Koumentakis

Author: skoumentakis

  • Société Anonyme. The new act on SAs: “headache” or «business opportunity»?

    Société Anonyme. The new act on SAs: “headache” or «business opportunity»?

    New act on SA: a “headache” or a «business opportunity»?)

    Ι. Preamble

    Felix Hoffmann (1868–1946) was a famous German chemist.

    His name went down in history as the creator of, among others, a preparation intended to cope with headaches (the “aspirin”).

    The commercial success of the aspirin was, as we all know, huge. It was destined to be legendary -up to today. (As a result of its success, the aspirin is exhibited in the national Museum of American History of the Smithsonian Institute, in Washington.)

    The fact that the aspirin successfully cures headaches is, to this day, a given. The only headache it cannot cure is that which comes with businesses. And it is a big one…

    The new act on S.A.s has been in force, as it is well known, since 1.1.2019.

    But is it just one more “headache” or a (once in a lifetime) business opportunity?

    An act of a hundred and ninety (190) articles, a sixty-eight (68) page long act (pages in the Government Gazette) could not be analysed in just one article. This is not what we intend to do. But it is quite important to focus on the business aspect of it all. We will attempt to tackle the most important and most common practical issues that arise when dealing with an SA.

    The approach taken in this article will help realize how an act can turn into a business opportunity….

    (or not?)

     

    ΙΙ. A little backstory

    New act on SA – no. 4548/2018 (which replaced act 2190/1920) is very modern and up-to-date.

    But what was act 2190/1920? The second half of its name confirms that it was passed in 1920.

    Early 20th century, this act was indeed ground-breaking in the field of company law.  But with decades passing after it came into force, amendments were necessary in order for it to remain relevant. Some of them, major. And with the decades passing, the withdrawals, amendments, interventions and additions started piling on. Because going back to the provisions in place and “tweaking” them was not enough, we started adding new ones (e.g. articles 42, 42Α, 42Β, 42C, 42D, 42Ε). Those “adjustments” ended up being so many, that so few elements reminding of the initial act were left. Some provisions seemed to just be “thrown in there”, with no cohesion with the rest of the act. The act ended up being a true patchwork…

    Its replacement was a necessity.

    The hundred-year-old 2190/1920 already gave its place to the “young” 4548/2018. With the latter already in force for ten months now, we are in a place to come to some useful conclusions.

     

    ΙΙΙ. “Ignorance of the law” and “one size fits all” articles of association

    Since ignorance of the law is not forgiven, no one can claim they are above the law.

    What was happening until 31.12.2018? And what is happening now?

    Businessmen, with only a few exemptions, were completely ignorant when it came to their own company’s articles of association. Unfortunately, so did most of their advisors. Most articles of association were not “made” to serve the specific needs of each businessman. Minor amendments to the (statute) model-texts notaries had once drafted proved(?) enough. And the (new) SA was ready to go!

    But when a problem “knocked” on the SA’s door, the businessman would “knock” on a lawyer’s door. And the latter would turn, for the first time, to the articles of association.

    In most cases, that was TOO LATE…

    That is when the businessman would realize that they should carefully and properly amend their articles of association (and often this realization would come with a painful and unnecessary cost).

     

    IV. Business view of Societes Anonymes

    We have already seen in the introduction that such a long act (as is act 4548/2018) could not be analyzed (or even presented) in one article. But we sure can attempt to approach the most common and practical aspects of the act, at least from the business point of view. A decalogue would come in handy for businessmen and their advisors.

    Let’s take it one step at a time:

     

    1. A fast and, foremost, cheap start

    An SA can now be established in minimum time and with an close-to-zero expense.

    Since 2016 (article 9 act 4441/2016) the participation of a notary and a lawyer often proved redundant.

    The SA can now, in some cases, even be established with a private document (article 4 § 2 act 4548/2018). A necessary requirement is to be using the official model articles of association and submit it to the relevant “one stop shop” of the Business Registry. An important prerequisite: to not diverge from the official model. Small (?) detail: the “one stop shops” still only have available models drafted according to the (abolished since 1.1.2019) act 2190/1920…

    In more complex cases (as well as in cases where the founders wish to divert from the provisions of the official model) the SA can only be established with a notarized document. A notarized document is also required when a legal provision specifically calls for it, or if contributions in kind are made to the company, contributions that in order to be transferred a notarized document is required (article 4 §2 act 4548/20190).

    But still in cases where the articles of association can only be valid if they come in a notarized document, there is a way to minimize costs. Choosing small (size-wise) articles of association – by avoiding unnecessary repetitions of the law, is the best practice. The cost (at least of the official copies) will be significantly smaller. And even more so: possible amendments of the law will not create a need to amend the articles of association accordingly.

     

    1. Attracting and keeping capable executives

    It is extremely important for all businesses to achieve, among others, a triple goal:

    • Attract capable executives,
    • Keep them for a long time,
    • Minimize their cost.

    Businesses and their executives have, in most cases, contradicting interests -and both sides want to mainly serve their own.

    Executives want to receive, in most cases, bigger salaries and other benefits.

    Businesses want to give out lower salaries and minimize other relevant expenses. They also have medium- and long-term targets.

    When the conflict of interests between management and ownership minimizes, at least by a little, everything becomes simpler. But what is the way to do so in an SA?

    New Act on SA – 4548/2018 offers multiple opportunities to SAs, in order for them to successfully tackle the (given) conflict of interests between them and their executives. Some of them are the Stock Options (article 113 act 4548/2018), Bonus Shares (article 114 act 4548/2018) and/or Ordinary Founders’ Shares (article 75 act 4548/2018).

    In cases of Stock Options and Bonus Shares, the executive is offered a chance to become a shareholder (with or without monetary consideration). This new role (that of a shareholder) is offered either at the time the executives are hired or after they have already established a long-term relationship with the SA. This way the interests of the SA and an executive align.

    It is a bit different with Ordinary Founders’ Shares. Those shares are offered, among others, to executives at the time the SA is established.  The owner of an Ordinary Founders’ Share will be hoping for the improvement of the company’s economic outturn. This (improved) economic outturn is what it will bring for them the agreed upon profit. But the shareholders do not carry any risks regarding the shareholding balances: Ordinary Founders’ Shares do not carry rights equal to those typical company shares do (e.g. voting rights or participation in the management). At the same time, the dividend their owners can receive is maximum ¼ of the amount exceeding the minimum distributable dividend. In any case, Ordinary Founders’ Shares do manage to align the interests of executives and the business.

     

    1. Minimizing company expenses and shareholder disbursements

    Any business’s goal is, among others, the improvement of its cost-benefit ratio. This goal can (also) be achieved by minimizing costs. The shareholders aim to improve the company’s economic result. At the same time, to have to withdraw as less money as possible. The interests of a company and its shareholders are often perfectly aligned, sometimes identical.

    The recent act on Société Anonyme offers tools to achieve the abovementioned goals.

    We have already referred (above under 1) to the deduction of cost at the stage of a company’s establishment. Adopting the formal model articles of association and not involving a notary or a lawyer is a step to that direction. But what happens if a notarized document is required? Short articles of association with no repetitions of the law.

    But how can one minimize expenses when a company operates?

    We have already mentioned the tools the law provides for the minimization of salary expenses (above under 2).

    A relevant tool (for minimizing expenses) is the utilization of technology. The recent act offers significant opportunities for the utilization of technological tools. Opportunities not at all insignificant, that will not only boost effectiveness, but also minimize operating costs.

    And as far as shareholders are concerned, is it possible that they will have to suffer fewer financial burdens and make less withdrawals?

    The partial payment of the SA’s capital (article 21 § 1 act 4548/2018) is the tool to do exactly that. The partial payment of the capital can take place, under certain conditions, not only at the stage of an SA’s establishment, but also in cases of capital increases. By taking advantage of this opportunity, the shareholders can deposit in the company only a fraction of the capital they have taken on to cover. They can postpone the obligation to pay off the rest of it, thus facilitating the management of their finances.

     

    1. Attracting investment capital

    The expectations businesses once had, that banks would provide financial support, is well in the past.

    Attracting investment capital is now a pressing need.

    The act offers significant options and tools that will accommodate such needs.

    The tools offered are (among others):

    • Warrants (article 56 act 4548/2018), which offer the right to those who hold them to acquire, sometime in the future, shares of the company which issued them, in a pre-determined, low price.
    • Preference Shares (article 38 act 4548/2018) can offer a wide range of privileges. Receiving dividends before ordinary shares, receiving interest and having a priority when it comes to participating in a company’s profits that derive from a specific business activity are only some of them. Preference Shares can either incorporate or not voting rights.
    • Redeemable Shares (article 39 act 4548/2018) offer the right to their owners to request to have them, sometime in the future, bought by the company which issued them, in a beforehand agreed upon price.
    • Bonds (article 59 et seq. act 4548/2018).
    • A combination of the above “tools”.

     

    1. Drawing liquidity from the Société Anonyme

    Part of the (Greek) reality is the “utilization” of company cash, for covering needs of its shareholders. But a Company’s Cash and the Businessman’s “Pocket” are two different things. A possible blurring of the boundaries between the two will create multiple and extremely severe risks. For the business, as well as for the businessman. This is why “informally” obtaining liquidity from a company should be avoided. There are several tools, though, to help make it “formal”. A necessary prerequisite is the support of the majority of the shareholders and the ability of the company to respond.

    The most common tools are: (a) for the members of the Board to participate in the company’s profits, and (b) the conclusion of contracts between the SA and its major shareholders, BoD members and related parties (even more so since the previous provisions of the act have been abolished).

    As significant (if sometimes not more significant) as the above tools are, among others, the following:

    • The distribution of dividend (final or interim),
    • The Deduction of the Capital (articles 29 et seq. act 4548/2018),
    • The Amortization of Capital (article 32 act 4548/2018),
    • The issuance of Ordinary Founders’ Shares (article 75 act 4548/2018) and
    • The issuance of Extraordinary Founders’ Shares (article 76 act 4548/2018).

     

    1. “Managing” small shareholders

    New Act on SA – 4548/2018 strengthens, as it seems, the rights of the minority, especially through the right given to them for exceptional auditing.  Nonetheless, the existence and the implementation of the minority’s rights are not always enough to achieve the necessary balance in the relations between the minority and the company. Often, the exit of the minority shareholders from the company is in the best interest of both them and the company.

    The minority shareholders can reach the exit by taking five, among others, ways:

    (a) By the option given, under conditions, to the minority shareholders (holding ≤5% of the share capital) to request before a court:

    (aa) the redemption of their shares by the SA (Act 4548/2019, article 45) and

    (ab) to be bought-out by the majority shareholder (holding ≥ 95% of the share capital) -(Act 4548/2019, article 46)

    (b) By the option given, under conditions, to the majority shareholder (≥95%) to buy-out the minority shareholders (Act 4548/2019, article 47)

    (c) By the increase (ordinary or extraordinary) of the share capital, as well as

    (d) By a (combined) decrease and increase of the capital.

     

    1. Utilizing technology

    The Act on SAs facilitates, by providing plenty of relevant provisions, the utilization of technology. The use of technology, without it being obligatory, has proven beneficial on many levels. For example, technology can be used in an SA:

    (a) for issuing intangible shares and digitally keeping the Shareholder Book (Act 4548/2019, articles 34, 40 par. 2 & 5),

    (b) for the board of directors to conduct its business and take decisions (Act 4548/2019, articles 90 & 94),

    (c) for shareholders to exercise their rights through emails (Act 4548/2019, articles 122 & 123),

    (d) for General Assembly Meetings and forming of the relevant decisions (remotely and by electronic means – Act 4548/2019, articles 125 to 128, 131,135 and 136),

    (e) for shareholder unions (Act 4548/2019, article 144).

     

    1. Succession

    The SA is “the ultimate” capital company. In Greece, though, the majority of SAs are family businesses – heavily resembling partnerships, as per the way they are run.

    Almost every family business-SA at some point will have to deal with the issue of succession – the transition to the “next generation”. This issue is often “taboo”.

    Succession issues cannot be solved with “absolute truths”. But they can be solved if they are approached by mature businessmen and proper advisors.

    A great help towards solving succession issues can be drafting “tailor made” articles of association. Those that will:

    (a) Set, in advance, reasonable rules for restricting the free transferability of shares.  Introduce a procedure that can take place through issuing restricted shares (Act 4548/2019, article 43). The restrictions apply on all transfers, including the ones owing to the death of a shareholder.

    (b) Regulate (in the most appropriate way and reasonably) the exercising of the rights of the minority. Also, the rights of minority shareholders concerning auditing.

     

    1. Protecting the investment

    Attracting investment capital is not enough.

    The shareholders and administrators of an SA have the obligation to protect it.

    As already mentioned, carefully worded, “tailor made”, articles of association will play a significant part. Those articles must carefully set the proper boundaries in the relationships between shareholders, in order to avoid internal disputes.

    The rights of the minority shareholders and how they are exercised must, in this case as well, be carefully defined. Even more so when it comes to the rights of the minority shareholders concerning auditing.

    Another important issue for most SAs is securing the “next day” and the business venture, meaning securing the company’s and the existing shareholders’ interests. A possible transfer, i.e. of company shares to a competitor would, most likely, not be at the interest of the company. A provision for restricted shares appears to be necessary here as well.

    Establishing the reasonable (and probably necessary) restrictions that are the Tag Along Right and the Drag Along Right seems, in most cases, necessary.

    But necessary in all cases are:

    (a) The provisions in the articles of association regarding the protection from possible competitive and unfair actions taken by the BoD members, the executives and the shareholders.

    (b) The careful selection of the SA’s representatives.

    (γ) The careful definition of boundaries of the responsibilities of each one of its representatives.

