Appunti European Company Law

DIVIDENDS? NOT ONLY THE ANNUAL ONES

Dividends may be paid once for a year, if the company does well.

But there is also the possibility that the company distributes interim dividends.

• Interim dividends (usually: semester):

Art. 56.5 CodDir [Art. 17(5)]:

5. When the laws of a Member State allow the payment of interim dividends, at least the following conditions

shall apply:

(a) interim accounts shall be drawn up showing that the funds available for distribution are sufficient;

(b) the amount to be distributed may not exceed the total profits made since the end of the last

financial year for which the annual accounts have been drawn up, plus any profits brought forward

and sums drawn from reserves available for this purpose, less losses brought forward and sums to be

placed to reserve pursuant to the requirements of the law or the statutes.

In other words:

1.​ You have to draw up an ad hoc account, an interim account.

2.​ You can only distribute what appears to be distributable according to it.

The money that the company has to pay (losses) are not included in the count.

You must ensure that you are paying only real money.

It is the same principle we have seen with annual accounts.

But in this case we must take into account both the annual account and the moment the new interim account

was drafted.

If you are paying the interim account, the annual one will be lower.

The law of the MSs can decide how interim dividends can be paid.

They must at least deal with point A and B

With reference to dividends, the most traditional way to distribute money, it is not the only one. There are

alternative ways to distribute, to give money from the company to shareholders.

ALTERNATIVE DISTRIBUTIONS - 1

The same effect of a distribution… without a formal distribution (need to protect creditors)

1. Capital reduction (voluntary: see Art. 76 CodDir [2nd Directive, Art 37])

€

The capital of a company is equal to 1 million euro. Shareholders decide that keeping 1 million in the wallet is

too much and decide to get some money back for them.

Who may not agree with shareholders’ rights?

Who may suffer damage in case of decrease of capital?

In this case, the fact that we are reducing the capital does not necessarily mean that the company is in a

position that it does not have enough money to make business.

Perhaps the company has strong reserves and a high capital. Shareholders want simply to get some of this

money back.

If we think that the capital serves in order to protect the creditors, they will be the damaged party by the

voluntary capital reduction.

If the€1 million serves to protect the creditor's claims against the company, if the company decides to reduce

€700.000, €1

capital to the creditors cannot rely on million anymore.

The creditors will have a 30% less of the guarantee.

Therefore it’s possible to reduce the company’s capital, but it must be decided by shareholders, because they

have the competence to amend the articles of association.

If we reduce capital, we have to amend the article of association and only shareholders are allowed to do it by

resolution in extraordinary general meetings.

Only shareholders the fore have the power to reduce capital.

Moreover, We need to have an agreement with creditors.

If the fact that capital has been reduced creates a damage to creditors, they must agree with such a decision.

The only way to have agreement is to find an alternative way to be protected.

Creditors are in the position to claim specific protection.

Art. 75 CodDir (2nd Directive, Art. 36)

1. In the event of a reduction in the subscribed capital, at least the creditors whose claims antedate the

publication of the decision on the reduction shall at least have the right to obtain security for claims which have

not fallen due by the date of that publication.

Member States may not set aside such a right unless the creditor has adequate safeguards, or unless such

safeguards are not necessary having regard to the assets of the company.

In other words, the shareholders can decide to reduce capital but to carry out such an operation, the creditors

must get an adequate and appropriate safeguard and security, unless such safeguards are not necessary having

regard to the assets of the company. It means that the company after the operation has a lower capital but it

has a huge patrimony, therefore specific safeguards are not required.

Member States shall lay down the conditions for the exercise of the right provided for in the first subparagraph.

These safeguards and adequate securities for creditors are not given by the European lawmakers.

Their definition is up to MSs only.

It is up to them to define how these safeguards are to be given to creditors.

In any event, Member States shall ensure that the creditors are authorised to apply to the appropriate

administrative or judicial authority for adequate safeguards provided that they can credibly demonstrate that

due to the reduction in the subscribed capital the satisfaction of their claims is at stake, and that no adequate

safeguards have been obtained from the company.

In other words, if the company goes on with capital reduction, without giving creditors safeguards, the MS

must give them the possibility to go before a judge or an administrative authority to have appropriate

securities.

2. The laws of the Member States shall also stipulate at least that the reduction shall be void, or that no

payment may be made for the benefit of the shareholders, until the creditors have obtained satisfaction or a

court has decided that their application should not be acceded to.

