Legislation

Shareholder Agreement Amendment to the 1996 Company Law

Soon after project start up, CGCL identified a provision in the 1996 Company Law that was particularly detrimental to the protection of minority shareholders. An amendment to the law resulted in the restoration of substantial minority shareholder rights and preservation of $12 million dollars of share value within four months of project start-up. USAID has highlighted the success of these activities on its website.

Passage of a New Company Law

CGCL provided intensive technical assistance in the drafting of a new Company Law, which was enacted in April 2004. The law incorporates OECD corporate governance best practices, is compliant with EU Directives, establishes International Financial Reporting Standards (IFRS) as the basis for financial reporting, incorporates International Valuation Standards (IVS2003) and mandates the creation of a national electronic commercial register. The law can be seen as Macedonia’s “private sector constitution” since it regulates all types of commercial legal entities in the country (from economic interest groups and joint stock companies to sole proprietors and small scale traders).

While progress has been made in improving some aspects of the business climate, the most critical reform that of the judiciary is only now starting. The new government has made judicial reform a high priority, but plans for a comprehensive reform supported by the World Bank and drawing on expertise financed by USAID are at an early stage. In other areas, steps taken so far to improve the business climate include the establishment of an internal audit unit in the PRO (structural benchmark), the liberalization of the tobacco sector (structural benchmark), and the enactment of the company law. The law strengthens minority shareholders rights, tightens the regulation of conflict of interest, and facilitates company registration by introducing a one-window system.”

IMF (2004).

You can download the English translation of the company law here: Macedonian Company Law Final Version December 2004 4 (2.06 MB)

Promoting Public Dialogue on New Company Law

Over the course of the drafting of the Company Law, CGCL sponsored 27 public hearings with more than 2,000 participants (20 hearings after First Reading, 7 hearings after the Second Reading of Parliament) which both served to educate and solicit feedback on the proposals. Government and project websites provided the legislation and bases to send written submission. Suggested amendments were reviewed by the drafting committee resulting in numerous changes in the draft laws.

The company law legal framework has been significantly improved recently with the enactment of a new Company Law in 2004, with the assistance of USAID.  The process used to prepare the 2004 Company Law can be a model for going forward, in that it engaged the private sector and allowed sufficient time for review and revision of the draft.”

World Bank (2005)

As a first step in the move to a fully integrated one stop shop for business and license registration, CGCL assisted the drafting of the Business Registration Bylaw, effective as of February 1, 2005. The bylaw enabled the transfer of approximately 80,000 registration records of commercial legal entities from the three registration courts to the Central Registrar, and defines the registration forms to be used by the registration courts prior to the implementation of a new one stop shop registration system in Macedonia.

Enactment of the Audit Bylaw

With support of EMG’s financial sector reform project, a bylaw was passed by the Government on December 30, 2004 and implemented with the translation of International Financial Reporting Standards to Macedonia in the Official Gazette. The bylaw was drafted as a result of the 2004 Company Law.

Enactment of the Small Scale Traders Bylaw

As part of the Company Law modernization process, CGCL supported the drafting of a bylaw that simplifies the registration of small traders in municipalities in Macedonia. The bylaw was effective as of July 27, 2005 and regulates the activities of small traders and the simplified registration of small traders in municipalities.

Amendments to the Law on Artisans

CGCL was asked in August 2005 to assist the Ministry of Economy with amendments to the Law on Artisans that would substantially decrease the bureaucratic burden on the registration of small-scale workshops. A detailed analysis was provided to USAID and further discussions are pending.

One Stop Shop Implementation and the New Registration Law

The development of Macedonia’s new one stop shop business registration system is among the greatest accomplishments of USAID. After ten years of public debate and attempts by technical assistance providers to implement a modern business registration system, a new system was launched in January 2006. As a follow on to the Company Law implementation, CGCL supported the drafting and implementation of the new Registration Law in close coordination with FIAS-World Bank, the IMF and the EU. The law came into effect on September 23, 2005 and facilitated the creation of the business registration process where business, tax, classification, and statistics requirements are automated, streamlined and embedded in one numbering system. The Law transferred the responsibility for business registration from the courts to the Central Registry and specifies the administrative procedure to be used on appeals of registration issues and incorporates business licensing requirements to further ease compliance obligations.

