News and developments
Mergers and Acquisitions: Exceptions of exercise of pre-emptive rights in Armenia
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]
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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.