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Algeria | Important precisions on foreign investment system

06/08/2010

We thought it would be of interest to you to share with us the most relevant provisions of the project of complementary finance act for 2010 (hereafter, the « Project ») related to foreign investments

This Project (hereafter, the « CFA for 2010 ») include significant measures, which precise and reinforce the provisions regarding the obligation of having a 51 % interest owned by Algerian nationals residing in Algeria in the share capital of companies providing services or manufacturing of goods, set forth in the complementary finance act for 2010 (hereafter, the « CFA for 2009 »).

We would like to draw your attention in particular on four provisions of the Project, which are of great significance, on the first hand, with respect to the transfers of shares involving foreign investors and on the other hand, with regard to the compliance with the rules related to the apportionment of the share capital established by the Ordinance no.01-03 of August 20, 2001 related to the development of the investment (hereinafter, the « Ordinance »).

1. Obligation for foreign legal entities to communicate each year a list of their shareholders

The Ordinance is amended and completed by article 4 septiès as follows: « The foreign legal entities which hold shares in companies located to Algeria shall communicate each year a list of their shareholders authenticated by the services in charge of the management of the commercial registry of the home State ».

Algerian authorities wish therefore to strengthen their control on indirect transfer of shares.

2. Prior consultation of the Algerian Government regarding the transfers of shares abroad

The Ordinance is amended and completed by a new article 4 sexiès establishing a prior consultation of the Algerian Government regarding « the transfers abroad, partially or totally, of the shares of companies holding shares in Algerian companies which have been granted benefits or incentives during their implementation ».

The objective of this provision consists, in the event of indirect sale of interest in an Algerian company, in granting to the State or the state-owned companies a right of first refusal to buy the aforementioned shares with a price determined on the basis of an expertise, the detailed implementation of which will be determined by an order.

3. Control of the waiver by the State and the state-owned companies of their right of preemption regarding the transfer of shares by foreign shareholders or to the benefit of foreign shareholders

Article 4 quinquiès of the Ordinance has been amended and completed to specify that any transfer of interest in an Algerian company carried out by foreign shareholders or to the benefit of foreign shareholders, shall be subject to the « [preliminary] presentation of a certificate of waiver [by the State and the state-owned companies] to exercise their right of preemption ».

Indeed, Article 4 quinquiès of the Ordinance provides that « the State and the State-owned companies own a preemption right on every transfer of shares hold by foreign shareholders or to the benefit of foreign shareholders ». From now on, the preparation of the notarized deed related to transfer of these assets will only be carried out upon presentation of this express waiver.

The request for the certificate shall be presented by the notary to the competent services of the Ministry of Industry which shall grant the required document within a one-month period.

The absence of reply at the end of this period is regarded as a waiver to exercise the preemption right, except when the amount of the transaction exceeds a maximum amount to be determined by an order of the Ministry of Industry.

According to the grounds presented in the Ordinance, this measure is enacted to « give the State a legal mechanism ensuring the effective exercise [of the preemption right] ».

In addition, the new paragraph 6 of article 4 quinquiès of the Ordinance reminds the provisions of the registration code related to the right of preemption in case of an underpriced amount. Thus, the State can cancel the transfer carried out by notarized deed within a one-year period, if it considers that the price of the transfer has been underpriced.

4. Implications of the new rules related to the distribution of the share capital (51-49 %) for the companies registered before the enforcement of the CFA for 2009

Amending and completing article 4 bis of the Ordinance, the CFA for 2010 intends to compel the companies registered before the enforcement of the CFA for 2009 to comply with the rules related to the distribution of the share capital, i.e. a participation of Algerian nationals residing in Algeria representing 51 %1 of the share capital, upon « any amendment of the registration [of the company] on the commercial register ».

According to the grounds presented by the Ordinance, the objective of this measure is to compel « the foreign companies [that] do not fall within the requirement of share capital holding, by means of capital increase and/or transfers of shares modifying the representation of the shareholding ».

The Legislator has provided for some exceptions concerning this rule. Thus, any amendment of the registration on the commercial registry which “does not have for object to modify the share capital distribution” shall be excluded. The five exceptions included in the Act are the following:

«- A share capital modification (increase or decrease) which does not induce a modification of the shareholding and the share capital distribution between the shareholders; 
- The removal of an activity or the addition of a secondary activity; 
- The modification of the activity following the modification of the activities nomenclature; 
- The appointment of the manager ou of executive officers of the company; 
- The modification of the registered office »

1 Notwithstanding the provisions pertaining to the foreign trade activities that enforce a local partnership with a minimum of 30 per cent of the share capital

Authors

Picture of Samir Sayah
Samir Sayah
Partner Africa Practice – Corporate, M&A
Algiers
Jean-Jacques Lecat
Jean-Jacques Lecat