     

    1. Protecting the owners, directors and executives

    The range of the responsibilities of the members of the board of directors is very wide. Civil, criminal, administrative liabilities before the company, before third parties, etc. These liabilities can be put in two large categories:

    (a) The responsibilities of the members of the board of directors, according to the Act on SAs

    (b) The other responsibilities of the members of the board of directors

    The responsibilities of the members of the board of directors cannot be set to zero. But they can be limited. Solutions towards that direction (among others) are:

    (a) The reduction of number of the persons involved (i.e. through the provision of a Single-Membere Administrative Body / Consultant-Manager)

    (b) The Insurance Of The Liability Of The Members Of The BoD And Of The Executives Of The S.A.

     

    V. The new act on SA as a “headache”

    The new Act on SA is, indeed, one more problem for businesses. And even more so, one more “headache” for businessmen. Businessmen have to (if they haven’t already):

    • Manage the (smaller or bigger) confusion created in their business.
    • Spend money on informing their
    • Spend money (i.e. on new articles of association) in order to align the operation of their company with the requirements of the new Act.
    • Get informed themselves (in general) and make sure that their advisors (legal, financial, tax) are also informed in detail and familiar with every aspect of the new Act.

     

    VI. The new act as a business opportunity

    On the other hand, the new act on SA is a significant business opportunity. With reference to the (necessary) alignment with its provisions, the businessman has the opportunity to reaproach important data. Among others, to search for the best solutions regarding:

    1. The drastic (and efficient) reduction of cost when attempting new business endeavours,
    2. The attraction and maintenance of capable executives, while simultaneously minimizing the cost of their salaries,
    3. The minimization of operational costs and of the shareholders’ withdrawals,
    4. The (always) wanted and necessary attraction of investment capital,
    5. The (best suited) solutions in obtaining liquidity from one’s business,
    6. The managing of small shareholders, something which, in some cases, proves crucial,
    7. The (multiple) utilization of technology, aiming to the business functioning more efficiently, as well as to saving money.
    8. The tackling of issues relating to succession.
    9. The protection of the business and the investment and, mainly,
    10. The protection of shareholders, BoD members and executives.

     

    VII. Utilizing the business opportunities

    There is no question that the new act on SA is a significant opportunity. An opportunity which, if approached in the right way, will create multiple business opportunities.

    But how should it be approached?

    It is necessary for the businessman to get informed on all the tools provided by law (it goes without saying, no great detail is needed).

    It is also necessary for them to confirm that their advisors and associates are in a place to support this endeavour. But the most important thing of all:

    It is imperative that they reaproach their SA’s articles of association and have them “tailor made” to their needs. The purpose and end goal should not be to just adjust it to the provisions of the recent act. The purpose should be to utilize the (very significant) opportunities it offers. Few of them mentioned above.

     

    VIII. In conclusion

    The recent (implemented since 1.1.2019) new act on SA has been the operative event for many headaches. Businessmen, accountants, lawyers, tax consultants, business advisors, we did not avoid them.  (at least not all of us…)

    No aspirin could treat, not even partially, a businessman’s “headaches”. The headaches created by the implementation of a new act included.

    If the “father” of aspirin (Felix Hoffmann) was alive, he would come to the same conclusion.

    With certainty.

    It is well-established that the “business opportunities” this act brought with it are more than significant. And multiple, compared to the “headaches”.

    All that is left is for us to utilize them.

    As soon as possible.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (November 3rd, 2019).

    νέος νόμος για τις ΑΕ απόκομμα

  • Private Company vs Limited Liability Company: Which is the best way to go?

    Private Company vs Limited Liability Company: Which is the best way to go?

    Ι. Preamble

    “Prisoner’s dilemma”: A standard example of a game analysed in game theory, the study of mathematical models of strategic interaction among rational decision-makers. This dilemma, as well as this theory, probably does not regard everyone.

    Other dilemmas seem to be more familiar:

    “Oh but I think I am in trouble, don’t know if I want to choose Kiki or Koko. I do love Kiki but I also like Koko”. Us elders most likely have shared the dilemma of singers Spiros Koronis and Filandros Markou.

    The Private Company (PC) was introduced in the Greek legal system in April 2012, while Société Anonyme and Limited Liability Companies still existed.

    The boundaries between a PC and an SA were (and still are) pretty clear.

    This is not the case with the boundaries between a PC and an Limited Liability Company.

    Or is it?

    And in reality: Which was/is the best choice?

    The (pretty) “new” PC or the “already tested” Limited Liability Company?

     

    ΙΙ. The legal status of a PC and an Limited Liability Company

    A PC and an Limited Liability Company is somewhere between a public company limited by shares (e.g. an SA) and partnerships (e.g. a General Partnership and Limited Partnership).

    Both PC and Limited Liability Company are considered to be closer to public companies limited by shares. But they still have many similarities with partnerships. Those elements that make them resemble partnerships are either imposed by law or can be introduced with the company’s articles of association.

    What is certain is that those two companies have some distinct differences. A comparative overview will securely lead us to which one of the two is superior.

     

    ΙΙΙ. Establishment:

    1. Regarding PC

    A PC is established and amended with a private document. The speed and low cost of establishing and amending it is one of the main reasons why it is, at least at a first glance, so appealing.

    But the “private document rule” does have some exceptions.

    A notarized document is mandatory for a PC in some specific cases. In case, for example, that such is required by a specific law or when specific assets are contributed to the company, whose transfer requires a notarized document (e.g. immovable property or rights in rem in immovable property). Additionally, a notarized document can be chosen by the company’s founders or founder (when talking about a single member PC) (article 49 act 4072.2012).

    2. Regarding Limited Liability Company

    Until recently, the establishment and all amendments of a PPC could only take place with a notarized document (article 6§1 act 3190/1955). This rigidness of PPC was, on its own, a good enough reason to avoid this company type.

    Relatively recently (article 2 §2 ν. 4541/2018) par. 1 of article 6, act 3190/1955 was amended. This amendment introduced allowed the establishment of PPC either with a private document or a notarized one.

    A notarized document is required only in specific cases. When, for example, such a document is required by a specific law or when specific assets are contributed to the company, whose transfer requires a notarized document (e.g. immovable property or rights in rem in immovable property). Additionally, a notarized document can be chosen by the company’s founders or founder (when talking about a single member Limited Liability Company).

    A private document (and not a notarized one) is deemed enough when the official model articles of association are adopted. In this case, though, the establishment of the LLC can be realised by any “one stop shop”, as such is appointed by law (act 4441/2016). Meaning: (a) by the Business Registry departments of the Chambers of Commerce, (b) by “one stop shop” notaries, (c) online, in e- “one stop shop” (which, for the time being, only works for PC companies) -and not exclusively before a notary (1 Common Ministerial Decision No 63577/2018).

    What is, though, the main issue? In cases where the official model articles of association must be used, they must be used exactly as they are given, with no alterations. If the official model articles are altered, and the founders choose to establish the company with a private document, this will constitute a ground for the LLC’s invalidity.

    Therefore, in cases where an LLC’s founders want to deviate from the official model articles of association, a notarized document is the only option.  The relevant burden on the founders (timewise and moneywise) can simply not be avoided.

    3. Conclusion

    Based on what we established above, we come to the conclusion that, as far as the establishment of the two companies is concerned, PC is the clear winner. Therefore:

    Private Company-Limited Liability Company: 1-0

     

    ΙV. Capital:

    1. Regarding PC

    PC’s capital is determined by its partners without limit, it can even be a zero capital. Its partners can partake in the company with capital, non-capital contributions or guarantee duties (article 43 §3 act 4072/2012).

    2. Regarding Limited Liability Company

    LLC’s capital is determined by its partners without a limit (lowest or highest). It is formed either with cash or with contributions in kind (article 4 § 1 act 3190/1955).

    Previous version of the article required a minimum capital deposited in the LLC. It started (:1995) with a requirement of a minimum capital deposited of 200.000 drachmas. Consecutive increases had it reach 18.000€ (:2002). Consecutive decreases followed. Today, the requirement for a minimum capital deposited has been abolished (article 3 § 9 act 4156/2013). But LLC’s capital cannot be zero.

    3. Conclusion

    According to the above, we come to the conclusion that, as far as capital is concerned, at least in a theoretical level PC seems to prevail, since its capital can be zero. On the other hand, an LLC can be established with a capital of 1€. So we should probably call it a tie – no company type prevails, no point is appointed. The score remains:

    Private Company-Limited Liability Company: 1-0

     

    V. Partner’s contributions:

    1. Regarding PC

    We have already mentioned (above under IV.1) that several kind of capital contributions can be made in a PC. A partner can participate in a PC’s capital by contributing money (:capital contributions). Additionally, they can participate by making non-capital contributions or by having guarantee duties (article 76 § 2 α΄ act 4072/2012). A necessary precondition in order for someone to participate in a PC is to acquire one or more shares (article 75 § 1 α΄ act 4072/2012). Each share represents only one type of contribution (article 76 § 2 b΄ act 4072/2012).

    As a result: it is possible that a PC has received no capital, but only guarantees and non-capital contributions. The latter (guarantees and non-capital contributions despite that the have a value) they can render PC’s capital a zero-capital.

    But which are the non-capital contributions and what are the guarantees?

    The non-capital contributions are those contributions that cannot constitute capital contributions. Such are claims that derive from an undertaking of an obligation to execute works or to provide services. The value of these contributions undertaken when the company is established and/or afterwards, is determined in the company’s articles of association and is freely estimated by the partners (article 78 §§ 1 and 2 act 4072/2012).

    The guarantee duties undertaken by a partner mean that this partner has a guarantee duty for any company debt owed to any lender. The partner’s liability entails covering the company debt (the balance of capital, interest and other charges) up to the amount determined in the company’s articles of association. In this case the partner is liable before the lenders as if they were the principal. The lenders can turn directly against the partner. There is no preliminary procedure. It is also not a requirement for the lenders to first turn against the PC to prove that the company cannot pay them off, before they turn against the partner burdened with a guarantee duty.

    The option given for a non-capital contribution and of a contribution made by undertaking a guarantee duty makes it possible for someone to become a partner in a PC, even if they do cannot or do not want to make a capital contribution.

    The provision allowing for non-capital contributions or contributions made by undertaking guarantee duties makes a PC resemble a partnership. By providing these options, the partners are free to choose if they will be more like a partnership or an SA.

    2. Regarding Limited Liability Company

    There is no provision for non-capital contributions or contributions made by undertaking guarantee duties in an LLC. An LLC’s partners are obligated to contribute money. Alternatively: they can make contributions in kind, but they must be material.

    Even in a case were one of the LLC partners undertakes the obligation to work for the company or undertakes the obligation to pay company debt, they will not be looking at receiving company shares because of those reasons.

    3. Conclusion

    Things are simple. A PC offers the option of making non-capital contributions or contributions by undertaking guarantee duties. LLC does not.

    PC prevails. The score now clearly is:

    Private Company-Limited Liability Company: 2-0

     

    VI. Decision-making:

    1. Regarding PC

    Each company share carries the right for one vote (article 72 § 2 α΄ act 4072/2012). This means that PC’s partners form their decisions (in an assembly or not -under the provisions of the articles of association and of the law) with the majority of the votes/majority of the shares.

    2. Regarding Limited Liability Company

    LLC is more complex.

    According to article 13 of act 3190/1995: “Unless otherwise provided by law, the decisions are made by the majority of the partners, provided this majority is formed by more than the half of the partners, representing more than half of LLC’s capital”. This means that, in order for a decision to be made in an LLC, two majorities are required: of capital and partners.

    This legal requirement quite often creates significant problems. Even in cases where a partner has more than half (even more than 99%) of the capital, they are not entitled in making decisions. A necessary requirement for the decision to be made is for the partners who could have a minimum participation to agree with the partner holding the majority. In case that the first are outnumbering the majority partner(s), they have the opportunity to even extort, under the threat that they will oppose to a specific proposal. This fact renders LLC dysfunctional. It is quite possible that in some cases it will be impossible to reach a decision, when there are opposing partners who, even though they hold the minority share of the LLC’s capital, still outnumber the majority holder(s).

    3. Conclusion

    It is also clear. PC prevails as far as decision-making is concerned. The score now is:

    Private Company-Limited Liability Company: 3-0

     

    VΙI. Partner’s social security contributions:

    1. Regarding PC

    One more advantage of PC when compared with LLC is the lower social contributions owed by PC to the National Social Security Entity. The relevant issues are clarified in the National Social Security Entity’s circular no. 21/22.4.2019. Briefly:

    The partners of multi-membered PCs do not have to have a social security. The partners have the option of being insured according the provisions of the Self-Employed Workers’ Insurance (article 116 § 9 b΄, act 4072/12). Only the partner of a single-member PC must be insured accorrding the provisions of the Self-Employed Workers’ Insurance (article 116 § 9 a΄, act 4072/12).

    Nonetheless, PC’s managers must be insured. To be more precise, the following persons must be insured according to the provisions of the Self-Employed Workers’ Insurance (article 116 § 9 a΄, act 4072/12): (a) the partner of the single-member PC who is also its manager, (b) the partner of the multi-member PC who is also its manager, (c) PC’s manager who is not a partner, but has been appointed as the manager by the company’s articles of association or with a decision made by the partners.

    2. Regarding Limited Liability Company

    In contrast with PCs, LLC’s partners must be insured (article 39, act 4387/2016). Respectively, LLC’s partners who are also the company’s managers in exchange for a fee, are obligated to make relevant to their fee social security contributions as per article 38, act 4387/2016. Lastly, LLC’s manager, when they are not also a partner, they do owe social security contributions for the fees they receive, also according to article 38, act 4387/2016.

    3. Conclusion

    The financial burden imposed on LLC partners are clearly more significant than those imposed on PC partners. PC prevails here as well. The score is:

    Private Company-Limited Liability Company: 4-0

     

    VIΙΙ. Getting back in business

    1. Regarding PC and Limited Liability Company

    Both PC and LLC can be dissolutioned, after, among others, a decision made by the partners, because the company’s duration expired and because of bankruptcy. In both those cases, both company types can get back in business, after a unanimous decision of their partners (article 105 §7, act 4072/2012 and article 50a act 3190/1955). The difference between the two is that a PC can get back in business even after the process of distribution of its assets has started. This cannot happen in LLCs.

