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Sebastian V. BODU

Controversial issues and novel

solutions in Corporate Law

ABILITY THESIS (SUMMARY)

UNIVERSITATEA DE VEST

School of Law

Timișoara, 2018

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1. Autobiographical notes.

As it results from the CV included in my candidate file, I am a graduate of the Law School of

the University of "Lucian Blaga" in Sibiu, a full-time course, with an average of 9.95 license

exams and a general average of 9.71 (5th

in my year, in the order of promotion grades). Since

January 2003, I have been a Ph.D. in Legal Sciences, with the mark "very good", in the

subject of Commercial Law, with a thesis in the field of Corporate Law: The legal regime of

the companies’ shares. Also, I am a Master of Business Administration, graduated with 9.41

average with a dissertation in Finance, economic knowledge being invaluable for a lawyer

specialized in Business Law because, in trade, the law follows the economy and not the other

way around. My entire career, both as a theoretician and as a practitioner of Law, focused on

Business Law/Commercial Law, in general, and on Corporate Law, in particular, which is

why I chose the subject of the doctoral dissertation thesis at the confluence of personal

experiences of practitioner with those of research in the respective field. I started my career

in 1996, both as a practitioner (lawyer with the Bucharest Bar) and as a theorist (university

junior assistant).

During the 22 years of my career, I have joined together as a practitioner and law theorist. As

a practitioner, I have held various leadership and/or coordination functions, which I will

continue to refer to, positions that have formed me as a professional and as a manager. As an

in-house lawyer with the Romanian-American Enterprise Fund (1998-2004), I managed, as

part of a team, the assets of the venture capital fund consisting of majority holdings in the

portfolio companies (the best known being Banca Românească SA, Policolor SA, Rolast SA

or Titan Mar/Marmosim SA). As Director of the Legal and Compliance Division of the ING

Group, Romania (2004 - 2005), I coordinated the activity of approx. 20 lawyers in the

headquarters and approx. 10 in agencies. As the Head of the National Agency for Fiscal

Administration (ANAF), I was under the control of approx. 25,000 employees, of which

approx. 800 in the headquarters and the rest in the tax and customs local authorities. As Vice-

Chairman of the European Parliament's Committee on Legal Affairs, I was in charge of the

technical team in the committee. Last but not least, I was a member of Eximbank's Board of

Directors (2005) and a member of BCR and CEC Bank Privatization Committee (2005-

2006), where I was able to effectively apply the knowledge of Corporate Law.

As one can see, my career as a practitioner focused on Commercial Law and its derivatives,

Business Law, Corporate Law, and Capital Markets Law, even though I have also

approached other areas: Tax Law, Banking Law, and Criminal Business Law. During the first

years of my career, I gained knowledge from foreign colleges, such as in Capital Markets

Law, during 1996-1997 being part of a team of consultants (mostly Americans) of the former

National Securities Commission (CNVM), or in the privatization field, between 1997-1998,

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of the former State Property Fund (FPS). In other words, my first years of career began in a

very stimulating environment for a fresh graduate, being faced with the challenge of

gathering and then disseminating knowledge in absolutely new areas for Romania. Thus, I

participated in the drafting of the secondary legislation of the capital markets and, later, on

the secondary legislation of privatization. Contributions to the drafting of legislation

continued from the position of ANAF’s Head, and I did not made just a simple coordination

of the committees of civil servants charged with the drafting of normative acts in the field of

taxation, but actually participated in these committees, as in the drafting of the Tax Evasion

Law or laws amending the Fiscal Procedure Code, where I brought my knowledge gained as

a theoretician and practitioner of law. Last but not least, as a Member of the European

Parliament, I have only drafted reports on my expertise, most notably the Corporate

Governance Report (2012), which draws the guidelines for this concept for listed companies,

the Corporate Governance Report in the Financial Institutions (2010) or the Financial Audit

Report of Public Interest Entities (2014), with which I have participated in dozens of working

groups, seminars and international conferences, together with the most reputable specialists,

both practitioners and professors with major universities in Europe. Following my experience

in the public administration and the (European) parliament, I have returned to my profession:

attorney-at-law, self-employed, member of the Bucharest Bar.

