Clarification of succession rules in case of company reorganization

According to Article 63 of the Civil Code of the Republic of Armenia, the reorganization of a legal entity (merger, consolidation, division, separation, transformation) is carried out on the basis of a decision by its founders (participants) or by the body of the legal entity authorized by its charter. A legal entity, except in cases of reorganization through consolidation, is considered reorganized from the moment of state registration of the newly created legal entities. In the case of reorganization through consolidation with another legal entity, they are considered reorganized from the moment of state registration of the termination of the consolidated legal entity.

According to Article 64 of the Civil Code of the Republic of Armenia, in the event of reorganization, succession is regulated by the transfer act or the separation balance sheet.

At the same time, after approving the transfer act or separation balance sheet, the organization must undertake numerous actions—such as notifying creditors, initiating and undergoing a tax audit, and so on.

Accordingly, a substantial period may pass between the approval of the transfer act/separation balance sheet of the reorganizing organization and the moment of state registration of the reorganization results, during which the composition of the organization’s assets and/or its civil rights and obligations may change. For example, an organization operating in the trade sector inevitably sells and acquires various assets; a manufacturing company receives or consumes raw materials, sells finished products, and so on. Succession issues related to such assets often remain unregulated, which may lead to disputes—especially in cases of division or separation.

The draft proposes introducing amendments to the Civil Code of the Republic of Armenia, the Law “On Limited Liability Companies,” and the Law “On Joint-Stock Companies,” by stipulating that the transfer act or the separation balance sheet shall also define the procedure for determining succession with respect to changes in the type, composition, and value of the reorganizing legal entity’s property, as well as the acquisition, modification, or termination of rights and obligations occurring during the period following the date of preparation of the transfer act or separation balance sheet.