    2. Conclusion

    PC prevails here as well.

    The final score is overwhelmingly in favour of PC:

    Private Company-Limited Liability Company: 5-0

     

    IX. The trust of the market in PCs and Limited Liability Companies

    Since the act on PCs was published (Government Gazette A’ 86/11-04-2012), businessmen, accountants and lawyers showed their complete faith in PCs. (Our Law Firm established the second ever PC in Greece.) Business Registry’s data for the years 2012 (when PC was established) until mid-October 2019 confirm the trust of the parties involved. Overwhelmingly in favour of PCs. And to be more precise:

    X. In conclusion

    PCs and LLCs have been competing each other, since the day PCs were established.

    PCs prove more cost efficient when compare to LLCs. The most important difference between the two, though, is that PCs prove to be more flexible.

    PC’s partners have a lot of room for initiatives, in order to manage important company issues as they think best. The advantages of PCs compared to LLCs are more than clear.

    The trust the market has shown in PCs is also clear. This fact is undoubtedly represented in the data published by the Business Registry -statistical information regarding establishments.

    In this case, when considering choosing between a PC and an LLC, the dilemma at hand is no equivalent to the one presented in the preamble (“…don’t know if I want to choose Kiki or Koko”).

    Not anymore.

    LLCs already seem obsolete.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 27th, 2019).

    ΙΚΕ vs ΕΠΕ στην εφημερίδα Μακεδονία

  • The (:ordinary or extraordinary) increase of share capital in Société Anonyme

    The (:ordinary or extraordinary) increase of share capital in Société Anonyme

    Ι. Preamble

    “No Money, no honey” is a widely known expression. It is coming, most likely, from across the Atlantic. A phrase showing the necessary give-and-take in personal relations about to be realized. Or even existing ones. A phrase that shows in a crystal clear – and at the same time cruel- way, the value of money, according to common belief. Those who possess “money”, according to common belief -unfortunately, are the ones who are entitled to “honey”.

    This does not only apply to human relations.

    Those with the financial power in a professional cooperation, business joint venture or corporate relationship have or, eventually, acquire the “upper hand”.

    The Société Anonyme could not be an exception to that rule.

     

    ΙΙ. The necessary capital for the operation of the Société Anonyme

    A necessary condition for the achievement of a company’s statutory objects, of course the SA included, is the adequacy of its capital. Both at its establishment and, of course, throughout its life.

    In a previous article we looked at the initial Capital of the SA: amount, coverage, payment and certification. We also looked at issues concerning the contributions in kind in the initial capital of the SA. For achieving the corporate goals, the initial capital is, in most cases, not enough. Financial needs always appear in a company. Needs that may last for long, or not.

    The main question is always the same. Share capital increase or external funding? The answers given in each case may and will vary. Depending on the facts, the needs of the company and its shareholders but also their abilities. The criteria may not be strictly financial. The increase of the share capital seems to have, at a first glance, more advantages. We see, though, that lending will often be consciously chosen by financially strong companies and shareholders. As a proof, for example, of the financial health or the good credit rating of the company. Or of the optimal use of its equity.

    If a company chooses to increase its share capital, those who want in will follow. If they have the necessary funds.

    What about the rest?

    They will watch their participation in the total share capital decrease. And in some cases, be reduced to zero. And their participation in the expected economic outturn of the company reduced accordingly.

    ΙΙΙ. The (sufficient?) justification of the share capital increase

    It is not mandatory to justify the share capital increase. It is important, thought, to have a sufficient basis. If not, the Sword of Damocles is hanging above the validity of the relevant decision, due to abuse.

    The cause for the increase cannot be other than the optimal achievement of the corporate goals. In no other case is the decrease (or reduction to zero) of the percentages of the minority shareholders allowed. The minority shareholders have the right to ownership, a right protected under the constitution. According to the European Court, they have: “indirect ownership over the company’s assets”.

    It is possible that the majority shareholder may be aiming to decrease the participation of the minority shareholders in the company. In that case, the minority shareholders are not unprotected. The shareholder affected is given the option to go to court and claim the abusive character of the relevant decision. And, of course, to ask for the protection of their ownership. If the court accepts the relevant arguments, it can rule to cancel the decision for the increase of the share capital.

     

    IV. The ordinary increase of the SA’s share capital

    The decision to increase an SA’s share capital is usually made by the SA’s General Assembly. In this case, there should be an increased attendance quorum and an increase majority. This is called “ordinary increase” of share capital (Act 4548/2018, article 23). The ordinary increase of share capital in the most common one.

    Having an increased attendance quorum means (article 130, par. 3) that the shareholders holding ½ of the share capital or their representatives are present.  If an increased attendance quorum is not achieved, then a second meeting of the General Assembly must be held, which is valid if the shareholders holding the 1/5 of the share capital or their representatives are present (article 130, par. 4).

    Increased majority means that (article 135, par. 2) the shareholders or their representatives who voted for a subject are 2/3 of the total number of votes represented in the General Assembly.

    The articles of association can have provisions requiring higher percentages in order to achieve a quorum (article 130, par. 5) and a majority (article 130, par.3). But it cannot require the presence of every shareholder. Even more so, neither can it require unanimity.

     

    V. The extraordinary increase of the SA’s share capital

    The decision of the General Assembly, made with an increased attendance quorum and majority, is not the only way to increase an SA’s share capital -but this under one condition: a relevant statutory provision must be in place. If that condition is fulfilled, the SA’s share capital can be increased by decision of the General Assembly, with simple (not increased) quorum and majority. It is also possible to increase an SA’s share capital by decision of the board of directors with a majority of 2/3 of its members.

    In cases like these, we are talking about an “extraordinary” increase of the share capital (article 23 Act 4548/2018).

    It must be noted that an extraordinary increase of the share capital can be decided by the board of directors as well as by the General Assembly (article 24, par.5).

    An extraordinary increase of the share capital always constitutes an amendment to the articles of association (contrary to what happened in the past).  Furthermore: the extraordinary increase does not require an administrative approval. And all these, no matter if the decision is made by the General Assembly or by the board of directors (article 24, par. 4).

    There is always the chance that the provision allowing an extraordinary increase will be used in bad faith. In order, for example, to mislead those transacting with the company. To avoid such actions, there it is strictly prohibited to mention to the press, in a commercial or in any document of the company, the amount up to which the competent body can increase the share capital (article 24, par.3).

     

    VI. The power of the General Assembly to decide an extraordinary increase

    We saw that a necessary requirement for an SA to make an extraordinary increase to its share capital, is the existence of a relevant provision in its statute.

    For the first five years after the establishment of the company, the statute can give to the General Assembly the power to decide an extraordinary share capital increase (article 24, par. 2). This provision may allow the General Assembly to proceed to a share capital increase up to eight times the initial capital. What is noteworthy in this case is that the GA can decide the increase by simple quorum and majority.

    But what is this simple quorum and what this simple majority?

    The simple quorum of the General Assembly (article 130, par.1) requires for the shareholders holding 1/5 of the share capital, or of their representatives to be present. In case the quorum is not attained, a second General Assembly will be validly held, regardless of the number of the shares represented (article 130, par.2).

    As for the simple majority, it is nothing but the votes of at least 50% plus one vote of the votes represented in a General Assembly (article 132 par. 1).

     

    VIΙ. The power of the board of directors to decide an extraordinary increase

    The board of directors has a power equivalent to that of the General Assembly, as long as there is a relevant provision in the statute, or a relevant authorization is given by the General Assembly. If any of these two requirements is met, an increase of the SA’s share capital up to three times the initial capital can be decided by the BoD. The relevant decision can be made by a minimum majority of two thirds (2/3) of all board members (article 24, par. 1).

    The power for an extraordinary increase cannot be given to the board of directors by the statute indefinitely. It is only given for the first five years -maximum- from the establishment of the company. The share capital can be totally or partially executed by the issuance of new shares (article 24, par.1a).

    Besides the statute, the General Assembly can also give the board of directors the power to decide for an extraordinary increase of the share capital. This power is given by the General Assembly for a period not longer than five years. If given, the share capital can be increased maximum up to three times the initial capital. In this case, the initial share capital is the share capital of the company at the date the relevant power was given to the board of directors (article 24, par. 1b).

    The power of the board of directors can be renewed by the General Assembly. The General Assembly can give the relevant power to the board of directors for five years, maximum. The effect of each renewal can only begin after the end of the previous one (article 24, par.1c).

    The decision for granting or renewing the power to the board of directors to increase the share capital must be published (article 24, par.1c).

     

    VIII. Extraordinary vs ordinary share capital increase

    We saw (above, under VI), that the General Assembly can decide for an extraordinary increase of the company’s share capital with simple (and not increased) quorum and majority. We also saw (above, under VII) that the board of directors can decide, very quickly, an extraordinary increase with a majority of 2/3 of its members, without having to convene a General Assembly.

    But what do these options mean in practice?

    The General Assembly has the right to increase the company’s share capital up to eight times the initial share capital,

    and do so with reduced percentages. In other words: a shareholder holding, directly or indirectly, ½ of the share capital has the right to decide an increase of the share capital up to 8 times the initial one. And if they have the necessary funds? They additionally have the power to significantly expand their participation in the company and dramatically decrease the participation of the rest of the shareholders.

    Under the requirement of achieving the necessary quorum in the General Assembly (1/2 or 1/5 of the total), a shareholder holding 13.34% of the shares has the right to decide an extraordinary increase up to eight times the initial share capital. In that case, provided they have the necessary funds, a minority shareholder can become the shareholder of a vast majority.

    On the other hand, the implementation of an extraordinary share capital increase by the board of directors might help quickly achieve a certain corporate goal. Since there is no need for conveying a General Assembly, the procedure can be expedited at least by the number of days needed for the convention of the GA -in cases where we are not discussing a Universal General Assembly -which means presence of all the shareholders. Such a quick procedure can be proven valuable when fast response is required -i.e. exploitation of a significant business opportunity.

    Respectively, though, a shareholder who “has” (or can convince or join sides with) 3/5 of the members of the board of directors (regardless the number of their shares), can “force” an extraordinary increase up to three times the initial share capital.  And if, at the same time, they have the necessary funds to cover the increase, but the rest of the shareholders do not, they can at once become a major or a majority shareholder.

     

    IX. Conclusion

    The regular increase of the SA’s share capital is decided by the General Assembly. It requires an increased attendance quorum and to be voted for by the majority of the shares. Essentially majority of 2/3 of the total number of shares.

    The extraordinary increase must be provided for by a statute.

    When decided by the General Assembly, it requires clearly reduced percentages. Half and, under certain requirements, 13.34% of the share capital could be enough for making such a decision.

    When the extraordinary increase is decided by the board of directors, a vote for the increase by 3/5 of its members suffices.

    Attention though! An extraordinary increase can be a useful tool for fast actions necessary to exploit business opportunities.

    But it can also be a tool for overthrowing shareholding balances.

    Possibly in the interest of the SA.

    But always in the interest (:“honey”) of the powerful (:“money”) shareholders.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 20th, 2019).

  • Distributed Ledger Technologies (DLT): businesses and everyday life

    Distributed Ledger Technologies (DLT): businesses and everyday life

    Distributed Ledger Technologies (DLT): businesses and everyday life

    Ι. Preamble

    In a previous article we referred to the 4th Industrial Revolution, the technologies that constitute it, the cosmogonic changes it is bringing. We also mentioned the fact that there is no proper institutional framework in place, as well as the need to introduce one to welcome and utilize those technologies, aiming to the sound development of both businesses and the country.

    Distributed Ledger Technology is uniquely placed among the technologies constituting the 4th Industrial Revolution. The implementations of this technology are countless, “the number of which is immeasurable”, to copy the Old Testament (Psalm 103,25). With that admission in mind, a simple article could of course not sufficiently cover them all, even more so if said article is written by a non-expert.

    It is, though, true that these technologies, their implementations and their benefits, do not only regard the experts.

    They regard all of us.

    None excluded.

     

    ΙΙ. Distributed Ledger Technology (DLT) and blockchain

    We have already mentioned (in the aforementioned article) that “Distributed Ledger Technology is a database which, instead of being kept in a central location, it is distributed in a network of computers. The users of the computers with access to the network, depending on the licenses they hold, are able to access the information and/or add data. The most common DLT is the blockchain technology. Blockchain is the most common type of Distributed Ledger Technology.” We have also mentioned, regarding blockchain, that “The “chain” is protected in its entirety by complex mathematical algorithms, aiming to ensure the integrity and safety of the data. This chain is a complete recording of all the transactions recorded in the database. The most known application of blockchain is the creation and circulation of cryptocurrencies, as well as the accommodation of transactions entailing cryptocurrencies. Blockchain is said to be bringing changes more significant than those of the creation and broad use of the internet.

     

    ΙΙΙ. The actions taken by the European Union

    Given the severity and magnitude of the issue, as well as the expansion and utilization of DLT on a global level, EU is taking many actions, especially with regards to blockchain. Unfortunately, though, the technology is “running” too fast. In most cases so fast that most of us are unable to follow it – not even sufficiently.

    A few days ago was the one-year anniversary of the passing of a very interesting text. The European Parliament resolution of 3 October 2018 on distributed ledger technologies and blockchains: building trust with disintermediation (2017/2772(RSP)). This text (hereafter the “Text”) entails several and specific statements. It also offers specific directions to the European Commission for the utilization of DLT applications within the European Union.

     

    IV. The advantages in using DLT applications

    Using DLT has important advantages. Indicatively:

    (a) DLT and blockchain can prove to be tools that offer to their users the ability to control their own data. To decide which data will be included in the distributed ledger and which will not, who will be able to see them and who will not.