I started my university teaching career right after graduating from the Law School, in 1996,

as a junior assistant with the Law School of the Ecological University, then senior assistant

with the same school. I continued as a collaborating senior assistant with the Academy of

Economic Studies (ASE), Department of Accounting, then, after obtaining my Ph.D., as a

junior lecturer with the Romanian Banking Institute, Department of Financial-Banking

Management, as well as with the Academy of Economic Studies, Department of Finance,

Banks, Capital Markets and, subsequently, Marketing. Currently, I am an associate senior

lecturer with the Romanian-American University, Law School. Throughout this 22-years

period, I have taught and/or seminar on the subject of Commercial Law (with its accessories,

such as Corporate Law or Business Law), and, more recently, Tax Law. Practical work has

merged with the theoretical one, including in the didactic field. In addition to the university

courses, I have held practical workshops in the Capital Markets field, including with newly

employed brokers or officers at CNVM (1996-1997) and, more recently (2015-present), I

hold seminars in the field of Corporate Law with practitioners of law and not only, organized

by Wolters Kluwer Publishing House (details on https://wolterskluwer.ro/evenimente/).

2. The main original scientific results obtained in the field of juridical sciences research

(Commercial Law) after conferring the Ph.D. title. Indication of the evolution of the

academic, scientific and professional career, as well as of the main directions of its

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development, in the context of the scientific and actuarial achievements in the field of

Commercial Law.

I have published 14 books after obtaining my Ph.D. title, of which 12 as author (1 of which

are reedited) and 2 as a co-author, all in the field of Commercial Law or related areas. Among

these, by far the most important by content is the 3 volumes-1750 pages Corporate Law

Treatise (Rosetti Publishing House, Bucharest, 2014-2015), where I approached at the detail

all aspects of this matter. Drafting of this Treatise implied tremendous work, both from the

perspective that it was and still is the only ever written in Romania, and that it was drafted as

the sole author. As it departs from the principle – fundamental in Business Law – that the law

follows the economic (and not the other way around), the work has a practical value, not just

theoretical one. There is almost anything in trade, with the Law specialist being called only to

give a "legal jacket" to an economic operation and, the better he understands the technical

mechanism, the better it is, avoiding litigation or increasing the chances of winning. The

Treatise is based on a bibliography covering almost everything published in Romania in the

field of Corporate Law and, as far as it is applicable, in Civil Law, from 1889 until today. In

this way, I indirectly gave the reader the work of all the great Romanian authors, prior to

1947, but at the same time I presented Corporate Law in the light of the latest theories, taken

from the main jurisdictions of the world.

At the time of drafting this paper I noticed, on the one hand, the presumed lack of will of the

legislator at least to republish Law no. 31/1990, with its many errors, shortcomings and

imperfections (certainly adopting a new law would be preferable, after extensive research and

debate within a team of specialists). On the other hand, I noticed the legislative effervescence

in the field of the special Company Law of the Capital Markets, albeit with its many mistakes

in the integration of some foreign legal institutions, including as a result of a faulty

transposition of European Law. Of course, from many national systems of Law, the taking

over or transposition of legal institutions must be made after their understanding and

adaptation to both the general principles of our Private Law and the historical and social

realities of a state which, after 45 years, rehabilitates companies. Paradoxically, however, this

is not so difficult to do in Corporate Law, as it is, probably, the most uniform legal field in

the world. For example, not less than 11 European Company Law Directives, plus a few of

the project stages, as well as a number of directives with special application to certain types

of companies, have been issued only in European Law. Furthermore, six of the company

directives have been repealed and taken over in one general companies’ directive, as a step

towards codifying Corporate Law. That is why, in order to better understand the mechanisms

of Corporate Law, the Treaties contains numerous references to the company directives, as

well as to Comparative Law, especially English and American, but also German, French,

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Italian, Japanese, Brazilian, Australian, New Zealand and Canadian, the most important of

the jurisdictions.

