In two private notes dated on December 13th and 20th 2010 (the Notes), the Centre National du Registre du Commerce (CNRC) provided clarifications relating to the implementation of certain provisions of the Supplementary Finance Act for 2010 (SFA for 2010).
In terms of background, the Supplementary Finance Act 2009 (SFA for 2009) amended Ruling n°01-03 dated August 20th 2001 relating to the development of investment (the Ruling) and imposed a requirement for a local majority partner for each foreign investment. The SFA for 2010 has extended this measure by supplementing Article 4 bis of the Ruling providing that «Any change in the shareholders register of a company must first comply with the capital distribution rules set out above».
To the extent that a share transfer did not alter the register of shareholders and does not fall into the definition of investment under the Ruling, compliance with the Ruling was not necessary.
However, the CNRC has refuted this interpretation in its Notes. It has stated that « the transfer of shares for the benefit of a new foreign shareholder will necessitate compliance with the provisions of the CFA 2010 ».
It is important to note that the administration of the CNRC would also capture the transfer of shares between Algerian entities.
In fact, it is stated that «it is the same for each share transfer that leads to a new distribution of share capital ».
In our view a contrary interpretation to the previous paragraph is possible. Its wording leads to the conclusion that regardless of the nationality of the transferee or the transferor, once there is a change in the distribution of share capital, the company in question must comply with the new capital distribution rules.
In practice, if an Algerian transferor decides to transfer its shares (including a transfer to an Algerian recipient) the ‘foreign shareholder’ would be obliged to adapt its capital participation in the company to the proportions which are compliant with the distribution rules provided by the Ruling.
A second and a more practical issue in relation to the capital distribution compliance process relating to what happens when one or more members of the board of directors holding a “guaranty” share is replaced has now been resolved. In order to be a board member a director must hold at least one share; in practice, the replacement of a director leads automatically to the transfer of the said share to the new director and therefore to a modification of the register of shareholders.
However, Article 4 bis of the Ruling introduces some exceptions to the compliance process indicating that: «However, modifications which concern the following are not subject to this obligation:
- the nomination of managers or corporate executives of the company;
- … ».
An ambiguity remained in respect of whether the members of the board of directors of a company would be considered managers or corporate executives and whether they would thus be covered by the exception to the Ruling.
The CNRC has taken the following position on this: « …each nomination of a new member who has a foreign nationality which leads to the transfer of a guaranty share must be compliant with the capital distribution rules ».
In light of the first point discussed above (the transfer of shares between Algerian resident entities), our interpretation is that the compliance rules would also apply in the case of the nomination of an Algerian director.