The passing of Law no 163/2018 on the amendment and completion of Accounting Law No. 82/1991, Companies Law no. 31/1990, as well as Law no. 1/2005 on the organisation and operation of cooperation (“Law 163/2018”) allowed the payment of dividends quarterly was greeted with some relief in some quarters. Now it seems there are issues which are causing some concern amongst legal and accounting practioners. Whilst the making of the payment is easier and permitted by law there are interesting legal questions that arise.
As the payments are to be made from real profit and adjusted at the end of the financial year, what will happen if the company makes a loss in the quarters after the payment has been made and these loses mean that for the year as a whole there is no profit. As there was no profit for the year the shareholders will have to repay the dividend. If the shareholders cannot/will not pay what happens then?
The question of the repayment of the money will lie with the administrator who may or may not be a shareholder. If he is a shareholder, he could be in a position of extreme conflict. Suing as the company and administrator himself as a shareholder for return of the paid interim dividend which has to be repaid.
What will be the position where there is a sole shareholder and an independent administrator? The administrator may in these circumstances be very reluctant to claim the money back
There is also the question of the tax on the dividend which has been paid to the Ministry of Finance. As there has been a payment of income to the shareholders, tax will be payable on that interim dividend distribution as provided in the Tax Code. If the dividend payment is revoked because there is no profit, the company will be in breach of the law as it has not paid a dividend out of real profit. Will the Ministry of Finance repay the money to the company? Currently the Romanian Government is concerned to raise money for its programs. If it must repay monies will it/can it repay? In foreign countries tax repayments are often made within seven days of a claim being made.
Another scenario is what happens if the company during the period for no fault of its own goes into liquidation or insolvency and dividends had been paid because the company apparently had made a profit and could pay the interim dividend but is ultimately found to be in loss. The dividend will be a debt due to the company from the shareholders and the liquidator will have recover this amount from the shareholders as well as the tax from the Ministry of Finance. If the Ministry of Finance put a company into insolvency or liquidation because of unpaid tax, what is the position if the tax is found not to be due as there was no profit and therefore the Ministry did not have enough tax due to start the proceedings.
All these legal issues will focus the minds of accountants, lawyers and administrators if the shareholders ask for interim dividends.