What is, in the end, Corporate Law? Systematizing the grand systems of Law, one can notice

that all companies have five common characteristics, namely: legal personality, limited

liability of shareholders, transferability of shares, delegation of management to a

management body, and shareholder ownership of the business. These characteristics are

obviously the fundamental ones and their infrastructure has developed very similarly from

one state to another. Capital Markets, as a special Corporate Law, has more obvious

transnational and similarities, because in a time of globalization uniformity is essential. That

is why, through the many comparative Law passages, I have tried to demonstrate the obvious

existence of common elements in order to overcome the cliché of the "French structure" of

our Companies Law (false, in fact, in Company and Commercial areas, where the historical

origin is Italian).

The current context in which Commercial Law, in particular, and Private Law, in general, are

applied by the courts is one of confusion. The first and foremost reason is the poverty of the

Positive Right, caused by a Companies Law outdated, anachronistic, incomplete and

inadequately adapted to the realities of the business environment.

Following the publication of the first edition of the Corporate Law Treatise, I came up with

the materialized idea of publishing a Commented and Annotated Company Law (2017) and a

Commented and Annotated Law of Issuers of Financial Instruments and Market Operations

(2018). Because reality has demonstrated a sliding of practice towards the ease of obtaining

information, I have appreciated that a presentation of the ideas and opinions of the Treatise in

the form of article comments ensures their faster and more effective use. As a presentation in

another form of the ideas and opinions of the Treatise, the originality of these works lies only

in the way in which these ideas and opinions are structured and presented, compared to the

Treatise, i.e. not on legal institutions but on articles or groups of articles, the comments being

followed by the relevant jurisprudence (otherwise it would have been at least unnatural for

two papers written by the same author to contain different ideas and opinions in a relatively

short period of time). Both books were taken over by Indaco and iDrept, which together

represent more than half of the Romanian market of legislative database. Because I wanted to

use it separately, I extracted from the Commented and Annotated Companies Law the

(current) jurisprudence in the field of Corporate Law, to which I added the jurisprudence in

the same field for the period 1889-1947, so I published an Annotated Companies Law (2018),

the merit of which is, first of all, the rendering of the ante-communist jurisprudence,

unfortunately ignored and forgotten, though largely as present. Secondly, the work deserves

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the appropriation of articles related to the Commercial Code or the Carol II Commercial

Code of the current articles of Law no. 31/1990, which is new in the field.

Other valuable works are the Dictionary of Companies Law (Romanian-English/Romanian

English), also unique in the specialized market, at the 2nd

edition, as well as the monograph

Economic Infractions. The other books I have published after obtaining the Ph.D. title are

enumerated in the list of papers, of which it is worth mentioning the New Civil Code,

Commented and Annotated, to which I participated as a co-author of the comments (Article

14-15), most of the legal person (Articles 199-209, 210-251), as well as the rights of

personality (Articles 252-256). I also published 64 articles in specialized journals, of which

53 in international database indexed journals.

Returning to Economic Infractions, also taken over by Indaco and iDrept, the work is a

novelty in the matter not through the themes dealt with (the infractions to the companies

regime, the bankruptcy criminal offenses and the tax evasion offenses) but the fact that it

represents the work of myself, as a commercial field author, along with that of a criminal

field author (prosecutor), that is an interdisciplinary approach. Given that the provision of the

Criminal Code explicitly or implicitly refers to the concepts of Business Law (Corporate,

Bankruptcy or Tax), we have considered it the duty of the commercial specialist to participate

in deciphering the meaning of the hypothesis, because the application of the purely criminal

approach in an area of excellence of Private Law can lead to erroneous conclusions, with

serious consequences for the subjects of the offenses in question.

