In this section we present You some concrete cases that have emerged from our work experience. You will also see exposed some cases in different fields of law, selected either for complexity or originality. We hope that these experiences will be useful to be able to understand the style and the professional competence that the Firm shows in the various cases (and for this reason we have chosen to explicitly indicate the names of the professionals involved in the various concrete cases). Due to the obligation of confidentiality and always respecting our policy for the protection of personal data, the specific cases will be described in anonymous terms.
Conversion of bearer shares filed in court in a case for invalidation: problems and solutions.
Our law firm resolved a complex case for which no solution could be found for a long time and which was further complicated by the latest legislative changes in the field of commercial law in Bulgaria.
The team of A. Effe. Consulting involved in the case:
Coordinator: Founder Avv. Andrea Favaro.
Operational support: Avv. Mila Hincheva and Avv. Maria Lesova.
The case
It’s about a joint-stock company with a significant medium-sized commercial activity (object: building constructions and commercial rental), whose capital was represented in the majority of bearer shares and with certain management and operational problems, as in the meantime the death of the owner of bearer shares has occurred (transferred into the possession of other persons in different ways).
Situation at the time of the start of the case (January 2018):
According to the current legislation /Commercial Law, in force since 1991/ in Bulgaria at that time it was possible to issue and use bearer shares. These shares were introduced with the first Commercial Law, adopted in Bulgaria in 1898. What is special about bearer shares is that the person who exercises the actual holding of the shares is the owner of all rights over them. This makes the change of owner (rights holder) very easy and requires only the physical transfer of shares. Appropriate recording of changes in the Commercial Register is not required.
In the present case, the bearer shares were held by three persons between whom there was a dispute as to the ownership of the shares in question. Disagreements regarding the management and therepresentation of the company also existed.
Adoption of the reform concerning bearer shares:
With the State Gazette, issue 88 of 23.10.2018, were adopted the requirements of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, amending Regulation (EU) № 648/2012 of the European Parliament and of the Council and repealing Directive 2005/60 / EC of the European Parliament and of the Council and Commission Directive 2006/70 / EC (Official Journal) 141/73 of 5 June 2015).
For this purpose, the provisions of the Commercial Law concerning the issuance of bearer shares by joint stock companies were repealed. According to Art. 178 of the Commercial Law, the shares of joint stock companies can only be registered.
Until 23 July 2019, the companies that have issued bearer shares before (or temporary certificates replacing them) were obliged to replace the bearer shares with registered shares. For this purpose, each company, whose capital was with bearer shares, had to convene a general meeting of shareholders to take the appropriate decisions to exchange shares and amend the articles of association and then their respective entry in the Commercial Register.
The companies, which have not fulfilled the obligations for exchange of bearer shares, had to be terminated according to the procedure, specified in art. 252, para. 1, item 4 of the Commercial Law. According to the above-mentioned article, the termination of the joint-stock company is carried out by a decision of the court at the seat of the company at the request of the prosecutor, if the company pursues goals prohibited by law. By September 23, 2019, the Commercial Register should have compiled a list of companies that have not fulfilled the obligations introduced by the Commercial Law. The list had to be sent to the prosecutor’s office for filing claims under Art. 252, para. 1, item 4 of the Commercial Law.
The Law on Amendments to the Commercial Law stipulates that the list will be updated every 6 months and sent to the prosecutor.
Till now, there is no official information on the real existence of these lists about companies that have not complied with the obligation to convert their shares.
In the present case, part of the bearer shares of the company, due to the disagreements described above, have been the subject of legal disputes related to both the ownership and the validity of the same. These claims were filed before the entry into force of the bearer share reform.
As of the date of occurrence of the obligation to convert the shares into registered, as well as after the expiration of the legal term, the shares in question were deposited in the Sofia District Court by order of the judge.
At this point various legal issues of not easy solution arose and among these was the question whether in the specific case the Company had the effective possibility to transform (through a general meeting, as required by the reform law) the bearer shares, being able to present only part of them in Assembly.
Meanwhile happens the missing of the legal representative /executive director/ with the corresponding consequences regarding the management of the company, the possibility to convene a general meeting of shareholders and making payments to suppliers and accounts in general.
After the blocking of the company’s activity and the possibility for management and representation, the successors of the executive director (and at the same time shareholders in the company) had to reach an agreement in order to continue its commercial activity. After several attempts to convene the General Meeting /also by court decision /, to enter decisions in the Commercial Register for conversion of shares into registered and to change the composition of the Board of Directors, additional court proceedings followed to annul these decisions, as they were clearly not in the interests of the company.
Without a legal representative and without a share type exchange, the company’s future business was threatened.
Until now, this procedure has not been carried out in court in the hypothesis of the need to replace the shares with registered shares and the expiration of the term for that.
A voluntary termination of the court proceeding followed, as the shares deposited under that proceeding and subject of the dispute between the shareholders were immediately deposited with a notary until the date of the general meeting of the shareholders. The general meeting was convened, the shares were taken by the notary on the same day and a decision was made to exchange them into registered shares after the expiration of the legal term.
The procedure was successfully completed for the company and the Commercial Register entered the exchange of shares from bearer shares to registered shares. There was also a presentation of evidence for the completion of the court proceedings and for the physical presence of the shares in view of the regularity of the proceedings.
A new composition of the Board of Directors was elected to represent the company unanimously. In this regard, the shareholders and the members of the Board of Directors reached additional agreements to invalidate the previous proceedings before the Commercial Register and the company resumed its activities in accordance with the law.