Congress Approves Bill Restricting the Transfer of Shares Held by the Federal Government in Private Companies

On September 23, 2015, the Lower House passed a bill submitted by the Executive Branch (hereinafter, the “PEN”, after its Spanish acronym) which contains provisions aiming at controlling the management and restricting the transfer of shares owned by the Federal Government in private sector companies listed on the stock exchange (hereinafter, the “Law”).

The Law is expected to be promulgated in the next few days.

The PEN declared that the purpose of the Law is to protect the assets of the Sustainability Guarantee Fund of the Argentine Integrated Social Security System created by Decree No. 897/2012 (hereinafter, the “FGS”, after its Spanish acronym, which is a fund created for the benefit of pensioners and other sectors) and to safeguard the public interest arising from the holding of the investments subject to the Law.

I. Main Provisions of the Law

The Law declares to be of public interest the protection of: (i) shareholdings of the Federal Government that are part of the portfolio of the FGS; and (ii) shareholdings in which the Federal Government is a minor shareholder or in which the Ministry of Economy and Public Finance holds shares or equity ((i) & (ii) collectively, the “Shares of the Federal Government”).

The Law forbids the transfer of Shares of the Federal Government and/or any other act or action limiting, altering, eliminating or modifying its destination, ownership, control or nature without the Congress’ express authorization approved by two thirds of its members.

The Federal Government’s shareholdings in YPF S.A. and in YPF Gas S.A. do not fall within the scope of this Law, though Law No. 26,741 which provides for the expropriation of 51% of YPF S.A. and YPF Gas S.A.’s shares, requires the same majority in Congress for the Federal Government to sell the expropriated shares in those companies.

The Law provides for the creation of the following three governmental bodies: (i) the National Agency of Government Investments in Companies (hereinafter, “ANPEE”, after its Spanish acronym), a decentralized agency within the PEN with financial autarky, independent legal status and capacity to act in the field of public and private law; (ii) the Permanent Bicameral Commission on State Investment in Companies (hereinafter, the “Bicameral Commission”), within the Federal Congress; and (iii) the ANPEE's Advisory Council.

In addition, the Law regulates on issues related to the activities of the representatives and board members appointed by the Federal Government as a shareholder in companies in the private sector.

1. The ANPEE

The ANPEE will be the successor of the current National Direction of Companies with Governmental Investment which is under the sphere of the Ministry of Economy and will be the enforcement authority of the Law. The ANPEE must exercise all the political rights inherent to the Shares of the Federal Government. Nonetheless, the FGS will continue to receive dividends generated by its shareholdings and exercise other economic and property rights arising from these shares.

The ANPEE will be managed by a board (the “Board”) of five members.

The Chairman of the Board will be the Executive Director of the National Social Security Administration (the “ANSES”, after its Spanish acronym, the local governmental pension fund) and the remaining members will be the Ministry of Economy and Public Finance and three directors appointed by the PEN, two of the latter shall be proposed by the Bicameral Commission.

The Board is vested, inter alia, with the following powers: (i) appointing representatives of the ANPEE at shareholders’ meetings and giving them instructions on what to approve or disapprove; (ii) providing guidelines, instructions and recommendations to the members of the board or managers appointed by the Federal Government; and (iii) exercising all the political rights arising from the Shares of the Federal Government.

Members of the Board may only be removed from their positions if they commit crimes in the exercise of their functions, if they infringe the Public Ethics Act, if they do not comply with their duties or in the event of poor performance during the exercise of their functions. In the latter case, approval of two thirds of the members of the Bicameral Commission will be required to remove them.

2. The Advisory Council

The Advisory Council will be a non-binding advisory governmental body for the Board of the ANPEE. For this purpose, it will be responsible for addressing the problems, proposals and initiatives of the Board, as well as raising any other suggestion it deems convenient for the fulfillment of the purposes of the Law.

The members of the Advisory Council will be appointed by the PEN and will consist of: (i) one representative from the Ministry of Economy and Public Finances; (ii) one representative from the Ministry of Industry; (ii) one representative from the General Confederation of Labor; and (iv) one representative from ANSES.

The members of the Advisory Council will remain in their positions for two years. They will serve ad honorem and may only be substituted or removed by the PEN.

3. The Bicameral Commission

The Bicameral Commission will be formed of eight Senators and eight Deputies, and its functions will mainly consist of “proposing” the candidates for the Board of the ANPEE to the PEN and to ensure compliance with the provisions of the Law.

4. Rules applicable to representatives and board members appointed by the Federal Government in companies in the private sector

Regarding the members of the boards appointed by the ANPEE in companies in the private sector, the Law determines that they will be considered public officers. It also provides that they will not be subject to section 264, subsection 4 of the Commercial Companies Law which forbids public officers from being managers or members of the board —for up to two years after the date of termination of their service— in companies that carry out activities related to their functions.

The ANPEE will guarantee indemnity to members of the boards or representatives appointed in the companies, provided they comply with the guidelines set to them. In addition, they will receive a monthly payment from the Federal Government and the fees determined for their services will be allocated to the budget of the ANPEE.

II. Final Comments

While the main purpose of the Law is to limit the transfer of the Shares of the Federal Government, the restrictions imposed by the Law may also have an impact on the companies in the private sector in which the Federal Government is a shareholder.

In this regard, it is important to analyze in which way, once the Law is fully in force, the dynamics on the decision-making process and the operations of such companies may be affected.