Securities Law

CGCL supported the drafting of a new Securities Law under MFSSP with a comprehensive review of the draft Securities Law. The draft is based on International Organization of Securities Commissions (IOSCO) standards and incorporates the latest corporate governance standards. A first draft passed Parliament on January 12, 2005. The second phase of the adoption process began in March 2005 after the Ministry of Finance had published the draft law for public debate. The law passed parliament on October 26, 2005. The quality of the Securities Law is essential to the development of the capital market and its role in channeling investments into the economy.  It was created by the official Working Group appointed by the Minister of Finance (consisting of representatives from the Macedonian Securities and Exchange Commission and the Ministry of Finance as well as advisors from both the European Agency for Reconstruction and our Project).  The goal of the Working Group was to eliminate any gaps between the law and the principles set by the IOSCO, at the same time laying the groundwork for EU compliance.

International Arbitration Law

An assessment of the current status of ADR was prepared in 2003 in close cooperation with USAID’s FSVC program to support initiatives to draft mediation and arbitration laws. In close cooperation with the EU, CGCL assisted the Ministry of Economy with the drafting of a new international arbitration law. The law is being prepared for passage in Governmental procedures and Parliament, and introduces modern international arbitration standards in the country.

Bankruptcy Law

CGCL was invited by the Ministry of Economy’s drafting committee to provide assistance with the drafting of a new Bankruptcy Law. To support this effort, CGCL solicited the support of UNCITRAL, the European Union and the World Bank. Key drafting committee representatives were able to discuss the Guidelines on Insolvency with UNCITRAL representatives in Vienna in December 2004. A first draft of the law was completed in June 2005, and sent to parliament in July after an intensive public consultation process. The law was adopted by parliament in march 2006. You can download the English version of the Bankruptcy lLaw here: Bankruptcy Law March 2006 (273.86 kB).

CGCL supported a public hearing process in similar fashion to that held in support of the passage of the Company Law. Over the course of the drafting of the bankruptcy law, CGCL sponsored 11 public hearings (7 prior to First Reading, 4 prior to Second Reading) which both served to educate and solicit feedback on the proposals. Government and project websites provided the legislation and bases to send written submissions. Suggested amendments were reviewed by the drafting committee resulting in changes in the draft law, where appropriate.

Law on the Economic Chamber

In 2004, CGCL reviewed the draft Law on the Economic Chamber. CGCL provided background memoranda and specific analysis highlighting the deficiencies contained in the Ministry of Economy draft.

Drafting Schedule

1996 Company Law

Amendment to Article 292 of the 1996 Company Law:

• Adopted by the Parliament July 23, 2003;
• Published in the Official Gazette of July 31, 2003;
• In force as of July 31, 2003.

First Amendment to Postpone the 2002 Company Law to Enable the Drafting of a New Law:

• Adopted by the Parliament on June 3, 2003;
• Published in the Official Gazette of June 30, 2003
• In force as of June 30, 2003.

Second Amendment to Postpone the 2002 Company Law to Enable the Drafting of a New Law:

• Adopted by the Parliament on  December 29, 2003;
• Published in the Official Gazette of December 31, 2003;
• In force as of December 31, 2003.

2004 Company Law:

• First draft of the company law passed the Parliament in the first phase on November 19, 2003;
• Second and final draft of the company law passed by parliament in second and final phase on April 30, 2004;
• In force as of May 8, 2004.

Amendment to 2004 Company Law to Enable the Implementation of the One Stop Shop Registration System:

• An amendment was made to the 2004 company law through the final and transitional provisions in registration laws that passed Parliament on September 23, 2005.

2005 Regulation for the Administration of the Commercial Register and Procedure for Registration in the Commercial Register:

• Adopted by the Minister of Justice and published in the Official Gazette No. 0705 – February 1, 2005;
• In force as of February 2, 2005.

2004 Regulation for the Application of the International Financial Reporting Standards:

• Published in the Official Gazette No. 94/04 – December 30, 2004;
• In force as of January 1, 2005.

Amendment to 2004 By-law for Application of the International Financial Reporting Standards:

• Published in the Official Gazette No. 11/2005 – February 17, 2005.

2005 Regulation for Small Scale Traders:

• Adopted by the Government - July 27, 2005;
• Published in the Official Gazette no. 64/04 - August 3, 2005;
• In force as of August 4, 2005.

2005 Registration Law:

• Submitted to the Government and passed the Government procedure - July 21, 2005;
• Submitted to the Parliament – August 17, 2005;
• Passed parliament on September 23, 2005.

