Maria Dumitru

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COMPANY LAW NULLITY -

- AN APPROPRIATE MODEL FOR THE NEW CIVIL

CODE?

Maria DUMITRU

Abstract

Nullity is one of the most important civil law institutions. It is not our goal here tomake an exhaustive analysis of the issues related to the civil or company nullity institution.Tackling such a topic on only a few pages would only be uninteresting and superficial, since either of the two deserves to be dealt with in monographic studies.

We will focus instead on the intention of the Romanian law-maker to include the special concept of company law nullity (more precisely trade company nullity) in common law,that is in the New Civil Code 1 , and we will only examine nullity with a view to achieving our goal.

Keywords:

trade company nullity; corporate body nullity; commercial nullity;

Lecturer PhD with the Faculty of Law of “Petre Andrei” University of Iasi, and Iasi Bar lawyer1 Law no. 287/2009 on the Civil Code, published in the Official Journal no. 511 of 24 July 2009,hereunder called the “New Civil Code” , which will come into effect, according to art. 2664 of theN.C.C., “on the date set by the law regulating its coming into force. Within 12 months from the date of publication of this Civil Code, the Government will submit to the Parliament for approval the bill of enforcement of the Civil Code”

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DUMITRU, M., (2010) COMPANY LAW NULLITY - - AN APPROPRIATE MODEL FOR THE NEW CIVIL CODE?

in Jurnalul de Studii Juridice, Anul V, Nr. 3-4/2010



JURNALUL DE STUDII JURIDICE

I. Despite the fact that it has not been formally defined and dealt witheither in the Civil Code or in any other regulation, nullity has never beenchallenged, but on the contrary tacitly accepted and used, as a fact inherent tolegal standards.

The New Civil Code, although not revolutionizing the institution of nullity, has nevertheless the virtue of formally regulating it and explaining itslegal application, by relying on well-grounded doctrine and jurisprudenceassumptions defined throughout 150 years of expertise.1

In addition to the standards outlining the overall legal application of nullity, the new private law book also regulates nullity sanction and categorizes iton special fields of interest, such as trade companies. As concerns company nullity – regarding both the memorandum of association of a company 2 and thecorporate body itself 3 – the creators of the New Civil Code chose to define a

particular application, which is completely different from general common law. As one may easily notice, the model that the law-maker relied on whendefining company nullity was trade company nullity, whose legal operation isregulated by art. 56-59 of the Law 31/1990 on trade companies.4

The enactment in the new private law corpus of a nullity, whose principleis commercial and European, is surprising, since what seemed to be a particularcompany law sanction will become common law.

Atypical sanction, commercial nullity – which is a sui-generis nullity , as it was considered by doctrine1 (Gheorghe, (2010), : 70), is about to become

1 Section 4 named “Contract nullity” included in the 1st chapter –“Contract” in the 2nd title – “Sources of obligations” , 5th book “On obligations” , in art. 1246-1265 of the New Civil Code (N.C.C.), definesand classifies nullity, as well as nullity causes and effects. The contents of art. 1246 of theN.C.C., which under the marginal name of “Nullity” states that “Any contract concluded with the violation of the legal provisions required for its validity is null and void, unless another sanction is provided by law. (2) The nullity may be absolute or relative”, is illustrative of the inclusion in the legal regulation of doctrine solutions. 2 Art. 1932 - art. 1935 of the N.C.C.3 Art. 196 - art. 199 of the N.C.C.4 Law no. 31/1990 on trade companies published in the Official Journal of Romania, Part I, no.126 of 17.11.1990, republished in the Official Journal of Romania, Part I, no. 1066 of

17.11.2004, amended by Law no. 302/2005 published in the Official Journal of Romania, Part Ino. 953 of 27.10.2005, amended by Law no. 164/2006 published in the Official Journal of Romania, Part , no. 430 of 18.05.2006, amended by Law no. 441/2006 published in the Official Journal of Romania, Part I, no. 955 of 28.11.2006, amended by Law no. 85/2006 published inthe Official Journal of Romania, Part I, no. 359 of 21.04.2006, amended by G.O. no. 82/2007 published in the Official Journal of Romania, Part I, no. 446 of 29.06.2007, amended by G.O.no. 52/2008 published in the Official Journal of Romania, Part I, no. 333 of 30.04.2008,amended by Law no. 88/2009 published in the Official Journal of Romania, Part I, no. 246 of 14.04.2009, amended by G.O. no. 43/2010 published in the Official Journal of Romania, Part I ,no. 316 of 13.05.2010, amended by G.O. no. 54/2010 published in the Official Journal of Romania, Part I, no. 421 of 23.06.2010, amended by G.O. no. 90/2010 published in the Official Journal of Romania, Part I, no. 674 of 04.10.2010; our paper will tackle this last version of thelaw.