I will now give a series of examples from practice or specialized theory (examples that I have

developed exhaustively in the Corporate Law Treatise, respectively in the Economic

Infractions monograph), which I hope will help to correct the legislation and especially the

judicial practice.

2.1. Affectio societatis element

Affectio societatis is a concept that has to be reinterpreted. For instance, in the case of sole

proprietor company or the listed corporations. Consequently, the affectio societatis element

lost in its importance, transforming for the large companies in a relationship where, in

exchange for a contribution, the risk to lose or to gain from the common business is shared

with the fellow shareholders, under the protection of the limited liability.

2.2. Nationality of the company

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A company’s nationality and applicable law are governed in the private international law

based on one of two principles: registered office and administrative (real) office. The first

principle is easier to apply and it does not need any inquiry because there is just one seat. The

second (that Romania embraced) is more difficult to apply because a company can have more

than one seats out of which the court has to determine the business (real) one using certain

criteria.

2.3. (No) ultra vires principle

The legal capacity of the commercial company is composed, as for other legal entities, of its

ability to use and the exercise capacity, with the proviso that these must be seen in terms of

the professional-traded quality of the company. The headquarters of the matter, in terms of

legal capacity, is in general Art. Title I, Chapter III of the Civil Code. The legal capacity of

the company is subjected to lex societatis, according to art. 2581 of the Civil Code.

2.4. Legal capital – general security of the creditors (irreducible core capital)

The notion of “legal capital” is the key element of the constitution and functioning of society

through social contributions, and its understanding depends on the understanding of other

notions such as primary funding, equity (net assets), patrimony or the value of society. Like

the nominal value, the concept of social capital is deeply rooted in the legal culture of

continental Europe but is criticized, for which reason it is considered obsolete and, as a

consequence, abandoned by Anglo-Saxon laws such as the American and Commonwealth

countries, the exception of the United Kingdom itself where this is not possible in the listed

companies due to the General Companies Directive, which constantly brings unanimous

harsh criticisms from the island doctrine). The notion of social capital includes that of the

shareholder structure and that of the general corporate pledge, especially the latter requiring a

careful study due to frequent mistakes and misinterpretations.

2.5. Distribution of partial dividends

The profit treatment and distribution of dividends is approached in a complete and applied

way, including for the listed companies. Due to the fact that Law no. 31/1990 does not offer

to the interpreter a clear and unequivocal text, one tried to find solutions resorting to the

principles of law, European law, comparative law or the accounting/financial reporting

standards. Fortunately, a recent Law was passed allowing companies to pay interim dividends

quarterly.

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2.6. Distribution of equity premiums

Permission of distributing the capital premiums is equivocally in Law no. 31/1990, because

such premiums are not part of the profit not of the legal capital (and the mandatory reserves).

Of course there is temptation to distribute such premiums, but the law incriminates fictive

profit distributions. If the concept of par value of the shares would not have been in place,

and shares would be issued at the market value, all such value would be registered in one

account, which means that the legal nature of the premiums is closer to the legal capital than

to the profit.

2.7. The legal nature of the right to vote

The legal nature of the voting right use to be, as a historic principle, non-material. Thus, the

exercise of such right was considered purely personal, non-transferable under a criminal

penalty. But the latest evolutions of the Corporate Law beg to differ. The newly adopted Law

no, 24/2017 regarding the issuers of financial instruments and market operations sees the

voting right as material, allowing the transfer of its exercise.

2.8. Abstaining from voting vs. the vote with "abstention"

Abstaining from the vote is different from voting with “abstention”. In the first case, the

abstention is motivated by a conflict of interest so the participant shareholder to the general

assembly is not allowed to vote. He announces the abstention and he is taken out form the

quorum that is reconfigured without his share. Than the disinterested shareholders will vote

based on the majority rule. The vote with “abstention” is an elegant form of a negative vote,

because the abstention will count for a “no”.

