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Shareholders rights and their equal treatment Bucharest , September 20-21 2001 Session 1

This session explores the legal framework and conceptual dilemmas surrounding corporate governance in Croatia. It highlights the need for harmonization and suggests recommendations for improvement. The session also discusses the role of the Council for Corporate Governance and its efforts to address these issues.

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Shareholders rights and their equal treatment Bucharest , September 20-21 2001 Session 1

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  1. Shareholders rights and their equal treatmentBucharest, September 20-21 2001Session 1 Croatian Securities Commission Ivica Smiljan, Chairman www.crosec.hr CROSEC

  2. Corporate governance in Republic of Croatia Table of contents: • Legal framework • Basic conceptual dilemmas • Council for Corporate Governance • Suggestions • Conclusion CROSEC

  3. Legal framework • Corporate Law (1993, hereafter: CL) • Bankruptcy Law (1996, 1998, 1999, 2000) • Execution Law (1996, 1999) • Law on issuance and sale of securities (1995, 1998, hereafter: LISS) • Takeover Law (1997, hereafter: TL) CROSEC

  4. Basic conceptual dilemmas • Corporate Law is based on German Law • Law on issuance and sale of securities is based on Anglo-Saxon concept • In Takeover Law are incorporated experience and European Union directions, of course with some modifications CROSEC

  5. Basic conceptual dilemmas • How to harmonize basic conceptual dilemmas, which manifest as follows: • According to provisions of CL, Board of directors, may, if it is proscribed by Memorandum of association of company, refuse to register shareholder in shareholders book Above mentioned provisions have negative impact on securities trading and development of capital market and they enlarge systemic risk CROSEC

  6. Basic conceptual dilemmas • According to provisions of CL new issuance of securities may be paid in installments (first installment is 25%) in longer period of time that obstruct free trading • According to provisions of CL new issuance of securities can not be issued bellow nominal value which also make more difficult for Company to make decision for new issuance of securities CROSEC

  7. Basic conceptual dilemmas • CL, besides giving possibility of issuing dematerialized shares does not foresee possibility and procedure of depositing dematerialized securities in depositary institutions • Acquisition and growing apart of treasury securities give opportunities for various manipulations CROSEC

  8. Council for Corporate Governance • Council for Corporate Governance (hereafter: Council)is organized by Croatian Employers Association (hereafter: CEA) which main tasks were: to see what is present legal framework, to identify problems and suggest possible solutions • Council made their first report CROSEC

  9. Council for Corporate Governance • Members of Council had different views on problems relating corporate governance • In my opinion, Councils Report is therefore a suggestion of compromise solutions of corporate dilemmas CROSEC

  10. Suggestions • New LISS and amendments to present CL • Definition of public companies for which the provision of CL will not be applicable which are before stated as obstacle for public trading and development of capital market (LISS) • Adjustment of CL provisions about depositing of dematerialized securities CROSEC

  11. Suggestions • Other suggestions are related to: • status of Board of directors and Supervisory Board • transparency • role of accounting and auditing CROSEC

  12. Conclusion • Legal framework which regulate corporate governance in Croatia is unharmonized • There is initiative and concrete actions to prepare harmonization of legal framework • Council recommendations are issued, but there are still conceptual differences CROSEC

  13. Conclusion • Basic issue is if there is a need for new Corporate Law who will follow OECD corporate governance principles or is it sufficient to amended existing Law, which is suggestion of Council • New Law on issuance and sale of securities is in procedure CROSEC

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