    (b) DLT can minimize transaction costs. Middle men prove to be unnecessary, and so are the fees they charge. The final cost of services and products ends up being lower, benefitting not only the businesses, but the consumers as well.

    (c) DLT, can, through the necessary encryption and control mechanisms, as well as by establishing a relevant electronic model, contribute to the improvement of transactions’ safety and trust.

    (d) DLT promotes the pseudonymization but not the anonymization of its user. (That is the point that kicked off a big discussion regarding the compatibility of DLT and GDPR.)

    (e) DLT can provide a framework of transparency and reduce corruption, detect tax evasion. Also: it can track unlawful payments and appropriate assets, facilitate anti money laundering policies.

    (f) Adopting DLT renders ensuring data integrity and security possible.

    (g) Cyberattacks seem to not have such a big effect on DLT applications, since they have to successfully target an unidentified number of servers, not just one.

    Simultaneously, the dangers of DLT applications, seem, at least for now, insignificant.

     

    V. Distributed Ledger Technologies (DLT), decentralization and applications

    It is unclear how many applications DLT has. It seems that they won’t be exhausted – at least not in the foreseeable future.

    The ability to create an environment of trust between transacting parties and the lack of need for third parties to mediate a transaction completely reverses today’s transacting reality. This fact can limit (and, eventually, completely eradicate) the “old ways” of conducting business and transactions in general. It can also improve the services offered and achieve a significant, in some cases, deduction of costs -in a broad spectrum of sectors.

    A possible utilization of DLT will have a significant impact on public governance and the role of government institutions. Papers studying possible scenarios of adoption of DLT public networks are expected to come out soon. The European Parliament has directed the European Commission to do so.

    It is a given that the spectrum of possible DLT applications is significantly broad. The economy and, if not all, most of its sectors will most likely be affected.

    Indicatively:

    (a) Energy and environment friendly applications

    Utilizing DLT applications in the energy field can have multiple benefits. It can contribute to the production of “green” energy – even at household level, to energy exchanges and energy donation. It can contribute to a more efficient integration of renewable energy and to its use as an electric vehicle power supply. It can also contribute to the precise tracking of renewable or carbon energy certifications and to the creation of new opportunities in circular economy, by providing motives for recycling.

    (b) Transport

    In transportations, DLT can contribute in the processes of registration and administration of vehicles, verification of driving distances, smart insurance and charging of electric/electronic vehicles, among others.

    (c) Healthcare sector

    In this sector, the utilization of DLT applications is most likely going to be significant. It is possible (and is logically expected) that DLT will promote:

    • The improvement of the efficiency of data in clinical study reports.
    • The digital exchange of data between public and private institutions, with the approval of the interested patients.
    • The improvement of the efficiency of healthcare, thanks to the interoperability of electronic health data.
    • The verification and confirmation of a drug’s identity and the facilitation of medicine distribution.

    It is of extreme importance to stress that DLT technology ensures the privacy of sensitive, health-related personal data and allows data subjects to control, by themselves, their data of that nature. This means that they can choose which health data of theirs will be offered and to whom, and to give their permission for their use by insurance companies and healthcare providers.

    (d) Supply Chains

     DLT can:

    • Contribute to the improvement of supply chains,
    • Facilitate the tracking of the goods and their origin, their ingredients or components,
    • Improve transparency,
    • Offer guarantees for the compliance with sustainability and human rights protocols in a product’s place of origin.

    By utilizing it, the risk of illegal (or unauthorized) interferences of products in the supply chain minimizes. Consumer protection is also ensured, along with healthy entrepreneurship and, of course, government revenue. DLT can be used as an important tool in the hands of custom officials when checking for counterfeits.

    (e) Education

    With reference to specific cases, some of which were presented before the courts, while others were not, cases which have become public during the past year, a big discussion has started. A discussion regarding the ethical and legal contempt and the consequences the one falsely declaring of a degree faces or should face.

    When using DLT, the certification of academic qualifications, higher education degrees and knowledge and skill certification, proves very easy. Specific education and certification organizations have already adopted this technology. By doing so, they ensured a secure connection between a specific degree or knowledge and skill certification with a specific person.

    In this regard, we should be expecting from the European Commission (after the relevant order by the European Parliament) a study on the possibility to create a European network (utilizing DLT) in order to share data and information, aiming to a more efficient recognition of academic degrees. In this same regard, we should be expecting relevant initiatives from the member-states, as well as from the education and certification institutions concerning the qualification degrees they issue.

    If such a system was generally adopted, one could not really be tempted to claim they hold a title that they do not. The result? More transparency and meritocracy, while the relevant authorities and parties involved and will not bother with such cases (cases like the aforementioned).

     (f) Creative industries and copyrights

    Utilizing DLT can securely authenticate and help manage copyrights, related rights and patents. It can facilitate their protection. Identifying ownership and (moral and economic) intellectual property rights could prove to be fairly easy through an open public ledger. And, if that was possible, the need for intermediaries to receive, on behalf of the creators, the relevant payment for their creative content, would eliminate.

     (g) Financial sector

    The international financial sector is probably leading, on a global level, the effort to detect and utilize DLT applications. And this makes sense – DLT is very valuable to this sector. It is very valuable in the field of (innovative) financial intermediation. In the improvement of transparency. In minimizing transaction costs and indirect expenses – and all that thanks to the rationalization it offers and to the better (and safer) data management.

    The subversion of the “ruling” class, resulting from the use of DLT applications on specific procedures, as a means of perusing cost-effectiveness, managing human resources, is already a fact. And let’s not forget cryptocurrencies, probably the most recognized application of DLT. The effects on global economy and the dangers that may be hiding have not yet been estimated.

    The inability of the global financial system to prevent the use of cryptocurrencies does have an interesting result: the (necessary) accepting of their existence and the effort to incorporate them in the European settlement system.

     

    VI. Smart Contracts

    Technology is the enemy of those who cling (or, futilely, try to cling) to past habits.

    What has history taught us? That technology is the one which will, eventually, win all such battles.

    We, lawyers, are bound to be the first ones to fight smart contracts (those contracts that all one needs to draft, enter and implement them is a few lines of code and an “enter”). It is also a given that smart contracts will win this battle.

    Despite the fact that we still haven’t even familiarized ourselves with this term, the use of smart contracts seems to be inexhaustible. And all that thanks to DLT applications.

    What is the bigger issue, though? The lack of legal certainty.

    Smart contracts are mostly unregulated: as far as the liability of and the risks undertaken by the transacting parties, the applicable law, the competent courts… One thing is certain: smart contracts will gradually prevail over regular ones. And as long as the validity of a digital, cryptographed signature enhances legal certainty, the use of smart contracts will keep getting more “user friendly”, prevailing over regular contracts.

    And even more important: We should take it as a given that technology will start (little by little) to replace us lawyers and remind us that we are not as important as we would like to think.

     

    VII. Policies for the promotion of DLT technologies in Europe

    The fact that the European Parliament accepts that DLT is unregulated is quite significant. At the same time, the European Parliament has adopted the position that the European Union should not, for now, regulate DLT, but it should try to eliminate all the obstacles in the way of blockchain applications.

    The European Parliament has also accepted that the European Commission should valuate and develop a European legal framework which will resolve possible jurisdiction issues. Such issues would be those that could potentially arise in case of fraud or criminal matters relating to transactions realized in a DLT framework. It has also been proven that the European Commission and the competent national authorities are those that will provide for the prompt emerging of technical expertise and regulatory capacity, which will allow for a fast legislative or regulatory action when deemed necessary.

    DLT can be best applied if certain requirements are met. Additionally, it would have to “go through” certain actions taken by the European Commission and member-states. And not just those.

    The awareness and training of citizens, businesses and public authorities is completely necessary, in order to facilitate the understanding and integration of this technology. The broadening of DLT research is essential as well, and so is the undertaking of the relevant studies, investments on this field, funding research initiatives and development and promotion of strategies for training and retraining on digital skills. These are only some of the actions that are expected to decisively contribute to the active and unrestricted participation of the European community on the necessary shift of perceptions and practices.

     

    VIII. In conclusion

    Distribution Ledger Technologies (DLT) already have multiple applications (“the number of which is immeasurable”) on many sectors of the economy. We should all take as a given that they will soon cover all its sectors -none excluded. And even more so: our lives and reality.

    The European Union indeed has, according to the European Commission, “an excellent opportunity to become the global leader in the field of DLT and to be a credible actor in shaping its development and market globally”.

    The European Union is expected to undertake initiatives to familiarize, promote awareness and train its citizens on those technologies. For tackling the interstate digital divide.

    That should, respectively, happen in our country as well, as the digital divide between the Greek citizens proves wide. It should quickly close. A shining example for us to follow is that of Estonia.

    The state, businesses and their unions should look for ways to utilize DLT applications, while there is still time. Those of the businesses that will quickly realize the new regime and will utilize the relevant opportunities will have a significant advantage compared to the rest.

    And we, on our part, as active citizens, have a duty to pay a lot of attention to what tomorrow will be our reality.

    To listen!

    To study!

    To collect all relevant information! Not because it will somehow be mandatory to be familiar with such applications and technologies, but because they will, very soon, prove entwined into our own existence and reality.

    Those of us who will chose to turn a blind eye to the “next day” will certainly find ourselves marginalized and isolated.

    The monks of Mount Athos have already, very consciously, made their choice.

    What about the rest of us?

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 13th, 2019).

  • The 4th Industrial Revolution: can development be regulated?

    The 4th Industrial Revolution: can development be regulated?

    Ι. Preamble

    The phrase «Graecum est; non legitur» was common in Latin-speaking countries during the Middle Age. It is said that this is where the phrase «That‘s Greek to me» derived from -a phrase first appearing, in this form, in 1599, in “The Tragedy of Julius Caesar” by William Shakespeare.

    The Greek version of the phrase (“this is Chinese”) is very familiar to all Greeks-unfortunately as a philosophy as well: it shows that we are unable to understand anything too complicated, and so it is not even worth trying.

    The term “4th Industrial Revolution” (aka “Industry 4.0” or “I 4.0” or “4IR” or “I.4”) was not that appealing to me.

    Until recently.

    I realized (thankfully, not too late) that this term entails a true cosmogony.evelopments (more or less) familiar, as well as completely unknown. Terms that could make someone quite easily say that “this is Chinese”, stating their indifference, maybe that this all is not worth their time and, simultaneously, quitting. Could this be too risky?

     

    ΙΙ. The Fourth Industrial Revolution

    The first industrial revolution, which started in the late 18th century in Britain, was identified by the industrial utilization of machines, the power of water and steam. The second, late 19th century, was identified by mass production, assembly lines and utilization of electricity. The third (late 20th century) by the utilization of electronics and information technology.

    What about the fourth, that just started?

    4IR reinforces what came to be called as “smart factory”. Cyber-Physical Systems monitor and supervise physical processes taking place within “smart” factories, create a virtual copy of the natural world and take decentralized decisions. Cyber-Physical Systems communicate and cooperate with humans, as well as (autonomously) with each other in real time. The technology used is constantly improving with the introduction of self-improvement, self-management, self-testing, artificial intelligence and smart employee support.

    Nonetheless, it seems that 4IR’s content is infinite. Its limits have already gone way beyond the limits of factories. Even the smart ones. And, according to Alec Ross («Industries of the future”, 2016): “The coming era of globalization will unleash a wave of technological, economical, andsociological change as consequential as the change that shook my hometown in the 20th century and thechanges brought on by the Internet and digitization as I was leaving college 20 years ago. Try to imagine a breakthrough in sectors of business so different from each other, as are life sciences, finance, war and agriculture, and be sure that someone is already trying to come up with it and make it marketable”. Since then, three years have already passed. Some of these changes are crystal clear. Some others already parts of our daily lives.

    Furthermore: 4IR has already blurred the boundaries between the natural, biological and digital world.

     

    ΙΙΙ. Technologies constituting 4IR and the (cosmogonic) changes that come from it

    In a brief article like the present one could obviously simply not reference all technologies constituting 4IR, not even mention a sufficient number of them – even more so someone who is not an expert in the field. The same goes for the cosmogonic changes brought on and affecting industrial manufacturing, services (financial or other), the economy, society, human relations -and so many more.

    One could only indicatively make some references, and those being only briefly mentioned in the present – as a foretaste:

    Internet of Things (ΙοΤ): IoT is a network through which “smart” devises or objects communicate (e.g. cars, electronical domestic appliances, watches, clothes) incorporating electronical means, software, sensors and access to a network, allowing them to interconnect and exchange data. The philosophy behind IoT focuses on the interconnection of all electronical appliances via a Local Area Network and/or the World Wide Web. When more objects operate jointly, it is said that they have ambient intelligence. IoT makes it possible for specific “smart” appliances and objects to exchange valuable information for meeting specific needs as best as possible, as well as, under specific circumstances, acquire unitary computing power.

    Robotics: The field of robotics is one implementation of automation. Robotics’ objective is to study, design and realize robots as well as conduct research for their further improvement. A robot, according to a definition given by the Robotic Industries Association (RIA) is “a reprogrammable, multifunctional manipulator designed to move material, parts, tools or specialized devices through variable programmed motions for the performance of a variety of tasks”. Robots are not used today solely for industrial manufacturing, but they have multiple other applications (indicatively: medical and domestic use).

    Virtual Reality (VR): VR is a method used to visualize and process complicated data. VR users can interact with each other using computers, create the illusion they exist in a virtual environment and, worth mentioning, under circumstances have the ability to wander and interact with said environment.

    Augmented Reality: Augmented Reality technology is the one augmenting the natural world with digital elements. It is mostly used in mobile appliances, depicting the natural world while augmenting it with digital elements (texts, sounds, videos). The combination of a camera with an image-indicator or even with a mobile appliance’s GPS system, make possible the projection of additional data of the image or the geographical location respectively, creating an information-wise augmented end result. The data provided can be perceived either from the mobile devises’ screens or via special augmented reality glasses.