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COMPANY LAW NULLITY...

common law for all companies – with or without legal personality, in either civilor commercial law.

II. Trade company nullity has a very specific configuration and it mustbe distinguished from the nullity of the memorandum of association, which the

incorporation of a trade company actually relies on. It transcends the legaldocument, and it applies to a fact and not to a legal document. Company law nullity is not a sanction focusing on each part of the whole, on each action, oneach approach, but on the process as a whole, on the result. Such a sanctiondoes not concern the validity of the volitional, administrative or legal actionsperformed by the subjects involved, on different levels, in the complex processof entity creation. It only regards their end goal: the holder of rights andobligations, the entity involved in the juridical life. Such nullity involves the whole as a whole without having the possibility of reducing the whole to the

sum of its components. As it separates itself from the legal document, company law nullity driftsaway from the essence of classical nullity, which is a legal sanction whoseexistence is indissolubly connected to the legal document.

As concerns trade companies, the effects of their nullity include so many exceptions to the principles governing the effects of classical nullity that we may even say that almost none of the components of classical nullity is to be foundin the concept of company nullity (except for the name). All the classical nullity effects – such as resuming of the previous state, ex tunc manifestation and lack of effects of the documents subsequent to the null and void document – no

longer exist. The opinion of the Romanian law-maker on company law resembles

that of the European law-maker, which, in the 1st Directive – dealing withpublicity –, defines two trade company nullity principles: the first concerns

1 The paper focuses mainly on the legal application of a special trade company nullity law. Theauthor tries and succeeds, in an exceptional manner, in our opinion, to analyze whether there isa special commercial nullity different from common law nullity. It also launches a debate on whether this nullity is a holistic nullity or just a sui generis nullity, accompanying common law

nullity. Holism – which comes from the Greek word holos – whole – is an idealisticmetaphysical concept defined at the beginning of the 20th century, which supports the principleof prevalence of the whole over its components and the impossibility of reducing the former tothe sum of its components. While avoiding the full theorization of holistic nullity, the doctrineauthor chooses the sui generis company law nullity, accompanied by common law nullity. Theconclusion of this legal approach is that trade company nullity does not fit general nullity, as it iscompletely different from it; the two notions meet only at the upper level, that of legal sanction,as the two nullities are independent and irreducible species. Trade company nullity, together with trade company merger and division nullity, would make up the company law nullities. Theauthor investigates whether this nullity is incidental to the entire commercial law or it is limitedonly to company law – which is part of commercial law. The author chooses this last option,relying on solid arguments: this type of nullity cannot be considered commercial nullity, in thesense that it cannot be extended to the whole commercial law.

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nullity prevention, while the second comprises the special nullity effectregulation, in the sense of the limitation of their effects.1

Therefore, according to art. 56 of the Law 31/1991 on trade companies,the nullity of a trade company (and not of the memorandum of association) may

only occur in the limited cases provided by the said article.2 These causes areidentical to those provided by Directive no. 2009/101/EC, in art. 12, whichforbids the enactment of any causes undermining the existence of the company .

Another particularity of company nullity as compared to common law nullity - which sanctions the failure to meet the legal requirements upon theconclusion of a legal document - is that it may be remedied.

Unlike the essence of nullity consisting of checking whether the legalrequirements concerning the time of document conclusion – the incorporationof a trade company, in our case – are complied with, trade company nullity

means checking the compliance with the lawfulness requirements related to thetime of conclusions delivered by a court of law when settling a company nullity request. According to art. 57 of the Law 31/1990 on trade companies, nullity cannot be declared if its cause, provided in the annulment request, was removedduring the progress of the legal procedure.

Doctrine considers this nullity to be absolute nullity. (Carpenaru, David,Predoiu, Piperea, ( 2009), :292) Consequently, the active standing to bring proceedings belongs to any interested party and the proceedings areimprescriptible3.

1 The first Company Law Directive (no. 68/151/EEC of 9 March 1968), also called the“publicity” directive, with later amendments published in the O.J. no. L65, 14.3.1968, p. 8regulated trade company nullity. This regulation has recently been replaced by a new directive,Directive 2009/101/CE of the European Parliament and Council of 16 September 2009,published in the O.J. of the E.U. no. L258 p. 11 of 1.10.2009 preserving nullity standardsunchanged.2 Art 56 of the Law 31/1990 on trade companies provides an explicit definition of the field tradecompany nullity application field, stating that nullity occurs: a) in the absence of the articles of association or their authentic form, when provided by the law; b) if, under the law, all its

founders were incapable at the time of company incorporation; c) the company business objectis unlawful or conflicting with public order; d) in the absence of the decision of the delegatejudge ruling in favor of the incorporation of the company; e) in the absence of a legaladministrative license allowing the incorporation of the company; f) the articles of associationdo not include the company name, seat, business object, contributions of the shareholders orsubscribed and paid-up registered capital; g) the legal provisions on the minimum subscribedand paid-up registered capital were not complied with; h) in case of violation of the minimumnumber of shareholders, according to the law.3 This right to proceedings is only limited by European standards from the viewpoint of thepossible challenges by third parties. Therefore, third parties may challenge them only if thenational laws give them this right. The deadline within which challenges may be expressed is 6months from the publication of the legal annulment decision, in accordance with art. 13 of Directive no. 2009/101/CE .