2.9. "Absolutisation" of the nullity of the general meeting of the shareholders

The common law regulates both forms of nullity, absolute and relative. The relative one is the

rule, and the absolute one the exception. In company law, that regulates only the relative

nullity, almost all cases of nullity are relative, but the practice shows the other way around,

which is wrong, the effects of the absolute annulment, including to the subsequent acts,

inducing a constant insecurity of the transactions.

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2.10. Amendments to the charter of the company

Amendments to the charter of the company must be consider only those that specifically

alters provision that regulates the way that the company works, like the conditions for

adopting a resolution of the general assembly or a decision of the BoD. The alteration that

incur as a result of a different resolution, i.e. increasing the share capital, modification of the

shareholders structure, replacing the directors are not amendments of the charter, despite they

should be mentioned in it. Real amendments must be disclosed in the caller of the meeting,

including by mentioning the text of the new article to be introduced.

2.11. Insurance policy. An instrument for the benefit of administrators

Insurance policy is not (anymore) a guarantee given by the directors to the company, to

secure eventual damages incurred by the latest, but a guarantee given and paid by the

company for the benefit of the directors and officers (D&O Insurance), in order to stimulate

bold business decisions, and to secure the company for eventual damages incurred in the

management process. De lege ferenda, D&O Insurance should be optional.

2.12. Directors' duty of loialty, prudence and diligence

Liability of the directors towards the company is different than the liability towards the third

parties. The issue of the legal nature of this liability should not be controversial, for it is a

contractual one. Law no. 31/1990 came (quite late) for the limited companies by stock (SA)

with the bonus pater familias criterion, that means that the liability is appreciated by the

objective criterion of a common, ordinary, middle director. For the limited liability

partnerships (SRL), the bonus pater familias criterion is not applicable but the civil law

provision regarding the agency, paid or not paid. Directors' liability is double when they

delegate the managerial powers to the officers, respectively for the officers' acts, as well as

for their own. Liability is joint and several for all directors, irrespective of the legal form of

the business entity. Ousting the liability is made in accordance with clear rules consisting not

only in non-participating in the decision, but also in dissenting it. For the business decisions

directors are protected by the business judgement rule. The plaintiff company must prove the

contrary because the burden of proof rest with it.

2.13. Issuance premium. Is it mandatory or not?

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Issuance premium reflects the market value of the company. Thus, any issuance at the par

value or with an undervalued premium damages the financial interests of the non-subscribing

shareholders. Issuing shares at par value means that the market value of the company equals

its legal capital, which is, in any cases, a false statement. Is not necessary that Law no.

31/1990 to make the premium mandatory, because the market value is not an issue to be

regulate by law (like the Civil Code does not regulates the value of the sale of any asset).

Unfortunately, decisions of the courts constantly rejects the actions in annulment of the

shareholders resolutions deciding issuance with no premium.

2.14. Declaring the assignment in the shareholder register - a sui generis way of

transferring shares or only a condition of opposability?

The statement in the company registers is not a specific form of transfer of the ownership

right, but a way to make the transfer against the issuer, a way specific to the nominative

shares. Therefore, the inclusion of the transfer in the issuer's publicity register is not a

condition of validity, so the registration has no constitutive character of rights.

2.15. Non-regulation of financial assistance, an error

Financial assistance is the financing by the company (through credit or credit guarantee) of

the acquisition of its own shares by a third party, including a manager of the company. This

procedure, part of a larger LBO/MBO operation, cannot be carried out in Romania because of

its express prohibition and even its incrimination. However, according to the European norm

in the matter, the operation may be possible as long as the conditions for the acquisition of its

own shares are respected, namely the protection of creditors and the protection of

shareholders.