    Artificial Intelligence (AI): AI is the field of computer science, which deals with designing smart (intelligent) computing systems, meaning systems that show characteristics of human intelligence and conduct. The classic/symbolic AI is based on understanding mental processes and simulating human intelligence by approaching it with algorithms and systems based on knowledge, building on symbols (e.g. systems of rules). Computational intelligence or connectionist or non-symbolic/subsymbolic is based on imitating the biological function of a human brain, much like the process of species evolution or brain function (e.g. neuronal networks and genetic algorithms).

    Digital transformation: Digital transformation is the incorporation and utilization of digital technology in all the operational aspects of a business, aiming to a rapid enhancement of its performance.

    Distributed Ledger Technology (DLT): DLT is a tool for recording ownership – it could for example show the ownership of money or other assets, like immovable property. A distributed ledger is a database which, instead of being kept in a central location, it is distributed in a network of computers. The users of the computers with access to the network, depending on the licenses they hold, are able to access the information and/or add data. The most common DLT is the blockchain technology.

    Blockchain: Blockchain is the most common type of Distributed Ledger Technology. Its name comes from the fact that transactions are grouped together, in order to form “blocks”, which are connected to each other in chronological order, forming a “chain”. The “chain” is protected in its entirety by complex mathematical algorithms, aiming to ensure the integrity and safety of the data. This chain is a complete recording of all the transactions recorded in the database. The most known application of blockchain is the creation and circulation of cryptocurrencies, as well as the accommodation of transactions entailing cryptocurrencies. Blockchain is said to be bringing changes more significant than those of the creation and broad use of the internet.

    Smart Contract: Smart Contracts are programs (codes) that are automatically activated and executed under specified conditions. The relevant procedure is recorded in a blockchain. This way the data put in a smart contract cannot be changed or disputed. Smart contracts offer safety and minimize costs.

    Platform economy: Trade tends more towards digital business platforms by the day. Platforms are electronical computing systems that can host services which allow the consumers, businessmen, businesses and wider audience to connect, share resources or sell projects.

    Share (or sharing) economy: Utilizing share (or sharing) economy and using the proper technological platform facilitate easy contact and transactions (in exchange for a fee or not) amongst the interested parties (e.g. owner of an apartment which is not being used, a parking spot not needed or an ancient Greek teacher with time to spare and, respectively, of those interested in receiving these services). The results of an economy operating this way is cheaper and more efficient services for those choosing to use them (as those offered by Beat, Uber or Airbnb).

    Digital energy: Approaching energy digitally rapidly changes concepts like saving, consumption, storing and producing electrical energy. This approach is possible with the help of technology, computing, data analysis and digital means. The end consumer is turned from a passive “payer of bills” into a smart receiver of digital services by their energy provider. For example, the consumers in some European countries (UK, the Netherlands, Germany) are able to store in domestic batteries cheap energy from RES or cheap electricity from an electricity network (e.g. with night charges or from cheap zones) and use it during other times of the day to cover possible overcharges of the network, when the market price of KWh gets high or there is high demand from the network.

    Digital health: Digital health is the convergence of digital technologies and health, healthcare, living and society, with the goal to more efficiently offer healthcare and, in the end, more personalized and effective therapy. It entails the use of communications, information and specialized technologies. These technologies entail, among others, software solutions and services, mobile devices and/or remote monitoring sensors.

    Biotechnology: Biotechnology is the sum of technical processes that focus on the best possible utilization and use of the traits of living matter (either that of organisms or their components -e.g. enzymes), aiming to increase the production of products already produced and the creation or production of new ones, with a substantial added value and importance for humanity.

    Neurotechnology: Neurotechnology is the technology which allows us to understand the function of the human brain, consciousness and thought. Neural networks, on the other hand, are the result of the merger of biological intelligence and mechanical intelligence and usually referrs to the connection between the human brain and computers.

    Drones: They are internationally known as UAS (:Unmanned Aircraft System) or UAV (:Unmanned Aircraft Vehicle) or RPAS (Remotely Piloted Aircraft Systems). The Greek Civil Aviation Authority uses the term UAS. UAS are unmanned flying machines. Their size varies, from very small (size of a game drone) to that of a proper airplane. Instead of a pilot, there is a “handler” who either drives it from the ground (remote control) or programs its route before the flight, so it moves automatically, following the flight route already specified (“self-steering” – they are flown by the “electronic orders” program, which is loaded on their memory beforehand and is executed during the flight). Their use is already quite extended: for peaceful purposes or not.

    3D Printing: 3D Printing is a method of making objects by consecutively adding successive layers of a material. 3D Printers are mainly used for manufacturing tangible models and prototypes by designers, engineers and new product development teams. Nonetheless, they are already used for printing parts, spares and bigger constructions by using different materials and different machines and physical properties.

     

    IV. 4IR and the (necessary) regulations

    With all those (often completely elusive) changes happening all around, one could justifiably wonder: Which legal system, regulatory environment, rules apply when a dispute arises from those new technologies (with only some of them having been mentioned above)? According to which law are the (surely) hundreds of thousands relevant questions arising answered -those questions that could justifiably be asked to a lawyer? And who would be the right lawyer?

    It is more than obvious that the answer to those questions does not exist: when the cognoscenti find it quite difficult to follow the rapid developments of technology (and we, in our ignorance, only occasionally and struggling when trying) no one could ever think of a proper regulatory environment -an applicable law that would holistically address the issue. Simply put: nothing of the sort exists.

    Nonetheless, this does not mean that complete inaction is justified. The changes happening, e.g. in finance, in economy and in our lives from the implementation of blockchain are mind-blowing. Indicatively: cryptocurrency transactions (the most known of which: bitcoin), conversions, either between cryptocurrencies or between cryptocurrencies and currencies more known and accepted, the acceptance of bitcoin (by specific countries) as a means of payment is now a fact. Passing the appropriate regulations for the protection of transactions and the ones transacting is nothing but a deadlock. Some countries have already moved or are moving towards that direction. Let us all watch what is happening internationally and (need be and up to a level) let us copy the innovators.

     

    V. In conclusion

    The changes that come with the Fourth Industrial Revolution are cosmogonic and do not only regard production and factories -they regard, directly and literally, all our everyday lives.

    If we manage to go past our inability or denial to understand what is happening and we stop giving up by saying “this is Chinese”, we can listen and pay attention to what the experts are saying -as much as each of us can.

    Even more so, what we must do, even ex-post, even if we struggle trying to follow the rapid developments, is to ensure the passing of (nonexistent today) proper regulations: in a national and an international level.

    For the assistance of the healthy development of our country.

    For the protection of the transactions and those conducting them.

    For our, in the end, protection and benefit.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 29th, 2019) and in Capital.gr.

  • Electronic payments (and how they are secured)

    Electronic payments (and how they are secured)

    1. Preamble

    “… for law, in its true notion, is not so much the limitation as the direction of a free and intelligent agent to his proper interest… where there is no law, there is no freedom” wrote John Lock in 1690, who was an English philosopher with great influence and a theoretical of the  Social Contract (:Second Treatise of Government, Ch. VI, sec. 57).

    There could, of course, be a big discussion regarding the fulfillment of the purpose (or not) of the law – especially in totalitarian regimes. But sometimes setting rules can prove to be very important for maintaining and extending freedom. In these cases, it is actually, most of the times, widely accepted.

    One of these cases is that of the rules securing transactions and transacting parties as well as maintaining and extending the freedom of both.

    In this context, we need the existence (and application) of relevant rules, although we already have way too many rules as a country.

    The European Union leads the way. The way to the right direction.

     

    2. The new environment after Directive (ΕU) 2015/2366 (:PSD 2)

    Since 14.9.2019, the Commission Delegated Regulation (EU) 2018/389 of 27 November 2017 is an applicable law. This regulation is supplementing the Directive (EU) 2015/2366 of the European Parliament and of the Council, (also referred to as “Second Directive with regard to regulatory technical standards for strong customer authentication and common and secure open standards of communication”-PSD2). The European Commission very recently published, in a concise manner, the new facts that come from the application of the PSD2 concerning electronic payments in Europe. It should be noted that these new facts and rules are covering electronic payments in total (among others bank transfers, payments with credit or debit cards).

    More Precisely:

    2.1. Regarding the Rights of the Consumers

    Electronic payments taking place throughout the EU and also in Island, Norway and Lichtenstein are becoming cheaper, easier and safer.  It is now as easy and safe to make a payment across those countries, as it would be if the payment was made within the consumer’s country. Additional charges by a merchant when the consumer pays for a product or a service using a card issued in the EU, are no longer tolerated.

    Everyone legally staying in Europe has the right to have a bank account with which they can make electronic payments (“Payment Account”): an account connected to a debit card, covering cash withdrawals, holding of funds, making and receiving payments throughout Europe.

    2.2. Regarding the charges imposed on the consumer

    The Payment Account is provided free of charge or at a reasonable price. Cross-border payments in euro should cost the same as the domestic ones. Cash withdrawals in euro outside of the beneficiary’s ATM network should also cost the same when made in the rest EU member countries as in the country of the beneficiary.

    2.3. Regarding the safety of transactions

    Since 14.9.2019, electronic payments have become more secure, thanks to the strong identification of the users, since a combination of verification levels will be required (i.e. not only a PIN, but also the beneficiary’s fingerprint). The consumer’s liability in case an unauthorized payment is made, is limited to 50€ (i.e. if their credit card has been stolen) – except for cases of gross negligence. The account’s beneficiary is not responsible for any unauthorized payment made after they have informed the card’s issuing bank (i.e. in case of a stolen card) as well as for payments conducted via the internet, if the payment service provider or the bank has not implemented a “strong customer authentication” (below under 4). In cases where the total amount of the bill is not known in advance (i.e. in car rentals or in covering accommodation expenses like staying at a hotel and using the services it provides) the business owner cannot charge at will, but can only charge up to an amount, which amount the card’s owner has approved in advance. In case a business has been authorized for “direct debit” of a bank account (i.e. paying electricity, mobile phone or gas bills), the beneficiary has eight weeks to question the amounts that may have been wrongfully charged. And moreover: this specific amount must be refunded to them in only ten working days.

    2.4. Regarding the (reasonable) charges

    The consumer has the right to know exactly the charges, if any, imposed on their electronic payments. In general, the merchants (either in physical or electronic stores) do not have the right to impose a price greater than the one published (some king of additional charge) when the payment is done by debit or credit card. Only in some cases (i.e. for specific cards) it is possible to have an additional charge, which should not be greater than the amount of the true expense the merchant will have to incur because the specific payment method was chosen.

    2.5. Regarding new technologies

    Thanks to the evolution of technology, it is possible to use new, innovative financial services offered by properly licensed banks and other electronic payment service providers – apart from the beneficiary’s bank. This means, for example that a beneficiary can monitor their financial information and data or make electronic payments without a credit or debit card. But, just like the banks, these new payment service providers must be properly licensed, monitored and, of course, handle the consumers’ data securely. The EU rules ensure that the electronic payments are conducted without problems. If any problem occurs, the consumer’s bank or other payment service provider must reply to the consumer’s complaint within fifteen (15) working days. If the beneficiary is not satisfied with the answer, they can file a complaint with the competent national authority.

     

    3. Data and the necessity to guarantee electronic transactions

    The competent authorities of the European Union have long now been concerned with the issue of the security of transactions and the protection of the transacting parties. That is why the Commission Delegated Regulation (EU) 2018/389 of 27 November 2017, was issued and, as mentioned above, applies since a few days ago (since 14.9.2019 -article 38 § 2). This regulation was issued, as it was also mentioned above, to supplement the Directive (EU) 2015/2366 of the European Parliament and of the Council, (also referred to as “Second Directive with regard to regulatory technical standards for strong customer authentication and common and secure open standards of communication”-PSD2), about the regulatory technical standards for the strong client identity verification and the common and secure open communication standards.

    Some of the data that were taken into account for the issuing of these legislative texts (Directive and Regulation) are very interesting. Specifically:

    The Directive (EU) 2015/2366 considers as a necessity to have “secure electronic payments” (characterizing them “…crucial in order to support the growth of the Union economy…”), to close regulatory gaps, to provide further legal clarity. The Directive also accepts what goes without saying, which is: “…Safe and secure payment services constitute a vital condition for a well-functioning payment services market. Users of payment services should therefore be adequately protected against such risks. Payment services are essential for the functioning of vital economic and social activities…”.

    Some very interesting assumptions can be found in Regulation (EU) 2018/389, that mention the data, based on which the Regulation introduced the new provisions.

    For example: “Payment services offered electronically should be carried out in a secure manner, adopting technologies able to guarantee the safe authentication of the user and to reduce, to the maximum extent possible, the risk of fraud. The authentication procedure should include, in general, transaction monitoring mechanisms to detect attempts to use  a  payment service  user’s  personalised security credentials that  were  lost,  stolen, or  misappropriated and should also  ensure that  the  payment service  user  is  the  legitimate user  and  therefore  is  giving consent for  the transfer of  funds and  access to  its  account information through a  normal  use  of  the  personalised security credentials. Furthermore, it  is  necessary to specify the requirements of  the strong customer authentication…”.

    As technology progresses, the methods of committing fraud progress with it. That is why the Regulation also accepts that: “As fraud methods are constantly changing, the requirements of strong customer authentication should allow for innovation in  the  technical solutions addressing the  emergence  of  new  threats to  the  security  of  electronic payments. To ensure that the requirements to be laid down are effectively implemented on a continuous basis, it is  also  appropriate  to  require that  the  security  measures for  the  application of  strong customer  authentication…”

    And also: “As electronic remote payment transactions are subject to a higher risk of fraud, it is necessary to introduce additional requirements for the strong customer authentication of such transactions, ensuring that the elements dynamically link the transaction to an amount and a payee specified by the payer when initiating the transaction”.