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This characteristic of legal proceedings – namely their imprescriptibility – creates a situation of sine die uncertainty related to the existence of thecompany, as long as one of these causes may be discovered and consequently lead to the dissolution of the company regardless of how long it would have

elapsed from its incorporation. The lack of retroactivity is the third significant difference between trade

company nullity and common law nullity. The fact that a company is declarednull and void does not undermine the documents concluded on its behalf,according to art. 59 of the Law 31/1990 on trade companies. Since nullity hasno retroactive effects, the documents previously concluded on behalf of thecompany are not concerned. Consequently, the rights and obligations related toand arising from these documents are to be exercised as agreed on. The fact thatthe company or the shareholders were of good faith, meaning that they were not

aware of the nullity cause, does not exempts them from carrying out theirobligations to third parties. The law-maker found it appropriate to express thisinterdiction explicitly, by stating, in art. 59 paragraph (3) of the Law 31/1990 ontrade companies, that neither the company, nor its shareholders have the rightto call forth company nullity before good-faith third parties in order to beexempted from their previously undertaken obligations. (Dumitru, (2010), :72)

III. What is atypical is that the Romanian law-maker intends to turn thisspecial nullity regulation – commercial law nullity, that is company law nullity – into common law for all companies and corporate bodies, in either civil or

commercial law. Thus, the New Civil Code defines the concept of nullity of a corporate

body, which was unknown in the regulation currently in effect. A quasi-identicallegal application to that of trade company nullity (company law nullity) issubsequently defined, as concerns the causes, effects, etc. 1

The choice of the Romanian law-maker of including the commercialnullity institution into common law almost unchanged does not seem to be, inour opinion, exempted from any criticism.

According to the New Civil Code, companies may be incorporated

whether they have or not legal personality. Therefore, according to art. 1892 of the new regulation, a simple – typical – company has no legal personality.Importing a special type of nullity from particular matters, nullity that has a

1 Let us consider, for instance, art. 196 of the N.C.C. paragraph 1, which is actually thereiteration of the provisions of art. 56 of the Law 31/1990 on trade companies, stating the tradecompany nullity causes. An additional nullity cause is provided (“ i) there were violated other imperative legal requirements provided under the sanction of nullity of the articles of association of the corporate body”) which, in its turn, is so general that it may be grounds for pursuing legal proceedings of trade company annulment or nullity for various reasons. Art. 56 - art. 59 of the Law 31/1990 ontrade companies are practically reiterated quasi-identically in art. 196- art. 199 of the New CivilCode.

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series of fundamental specific characteristics due precisely of its belonging tothat field of legal relations, and turning it into common law does not seem to bethe best solution.

Applying a particular type of nullity, whose constructive specificity

actually relies on what it focuses on –a fact, a whole– without making any distinctions, even when the situation allowed –the whole (the fact)– is missing,being replaced by a part (the legal proceedings), may be excessive.

Extending the effects of a special type of nullity -which are mainly exceptions from common law nullity- beyond its common application field, isnot a solution we would recommend.

Trade company nullity specificity relies on the imperative need of preserving the trade company, on the need of protecting good-faith third partiesthat conclude agreements with the trade company and on the need to preserve

the stability of the commercial system that is grounded on a network of legalrelations and on chain reactions triggered by the effects of the dissolution of alegal relation. This tenability is not to be found in common law.

This is why, beyond any criticism, we support a toning of the applicationof the company law nullity model, that is a limitation of this model to certaintypes of companies and corporate bodies, as we think that this would be a moreappropriate solution.

The new private law corpus has undeniable chances of coming into effectin the current version. As a consequence, a significant part of commercial laws – concerning also nullity – will become redundant. Given the above-mentioned

considerations, we can only wonder what the future of commercial law as anindependent field of law will be, but we will try to find the answer to thisquestion in a future study.

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References

Carpenaru, St.D., David, S., Predoiu, C., Piperea, Ghe., (2009). Legea societatilor comerciale. Comentariu pe articole., 4th edition, C. H. Beck Publishing,Bucharest.

Dumitru, M., (2010). Dreptul societatilor comerciale , Editura Institutului European,Iasi.

Gheorghe, C., (2010). Nulitati de drept comercial , C.H. Beck Publishing, Bucharest.

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