as NFP are eligible for cashflow boosts to further assist in retaining employees. Tax-free cash flow boosts of $20,000 to $100,000 will be delivered to eligible businesses and organisations with aggregated annual turnover under $50 million. The Government has specifically acknowledged the increasing demand for NFP services during this crisis.
In a series of two payments, each payment will be equivalent to the business’ withheld salary and wages, with a minimum of $10,000 and maximum of $50,000. The first cashflow boost is set to be available between March and July 2020; the second boost will be made to businesses who received the first and will be of an equal sum, to be paid between June to September 2020. By splitting the support into two equal payments, the intention is to provide continued cash flow support over a longer period – increasing confidence and assisting businesses to maintain their operations.
Temporary Relief for Financially Distressed Businesses
Recognising the need for a safety net to allow businesses to resume operation post-crisis, this measure provides legislative support to financially distressed businesses. The temporary changes include reducing thresholds for creditors to issue statutory demands and initiate bankruptcy proceedings, increasing time available to respond to statutory demands, relieving directors from personal liability for trading while insolvent, and providing flexibility in the Corporations Act 2001 when dealing with unforeseen circumstances stemming from the COVID-19 crisis.
The Australian Taxation Office is willing to tailor solutions for directors and owners currently suffering. These may include reductions in payments or deferrals and withholding enforcement actions.
Changes to Asset Write-Off and Depreciation Deductions
The threshold for instant asset write-off is increased from $30,000 to $150,000 and access is expanded to businesses with aggregated annual turnover less than $500 million (previously $50 million) until the end of the 2019-20 financial year (i.e. 30 June 2020).
Up until the end of the 2020-21 financial years, depreciation deductions are accelerated for businesses under the same $500 million threshold. Upon installation of assets, 50% can be deduced with existing depreciation deduction rates to the balance. This measure is considered an investment incentive for businesses.
Supporting Apprentices and Trainees
Eligible employers may have 50% of an apprentice’s or trainee’s wage subsidised between 1 January 2020 and 30 September 2020. When businesses are unable to retain their apprentice or trainee, the subsidy can be provided to a new employer. As a part of this program, Australia’s National Apprentice Employment Network will provide further support in coordinating re-employment of workers affected by the COVID-19 crisis.
Support for Affected Regions and Industries
$1 billion of stimulus funds is reserved to support regions that are most impacted by the COVID-19 crisis. The purpose is to provide assistance during both the outbreak and the recovery. Further, the Australian airline industry is receiving tax and fee relief, with an estimate value of $715 million.
Support Flow of Credit
Immediate Cash Flow Needs for SMEs
The Government is providing guarantees of 50% for SME lenders to encourage new short-term unsecured loans for SMEs. By increasing lender’s willingness to provide credit, Australian businesses will be in a better position to secure loans and increase their cash flow.
Quick and efficient access to credit for small business
Small businesses will have more and faster access to credit as an exemption is provided to ‘responsible lending’ requirements.
Reserve Bank of Australia Measures to Support Credit Flow
The Reserve Bank of Australia (RBA) has made funding available for banks at a fixed interest rate of 0.25%. This measure will reinforce a lower cash rate, helping to reduce interest rates for borrowers. The RBA funding is incentivised to banks who expand their business lending, especially for new loans to SMEs. To complement the interest rate cut, the RBA is taking active steps to achieve a 0.25% yield on Australian Government securities
Support for Non-ADI and smaller ADI lenders in the securitisation market
The Australian Office of Financial Management (AOFM) is receiving $15 billion in funding to invest in structured finance markets. The target of this measure is smaller authorised deposit taking institutions (ADI) and non-ADI lenders.
Australian Prudential Regulatory Authority (APRA) Supporting Lending
APRA is temporarily changing their expectations of a banks’ capital ratios in order to support their lending.
Supporting Individuals and Households
JobSeeker Payment
In response to a sudden and sharp increase in the number of unemployed Australians, a new streamlined processing of JobSeeker claims was introduced. JobSeeker is a pre-existing welfare payment available to eligible Australians while they are unemployed and in the active pursuit of gainful employment.
An employee cannot be in simultaneous receipt of JobKeeper and JobSeeker payments.
Changes to Other Income Support Payments
Recipients of income support payments are eligible for an additional fortnightly payment of $550 for a temporary six-month period. At the same time, eligibility for the payments has been expanded to allow for more Australians to receive the income support, and the supplementary fortnightly payment.
In addition to the ongoing payments, two separate $750 payments may be made to Australian income support recipients. The first payment was made on 31 March 2020, and the second payment is scheduled for 13 July 2020. The second payment is not available to recipients of the $550 fortnightly supplement. These stimulus injections are intended to increase confidence and domestic demand in the economy.
Changes to Superannuation
Australia’s superannuation program mandates wage contributions to a superfund in the purpose of supporting retirees and ensuring they have the financial means to survive and maintain quality of life. With the COVID-19 outbreak, two new measures have been introduced to allow Australian retirees to manage the impact of recent downturn on their superannuation and financial circumstances.
The first measure is allowing individuals to withdraw up to $10,000 from their superannuation in 2019-20 and an additional $10,000 in the following financial year. This withdrawal will not be taxed, nor will it affect income testing for income support payments.
The second measure is a temporary reduction of Superannuation drawdown requirements for retirees with account-base pensions. A reduction of 50% applies in both 2019-20 and 2020-21. This will lower the need to sell investment assets to fund minimum drawdown requirements.
Reduction of Social Security Deeming Rates
Both upper and lower social security rates were dropped by 0.5% on 12 March 2020. Another reduction has been announced, from 1 May 2020 the upper rate will be 2.25% and the lower 0.25%. This measure is in response to lowering interest rates and the reduction of savings income. Practically, this will mean an average increase of $105 in the Age Pension during the first year.