    And finally: “In order to ensure the application of strong customer authentication, it is also necessary to require adequate security features for the elements of strong customer authentication categorised as ‘knowledge’ (something only the user knows), such as length or complexity, for the elements categorised as ‘possession’ (something only the user possesses), such as …something the user is… such as algorithm specifications, biometric sensor and template protection features…”

     

    4. The “strong customer authentication”

    Based on all the above mentioned, it is obvious that the “strong customer authentication” is a very important step towards achieving the security of transactions referenced separately by the Directive and the Regulation mentioned above. This “strong authentication” is not necessary in all instances. In most cases, though, the need for strong authentication of the transacting parties seems to be of the outmost importance, and so is taking proper – increased security measures and having a secure connection for specific transactions with some specific beneficiaries (article 97, Directive (EU) 2015/2366).

    Such cases are, among others, those where payment service providers (i.e. financial institutions, electronic currency institutions, postal check offices, payment institutions etc.): (a) gain access to the customer’s payment account online, (b) conduct the initial payment online, (c) remotely take any action that may involve the risk of committing fraud or other infringement.

    In these specific cases, the payment service providers apply strong customer authentication which includes elements that dynamically and securely connect the transaction with a specific amount and a specific beneficiary.

    In the rare case, though, where these providers overlook their obligation, the responsibility and the relevant liabilities burden them and not the (non-culpable) customers.

     

    5. In Conclusion

    Payment services, through the ages, have been proven necessary for the operation of vital financial and social activities: nobody can imagine any economy functioning without secure payment services. In the globalized economy of our times, secure electronic payments have been proven of vital importance (“onditio sine qua non”) in order to support the desired (in a national, European or global level) and in some cases absolutely necessary development.

    The “strong customer authentication” is of course aiming to provide security and also facilitate transactions. Of course, to secure and facilitate those transacting as well. The relevant rules, coming from the European Union, fulfill, in this case, John Lock’s requirement, stated in the introduction, about the (desired) objective of the law.

    Development is proven to be closely tied to the security of transactions, among others. And we can’t but benefit from development. All of us.

    So, since 14.9.2019, we are entitled to be a bit happier. And, most importantly, to feel safer.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 22nd, 2019).

  • S.A. capital: Contributions in kind and valuating (or not) the contributions

    S.A. capital: Contributions in kind and valuating (or not) the contributions

    S.A. capital: Contributions in kind and valuating (or not) the contributions.

    1. Preamble

    “All some folks want is their fair share and yours”

    – Arnold H. Glasgow – famous American businessman (1905-1998) who was successfully, for sixty years, in the humor magazine business.

    There are quite a few people who are not satisfied with their fair share. They also want a part of your share – or maybe your whole share.

    The business world and the world of SAs could not be an exception, since producing wealth generates or fuels greedy behaviors.

    In a previous article, we saw the way the recent law on SAs tackles issues relating to the amount, coverage, payment and certification of the SA’s share capital.

    What happens, though, when, instead of money, the shareholders’ contributions are made in kind?

    How is their fair valuation (as a potential contribution to an SA’s share capital) ensured and how will potential voracious appetites of the contributing shareholder or, in some cases, of the rest of the shareholders, be handled?

     

    2. Contributions in kind – forming an SA’s share capital

    2.1. In General

    According to the existing legislation on SAs (article 17, par. 1, Act 4548/2019) contributions in kind can be allowed as a means of contributing to an SA’s share capital. A contribution in kind is not like a payment in cash – but it can be valued in money.

    Contributions in kind can be in the form of, among others, real estate (i.e. land, agricultural parcels, factories, buildings), movables (i.e. transportation vehicles, goods, raw materials, furniture) intangible assets (i.e. other companies’ shares, trademarks, patents), business branches or even businesses as a whole.

    2.2. When can contributions in kind take place?

    Contributions in kind can either take place at the stage of establishment of an SA, or throughout the time the SA operates. In the first case, there must be a relevant provision in the company’s statute. In the second, there must be a relevant provision in the decision of the company’s body deciding the increase of the share capital. In both cases, there must be a reference to the person that undertakes the obligation to make the contribution and the amount of capital and the number of shares the contribution in kind corresponds to.

    2.3. Undertaking the obligation to execute works or provide services as contributions in kind.

    There is a special provision in the current institutional framework for Private Companies (article 78, par. 1, Act 4072/2012) for the non-capital contributions, which are contributions that cannot be made in cash. According to this (and provided there is a relevant provision in the company’s statute) undertaking an obligation to execute works or provide services can constitute part of the Private Company’s capital (article 78, par. 2, Act 4072/2012).

    Contrary to what is happening with Private Companies, when it comes to SAs contributions in kind can only be “assets that can be valued in money”. Special reference (in order to avoid any misunderstanding regarding what is mentioned in the abovementioned provision of article 78, par. 2, Act 4072/2012) must be made to the claims that the company has against the one who undertook the obligation to execute works or provide services: such claims are not (article 17, par. 2) assets that can constitute contributions in kind.

     

    3. The valuation of contributions in kind

    3.1. In General

    The valuation of contributions in kind is not left up to the shareholders. This seems not only logical but also necessary, towards guarding the interests of the one making the contribution, the rest of the shareholders and, of course, the company.

    There is a specific framework provided for the persons that can valuate the contributions, mentioning their incompatibilities, the content and the assumptions of the valuation report that will be drafted.

    3.2. The valuators and the incompatibilities – the abrogation of the “Committee of Article 9”

    In the pre-existing legislation (:article 9, Act 2190/1920) there was a provision that the: “verification of the value of the contributions in kind made to the company, at the stage of its establishment, as well as in case there is an increase of its capital, is conducted after the consultation is issue by a three member committee of experts, made up by one or two employees of the Ministry of Development – Sector of Commerce, or of the competent Municipal Authority, with a university degree and at least three years of experience, or by one or two chartered auditors-accountants and an expert from the competent Chamber”. We used to call this committee the “Committee of article 9” and to use it, in a totally dispatching way, for the drafting of the, required by law, valuation report of the contributions in kind. The credibility of its results was, always, low. In 2007 (with Act 3604/2007), an alternative was introduced for the drafting of that same report (valuation of contributions in kind) by a chartered auditor-accountant or an auditing company. The “Committee of article 9” has, wisely, been abrogated but its alternative survived.

    Therefore, the only option (article 17 par. 3) for someone who needs a report of valuation of specific contributions in kind (either if the contribution is made when the SA is established or when its capital is increased) is to get that report drafted by two chartered auditors/accountants or by an auditing company or, depending on the case, by two independent certified valuators. The time that it can take for a valuation report to be issued must be less than 6 months, starting from the time the contribution in kind is made (article 17, par. 9). In case there are special circumstances, which require specialized knowledge or international experience, the auditors or the certified valuators can hire expert valuators, domestic or foreign, to valuate the assets contributed.

    3.3. Publicity if the valuation report

    The legislator recognizes the significance of the valuation report. To ensure transparency, the report must be submitted to the Hellenic Business Registry by the interested parties. The company’s Board of Directors is responsible for this submission (article 17, par.8 and article 13).

     

    4. The incompatibilities of those drafting the valuation report

    The persons who will be drafting the valuation report (or get involved with it in any way) cannot be any of the following (article 17, par. 4): they can’t be members of the board of directors of the company, they can’t have any business professional relation with the company or the person making the contributions in kind, or be their relatives up to the second degree or husbands or wives.

    Specifically regarding the chartered auditors-accountants and the auditing companies they work for, there should be no obstacle or incompatibility, excluding them from conducting the company’s regular audit, and they should not have conducted the regular audit of the SA or of related to the SA companies in the last three years (Act 4308/2014, article 32).

     

    5. The content of the valuation report

    In any case of any valuation of an asset, values appointed can significantly vary. These values must be substantiated based on widely accepted methods of valuation. In order to strengthen the reliability and the usability of the valuation report, a set of rules has been established (article 17, par 5 and 6).

    According to them, the valuation report has to include (article 17, par.5) a description of the contribution in kind, to mention the methods used to valuate and to come to conclusion, appointing a value (: final price) for the specific contribution. This final price of the valuation report is the highest limit the value the contribution in kind can have (article 17, par.7).

    There are some additional rules regarding fixed assets (article 17, par. 6): the actual and legal status of these assets as well as burdens they might have (etc reconveyances, mortgages, pledges) must be taken into consideration and mentioned in the valuation report.

    Specifically, regarding real estate, the value and the ownership titles, the marketability of the area they are in, their growth prospects, their current market values, their building permit and its relevant technical report from an engineer should also be taken into consideration.

    When valuating machinery, vehicles and furniture, their year they were purchased in, their acquisition value, the degree of their use, their maintenance and tradability, their possible technology obsolescence and the current price for the same or similar assets should be taken in to consideration and referenced.

     

    6. What if the contribution made to the company is not valuated?

    Conducting a valuation report is, in general, obligatory.

    It is possible for the company to avoid the valuation report altogether, if the statute or the decision of the company’s body deciding the share capital increase have a relevant provision and if:

    (a) the assets contributed are money market instruments or securities (article 18, par. 1)

    (In this case, they are valued in the weighted average price, at which they were traded on a regulated market, for the last six months, before the date of the contribution in kind.

    (b) the assets contributed have already be valued by a recognized independent expert (article 18, par. 2)

    (In this case, the valuation cannot have been done more than six months prior to the contribution in kind)

    (c) the fair value of the assets contributed has been calculated and mentioned in financial statements of the previous fiscal year, providing these statements have been audited (article 18, par. 3) as part of the annual and consolidated financial statements (Act 4336/2015 and 4449/2017).

    In each one of the abovementioned cases, the value of the assets contributed must (under certain circumstances) be readjusted. This readjustment will take place with the initiative and responsibility of the board of directors and a valuation report must be prepared. This is, i.e. when the weighted average price or, in some cases, the fair value of the contribution in kind is affected by external factors that can significantly change (or have already significantly changed) the value of those assets at the time the contribution in kind is made.

    According to the above, the company can choose to avoid the valuation report. In this case, though, the board of directors of the company is obligated (article 18, par. 4) to submit to the Hellenic Business Registry, which will in turn publish, a series of evidence that substitute it. Specifically: (a) a description of the contribution in kind, (b) the value, why this value was appointed and, if necessary, the method of valuation, (c) a statement mentioning whether the value appointed is at least equal to the value of the shares issued in exchange for the contribution (number, nominal value, additional amount that one might have paid for the shares) and (d) a statement that there are no new circumstances since the initial valuation.

    Contributions in kind can be decided during an (extraordinary) share capital increase with a decision of the board of directors (authorized by the statute or a decision of the General Assembly- under article 24, par. 1). In this case and under the condition that the contribution in kind is taking place without valuation-according to the abovementioned, a series of evidence must also be published to the Hellenic Business Registry, substituting the valuation.

     

    7. In conclusion

    The capital “intake” is a factor contributing to an SA’s health and it is boosting activities.  The permission given to it by law to be capitally reinforced by contributions in kind, as well as the abrogation of outdated regulations (i.e. “the committee of article 9”) is a step to the right direction.

    Setting strict rules for the valuation of the contributions in kind is, without a doubt, reassuring the justice among the shareholders and their rights. And moreover, it is discouraging those who “want their fair share – and yours”.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 15th, 2019).

  • GDPR: The use of video recording systems in the workplace

    GDPR: The use of video recording systems in the workplace

    GDPR: The use of video recording systems in the workplace (act 4624/2019)

    1. Preamble

    “Big brother is watching you” is the well-known quote reminding us of George Orwell and his novel “1984”. In this novel the Big Brother is a fictional character-leader and symbol. Ingsoc, the governing party in Oceania, forces its power on the residents of the country in his name and on his behalf. G. Orwell describes the society as one where all citizens (all except for Proles) is under constant surveillance from the authorities, via electronic means.

    We know all too well that neither Oceania nor, at least in the novel, Big Brother ever existed. But we do identify phenomena of surveillance and abuse of the government (mostly) powers as the Big Brother.

    In modern societies the need for video recording systems is present -for the protection of persons and goods. Thus, it would be justifiable if someone was to think “those who abide by the law have nothing to worry about”, opening a big discussion on personal freedoms and fundamental rights with both sides presenting important arguments.

    When it comes to modern-day businesses, the need for the protection of persons and goods is not only present, but also more vivid. And this is because modern-day businesses have to do with “our” persons and “our” goods.

    Having particular regard to those concerns, the use of video recording systems has been regulated on a European and national level. The regulations in place regard, among others, the businesses and their employees.

    The regulations regarding the (broader) issue of personal data are today found, in a European Union level, in Regulation (EU) 2016/679N/span> and in Directive (EU) 2016/680 of the European Parliament and of the Council of 27 April 2016. Issues arising from this particular legislation have repeatedly concerned us in the past (indicatively in work relations, the use of biometric data in employment contracts, the first fines imposed for the violations of the relevant Regulation etc.).

    Article 63 paragraph 1 of the aforementioned Directive imposed an obligation to incorporate its provisions in all national legal systems by 6.5.2018.

    Spain and Greece turned a blind eye.

     

    2. Greece taken to court by the European Commission

    The European Commission announced, in a press release of 25.7.2019, its decision to take Greece (and Spain) to the Court of Justice of the EU, for failing to transpose the aforementioned EU regulations. Especially regarding Greece, the commission called on the Court of Justice of the EU to impose financial sanctions in the form of a lump sum of €5.287,50 per day Greece did not comply (from 6.5.2018) and, in case Greece still refrains from complying -after the day of the judgment, a daily penalty payment of €22.169,70 and a minimum lump sum of €1.310.000.

    Our country had to rush in passing the relevant act (act 4624/2019) under the urgency procedure. One of the most important issues of personal data (troubling most businesses and employees) is the issue of video recording, via a closed circuit, at the workplace.