Additional Laws that Have Been Amended for the Introduction of the One Stop Shop:

• Draft Law amendments on the Company Law
• Draft Law amendments on the Law on Cooperatives
• Draft Law amendments on the Law on Economic Chambers
• Draft Law amendments on the Law on Culture
• Draft Law amendments on the Law on Water Communities
• Draft Law amendments on the Law on Water Supply Management

The Laws that fall under the competence of the following Ministries have not yet been adopted:

A. Ministry of Education and Science

• Draft Law amendments on the Law on University Education
• Draft Law amendments on the Law on High School Education
• Draft Law amendments on the Law on Elementary School education
• Draft Law amendments on the Law on Sports

B. Ministry of Justice

• Draft Law amendments on the Law on Citizens’ Associations and Foundations
• Draft Law amendments on the Law on Institutions

C. Ministry of Labor and social Policy

• Draft Law amendments on the Law on Child Protection
• Draft Law amendments on the Law on Welfare

D. Ministry of Health

• Draft Law amendments on the Law on Health Care

E. Ministry of Finance

• Draft Law amendments on the Procurement Law

2005 Bankruptcy Law:

• Submitted to the Government and passed the Government procedure - July 21, 2005;
• Expected to be adopted in January 2006.

2004 Chamber of Commerce Law:

• Adopted by the Parliament December 9, 2004;
• Published in the Official Gazette No.09/04 – December 16, 2004;
• In force as of December 24, 2004.

Draft Corporate Governance Code:

• Code drafted and submitted to the CEO of the Macedonian Stock Exchange – June 21, 2005;
• Draft Code adopted by the Board of Directors of the MSE in June 2005;

International Arbitration Law:

• Sent to the Government – June 2005;
• Last review by the Ministry of Economy, Legislative Committee and Ministry of Justice – August 2005.

Assessments

Commercial Law and Institutional Review

The CLIR diagnostic methodology measures seven areas of essential commercial laws across three dimensions of implementation. The project completed the second and third Macedonian CLIRs thereby enabling a comparison between the base year 2000, 2003 and 2005. The CLIR 2003 results showed significant progress in all areas. CLIR 2005 showed further improvements, particularly in the Bankruptcy, Competition and Company components. The framework laws have been improved substantially. Implementation of these laws, particularly with respect to the Company Law, has led to substantial improvement by implementing institutions. For example, the Stock Exchange has moved forward with the development of a Corporate Governance Code and the Bankruptcy Law will provide for a bona fide Chamber of Trustees that will be subject to rigorous professional requirements including adherence to a professional code of conduct and standards, ongoing continuing education and mandatory liability insurance. Supporting institutions also fared well. Akcioner is now recognized by over two thirds of the population.  This is just one example of the increasing awareness of shareholder rights.

Commercial Court Assessment

CGCL completed an assessment of the capacity of courts to handle commercial cases and the training needs for judges who deal with commercial disputes in close cooperation with USAID’s DPK Court Reform Program. The Report recommended establishing specialized commercial court divisions within the existing civil divisions and a series of training and human resource policies in support of establishing a pool of commercial law specialists at the judicial level. The introduction of specialized commercial courts has been included in the Ministry of Justice’s Judicial Reform Strategy.

Analysis of the Law on Free Economic Zones

At the request of the Ministry of Economy, CGCL provided an analysis of laws in other countries dealing with free economic zones. The specific task was to investigate the degree to which tax breaks could be provided in Macedonia while continuing to comply with EU legislative and policy standards. A comparative memorandum was provided to MoE in December 2005. At project end, MoE was continuing to review its draft legislation with particular reference to the tax preferences contained therein.

Shareholder Awareness Survey

CGCL has measured the level of shareholder awareness primarily with respect to their legal rights under the Company Law but also with respect to their knowledge and trust of a variety of government and private sector institutions. Collected annually over a three-year period, results document an overall rise in trust toward key financial institutions and awareness of their rights among shareholders:

• Trust has risen from 37 percent of shareholders having at least ‘a fair amount’ of trust in an index of key institutions (the Stock Exchange, Pension Fund, Central Bank and five others) in 2003, to 42 percent in 2004 and up to 45 percent in 2005;
• The percentage that could mention at least three of the most important rights of shareholders has risen from 29 percent in 2003, up to 42 percent in 2005;
• Shareholder awareness of the shareholder group Akcioner has risen from 22 percent in 2003, to 63 percent in 2004 and up to 71 percent in 2005.  Corresponding with this trend, the percentage of shareholders holding at least ‘a fair amount’ of trust in Akcioner has risen from 36 percent in 2003, up to 56 percent in 2005.

