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21 July 2003
On May 20 2003 the Angolan National Assembly approved a new Companies Law which will become effective once it has been published in Angola's Official Gazette. Article 37 of the Companies Law provides for the automatic winding-up of companies which have lost at least half of their share capital.
The Companies Law is due to replace the outmoded Commercial Code, which dates back to 1888.
Under Article 120.5 of the Commercial Code, the loss of at least two-thirds of the share capital is a statutory cause for the winding-up of companies. In order to prevent winding-up, shareholders must immediately make cash contributions to cover at least one-third of the share capital. Article 120.5 is not clear as to the meaning of the word 'immediately' and the steps required to enforce the winding-up of undercapitalized companies. Therefore, as a matter of practice, it has not been enforced in Angola.
Article 37 of the Companies Law provides that where the company's annual financial statements show a loss of half of the share capital, the members of the board of directors must propose to the shareholders the adoption of one of the following measures:
The proposal must be submitted to the shareholders with the company's annual financial statements or at a special meeting to be held no later than 60 calendar days thereafter. If the shareholders opt to make cash contributions, these must be made within 60 calendar days.
The application of Article 37 will raise various questions. One issue which will undoubtedly cause concern for foreign investors relates to the consequences of indexing their Angolan companies' share capital, denominated in the Angolan official currency (the kwanza), to a foreign currency such as the US dollar.
Such indexation is normal practice in Angola for several companies with foreign shareholders, and will be formally permitted by Article 16 of the Companies Law once this statute comes into force. However, although indexation protects the value of the share capital from the constant devaluation of the kwanza, it may cause difficulties as regards compliance with Article 37. The reason is that as a result of the devaluations, many of these companies will have shareholders' equity in kwanzas within the legal limits, but a US-dollar equivalent which is below half of the share capital. This means that if the value of the share capital in US dollars is found relevant for purposes of Article 37, several of these companies may already be considered to have lost half of their share capital.
In this case the shareholders will be faced with the alternative of winding-up the undercapitalized company, reducing the share capital or making further cash contributions. There is no other option. Further, if the shareholders resolve to keep the company running, they will have a very short deadline (60 calendar days) to avoid winding-up.
As the Companies Law has not yet been published in the Angolan Official Gazette, it remains to be seen whether Article 37 will be immediately enforced. If this happens to be the case, companies whose share capital is indexed to a foreign currency should take immediate steps to clarify their obligations under Article 37.
For further information on this topic please contact Alberto Galhardo Simões at Miranda, Correia, Amendoeira & Associados' Lisbon office by telephone (+351 21 781 4800) or by fax (+351 21 781 4802) or by email (Alberto.GalhardoSimoes@mirandalawfirm.com).
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Alberto Galhardo Simões