If there is no protection for creditors, the operation cannot be made effective.

€1 €700.000.

In our case the original capital was million and at the end of the operation was

€300.000

Those should be paid back to the shareholders. €300.000

If the creditors did not get appropriate security, the company can not pay back this to the

€1

shareholders and the capital stays at million.

3. This Article shall apply where the reduction in the subscribed capital is brought about by the total or partial

waiving of the payment of the balance of the shareholders' contributions.

Creditors are powerful in this operation, which can be stopped if they are not provided with appropriate

securities, unless the judge denies it, because the company has a strong patrimony and creditors are already

protected enough. €1

Let’s imagine we have a capital of million.

€700k.

After the reduction the capital is brought to

How many ways can we find to have this capital reduction enacted?

The company cuold purchase from shareholders their own shares becoming shareholders of itself. However we

would not have capital reduction.

1.The straightest way is: in our company we have 10 shareholders, each of them has 100k of shares.

The no. of shares for each shareholder is 100 and the pair value 1000€.

In order to reduce, we should take 30 shares from each of the shareholders. €30k

It is not needed for the company to buy the shares back. They can simply get back canceling 30 of them.

€300k,

The company takes from the company dividing them for 10 and giving back shares to the shareholders.

2.If the nominal or pair value is not stated, it is possible to change it freely, by reducing it from 1000 to 700.

3.Each shareholder may pay only 25% of the share.

Shareholders have paid up 25% and committed to pay the total amount not immediately.

If capital is to be reduced, giving back real money or telling them to pay just 45%.

25%+45% is equal to 70%.

75%-30% is equal to 45%

Shareholders have paid up 25% of their contributions, committing themselves to pay 100%.

According to the rule of cash contribution, shareholders are committed to pay just the 25% of contribution

immediately. €100k €70

Instead of reaching shareholders, but just

This is what par. 3 of the art. 75 of the CodDir enshrined:

3. This Article shall apply where the reduction in the subscribed capital is brought about by the total or partial

waiving of the payment of the balance of the shareholders' contributions.

€100.000, €70.000.

Instead of reaching shareholders can pay just

€30.000. €30.000 €300.000,

Shareholders are waived to pay By multiply, per all the shareholders(10), we reach

which corresponds to the capital reduction. €70.000.

All the shareholders will have to pay a contribution of

Therefore, three are the possibility:

1)a part of share is canceled and paid back to shareholders.

2)The pair value is reduced.

3)if the shareholders did not entirely pay, you can waive them from paying a part of this contribution.

However some shareholders could have paid the 80% not just the 25%.

The key point: You only are allowed to do that if creditors agree.

If there is no agreement, they can stop the operation if they are suffering real damage, if there is a threatening.

The only way to ensure it is through an administrative authority or judge.

Only they can grant security.

IN SHORT:

Voluntary capital reduction is a way for the shareholders to get back some of their money once they think that

there is the possibility to do so, providing that the creditors agree with such a position.

In any case, a resolution by the general meeting of shareholders is required, as well the agreement of creditors.

Alternative distributions - 2

2. Share subscription

Basic principle: The shares of a company may not be subscribed for by the company itself (Art. 59.1 CodDir

[2nd Directive, Art. 20(1)].

Remedies in Art. 59.2-3 [2nd Directive, Art 20(2)&(3)]:

1. The shares of a company may not be subscribed for by the company itself.

2. If the shares of a company have been subscribed for by a person acting in his or her own name, but on behalf

of the company, the subscriber shall be deemed to have subscribed for them for his or her own account.

3. The persons or companies or firms referred to in point (i) of Article 4 or, in cases of an increase in subscribed

capital, the members of the administrative or management body shall be liable to pay for shares subscribed in

contravention of this Article.

However, the laws of a Member State may provide that any such person may be released from his or her

obligation if they prove that no fault is attributable to them personally. Besides subscription, there are many

other different transactions of shares, to be authorised by the MS

- Acquisitions (Art. 60 [21]), even by means of a subsidiary (Art. 67 [28])

- Financial assistance (Art. 64 [25])

- Acceptance of company’s own shares as security (Art. 66 [27]) All of that, provided that a way for protecting

creditors has been developed by MS

A. Direct or indirect purchase of own shares

Two basic ways:

- redeemable shares

- compulsory withdrawal (see also voluntary capital reduction)

Art. 60.1 CodDir [2nd Directive, Art. 21.1]

1. Without prejudice to the principle of equal treatment of all shareholders who are in the same p