Argentina: Resolution 25/2004 IGJ - New Requirements for Capital Increases and Irrevocable Contributions

Last Updated: 13 July 2005
Article by Natalia Lokucjewski

New Regulations

Through a general resolution*, the Public Registry of Commerce ("IGJ") (i) set forth the companies’ duty to register, previously or simultaneously to the filing before the IGJ of capital increases, the issuance of bonus shares, and (ii) established a series of requirements as regards the manner of execution and treatment of the so-called "irrevocable contributions on account of future share issuances", "irrevocable contributions, "irrevocable advanced payments", "contributions", etc. This resolution also applies to stock corporations and limited liability companies whose capital is equal to or higher than the amount set forth by Section 299(2) of the Companies Law ("LSC")

(i) Capital increase – Issuance of bonus shares

The new IGJ’s resolution sets forth that corporations wishing to register capital increases must, apart from complying with the provisions of the LSC and applicable regulations, register previously or simultaneously the issuance of bonus shares corresponding to the total balance of the accounts "capital adjustment", "accounting revaluation balance" and/or similar accounts allowing for the issuance of bonus shares.

By means of this resolution, the IGJ established a series of requirements to be observed by corporations, which are also applicable to capital reductions.

In this respect, corporations must observe the following rules: (a) bonus shares must be of the same nature and class as those currently outstanding, (b) the base of the actual capital increase must be the capital figure re-expressed as a consequence of the issuance of bonus shares and (c) in order to register the capital increase, the corporation shall attach an accountant’s certificate stating the balances of the accounts "capital adjustment", "accounting revaluation balance" and/or similar accounts allowing for the issuance of bonus shares as of the date of approval of the capital increase, and identifying the balance sheets from which those amounts derive. This certificate may be substituted by the statutory auditor’s report made at the shareholders’ meeting that approved the issuance of bonus shares.

If the issuance of bonus shares took place before the capital increase, as of such date, said bonus shares must be registered in the company’s Share Registry Book; the Shareholders’ Meetings Attendance Book must state the number of bonus shares held by those shareholders attending the meeting. Also, the professional pre-qualification report shall state the applicable quorum and majorities considering the issuance of bonus shares and their registration. If the bonus shares had been registered at the IGJ before the capital increase, the professional report must contain a statement on registration before the IGJ of such issuance of bonus shares.

(ii) Approval of balance sheets

The above resolution also determines that at the time of considering their financial statements, companies shall adopt an express resolution regarding the following issues, if applicable: (a) dissolution due to loss of capital (Section 94(5) LSC)**; (b) total or partial re-entry of the corporate capital or increase in the event of loss of capital (Section 96 LSC); (c) compulsory reduction of capital when losses are equal to reserves plus fifty percent of the capital (Section 206 LSC)***; (d) dividend distribution for accrued and earned profits (Section 68 LSC); (e) other reserves (Section 70, third paragraph, LSC); (f) capitalization of reserves and other special funds, payment of dividends with shares and similar procedures involving delivery of paid-in shares (Section 189 LSC); and (g) distribution of dividends or payment of interest to shareholders for accrued and earned profits (Section 224 LSC).

(iii)Irrevocable capital contributions

This resolution finally establishes a series of requirements regarding the manner of execution and treatment of irrevocable capital contributions. In this respect, the resolution sets forth that in order to register a capital increase due to capitalization of irrevocable contributions on account of a future share issuance, the relevant company must submit the following documents before the IGJ:

(a) certified copy of the written agreement mentioned in Technical Resolution No. 17 ("RT 17") from the Argentine Federation of Economic Sciences’ Professional Associations (Rule 5.19.1.3.1). Apart from the requirements set forth in RT 17, the IGJ’s resolution establishes that said agreement must clearly identify the parties, specify whether the party making the contribution is a third party or a shareholder of the company or of a direct or indirect parent company and, also, contain information on the following issues:

(1) term during which the person making the contribution undertakes to maintain it, within which a shareholders’ meeting to decide whether the contribution will be capitalized or reimbursed must be held (in any event, not to exceed 180 calendar days from acceptance of the contribution);

(2) amount, characteristics and, if applicable, class of shares to be issued upon capitalization of the contribution;

(3) proportional patrimonial value of the outstanding shares as of the date of the agreement, and whether the new shares will be issued with or without a premium; if applicable, the amount or manner of calculation of such premium;

(4) the lack of accrual of interest on the contribution;

(5) the application of the creditors’ information regime set forth in Sections 204 and 83(3) LSC to the reimbursement of the contribution and the term fixed for such devolution;

(6) the company’s duty to comply with such devolution with no need to adopt any resolution in the event that, upon expiration of the term, the meeting is not held or, if held, the contribution’s capitalization is not considered;

(7) subordination of the credit arising out of the contribution in the event of insolvency of the company (which must be agreed in relation to no less than all of the company’s liabilities as of the date of the meeting considering capitalization of the contribution);

(8) the contributor’s right to get reimbursement the contribution reimbursed if the capitalization is adopted without observing the applicable term and the agreement on the number of shares to be issued.

(b) certified copy of the Minutes of Meeting of the Board of Directors expressly accepting the contribution.

(c) accountant’s certificate on the composition and amount of the company’s equity as of the date of acceptance of the irrevocable contribution, including the latter.

(d) evidence of entry of the funds to the company by means of the Form approved as Annex 3 to Resolution I.G.P.J. 6/80, subscribed by the legal representative and accountant’s certificate on the status of capital and manner of payment.

The lack of a shareholders’ meeting convened to analyze the capitalization of irrevocable contributions within the stated time —para. (a)(1) above—, the rejection of the capitalization or lack of express treatment, or its late approval will automatically authorize reimbursement of the irrevocable contributions. As of such date, irrevocable contributions will be computed as part of the company’s liabilities. In such a case, the company’s financial statements shall include a note on the reimbursement procedure (publications, oppositions, etc.).

The provisions of this new resolution will become effective 30 days after its publication in the Official Gazette, which took place on November 22 2004, and will apply to capital variations and to financial statements in relation to which the call for the relevant shareholders meetings approving them is made after such effective date. As to irrevocable contributions, it will apply to those contributions executed by means of a written agreement dated after the resolution’s effective date.

* General Resolution 25/2004, published in the Official Gazette on November 22 2004.

** Application suspended until December 10 2004 by Decree 1293/2003

*** Application suspended until December 10 2004 by Decree 1293/2003

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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