     

    3. The provisions of the recently passed act 4624/2019 regarding video recording

    3.1. The content of §§ 7 & 8 of article 27, act 4624/2019

    The provision of article 27 of this act refers to the processing of personal data for the purpose of performance of employment contracts. Paragraphs (7) and (8) regard issues relating to the (legitimate) processing of personal data in the workplace. To be more precise, they have the following content:

    “7. The processing of personal data in the workplace via closed circuit video recording systems, either if the workplace is accessible to the public or not, is only allowed if it is necessary for the protection of persons and goods. The data collected via a closed-circuit video recording system cannot be used as a criterion for the valuation of the employees’ efficiency. The employees are informed in written, either by being given a printed document or electronically, for the installation and operation of a closed-circuit video recording system in the workplace.

    1. For the purposes of the present act, all those working with any work relationship, works contract or service contract, public or private, no matter the validity of the contract, those who are up for a position and past employees are perceived as employees”.

    3.2. Conclusions drawn from the provisions regulating video recording.

    We can deduct the following conclusions from articles 27 §§ 7 & 8 act 4624/2019:

     (a) The use of a closed-circuit video recording system in the workplace:

    1. is (exclusively) permitted if it is necessary for the protection of persons and goods
    2. is not tolerated (in any way) as a means to evaluate the employees’ efficiency (it must be noted that, notwithstanding the clear prohibition by law, no one can really prevent the employer from monitoring the attitude and efficiency of the employees who are within the range of the existing and lawful video recording system).

     (b) The employees must be informed either via a printed document or via email for the installation and operation of a closed-circuit video recording system in the workplace.

    (c) Employees are considered those who:

    1. relate to the company with an employment contract, full or partial, for a limited or indefinite time
    2. relate to the company with a works contract or a service contract

    iii. are up for a job (under the wording chosen by the legislator, informing those persons in written will certainly be difficult).

    1. are former employees.

    3.3. Worth mentioning: The initial wording of the provision regulating video recordings.

    The initial wording of the second and third subparagraph of par. 7 mentioned:

    “Data collected via a closed-circuit video recording system cannot be used as the only criterion for the evaluation of the employees’ behavior and performance. The employees are informed in written, either by being given a printed document or electronically, for the introduction and use of control and monitoring methods.”

    Therefore: Under the wording of the relevant provision it was clear that closed circuit video recording systems could be used as a criterion (one of many -not the only one) for the evaluation of the employees’ behavior and performance.

    Needless to say, the original wording did not entail a clarification of who was considered as an employee. The, later added, paragraph 8 not only clarified, but also expanded the term, as it ought to.

    3.4. Explanatory memorandum.

    The explanatory memorandum for paragraphs 7 and 8 of article 27 mentioned:

    “Paragraph 7 introduces the provision that monitoring a workplace through recording systems (either if it is accessible by the public or not) is allowed under conditions and for the achievement of specific purposes, and that there is an obligation for informing the employees in written for the introduction and operation of monitoring and surveillance methods in the workplace (see also article 13, paragraph 1 of GDPR).

    Closing, to avoid any ambiguity regarding the scope of the provisions, paragraph 8 defined the meaning of the term “employee” in the context, where the term includes even those who provide their services voluntarily, as well as trainees obtaining professional skills.

     

    4. The (relatively) recent decisions of the DPA in relation to video recording and the directions given

    The most recent decisions of the Authority are dating back to 2018 (published according to the previous institutional framework in force, act 2472/1997): Decision no.40/2018 which regarded a catering company and the (more famous) no.41/2018, which regarded a law firm.

    These decisions dealt with similar issues (installation of closed-circuit video recording systems in workplaces). In both cases, the controllers were fined (5,000€ in the first case and 50,000€ in the second). The assumptions, in both cases, were identical. To be more precise, they both mentioned (this way providing the necessary directions all businesses should take):

    (a) “… Audio and video data, when referring to persons, constitute personal data”.

    (b) “Storing and transmitting a person’s image, collected by a video surveillance system operating lawfully, continuously or at regular intervals, in a closed or open space of gathering or passing of persons, constitutes processing of personal data …”

    (c) “Basic prerequisite …for the lawful processing of personal data is respecting the principle of proportionality, meaning that the collected data are necessary and appropriate for the intended purpose, which cannot be succeeded by less intrusive means”

    (d) Furthermore, the places where the cameras are installed and the way the data is received should be defined is such way, so that the data collected are not more than those necessary to achieve the purpose of processing and no basic rights of the persons in the area surveyed are jeopardized, especially the right of “lawful expectation of protection of private life” in a specific place.

    (e) “Additionally …the system should not be used for surveying employees in the workplace, except in special situations where this is justified by the nature and the conditions of the work and it is necessary for the protection of health and the security of the employees or the protection of critical workspaces (e.g. military factories, banks, high risk facilities). For example, in a typical workspace, video surveillance should be limited in areas of entrance and exit, without surveying certain office areas or corridors. An exception to that can be certain areas like cashiers’ desks or areas with vaults, electromechanical equipment etc., under the condition that the cameras focus on the good they are protecting and not on the areas the employees occupy. Also, in some specific areas, like areas with electromechanical equipment, the shift supervisor or the security supervisor can monitor in real time the operators of high-risk machinery, in order to be able to intervene immediately, in case a safety incident occurs”.

     

    5. In Conclusion

    There was no “Big Brother” in George Orwell’s “1984”, but there was electronic surveillance in his name, powerful and very widespread.

    Technology and legislation, in a European and in a national level, permit the creation of similar conditions as they allow the monitoring and video recording in workplaces (as well). “For the protection of persons and goods”-exclusively.

    The existing legislation (act 4624/2019, article 27, par. 7) protects the businesses and, even more so, the employees. The same does the Data Protection Authority, with its above-mentioned decisions.

    The legal and administrative sanctions, in cases of infringement of the relevant obligations, are not negligible.

    To avoid the provided, cumbersome, sanctions, it appears that the businesses’ complete alignment with the existing legislation and the directions given by the DAP is necessary.

    Today.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 8th, 2019).

  • Société Anonyme–its Capital: amount, coverage, payment and certification

    Société Anonyme–its Capital: amount, coverage, payment and certification

    Société Anonyme – its Capital (Part 1: amount, coverage, payment and certification)

    1. Preamble

    “I wish my beloved Karl could spend some time acquiring capital, not spend it all just it writing about it”, Johanna Bertha Julie Jenny von Westphalen allegedly wrote.

    The “beloved Karl” is her childhood love and then husband Karl Heinrich Marx – the founder of communism and (of course) one of capital’s greatest enemies.

    “Beloved Kar” seems to have faced arguments against his ideas (complaints and the unavoidable nagging) from early on, with them literally coming from “within his own house”. Because all is well when contemplating on theories and having a love lasting through the years with Jenny, but their big family needed, among others, shelter, food and clothing.

    The need for the “hated by the masses” capital was inevitable, initially (19th century) in the house of capital’s main opponent and, later on (20th century), globally.

    It is impressive, though, that the majority of the people who are self-characterized as leftists (more than half of Greece’s population) are expecting the achievement of the much-desired development to come from the capital.

    Respectively, SAs base their plans for accomplishing their corporate goals and development on their own capital.

    The writer of this article of course in no way has the skills to write a work of similar value as the “Capital” by Karl Marx. He will only write about issues relevant to the coverage, payment and certification of the SA’s share capital and stop at that.

     

    2. The share capital and the minimum (paid) SA’s share capital

    The fact that SAs are capital companies means that they need capital not only when they are established, but also throughout the time they operate. The SA’s capital is defined as the sum of the value of the shareholders contributions, which is readjusted with time, according to the needs of the company and the choices made by its shareholders.  There is no relation between the company’s capital (which is a fixed amount and can be modified only after its statute is amended) and the company’s assets (an amount that varies during the whole time the company operates).

    The minimum share capital is 25,000€ (certain particular cases excluded) (Act 4548/2019, article 15, par. 2).

    For the SA’s whose capital is below that amount, there is an obligation to decide on its increase (such an increase can be passed by a simple quorum and majority; if not, the shareholders must convert the SA into another type of company, no later than 31.12.2019). If none of the above has been chosen before the deadline passes, the SA cannot register anything with the Hellenic Business Registry until it increases its capital (Article 183, par. 2).

    The minimum capital of 25,000€ must be paid in full. In cases where partial payment of the SA’s share capital has been provided for, the paid amount can’t be less than 25,000€.

     

    3. The coverage of the share capital

    The payment of share capital can be done either in cash or in kind. The share capital is practically “covered” by the mere acceptance of the obligation to pay for it (promissory contract – Art. 16, par. 1).

    At the stage of establishment, the SA’s initial share capital is covered (art.16, par.2) by one or more founding members, according to the statute. When the SA’s share capital is increased, the additional amount is covered (art. 16, par.2) by its shareholders or third parties. Those who have undertaken the obligation to cover the initial share capital or the amount for the capital’s increase, have to make the payment to a, specifically allocated for that purpose, company’s bank account (art. 20, par. 3). The payment can be made for the whole sum owed or it can be partial – when the conditions of the law (art. 21) and the statute are met.

    The SA can always, under certain conditions, have its capital (initial or its increased amount) covered, totally or partially, by the public. The same goes for the coverage of a bonded loan issued, convertible to shares. In that case, a different procedure is followed, the one provided in the legislation regulating the offer of securities to the public (article 16, par. 3). Violating the relevant provisions carries significant administrative and criminal penalties.

     

    4. Payment of the share capital

    The SA’s initial share capital is paid (and must be paid) when the company is established (art. 20, par.1), immediately after the establishment procedures are completed and the relevant bank account has been opened (art. 20, par. 3, see above, under 3).

    Non-payment of the initial share capital does not affect, not anymore, the status of the company, but makes it possible for anyone who has a legitimate interest to apply for the company’s dissolution before the relevant court. The dissolution of the SA will be ordered in case the (initial) share capital has not been paid for at the time the relevant application is filed (art. 165, par.1). In any case, delaying the payment of the share capital carries serious consequences (see below under 7).

    In case of an increase of the share capital, the body that makes the relevant decision (general assembly or board of directors) decides on the deadline for covering the amount. This deadline can’t be less than fourteen (14) days or more than four (4) months from the day the decision was registered at the Hellenic Business Registry (art. 20, par. 2).

    The cash amounts due for the initial share capital, for the capital increases (should they take place), as well as for a future increase, must be deposited, as mentioned above (under 3), into a specific for the purpose company bank account. Instead of making a deposit into the company bank account, the sum owed for covering the share capital or an increase (listed companies excluded) can be directly spent for pursuing corporate goals (as long as there is a relevant provision in the company statute or a provision in the decision issued by the body deciding on the share capital increase) (art. 20, par. 3).

     

    5. The payment of the amount due for the increase of share capital by offsetting company debt

    The recent Act makes it possible, for the first time, to pay the amount owed to cover the increase of share capital by offsetting company debt of the same amount (art.20, par. 4). Two conditions need to be met though, for this particular offsetting:

    (a) a relevant provision must exist in the decision for the share capital increase, since unilateral offsetting is strictly forbidden, and

    (b) the offsetting must be accompanied by a certificate from a chartered auditor/accountant or an auditing company, stating that the debt, according to the company books, is existing, overdue and unconditional – if the dept is not overdue, though, its current value must be estimated (according to article 17).

    It must be stressed that these provisions do not apply in cases of capitalization of claims as part of a consolidation plan or redeployment according to the provisions of the Bankruptcy Code.

    In any case: payment by offsetting and the number of the corresponding shares taken are registered at the Hellenic Business Registry.

     

    6. Certification of payment of the share capital

    Under the pre-existing legislation (Act 2190/1920) the certification of payment of the share capital was given by the board of directors and its verification was up to the competent minister – essentially under the control of the competent authority. This verification was in place to assure the actual payment of the share capital and also monitor if the board of directors duly performed its duty to certify.

    Under the recent legislation, there is no administrative verification of the payment anymore.

    The timely (or not) payment of the share capital (initial or after an increase) must be certified. A certification of payment is not required when the share capital is not increased by payment of a contribution (art. 20, par. 5).

    The certification must take place within two (2) months from the establishment of the company and within one (1) month from the payment deadline of the amount for the increase of the company’s share capital. With most SAs (very small and small-unlisted), the board of directors can certify the payment in a meeting held within these deadlines with the certification of payment or not of the share capital, as an item on the agenda. With large and very large SAs the payment is certified by a report by a chartered auditor/accountant or an auditing company, after they are ordered to do so by the board of directors – within the abovementioned deadlines. When it comes to the certification of payment of the share capital, this is conducted by a charted auditor/accountant, an auditing company or the board of directors (art. 20, par. 6).

    The report issued by the charted auditor/accountant or auditing company or the minutes of the board of director’s meeting must also mention the special circumstances of payment, as described in the second section of paragraph 3, or that the amount due was payed for by offsetting, according to paragraph 4. Regarding the payments by depositing cash to the special bank account of paragraph 3, both the report issued by the charted auditor/accountant or by the auditing company or the minutes of the board of director’s meeting must be based on a bank account statement, issued by the bank. This statement must be attached to the abovementioned report or minutes.

    Hence: one or more receipts of deposit to the company’s bank account are not enough. The bank account statement will also show withdraws that might have been made. “Smart” practices from the past (many small deposits followed by equal small withdraws in order to sum up the total share capital) simply belong to the past.

    The report issued by the charted auditor/accountant or auditing company or the minutes of the board of director’s meeting which certify of payment are published (art. 20, par. 7).

    When an SA is established or its share capital increases by contribution in-kind, the certification can be made by the board of directors, no matter the size of the SA, after the completion of the transfer procedure (art. 20, par. 8).

    In any case: The chartered auditor/accountant or the auditing company certifying the payment of the share capital, can’t also carry-out the company’s regular audits. Additionally, the chartered auditor/accountant can’t be part to the auditing company that carries-out the regular audit (art. 20, par. 10).

