Corporate Law in State of Emergency in North Macedonia

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Corporate Law in State of Emergency in North Macedonia

Author: Tatjana Shishkovska, Polenak Law Firm

On 25 March 2020, the Government of the Republic of North Macedonia passed a Decree for application of the Law on Trade Companies. The Decree is applicable as of 26 March 2020 and has a legal effect of law. It is mandatory for the management bodies of all private joint stock companies and limited liability companies.

By way of this Decree the part of the Law on Trade Companies regulating the convening annual assembly of shareholders in joint stock companies and the convening of shareholders meetings in limited liability companies is practically suspended.

The Decree basically orders that the annual assembly of shareholders should not be held and that the shareholders should not meet during the state of emergency. This restriction applies to all companies affected by the deadline for convening and holding an annual assembly of shareholders (in JSCs) and shareholders meetings (in LLCs). In practice, this means all JSCs and LLCs.

The Decree further regulates that all procedures for convening and holding an annual assembly or shareholders meeting that have already been initiated are postponed for the duration of the state of emergency.

The Government has explained this measure by arguing that it will create “favourable conditions” for the companies with respect to their obligation to convene and hold an annual assembly of shareholders i.e. a shareholders meeting.

However, as a consequence of this Decree, during the state of emergency, the shareholders shall not be able to pass the decisions on approving the annual accounts and financial reports, the operation of the members of management bodies in 2019, the distribution of profits and payment of dividends.

Moreover, this will directly impact the local stock market. The Macedonian Stock Exchange already published its view that this Decree will certainly have a major impact on the trading with securities because the investors will not receive the dividend in the announced and expected time, which is one of the main drives for investing in securities. This will further affect the value of securities traded on the local stock exchange, and consequently the market dynamics and oscillations.

It seems that the Decree allows for an interpretation that (i) “extraordinary” shareholders meetings are allowed if held electronically, and (ii) voting by way of correspondence in LLCs is not suspended nor prohibited if that manner of passing decisions is allowed under the company by-laws.

It is our view that the Decree does not explicitly suspend or prohibit voting by way of correspondence on decisions regularly taken at an annual shareholders meeting, such as profit distribution and dividend payments, nor it regards, suspends or prohibits decision making on particular items that need shareholders’ approval, such as changes in management bodies, approval of credits and loans, all of which may be necessary or even beneficial for the companies to address their daily challenges in the current situation.

The Decree’s silence on practical implementation and its lack of clarity adds another layer of uncertainty and creates confusion in the business community. It is therefore, expected that the Government will provide clarity early next week.

Author: Tatjana Shishkovska, Polenak Law Firm

On 25 March 2020, the Government of the Republic of North Macedonia passed a Decree for application of the Law on Trade Companies. The Decree is applicable as of 26 March 2020 and has a legal effect of law. It is mandatory for the management bodies of all private joint stock companies and limited liability companies.

By way of this Decree the part of the Law on Trade Companies regulating the convening annual assembly of shareholders in joint stock companies and the convening of shareholders meetings in limited liability companies is practically suspended.

The Decree basically orders that the annual assembly of shareholders should not be held and that the shareholders should not meet during the state of emergency. This restriction applies to all companies affected by the deadline for convening and holding an annual assembly of shareholders (in JSCs) and shareholders meetings (in LLCs). In practice, this means all JSCs and LLCs.

The Decree further regulates that all procedures for convening and holding an annual assembly or shareholders meeting that have already been initiated are postponed for the duration of the state of emergency.

The Government has explained this measure by arguing that it will create “favourable conditions” for the companies with respect to their obligation to convene and hold an annual assembly of shareholders i.e. a shareholders meeting.

However, as a consequence of this Decree, during the state of emergency, the shareholders shall not be able to pass the decisions on approving the annual accounts and financial reports, the operation of the members of management bodies in 2019, the distribution of profits and payment of dividends.

Moreover, this will directly impact the local stock market. The Macedonian Stock Exchange already published its view that this Decree will certainly have a major impact on the trading with securities because the investors will not receive the dividend in the announced and expected time, which is one of the main drives for investing in securities. This will further affect the value of securities traded on the local stock exchange, and consequently the market dynamics and oscillations.

It seems that the Decree allows for an interpretation that (i) “extraordinary” shareholders meetings are allowed if held electronically, and (ii) voting by way of correspondence in LLCs is not suspended nor prohibited if that manner of passing decisions is allowed under the company by-laws.

It is our view that the Decree does not explicitly suspend or prohibit voting by way of correspondence on decisions regularly taken at an annual shareholders meeting, such as profit distribution and dividend payments, nor it regards, suspends or prohibits decision making on particular items that need shareholders’ approval, such as changes in management bodies, approval of credits and loans, all of which may be necessary or even beneficial for the companies to address their daily challenges in the current situation.

The Decree’s silence on practical implementation and its lack of clarity adds another layer of uncertainty and creates confusion in the business community. It is therefore, expected that the Government will provide clarity early next week.