Mergers and
acqusitions in the banking industry has been buoyant for the past couple of
years in Armenia. This activity has been fuelled by the regulatory requirements
for increase of the charter capital of the banks due to the desire of the
regulator, the Central Bank of Armenia, to see larger and predictable players
in the market easy to supervise. This has been coupled with the increasing
interests of international players and investors towards the robust banking
sector or Armenia which has offered stable exchange rates and much higher
interest on debt and equity compared to that of developed markets such as
Western Europe, North America and Middle East.

In this context
Legelata has consitently faced the same issues with regard to interpretation of
the provisions in banking and company law related legislation which are crucial
in the context of transfer and acquisition of shares in banks and banking
institutions. One of those issues seem to be the right of refusal of the bank
with respect to its own share under transfer.

Most of the
banks in Armenia are formed as joint stock companies (either closed joint stock
companies or open joint stock companies). One of the crucial differences
between the open and closed joint stock companies in accordance with companies
law is that the transfer of the shares to third parties in open joint stock
companies, as opposed to closed joint stock companies, takes place without
regard to any pre-emptive or first refusal rights with respect to shares under
transfer.

In general the
legislation on joint stock companies provides that the existing shareholders of
the company have the right of first refusal in case of transfer of the shares
by one of the shareholders to a third party. The company has the second right
of first refusal to acquire the shares if the existing shareholders have not
exercised the rights of first refusal with respect to the shares under
transfer.

The law on joint
stock companies (Article 8) provides that the closed joint stock company has
the right of first refusal after the existing shareholders to purchase its own
shares, whereas the law on banks and banking activity (Article 37.1) provides
that the banks are prohibited from purchasing its own shares (except for
redemption – Article 36).

While many would
try to find a collision in these provisions, the issue is plainly
straightforward. Article 1.4 of the law on Joint Stock Companies, as long as
the banks are concerned, gives priority to the laws which are of more specific
nature with regard to banks and finance institutions. Moreover, the law on
Legal Acts of Armenia (article 40) reiterates that in case of collision of
norms of general and specific nature, the norms of specific nature (in our case
the provisions in the law on Banks and Banking Activity) prevail.

Last but not least, the general analaysis of the laws in question reveals that
the same principle of differentiation applies in different contexts with regard
to the issuance, allotment and redemption of shares.

Hence, whenever it comes to decision of application of the law on Banks and
Banking Activity and the law on Joint Stock Company, the first prevails as lex
specialis over the second as lex generalis.
There should be no doubt therefore, that the banks are prohibited from
exercise of the right of first refusal when the shares of the latter are
transferred by the shareholders.

Author:
GOR MARGARYAN, Partner

[email protected]

CONTACTS:

LEGELATA CJSC,

105/1 Teryan street, office 606, Yerevan,
0009, Armenia

Phone: +374 10 51 43 45

Email: [email protected]
Website: www.legelata.am

Disclaimer:

This material is produced by Legelata CJSC. The material
contained in this newsletter is provided for general information purposes only
and does not contain a comprehensive analysis of each item described. Before
taking (or not taking) any action, readers should seek professional advice
specific to their situation. No liability is accepted for acts or omissions
taken in reliance upon the contents of this material.