     

    7. What is the “penance” for not paying for the undertaken (initial or after an increase) share capital οn time?

    Not timely paying the amount of the initial share capital or its increase, carries (severe) penalties for the one that undertook the obligation to pay, and also results in necessary changes of the company (art. 20, par.9 and art. 21 par. 5 & 6). In that case, the board of directors sets a deadline of one month to the one liable to make the payment. At the same time, the board of directors is obligated to warn the person liable of the consequences in case the deadline expires.

    What are those consequences?

    In case the deadline expires, the company cancels the (not fully paid for) shares and retains for itself the amount that has already been paid (if any) (including partial payments or share premiums). At the same time, the company will issue new shares, as many as those that were canceled, which it then will initially offer to the other shareholders (: pre-emption right). In case the old shareholders show no interest in buying the new shares, the company offers them to the public.

    If the canceled shares are restricted, as well as if the new shares, issued to replace the cancelled shares, are not sold, either some or all of them, the company must decrease its share capital (in the first general assembly to follow) by the amount of the nominal value of the shares not sold.

    It is important to mention that the shares’ nominal value that was not timely paid for in any case burdens the liable shareholder, with the statutory rate of interest, until the shares are cancelled. Further penalty clauses or other claims against the person liable can be included in the company’s statute or at the decision ordering the increase of the share capital.

     

    8. In conclusion

    Throughout the time, capital sufficiency was crucial.  Among others, for the household of Jenny Marx and also for the businesses of her time and of today.

    The existence of the necessary share capital in SAs is crucial for achieving their corporate goals. Manipulations of the past aiming to a “virtual” payment of the share capital have no place in the recent Act or in today’s reality.

    But most importantly: The capital sufficiency of the businesses is a necessary requirement for their, as well as the country’s, (much desired) development.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 1st, 2019).

  • The abolition of the collective responsibility of the owner of a project towards the employees

    The abolition of the collective responsibility of the owner of a project towards the employees

    The abolition of the collective and several responsibility of the owner of a project, the contractor and the subcontractor towards the employees: The problem of collective responsibility and liability

    1. Preamble

    1.1. Regarding the collective responsibility and liability

    “I do not know when the term “collective responsibility” first made its appearance, but I am reasonably sure that not only the term but also the problems it implies owe their relevance and general interest to political predicaments as distinguished from legal or moral ones. Legal and moral standards have one very important thing in common-they always relate to the person and what the person has done; if the person happens to be involved in a common undertaking as in the case of organized crime, what is to be judged is still this very person, the degree of his participation, his specific role, and so on, and not the group. The fact of his membership plays a role only insofar as it makes his having committed a crime more probable; and this is in principle not different from bad reputation or having a criminal record. Whether the defendant was a member of the Mafia or a member of the SS or some other criminal or political organization, assuring us that he was a mere cog who acted only upon superior orders and did what everybody else would have done just as well, the moment he appears in a court of justice he appears as a person and is judged according to what he did. It is the grandeur of court proceedings that even a cog can become a person again.

    Thus wrote the Jewish German-American, Johanna “Hannah” Arendt, one of the most significant political philosophers of the 20th century, in her book “Collective Responsibility”, Schocken Books, New York 2003.

    1.2. Regarding the collective responsibility and liability of the owner of a project, the contractor and the subcontractor

    In contrast to what (quite obvious) Hannah Arendt, logic and law dictates, the pre-existing legal framework (article 9 of Act 4554/2018) established the collective and several responsibility and liability of more than one natural and legal persons (owner of the project, contractor, subcontractor) – no matter the actual involvement of each of them. The object: the obligations arising from a (possible) violation of the rights of employees, to be imposed on contractors and subcontractors.

    How fair is that?

     

    2. The necessity(?) for establishing the collective and several responsibility of the owner of a project, the contractor and subcontractor – explanatory memorandum.

    During the past year the executive power saw the need to establish the collective and several responsibility of the owner of a project, the contractor and the subcontractor as a means to fight undeclared and uninsured employment. The lawmaker’s rationale behind the law they introduced to tackle this issue is stated in the relevant explanatory memorandum of Act 4554/2018.

    2.1. General references

    The relevant explanatory memorandum mentions, among others, regarding the issue at hand, that:

    “1. The impact made from the implementation of the fiscal adjustment programs resulted in the increase of undeclared or underdeclared labor. … The suggested provisions introduce a new structure in the way fines are imposed from the Labor Inspection Body on the employers employing undeclared employees, giving incentives for the regulation of the labor market and aiming to the protection of employees and the creation of new jobs with social insurance”.

    Especially regarding the issue of undeclared labor of employees working for businesses (: contractors) who take on the execution of projects on behalf of their clients, the explanatory memorandum mentions that:

    “2. It is more than common for a business to assign specific works to an external associate (contractor), meaning to another business which usually specializes in one or more fields. Those works are executed by employees employed by the contractor, and not by the businessman who assigned the execution of those works to the contractor, in exchange for a fee, a fact that, in most cases, negatively impacts the rights of the employees …”

    Thus: (generally) then intentions are good!

    2.2. The specific provisions of article 9

    The explanatory memorandum mentioned, among others, regarding the provision in question:

     “…Many businesses tend to, more frequently, assign specific specialized or intensive works to contractors, mainly aiming to minimize productive costs.

    …The extensive adoption of this regime blurs the boundaries between legal and illegal practices, increases the undeclared and underdeclared labor and, at the end, contributes to the violation of employees’ rights. The provisions suggested introduce the Greek legal system for the first time with a complete set of rules regulating the responsibilities of a project’s owner, the contractor and the subcontractor towards the latter’s employees, while they execute the works assigned. The introduced collective and several responsibility of the employer and contractor covers the employees’ rights on all levels…”

     

    3. The establishment of the collective and several responsibility of the owner of a project, the contractor and the subcontractor and the relevant issues arising.

    Based on the abovementioned, under 2, thoughts of the executive power, the provision of article 9 of Act 4554/2018 passed and, along with it, the collective and several responsibility of the employer (: owner of a project), contractor and any subcontractors towards the employees. Each of the cores of this provision acted against the owners of each project (natural persons or business entities) and, furthermore, created severe (in most cases unsolvable) problems when applied. To be more precise:

    3.1. Regarding the several responsibility of both the owner of a project and the contractor.

    (a) the provision of art. 9 par. 1 mentioned that:

    “All natural or legal persons who assign, as part of their business, the execution of a project or of a part of a project (owner of a project) to another, natural or legal, person (contractor) is severally and collectively responsible, along with the contractor, towards the latter’s employees, for the payment of salaries, social contributions and any severance pay owed.

    The above responsibility is limited to the employees’ rights arising from the contractual relation between the owner of a project and the contractor regarding the specific project or part of a project.

    In case the execution of a project, or of part of a project, is assigned from the contractor to subcontractors, the collective and several responsibility burdens the owner of the project, the contractor and the subcontractor, subject to the above provision”.

    (b) The problem

    This provision covered all smaller, bigger or vast businesses. It also covered all natural persons-owners of projects. All those persons were liable, no matter the responsibilities of each, “for the payment of salaries, social contributions and any severance pay owed” to the employees who may have worked on a project assigned to a contractor. This responsibility was burdening the owner no matter whether they had paid the contractor in full or not.

    3.2. Regarding the conclusion of a works contract between an owner and contractor and/or a contractor and subcontractor

     (a) the provision of par. 3 mentioned that:

    “When drafting a contract for the assignment of a project, or part of a project, a special term is included, which refers to the obligation of the contractor to abide by the provisions of labor and insurance legislation, the legislation relating to the health and safety of the employees, as well as the legislation relating to the prevention of occupational risk.

    The same specific term is included in the contract concluded between the contractor and the subcontractor as well.”

     (b) The problem

    Most contracts, with only a few exceptions (e.g. contracts for transfers of immovable property), do not have to be written. The provision in question required for all works contracts to be written and to have specific content. It is more than obvious that the burden imposed (time or financial, on the owner and the contractor) did not bother the legislator much.

    3.3. Regarding the bureaucracy imposed

    (a) The provisions of par. 2,4 & 6 mentioned that:

    “2. The contractor assigning a project or part of a project to a subcontractor who will employ staff for the conclusion of the project, must inform so in written the contractor with no delay.”

     “4. The contractor must send to the owner proof of deposit of the salaries and of any pay owed and certificate of deposit of their employees’ severance pay, as long as the subcontractor’s employees, if there is a case of subcontracting.

    This obligation burdens the subcontractor as well, towards the contractor.”

    “6. a) The contractor and/or subcontractor must state all the owner’s or contractor’s information, respectively, at the staff establishment plan they submit to the Labor Inspection Body, for each employee who works in a place other than the base of the business. The contractor and/or subcontractor, who employ employees on two projects or more, are obligated to state in the staff establishment plan the working hours of their employees on each project separately, as well as the information of each of the owner or contractor respectively.

    1. b) The contractor and/or the subcontractor are obligated to provide the employees with a copy or abstract of the staff establishment plan when they work in a place other than the base of their business.
    2. c) When the contractor’s or subcontractor’s employees work on the owner’s establishment, the latter displays in the workplace a copy of the staff establishment plan described under b

    In case of a violation of the principals of this paragraph, the sanctions described in Act 3996/2011 (A’ 170) are imposed.

     (b) The problem

    In case the parties involved (owners-employers, contractors and subcontractors) decided to comply, as they ought to, they would have to maintain (and if they did not already have one, establish) a separate department which would be in charge of their compliance, the relevant briefing of their counterparties involved as well as monitor the fulfillment (or not) of the obligations of their counterparties: The cost of which would be terribly high and the efficiency questionable. And let’s not forget: anyone could be an owner, contractor or subcontractor, even the smallest business and/or a person.

    3.5. Regarding the right of recourse

    (a) the provision of par. 5 mentioned that:

    “The owner maintains the right of recourse, in accordance with the relevant provisions in place, especially when they operated in a diligent manner regarding the fulfillment of the contractor’s, or any subcontractor’s, obligations towards their employees. The owner acted diligently especially when they have conducted all of the following:

    1. a) has requested from the contractor to receive, in accordance with paragraph 4, all the monthly salary payment and the payment of any severance owed, as well as proof of payment of the social contributions for the contractor’s and any subcontractor’s employees,
    2. b) has sent to the contractor and any subcontractor an extra judicial protest as soon as a violation of their obligations towards their employees is brought to their attention, or if the contractor and any subcontractor have not fulfilled their obligations set under a’, requesting that they comply within fifteen (15) days, and
    3. c) terminate the contract with the contractor right after the expiration of the fifteen-day (15) period after the communication of the extra judicial protest described under b

    The contractor has, under the same conditions, the right of recourse towards the subcontractor”.

     (b) The problem

    Let’s assume, for a moment, that the time has come that we take our car (our personal, possibly cheap car) for a service. We take it to the repair shop and tell the repairman to do whatever is needed (: oral works contract/assignment). The work that has to be done on the car turns out to be a bit bigger than anticipated and the service ends up taking the whole day. The repairman does not pay the mechanic who did this specific job -the mechanic is not even registered as one of the employees who worked that day. The mechanic (according to article 9) has the right to turn against us and we most likely would be obligated to pay them their daily wage and the relevant social contributions -despite the fact that we have already paid for the service in full: we would only be able to turn against the repairman asking for a reimbursement for what we had paid to the mechanic only after we had fulfilled our obligations (described under a). In any other case: too bad…

     

    4. Retroactivity of the abolition of the provision in question

    Based on article 117 par. 1 of Act 4623/2119 (Government Gazette Α 134/9.8.2019) it is provided that “article 9 of Act 4554/2018 is abolished from the moment it came into force”.

    As for the issue of retroactivity of the abolition of this particular provision, despite the opposing views expressed (as happened in the case of the retroactivity of the abolition of the “valid reason” requirement), there is no issue of unconstitutionality. Both legal theory and case-law [even case-law deriving from precedents set by the Supreme Court (Arios Pagos) and the State Court] agree on the legality of a retroactive law – as long as the retroactivity does not affect any constitutional rights. And in the issue at hand, such rights are not affected. (Needless to say, it would be unconstitutional if a tax law, penal law or a law disguised as an explanatory law of a previous, clear law, to pass.)

     

    5. In conclusion

    It is clear that the lawmaker, when passing article 9 of Act 4554/2018, probably had in mind the protection of the employees’ rights from those who (as the infamous Greek song says) like “black ravens are attaching labor with their sharp nails”.

    But they did not notice that the provisions they were passing were covering not only those (very few) who intended to maximize their profits by undermining the employees’ rights but, in general, all those assigning a project: even the nice neighbor, Ms. Eulalia, a pensioner, who asked a painter to paint her only room (for 50€ “paint included”) and they did not pay their employee who helped them for the two hours it took to paint the room.

    Could anyone really consider explaining to Ms. Eulalia her obligations deriving from the provision in question?

    And what would happen if the Labor Inspection Body, while inspecting Ms. Eulalia’s room, did not find the contractor’s staff establishment plan -which poor Ms. Eulalia was obligated to display according to article 9 § 6c Act 4554/2018?

    It is obvious that the sanctions would be, according to the same provision, those of Act 3996/2011.

    And to ease any concerns: Ms. Eulalia would not be burned at the stake or impaled! She would only(?) have to face administrative sanctions (: a financial penalty ranging from 300€ to 50.000€ -article 24) and, of course, criminal sanctions (: imprisonment for at least six months and/or a financial penalty of at least 900€ -article 28).

    The example of Ms. Eulalia seems ridiculous, but it is not: that is what article 9 of Act 4554/2018 provided for all, none excluded, sly and honest, bigger Greek industries and smallest mini market in a neighborhood and the, aforementioned, kindhearted and sympathetic, Ms. Eulalia.

    The provision in question was abolished with article 117 §1 of Act 4623/9.8.2019.

    Thankfully.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 25th, 2019).

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