The surveys show that Akcioner members tend to be more aware of their shareholder rights and a significant number of non-member shareholders expressed a willingness to pay to join Akcioner as a result of the contractor’s technical assistance to the NGO.

Corporate Governance Enterprise Survey

CGCL conducted a census of active joint stock companies in 2003 to gauge compliance with the existing (1996) Company Law, adherence to corporate governance best practices, to assess company financing and investment objectives, and to obtain basic demographic and governance structure information. Ninety-two percent of all active companies responded to the survey thereby presenting an up-to-date, comprehensive source of information on Macedonian joint stock companies. Information extracted from the survey was used to filter eligible candidates for the Pilot Enterprise Program and to shape training services to companies.

Education

Public Outreach

CGCL’s public education efforts in Macedonia have resulted in more than 240 print articles, 90 television segments, 15 TV debates and 64 radio segments on corporate governance topics. CGCL also regularly scheduled town hall meetings and held workshops with journalists on shareholders’ rights and related issues throughout the country. Through its cost effective public education campaign, the project reached 155,492 or 63 percent of all shareholders living in Macedonia (248,122 shareholders). The program was extremely successful surpassing USAID’s expectations with an overall 30 percent increase of shareholder awareness in the country. Forty-two percent of the country’s shareholders were able to mention three of the most important shareholder rights in November 2005.

Institution Building

CGCL spirited the creation of the Macedonian Corporate Governance Council (CGC), comprised of influential government and private sector representatives and continues to provide logistical and technical support for its activities. The CGCL team and the CGC coordinate its efforts with the OECD, among a host of partner organizations. CGCL’s team sponsored the Macedonian translation of the OECD’s White Paper on Corporate Governance for South Eastern Europe which was unveiled in a joint CGCL/OECD regional event in Ohrid in June 2004. In addition, CGCL has provided financial and technical support to Akcioner (a shareholder protection organization) in close cooperation with the Center for International Private Enterprise (CIPE) that has resulted in substantial increased membership, a higher degree of professionalism in its conduct and greater public and shareholder exposure.

Improvements in Formal Education

CGCL was instrumental in supporting the development of a masters’ level commercial law curriculum at St. Cyril and Methodius University. Similar activities have commenced in the Economic Faculty of St. Cyril and Methodius (as elective courses), at the Winter University (in cooperation with the Dutch Government as primary donor) and at South East Europe University in Tetovo.

CGCL Internship Program

From project start up the project launched a comprehensive internship program. A total of 20 interns have worked on various aspects of the project’s activities including translations, legal support, IT, and public education services. Upon completion of internships, all departing interns have been placed in either full time employment or post-graduate studies.

General Company Law Education

The CGCL national enterprise training program consisted of three phases. Phase one focused on changes in the new Company Law, while phases two and three concentrated on the implementation of the law (such as organizing general meetings of shareholders and the development of a charter). A total of 325 Macedonian joint stock companies have received instruction on Company Law requirements under CGCL’s Company Law education seminars (approximately 40 percent of all active joint stock companies). In addition, 116 judges and 146 lawyers have had an opportunity to be introduced to the changes in the new Company Law through CGCL’s training programs for the judicial sector.

Pilot Enterprise Program

CGCL established a corporate governance and Company Law compliance training program for 11 joint stock companies. This program was established on a “train the trainers” basis, where local law firms have been contracted to provide advice to these companies on a host of issues over an extended training period. Valuations of the program have been extremely positive. Companies have benefited by obtaining critical compliance and governance information while the local law firms have enhanced their skills at providing professional advice on commercial law and corporate governance matters.

Other

Restructuring Assistance

Upon the request of the USAID mission, CGCL investigated a major manufacturing enterprise’s viability, identified profit centers and loss makers, management and financial systems’ capacity to monitor ongoing operations and cash flow requirements, prepared a multifaceted re-organization plan and presented the same to the key stakeholders including members of the Supervisory and Management Boards and the Union.

