Better Solutions Needed To Decrease The Number of Straw Men

The Ministry of Justice has sent for approval a draft act the aim of which is to decrease the use of the so called straw men in business. The Chamber finds that the draft is a move in the right direction, but certain proposals require additional analysis to prevent unreasonable limitations to business freedom.

Prohibition on being a board member

The draft imposes additional requirements on board members or members of a body replacing it, according to which the above cannot be imprisoned person (an imprisoned convicted offender) nor a board member of another legal entity that has not submitted the accounting reports set out in the law or other documents or tax reports.

The prohibition on being a board member if reports have not been submitted is, according to the current wording of the draft, extremely restrictive for those who are engaged in normal business, but due to certain problems have failed to submit reports. Therefore, the Chamber finds that failure to submit reports should bring along prohibition on being a board member of another company if it is a repeated case. At the same time, the registrar should always have the right to consider finding if the board member actually is or is not a straw man.

To solve the problem of prisoners who are straw men, an imprisoned person could submit an application justifying why the person wants to become a board member and how they can perform the duties of a board member while being imprisoned.

Nullity of transfer of a share of a private limited company

The updating of section 149 of the Commercial Code foresees that the transaction to transfer a share of a private limited company is null if the private limited company the share of which is being transferred, has failed to fulfil the reporting obligation set out in the law. The Chamber is suspicious of the specific wording as it raises questions if such approach is justified or not. This would be limiting ownership that might contradict the Constitution.

Furthermore, in the future it might cause excess administrative burden on entrepreneurs as well as state institutions. For example, it is currently unclear how far retroactively may the cancelling of the transfer of the shares be requested. Considering all these circumstances, the Chamber finds that in terms of the change in the nullity of transfer of a share of a private limited company, there should be no step forward before a more reasonable solution has been found. Otherwise it might be an infringement of the Constitution and a major increase in administrative burden for entrepreneurs as well as the state.

Terms for liquidation

One of the most important changes in the draft is to shorten the terms for the liquidation proceedings. According to the draft, instead of the current six months, the liquidation proceedings may last the minimum of three months. This was a proposal made by the Chamber to the Ministry of Justice with the aim of decreasing the time spent on deleting a company if the company has ended their activities and there are no obligations to creditors.

However, in the Chamber’s opinion, administrative problems should be reviewed with respect to the liquidation proceedings. If a company has no obligations and it has completely terminated its daily activities, the company should not be obliged to submit additional reports to confirm it.

Other amendment proposals

The draft also included proposals to prohibit deletion of a company if the company is a party to judicial proceedings. Furthermore, the draft contains amendments to the bankruptcy proceedings the aim of which is to suspend the terms for the reorganisation proceedings in certain cases and set out the bases that would generally presume that a company is insolvent.