08 May 2020
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How limited liability company can issue corporate bonds?

The economic package measures adopted by the Government to mitigate the effects of the COVID-19 virus pandemic included the Decree on the procedure for issuing debt securities (“Decree“).  For the Serbian economy, where bond issuance is rare, the content of this Decree is an exception, however, in countries with more developed financial markets, corporate bonds are a standard form of financing.  The Decree seeks to simplify the procedure for issuing debt securities during a state of emergency, as well as within 180 days of termination of a state of emergency, with aim to encourage companies to issue debt securities to create an additional way to obtain funding sources.  Additionally, the issue of debt securities enables the issuer to obtain a larger amount of funds at a lower interest rate than the loan.  Also, the issuance of debt securities increases the number of financial instruments traded on the stock exchange.

After the announcement of the package of measures and decrees that stipulated them, there remained a lot of doubts, especially regarding corporate bonds, which should introduce a new way of financing for the issuer and a new way of investing funds for companies with funds surplus.  One of the most famous securities is equities, issued by joint-stock companies, and representing equity securities. However, there are also debt securities besides from which the most famous are bonds.

One of the common questions since the adoption of the Decree is also whether it refers to companies organized in the form of a limited liability company and what the notion of acquiring the status of a public company entails.

Namely, by definition, a public company is a securities issuer who fulfills at least one of the following conditions: i) has successfully executed a public offering of securities following a prospectus approved by the Securities Commission, and ii) whose securities are involved in trading on the regulated market, that is, the multilateral trading platform (“MTP”) in the Republic of Serbia.

To resolve the existing dilemma, we point out that the legal framework of the Republic of Serbia, i.e. the Companies Act and the Capital Market Act does not exclude the possibility of limited liability companies to issue securities, but they can only issue debt securities.

The regulation provides that an issuer who successfully executes a public offering of debt securities following a prospectus approved by the Securities Commission shall acquire the status of a public company, within the meaning of the law governing the capital market, if it did not have that property before and retain it during the maturity of the debt security. Bearing in mind this fact, the Regulation itself does not introduce new conditions in the issuance of debt securities, but on the contrary, only emphasizes the conditions of the Capital Market Act.

In the case of a limited liability company, the acquisition of a public company within the meaning of the Capital Market Act, as we explained, primarily implies that the company acquires reporting obligations to the public, the Securities Commission and the regulated market or MTP following the mentioned law, and does not imply an obligation for the company to change legal form and become a joint-stock company, nor to include its shares in trading.

We would like to remind you that the publication of debt securities prospectuses, as well as the obligatory contents of such prospectuses, are regulated by the Capital Market Act and by-laws. However, to simplify this procedure as much as possible in the event of an emergency and thereby contribute to mitigating the financial effects of the current situation on market participants, the Decree introduces certain changes to the prospectus drafting and approval process.


For more information, please contact us via covid19@geciclaw.com.