ArmInfo. Steps will be taken in Armenia to protect the rights of minority shareholders in joint-stock companies. The National Assembly of the Republic of Armenia will discuss amendments to the law "On Joint-Stock Companies" in the first reading at an extraordinary session on May 11.
According to the author of the legislative initiative, NA MP Tsovinar Vardanyan from the ruling Civil Contract faction, the current law provides for the right to demand mandatory share buyback only in limited cases: company reorganization, major transactions, or restrictions on legal rights. However, in practice, minority shareholders often find themselves in deadlocks when majority shareholders, using their right and ability to make unilateral decisions, often abuse them. For example, they fail to distribute profits for years, fail to convene meetings, or otherwise violate the rights of minority shareholders. Under current regulations, the issue of profit distribution is considered a discretionary right of the company, allowing the majority shareholder to unreasonably "freeze" the capital of minority investors, depriving them of income. Meanwhile, one of the primary purposes of participating in a joint-stock company is to conduct business and, therefore, generate profit.
It should be noted that the European Union Model Competition Act (EMCA) also emphasizes that general legal standards are often ineffective in protecting minority shareholders, as they require lengthy litigation or other processes to protect their rights. Therefore, the EMCA offers specific, immediately applicable rights, such as the ability to file a claim for a compulsory profit distribution with a 1/10th voting majority. Alternatively, various developed legal systems establish a threshold for mandatory share buyout offers in the event of a change of control, where a person becomes the sole owner of a certain number of company shares - up to 50%.
In the UK, Germany, and France, this threshold is 30%. Meanwhile, in Armenia, this instrument imposes a high threshold of 75%, which also does not fully protect minority shareholders. As a result, a situation has arisen in Armenia where shareholders who hold a medium number of shares in a company, but are effectively small, are unable to effectively exercise their corporate rights and, if necessary, protect them. Moreover, the current provisions of the law define only a few principles to be taken into account when assessing the market value of shares or other securities, but there are no provisions defining the entity that can determine the market value of these shares or securities. Moreover, according to Part 2 of Article 2 of the Law "On Valuation Activities," valuation does not directly apply to the valuation of securities (and, consequently, shares).
The adoption of the draft, as Vardanyan emphasized, is driven by the need to create effective mechanisms to protect the rights of minority investors. The proposed draft provides for expanding the grounds for share buybacks. Thus, a shareholder is granted the right to demand the repurchase of shares if the company has not paid dividends for 10 years, has not held shareholder meetings for three years, or has not actually operated in the areas specified by the charter for five years. It also provides for the abolition of property restrictions in cases of abuse.
In the case of share repurchase based on abuse, it is proposed to waive the 10% limitation on the company's net assets, so that the company cannot avoid the consequences arising from its unfair or illegal activities. It is also proposed to establish criteria for the person determining the market value of shares or other securities. In cases where it is necessary to assess the market value of shares or other securities, it is proposed to authorize the government to establish criteria for the entity authorized to assess the market value of the shares of shareholders of joint-stock companies.
