Division of a Romanian company – five important aspects you need to know

As a legal procedure for restructuring a business, the division of a Romanian company assumes that the latter goes through the process of dissolution (part of the process of ceasing its existence), but without getting to the final step of liquidation (the process by which the company's assets are transferred to its shareholders, after all other debts have been paid).
division of a Romanian company

In other words, the old company will cease to exist (the same as in the case of liquidation), but the assets of the company are not transferred to the ownership of each of the shareholders. They are transferred to other companies (other businesses).

The process through which the division of a company takes place is regulated in the Romanian legislation by the Companies Law (Law no. 31/1990), and anyone wishing to go through this process must be aware of the following five important aspects about this mechanism.

1. If you intend to dissolve a company and finally transfer all assets to its shareholders’ ownership, division is not an option

As mentioned in the beginning, as a result of the division process, all (or a part of) the assets of the company that is being divided will be transferred to other companies. The company’s assets will not be transferred to the ownership of its shareholders. Therefore, division is a solution only for situations in which the old company wishes to sell/transfer its assets to other companies.

In case of a division, the shareholders of the divided company will receive a certain number of shares in the new companies (those to which the business assets of the old company are transferred).

If the shareholders want, after the dissolution of the company, to become owners themselves on the (remaining) assets of the company, the solution is not the division procedure, but rather the liquidation procedure.

2. The division of a Romanian company is different from a merger or a spin-off, both of which are restructuring processes, but with different consequences

For obtaining dissolution of a company and transfer its assets to another company, the division procedure is not the only option by law. Another option, as per the legal provisions, is the merger procedure. The main difference between the two mechanisms is that the division always involves the transfer of assets and liabilities to more than one company (in other words, it is not only one company that takes it all). In the case of a merger, on the other hand, the assets of the dissolved company are to be transferred to a single company.

In both situations, however, the old company usually ceases to exist, except in the case of a partial division, when it continues (part of) its activities. Which means that, through a division, a company disappears from the market, and this could lead to issues regarding market competition (which we will explain below).

In addition, there is the spin-off procedure, a different form of restructuring from both of the above. By spin-off, only a part of the assets in a company (could be any assets, such as buildings, production technology, software, etc.) end up being transferred to one or more companies. The former retains its legal personality, will continue to exist, but the value of its patrimony (and of the company) will decrease.

3. The shareholders of a divided company will be rewarded with shares in the acquiring companies

According to the Romanian law provisions (i.e., Law no. 31/1990), the division of a Romanian company implies two forms of compensation of the shareholders of the divided company:

  • the transfer of shares in the acquiring companies and, optionally,
  • cash payment of no more than 10% of the nominal value of the shares held in the divided company.

4. How the decision of dividing a company is taken, and the legal steps to follow

When deciding to divide a Romanian company, its shareholders must follow several steps according to the applicable law. First, it is required to:

  • prepare the division project (which must involve all companies participating in the operation), followed by its approval and publication;
  • the publication must be done at the Romanian Trade Register and, subsequently, also in the Official Gazette (or on the website of the company to be divided), following an approval of the competent court.

Within the following period of 30 days from the publication of the division project, the creditors of the company involved in the process can oppose its restructuring. The reason behind this step is to allow creditors to prevent non-recovery of debts when a division of a company takes place. However, the debt must not be due until the time of publication of the division project, so that a creditor can oppose the restructuring.

At the same time, the division process is not considered interrupted during the above period, nor if a creditor opposes the restructuring. The purpose of the measure is to provide certain guarantees to that creditor that the debt will be paid to him, but not to stop the division process.

Once this stage is completed, the last phase follows, which is informing all shareholders about the division, and the final vote itself. The vote will take place in the general assembly of shareholders.

5. The division of a company could be stopped by the authorities when the public interest so requires

It may seem a little strange, but there are situations when the division of a Romanian company could be stopped by the authorities, because its restructuring would have some negative consequences. We are talking about only certain types of consequences, which could affect the public interest – for example, market competition issues.

In cases where the division of a company could lead to certain economic concentrations in the market, the restructuring process may not be as simple as it normally is. More exactly, certain cases of company divisions must be notified to the Romanian Competition Council, before any steps can be taken.

The Competition Council will analyze the effect of the consolidation on the relevant market (we mentioned above that a division means the extinction of a company from the market, so competition in a certain industry could be affected) and will decide whether the restructuring can continue. According to the Romanian Competition Law (Law no. 21/1996), company divisions must be notified to the Competition Council when:

  • the companies involved in the restructuring process have a cumulated turnover that exceeds the RON equivalent of 10,000,000 euros, and
  • when at least two of the companies involved in the process have generated on the Romanian territory, each one alone, a turnover higher than the RON equivalent of 4,000,000 euros.

If the Competition Council decides that the division of a company is not compatible with a normal competitive environment, restructuring will be prohibited.

Of course, situations in which such cases may occur are very rare. In addition, they are limited to those cases in which we are talking about companies with large market shares and high turnovers.

All resources from category: Business & Finance

Picture of Ovidiu Ivanof

Ovidiu Ivanof


Leave a Reply

Your email address will not be published. Required fields are marked *

About Expat-Center Romania

Experience an immersive online platform providing an abundance of daily resources and invaluable guidance tailored exclusively for a thriving community of avid readers. Unlock a treasure trove of essential tools and information, empowering you to craft a remarkable expat life in Romania effortlessly and seamlessly.

Recent Posts

Follow Us
Sign up for our Newsletter

Enjoy Romanian life guiding articles, updates, stories, and many more!