Introduction
Pursuant to the EU-Albania Stabilization Association Agreement and the national plan for the implementation of the obligations under the agreement, the Parliament has approved the Law on Entrepreneurs and Commercial Companies (9901/2008), which will govern all corporate issues in Albania.

This update discusses situations which may result or may be reasonably expected to result in the event of a conflict of interest between majority shareholders acting as representatives in a limited liability company.

Representatives' Conflict of Interest
The majority shareholder frequently acts as administrator of the company. In the past this has led to conflicts involving majority and minority shareholders (minority shareholders hold at least 5% of a company's shares, unless the articles of association provide for a lower percentage). Minority shareholders are interested in preventing the shareholder administrator from conducting financially profitable transactions which may disadvantage the company.

Administrators must take into consideration the interests of the company. This fiduciary duty implies that the administrator must avoid situations in which its direct or indirect interest could conflict with the interests of the company. Failure to comply with this duty gives rise to the administrator's liability to compensate the company for damages and repay any profit it or a third party obtains as a result of the violation of the fiduciary duty.

All transactions carried out by the shareholder administrator, whether dealing on its own or with a third party, are subject to the prior approval of the other shareholders. Where a shareholder administrator has a direct or indirect interest in the proposed transaction, it must declare the nature and extent of that interest. In order to prevent abuse of authority by the shareholder administrator, the law establishes that whenever a shareholder administrator requires approval for transactions that are financially or otherwise advantageous to it, the shareholder administrator will be excluded from the vote and will not be calculated in the quorum of the shareholders' meeting. This rule strengthens the position of minority shareholders, giving them the opportunity to block the transaction where they deem that it is not in the company's interest.

Shareholders' Conflict of Interest
The principle of acting in the best interests of the company also applies to shareholders. Affected shareholders may not vote at shareholders' meetings to decide on issues such as:

• the shareholders' activities;
• the shareholders' release from obligations;
• the company's pursuit of a claim against a shareholder; and
• new benefits for shareholders.

Additionally, the question must be addressed of whether a shareholder administrator can exercise its voting right if the shareholders' general meeting decides on its removal as administrator. One reading of the new law suggests that the shareholder administrator may exercise its voting right in a general meeting to decide on the dismissal. The restriction applies in cases where the general meeting discusses shareholders' activities and decides on shareholders' commercially competitive activities, such as holding a managerial or other employment position in a competitor.

The fact that a shareholder administrator can vote against its dismissal creates a problem in that minority shareholders are unable to dismiss the shareholder administrator by way of decision of the general assembly. According to the new law, minority shareholders may not approach the courts for dismissal of the administrator after such dismissal has been rejected by the majority shareholders in the general meeting. Under the previous Commercial Companies Law, in such case the courts could decide on the removal of an administrator that had acted in breach of the law.(1) Therefore, minority shareholders seeking the removal of an unwanted shareholder administrator can approach the courts only to:

• invalidate an administrator's decision which is deemed to be in breach of the law or company bylaws;
• claim damages on behalf of the company from an administrator that is in breach of its fiduciary duties; and
• request either that a meeting be convened or that the issue of the administrator's dismissal be included on the agenda of a meeting.

The new law was approved only recently and as yet there is no consolidated jurisprudence on the matter.

For further information please contact Aulona Hazbiu at Boga & Associates by telephone (+355 4 225 1050), fax (+355 4 225 1055) or email (ahazbiu@bogalaw.com).

Endnotes

(1) Article 55 of the Law on Commercial Companies (7638/1992), abrogated by the Law on Entrepreneurs and Commercial Companies (9901/2008).

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