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TRANSACTION TYPES AND APPROVAL PROCEDURE

This article provides general overview about transaction types and their approval procedure. As a result, the Company has to determine the transaction types and applicable statutory requirements in regard to its conclusion.

Transactions should be carried out in compliance with the appropriate law and regulations, in particular  the RA Law on " Joint Stock Companies"  (hereafter " the Law), the Civil Code of the Republic of Armenia and etc.

Therefore, before its conclusion the Company should check whether such transaction requires the Board or GSM approval (up to a certain value if applicable) or ratification.

The conclusion procedure of transactions will vary depending on the transactions' course and value. In general, the Company's transactions can be divided into two groups:

1.      Transactions exempted from the statutory requirement on Board or GSM approval, such as transactions conducted in ordinary business course or transactions which value is less than 25% of the total Company assets;

2.      Transactions which require the Board or GSM approval, such as major transactions or conflict of interest transactions

TRANSACTIONS CONDUCTED IN ORDINARY BUSINESS COURSE

Transactions (agreements) conducted in ordinary business course are exempt from the statutory requirement on Board or GSM approval (Article 60 of the Law).  Although the Law does not define "the ordinary business course", judicial precedent in hand may help to conclude that "the ordinary business course" includes usual transactions or as per customs and practices of a business and of the company. International Standard on Auditing 550 specifies some examples of transactions falling outside from the ordinary course of business.  In many cases, it may be apparent that a transaction is "in the ordinary business course of the company" or not, however in some cases, the assessment of whether a transaction is in that course or not may be highly subjective, judgmental and will vary from case-to-case basis.  The Armenian Court of Cassation[1] stated that "ordinary activity of the company" assumes realization of company's statutory goals and development.  Also, historical practice with a pattern of frequency, and common commercial practice for businesses are considered key factors by such companies for assessing whether the transaction is undertaken in ordinary course of business or not[2].

MAJOR TRANSACTIONS

Major (large) transactions (including loan, mortgage, guarantee and etc.) -The following transactions shall be deemed major:

(a)       transaction, or series of related transactions, other than in the ordinary course of business, involving the acquisition, alienation or possibility of alienation by a company property directly or indirectly, the value[3] of which is from 25% to 50% of the total assets[4] of the company prior to the conclusion of decision regarding such transaction. In this case a resolution to conclude a major transaction must be adopted unanimously by the Board. If the Board does not adopt the resolution to conclude major transaction, the resolution shall be submitted to the GSM (Article 61 section 1 of the Law).

(b)      transaction, or series of related transactions, other than in the ordinary course of business, involving the acquisition, alienation or possibility of alienation by a company property directly or indirectly, the value of which exceeds 50% of the company's total assets prior to the conclusion of decision regarding such transaction. In this case a resolution to conclude a major transaction must be adopted by 3/4 majority vote.

CONFLICT OF INTEREST TRANSACTIONS

An affiliated person of the company shall be deemed to be interested in the company's transaction if such person:

(a)       is a party to such transactions, or participates in such transaction as intermediary or representative;

(b)      is affiliated with the transactions' party, intermediary or representative. (Article 62 of the Law)

A resolution for such transactions must be adopted by the company's Board by a majority of the votes cast its members who are independent and not conflict of interest person with respect to the transaction (Article 64 of the Law).

In conclusion, the approval procedure of transaction will vary based on its value and course. Therefore, it is suggested to determine the transaction type for the appropriate statutory requirements' applicability. 

 

 



[1] See case number 3-1270 (VD)

[2] See http://www.motilaloswalgroup.com/Downloads/IR/96263605RPT_Policy.pdf, page 4

[3] The market value of the property, including property rights that are the subject of a major transaction shall be determined by the Board pursuant to Article 59 of the Law and paragraph 8.10 point 5 of the Charter.

[4] In determining whether a transaction is a major transaction, the Board may adjust the book value of the company's assets to reflect inflation based on recommendations of the company's auditor.