Law 9901/2008 “On entrepreneurs and commercial companies”, as amended (the “Albanian Commercial Law”) is the main piece of legislation regulating various aspects related to the establishment, operation, management and reorganization of commercial companies in Albania.
Despite the passage of 15 years since the entry into force of the Albanian Commercial Law, the latter has undergone just two amendments, the most significant of which was introduced via Law 129/2014 in October 2014. Nevertheless, these changes did not address any changes as to the reorganization section, specifically in relation to the introduction of the spin-off mechanism.
This article shall dwell on the need of the Albanian Commercial Law to draw upon the European experience and the need to update said law with the spin-off mechanism as an important tool and option for Albanian companies and their shareholders.
Current provisions of the Albanian Commercial Law on reorganisations
The Albanian Commercial Law provides for the split-up procedure as one of the main forms of corporate reorganization. The split-up, which is applicable to limited liability companies and joint stock companies only, occurs when the splitting company transfers its assets and liabilities to two or more, existing or newly established companies. In each of the abovementioned cases the company transferring its assets (i.e., the splitting company) shall cease to exist. The companies that acquire the assets and liabilities of the splitting company (i.e., the recipient companies) shall be jointly liable for the obligations of the splitting company. As per the provisions of the Albanian Commercial Law, the procedure for the split-up of an Albanian company is as follows:
i. The splitting company's general assembly (“GA”) or sole shareholder, as applicable, approves the splitting-up of the existing company into 2 new or existing companies; for companies with multiple shareholders, the GA may adopt a valid decision by 3/4 of the share capital of the shareholders participating in the voting, on condition that are present shareholders owning more than 50% of the shares.
ii. The legal representatives of the participating companies must prepare:
- a draft - agreement that includes information such as the legal form, seat and names of the involved companies, the share exchange ratio and any additional cash payment, the share division conditions, the rights, priorities for company officials and implications for employees. The terms outlined in the draft - agreement, including the fairness of the share exchange, are assessed by licensed experts. Their involvement can be omitted with unanimous consent from all shareholders of involved companies; and
- a draft - report explaining the split-up agreement, its legal and economic grounds, share exchange ratios, any special valuation difficulties which had arisen, as well as the implications for the employees. The obligation to produce such a report may be waived if all shareholders of the participating companies unanimously agree to do so.
iii. Each participating company submits to the National Business Center (“NBC”) a month before the meeting of the general assembly/sole shareholder the draft - agreement and report along with the financial statements of the last 3 years. The latter are posted on the companies’ websites, in case they have one.
iv. The draft agreement is approved by the general assembly/sole shareholder of all participating companies, as per quorum and majority set forth in point i) above. The respective approval decisions along with the minutes of the meeting and the split-agreement are submitted to the NBC.
The registration of the split-up with the NBC shall have the following consequences:
- Transfer of all the assets and liabilities to the recipient companies as per the split-up agreement and report;
- The shareholders of the splitting company become shareholders of one or more of the recipient companies in accordance with the allocation laid down in the split-up agreement and report; and
- The splitting company is deemed dissolved and is deregistered as per provisions of the Law 9723/2007 “On Business Registration”, as amended (the “Business Registration Law”).
In light of the above, the current provisions present a significant limitation. As of now, the split-up stands as the only available option for transferring a division or a business unit, resulting in the dissolution of the splitting company upon the conclusion of all related procedures. Conversely, the spin-off mechanism ensures the continuation of the "parent company” as a legal entity.
Furthermore, the deregistration of the company from the NBC entails a sequence of procedures that must be observed, thus linking the split-up with an extra procedural dimension, that is both time and cost consuming.
The spin-off mechanism from an Italian and German law perspective
Demergers by spin-off are largely used mechanisms for corporate restructuring, wherein a parent company separates a division or business unit into an independent entity. Following the spin-off, two distinct entities with their own management structures are created. The spun-off entity maintains complete ownership and an identical shareholding composition, with the same shareholders as the parent company.
Compared to the current mechanism in force under the Albanian Commercial Law (split-up with the splitting company deregistration), spin-off-based demergers offer several advantages. One key benefit is increased market flexibility, as the parent company can sell the spin-off company separately while continuing its core operation(s). Spin-offs also allow for the parent company to evaluate and put a value on its assets through transferring them to the spun-off company. Spin-offs also entail fewer documents and administrative processes, leading to cost savings. In addition, spin-offs enable better resource allocation by allowing entities to specialize and manage their resources independently.
The Italian and German legislations have been taken for comparison due to the similarities with the current Albanian legal framework, especially the Albanian Commercial Law and Civil Code.
Taking in example the Italian legislation, art. 2506 of the Italian Civil Code stipulates that in a demerger, the parent company assigns, rather than "transfers" its entire assets/liabilities or a portion of its assets/liabilities to one or more recipient companies. When the entire assets/liabilities are assigned, it is referred to as a split-up, whereas when only a portion of the assets/liabilities is assigned, it is referred to as a spin-off. In the case of a spin-off, the existing company does not cease to exist, while the shares are distributed to the same shareholders.
On the other hand, the German practice regulates spin-offs through the German Transformation Act. Apart from the general procedure of demerger by spin-off where the spun-off company has the same shareholding structure as the parent company, the German law provides for the possibility for shareholders or shareholder groups to acquire full control of the spun-off company and leaving the full control of the shares of the parent company to the rest of the shareholders. This mechanism is generally used to alleviate conflicts between shareholders. Additionally, the German Transformation Act allows the shareholders to also adjust the value of the new shares of the spun-off company by including an accompanying payment if the acquiring shareholder or shareholders group deems them to be of lower value than their original shares in the parent company.