Pursuant to a decision of the Romanian Constitutional Court published on August 1, 2018, board decisions regarding share capital increases can now be subject to an action for annulment.

I. General

Context

Law no. 31/1990 on companies

(the „Companies Law”) provides three

powers that the Extraordinary General Assembly of Shareholders of Romanian

joint-stock companies can delegate to the company’s Board of Directors or

Management Board (depending on whether the company’s management is organized as

a single-tier management system or as a two-tier management system), as

follows:

(i) changing the company’s registered office;

(ii) changing the company’s business object;

(iii) increasing the company’s share capital.

Until recently, only the

board decisions regarding the aspects mentioned at (i) and (ii) above could be

challenged by any of the company’s shareholders by an action for annulment filed

in court.

Pursuant to a decision of

the Romanian Constitutional Court published on August 1, 2018, board decisions

regarding share capital increases can now be subject to an action for annulment

as well.

II. The decision of the Constitutional Court

By said decision, the Constitutional

Court has declared article 114 paragraph (3) of the Companies Law as

unconstitutional as regards its indirect prohibition of challenging a board

decision increasing the share capital of a Romanian joint-stock company.

The possibility for a

Romanian joint-stock company’s board to increase the company’s share capital is

subject to a special authorization included in the company’s articles of

association. Such authorization grants the board the power to increase the

share capital during a pre-established period, no longer than 5 years from the date

when such authorization is included in the articles of association. Moreover,

such authorization must state the maximum amount of the increased share

capital.

While such decisions are

thus subject to restrictions established by the company’s shareholders (as

opposed to decisions changing the company’s registered office or business

object, which are not), the Constitutional Court considered that the lack of a

possibility to challenge in court the board decisions increasing the share

capital can affect the free access to justice of the company’s shareholders.

The Constitutional Court stated

in its decision that the increase of a company’s share capital is no less

important than the change of its headquarters or business object and thus

should not be subject to a different regime.

While the free access to

justice can be limited and conditioned by law, the Constitutional Court flagged

out that article 114 paragraph (3) of the Companies Law did not establish

limits and conditions, but actually prohibited the shareholders from exercising

a fundamental right against decisions that can adversely affect their rights.

III. Conclusions

While delegating the possibility

of increasing the company’s share capital to the board can reduce the level of

formality necessary to undertake such actions, at the same time it can generate

tensions between the management deciding such increase and the shareholders

that must bear the increase by subscribing new capital.

Thus, while such mechanisms

will continue to be successfully used in companies where there is a certain

level of harmony between shareholders and management, it is important to take

note of the fact that such decisions can now be challenged in court. Thus,

shareholders and management should ensure the necessary level of communication

before decisions on share capital increases are passed by the board.

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This article contains

general information and should not be considered legal advice.