Last updated: 13 August 2018
Dividend distribution has always been a sensitive subject for investors in Romanian companies. Thus, irrespective of whether they are shareholders in limited liability companies or or in joint-stock companies, investors have always been dissatisfied with the fact that they only took advantage of the company once a year, after approval of the annual financial statements.
Please note that European legislation in the field (currently - Directive no. 1132/14.07.2017 on certain aspects of company law) allows Member States to establish, through their national law, the possibility to grant "interim dividends", i.e. to distribute dividends during the financial year, if certain conditions are met. However, until now, the Romanian legal provisions did not seem to recognize such a possibility. The reason for this regulation seemed to be that such "interim" distributions would be made from uncertain, even unobtainable profits.
However, on 15 July 2018, Law no. 163/2018 amending and supplementing Accounting Law no. 82/1991, amending and supplementing Law no. 31/1990 on companies, as well as Law no. 1/2005 on the organization and operation of the cooperatives, was published in the Official Journal no. 595 of 12 July 2018. The law seems to solve the shareholders’ problems, by allowing the distribution of dividends throughout the year.
Quarterly Distribution of Dividends, Possible from Now on
Unlike the old regulation, which allowed the distribution of dividends only at the end of the financial year, the new law allows the quarterly distribution of dividends, on the basis of interim financial statements.
As for the term of payment of dividends, the law currently stipulates a period of 60 days from the date of approval of the annual financial statements for the financial year ended, unlike the old regulation, according to which dividends could be distributed within a maximum period of six months from the date of approval of the annual financial statements for the financial year ended.
The sanction for non-compliance with this deadline has remained the same; after this term, the company must pay penalty interest.
Sources of Interim Dividends
The sources from which dividends can be distributed have remained unchanged since the entry into force of the new law. Thus, dividends can not be distributed from losses and the subscribed share capital must be reconstituted or reduced before any distribution or allocation.
Dividend Regularization
If dividends are distributed on a quarterly basis, the settlement of the differences resulting from their distribution during the year is to be made through the annual financial statements.
If, following regularization, shareholders owe dividend repayments, such repayments will be paid to the company within 60 days from the approval of the annual financial statements. Shareholders who fail to comply with this term will be sanctioned and will owe penalty interest.
Dividend restitution also applies to interim dividends if the company proves that the shareholders were aware of the irregularity of the distribution or, in the existing circumstances, it had to know it.
In our opinion, this legislative change will encourage investors, as well as capital movements. Thus, investors would be more motivated to invest, to constantly take advantage of the company. They could also allocate these interim dividends to new investments, either in the company in question or in other businesses. We will follow-up the consequences of this legislative change.