A CURACAO COMPANY WITH NEGATIVE EQUITY AND FINANCIAL SUPPORT

Restrictions for providing financial support to a party acquiring shares in its capital?

A company cannot purchase its own shares if it has a negative equity capital or when this equity capital becomes negative by purchasing them, whereby the nominal capital applies as the lower limit (Section 2:114 subsection 2 of the Curaçao Civil Code in conjunction with Section 2:118 subsections 5 to 7 of the Curaçao Civil Code).

The question is, however, whether a Curaçao NV (public limited company) or BV (private limited liability company) with negative equity is allowed to provide financial support to a third party acquiring shares in its capital.

In Book 2 of the Curaçao Civil Code several important provisions were not taken over from Dutch law. Insofar as this is relevant here, this applies to the prohibition of a company to provide financial support to a party who wants to acquire shares in its capital (known as such in the Netherlands as the ’98c’ problem).

I therefore am of the opinion that it is possible for an NV or BV to provide financial support when a third party acquires a part of the shares in that company. Are there any restrictions?

Perhaps unnecessarily I note that according to the law of Curaçao the Board of an NV or BV must act in the “best corporate interest” of the company.

Also, unless the Articles of Association exclude the invocation of transgression of the company’s object, a legal act performed by the NV or BV is annullable if because of this its object had been transgressed and the counterparty knew it or ought to have known it without its own examination. Only the NV or BV can invoke the annulment on this ground. Pursuant to a resolution of the general meeting an NV or BV can confirm a legal act by which the objective was transgressed or it can waive invocation of having transgressed the company’s object.

Another question is obviously whether there is any standard for the – in principle – discretionary acts of the body of the NV or BV who deals with this. Since Book 2 of the Curaçao Civil Code (a.k.a. the Corporate Code) is silent we have to revert to general doctrines: reasonableness and fairness (Section 2:7 subsection 1 of the Curaçao Civil Code), abuse of power and a wrongful act.

Karel Frielink
Attorney (Lawyer) / Partner

(26 July 2013)
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