2.16. Role and legal nature of the merger/division premium

Although related to the issue premium, the merger/division premium does not imply any

payment to the company on behalf of shareholders. The merger/division premium, as the

difference between the value of a new (market-based) share and its nominal value, has the

same role, namely to compensate shareholders whose shares have a market value above par

value.

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2.17. Resource payments to retired or excluded shareholders. Protection of social

creditors

The issue of reduction of the legal capital is aiming to explain the reasons and procedures

regulated by Law no. 31/1990, considering the flaws of the respective regulation.

Unfortunately there is a confusion in the legal text between reasons and procedure, and such

which confusion is perpetuated through the theory and jurisprudence. The procedures of the

reduction of the legal capital are annulment of the shares and the reduction in its face value,

procedures that are applied irrespective of the reasons of the reduction, which reasons are

losses and restitution to the shareholders. If the reduction implies restitutions to the

shareholders, irrespective of the procedure of restitution (acquiring its own shares,

withdrawal or exclusion of the members), such procedure must ensure the protection of the

creditors, so that the payment of the shares acquired by the company – either kept as treasury

shares or immediately annulled – will not affect the irreducible core capital. The collective

restitutions to the shareholders must ensure their rights equality.

2.18. Debtor's insolvency - the premise of the bankruptcy criminal offense

Insolvency means both de facto stage, that precedes the order for relief, and de jure one, that

follows the relief of such order. Deciding the cease of payments cannot be made by the

criminal court, but only the insolvency court (syndic), by the order of relief. Analyses of the

first part ends up with the penal action, and then the civil action attached to the penal action,

as well as the tentative and the preparation acts.

2.19. Is the criminal court competent to declare the cessation of payments in order to

prosecute the bankruptcy offense?

The establishment of the cessation of payments, as a precondition for the commission of

fraudulent bankruptcy, can only be done by the civil-commercial court. The criminal court

cannot substitute for the civil-commercial one, because if it finds the cessation of payments,

it should manage the whole insolvency procedure, which is the exclusive competence of the

specialized court (syndic judge).

3. Individual capacity to coordinate research teams, organize and manage didactic

activities, explain and facilitate learning and research.

I conclude this thesis with the mention that I had several opportunities to test my individual

capacity to coordinate research teams, first of all when drafting normative acts. As I pointed

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out in the first section, I did not limit myself (though I could) to a mere contemplation of the

designing task of these projects, as ANAF Head (2005-2007), but I was actually involved in

drafting the work, coordinating the work of the drafting committees in the most concrete

way, bringing me, as an expert, as a practitioner and theorist of Law, to draft the content of

these projects. The coordination activity continued mainly during the time when I was a

Member of the European Parliament (2007-2014), as the rapporteur of various draft European

normative acts, when I coordinated the committees made up of my fellow MEPs and

parliamentary specialists. Although it is not directly related to research, because the

coordination component is particularly important, it is worth mentioning that I have been in

management positions both in ANAF (Head) and formerly in ING Bank Romania (Head of

Legal and Compliance).

The organization and management of didactic activities, explaining and facilitating learning

and research, has been manifested over more than two decades of academic activity, (almost)

uninterrupted despite the intense work program as a practitioner. In fact, the teaching activity

was very well related to the practical one, so my theoretical works were and are invariably

accompanied by practical examples that I personally hit.

Last but not least, the research activity was also manifested in the (re)establishment in 2018

of the Companies and Commercial Law Review (rsdc.ro), founded by Professor M.A.

Dumitrescu in 1924. The initiative belonged to me, being the one who found funding for the

journal, as well as the one who coagulated the editorial staff made up of people with

extensive experience in the field of legal literature, as well as practitioners of Law. The

initiative has moved away from the need to provide the specialist market with journalistic

material of high scientific value, addressing practitioners in the first place. Although indexing

in international databases cannot be made earlier than one year, we filed the application after

the first issue, given the experience of the Rosetti Publishing House in publishing legal

journals, all indexed in such databases.