Corporate Social Responsibility Initiatives

Beginning in 2005, CGCL expanded its mandate to include education on corporate social responsibility. In addition to various workshops, it organized, in close cooperation with the Dutch Embassy, the UNDP and various USAID projects, Macedonia’s first national corporate social responsibility conference in June 2005. A draft code of ethics prepared by members of the Macedonian Corporate Governance Council was presented at the conference.

Corporate Governance Code

CGCL established a drafting committee for the Macedonian Corporate Governance Code in close cooperation the Macedonian Stock Exchange (MSE), the Dutch Embassy and the Ministry of Finance in the Netherlands. The draft code was adopted by the board of directors of the MSE in July 2005. The Code was finalized by the working group in January 2006 using the World Bank’s Toolkit for Corporate Governance Codes. A public consultation process is being planned for the beginning of 2006. Compliance with the code is expected to be part of the listing requirements of the Macedonian Stock Exchange. The Code builds on the latest international corporate governance standards.

Coordination

European Union:

• The project entered into a cost sharing agreement with the European Trade law project implemented by DTL (EU-ATL project) to assist the Macedonian Government with the drafting of the 2004 Company Law in 2003 and 2004;
• The project signed a memorandum of understanding with the EU-ATL project in March 2005 to share costs and assist the Macedonian Government with the drafting of an insolvency law, registration law and an international arbitration law;
• The project was sponsored by the European Institute for Public Administration of the European Commission to present USAID’s involvement in the Company Law drafting process at a two-day conference in the Netherlands on June 17, 2004.

OECD:

CGCL worked closely with the OECD on the introduction of modern corporate governance standards to Macedonia with the introduction of the OECD White Paper on Corporate Governance for South Eastern Europe in Skopje in June 2003, the participation in the High Level Working Group in Paris in November 2003, the organizations of the international OECD corporate governance conference in Ohrid in June 2004 and the participation in the OECD conference in Istanbul in June 2005.

There is no question that the recent South East Europe Corporate Governance Roundtable in Ohrid was a great success, and that much of the credit belongs to you and the rest of the Corporate Governance and Company Law Project team.  I would like to acknowledge the excellent work of the staff, as well as the generous and evident financial support provided by USAID for the meeting. Some of the things that particularly impressed me included the special arrangements made for the press conference, the high calibre of the Macedonian participants, and the attention to detail that you and your staff showed in making all the local arrangements.

OECD, 2004

These conferences gave the Macedonian delegations an excellent opportunity to discuss and present developments in Macedonia and the importance of open and transparent drafting processes for the introduction of corporate governance legislation and standards.

• The project co-organized with the OECD the “National Conference on the OECD White Paper on Corporate Governance for South Eastern Europe” on June 19, 2003;
• The project was sponsored to participate in a High-Level Working Meeting and Consultation on the OECD Principles of Corporate Governance organized by the Global Corporate Governance Forum in Paris (November 2 – 4, 2003);
• The project organized a high profile international event on June 10-11, 2004 in Ohrid which was co-sponsored by the OECD and the World Bank;
• The project was sponsored to participate in the OECD High-Level Conference on corporate governance and state-owned enterprises on April 19-20, 2005 in Istanbul.

GTZ:

• The project was sponsored to participate in an international conference on legal reform in South East Europe in Igalo (Montenegro) from September 30 to October 5, 2003.

UNCITRAL

• The project and a Macedonian delegation visited UNCITRAL in Vienna on December 15-17, 2004 to discuss the Insolvency Law action plan of the drafting committee and aspects related to reorganization plans, labor and cross border insolvency. Sponsored by USAID.

UNDP

• The project organized a national corporate social responsibility conference co-sponsored by the UNDP and the Dutch Government in May 2005.

Dutch Government

• The Dutch Embassy sponsored the visit of a corporate governance specialist for two, one week visits from the Netherlands in 2004 and 2005 to develop a draft corporate governance code;
• The Dutch Embassy sponsored a study tour to the Netherlands for the project and members of the Macedonian corporate governance code drafting committee from 20-24 September, 2005.

World Bank, IMF and IFC:

• The project worked in close cooperation with the IMF, the World Bank, the EU and the IFC/FIAS on the passage of a Registration Law and the development of a one stop shop registration system for approximately two years (2004-2005).

CIPE:

• The project facilitated two grants from CIPE for Akcioner totaling $58,000 for the development and implementation of a minority shareholders education program in 2004 and 2005.