Author: skoumentakis

The abolition of the “valid reason” requirement
Terminating an Employment Contract set for an Indefinite Period of Employment: The abolition of the “valid reason” requirement

1. Preamble

“Vom Kriege” (: On War), which analyses how the theory, strategic, tactic and philosophy of war evolved, is not that modern. It is, however, taught, even to this day -one hundred and eighty eight years after the death of its author (the Prussian military and author Carl Philipp Gottlieb von Clausewitz), in military academies, corporate management and marketing schools.

It should probably be taught, if it is not already taught, to each political party’s “academies”.

“What is important with ambushing is extreme speed with secrecy” Clausewitz proclaimed.

Making such an absolutely surprising move (pleasant for some, unpleasant for others) seems to, more or less, be what the Greek Parliament did on the 8^th of August, by submitting (and passing in the end) an amendment with a big, crystal clear, stamp “BELATED” -on its top right: this amendment regarded, among others, the abolition of the (already infamous) “valid reason”.

2. The problematic around and the problems caused by the adoption of the «valid reason” requirement

In a previous article we noted the results from the establishment (with article 48 of Act 4611/2019) of the “valid reason” requirement as a prerequisite for a valid termination of an employment contract, what differed from the previously existing regime and the dangers emerging from its establishment. The author’s reservations expressed were not the only ones against this legislative provision, neither were the reservations expressed by the business and academic community of minor importance. Unfortunately, in the short period this provision was effective, the reservations expressed against it were proved to be true. Furthermore: the reactions against it were proved justified. The imposition on the employer of the burden of having to prove that there was a “valid reason” for the termination of an employment contract set for an indefinite period started “feeding” the (usually illegal and unethical) expectations of those with bad intentions.

After the procedure of letting an employee go was concluded and before the lawsuit that was to follow was submitted, usually a legal advisor was involved, and an investigation process was conducted in front of the Labour Inspectorate. During these “in between” stages, the objections raised and the views opposing the “valid reason” requirement were proven correct.

A step further, it seems that the establishment of the “valid reason” requirement negatively affected the job market: the job market balance (hiring-dismissals) proved negative during the past month (July) with the loss of 14.691 jobs (it is noted that the “valid reason” requirement was established on the 17.5.2019 – Government Gazette A’ 73/17.5.2019).

This provision proved to be problematic on more than one levels, as it resulted in:

(a) The employee being stigmatized with any of their “valid reason” resembling “behaviour” or “abilities” in case their employment contract was terminated

(b) The employers being cautious over hiring employees with employment contracts set for an indefinite period (a fact shown in the negative balance of hiring-dismissals)

(c) Choosing employment contracts of a fixed term (which, when terminated, did not require a “valid reason”) and

(d) Setting (morally reprehensible) expectations for the dismissed employees with bad faith and for their legal advisors and, as a conclusion, stretching the relevant legal actions taken, before and out of courts.

No matter how strong the opposition of this provision was, we never would have expected the Government to act so quickly. The abolition of the “valid reason” requirement was, as mentioned above, a highly surprising move. For many of us, myself included, a most pleasant surprise (as was the abolition of the absolutely problematic – joint responsibility of the owner of a project, contractor and subcontractor, as well as the abolition of the suspension of prescription periods relating to employees exercising their rights) and a signal that we are heading back to “normal”.

3. What constitutes a “valid reason”?

It is reminded that with the provision of article 48 of Act 4611/2019, the first subparagraph of paragraph 3 of article 5 of Act 3198/1955 (A’98) was amended, with an immediate effect, as follows:

“3. The termination of a work relationship is considered valid, only if it is owed to a valid reason, as such is defined in article 24 of the Revised European Social Charter, which was ratified with the first article of Act 4359/2016 (Α΄5), is done in writing, the compensation owed has been paid and the employment of the dismissed employee has been submitted and kept with the relevant official records of ΕΦΚΑ (previously IKA) [relevant social security body] or the dismissed employee has been insured. In case of a dispute, the burden of proof that all the conditions of a valid termination are met lies with the employer.”

As a result: what the provision demanded (for a termination of an employment contract set for an indefinite time to be valid from 17.5.2019 forward) was the existence of a “valid reason”. The employer terminating the contract had to state that cause when filing out the relevant form for the termination on ERGANI (:Doc. 26100/98/7.6.3019 Minister of Labor, Soc. Sec. and Soc. Solidarity), by choosing only one of the restrictively mentioned, “valid reasons”:

(a) Ability of the employee to perform their work,

(b) Behaviour of the employee and

(c) Operational requirements of the business

It is noteworthy that the employer was obligated to make a choice and (what is most important) could not choose more than one of the above.

4. What happened with the previously, before the 17.5.2019, effective legal framework?

The provisions in place before 17.5.2019 allowed the employer to terminate an employment contract set for an indefinite period at any time, with their main obligation being to pay the compensation owed. When the employee felt that the employer abused this right, they turned to the competent courts: that is where the employees themselves were burdened with proving the employer had abused their power.

According to the contested provision (enacting the “valid reason” requirement) the employer was the one obligated to state and prove all the conditions of a valid termination were met, including its existence (existence of a “valid reason”).

5. Article 24 of the Revised European Social Charter

The enactment of a valid reason being a prerequisite for a valid termination of an employment contract set for an indefinite period was based, according to the explanatory memorandum of the, today abolished, provision, on article 24 of the Revised European Social Charter, which states that:

“With a view to ensuring the effective exercise of the right of workers to protection in cases of termination of employment, the Parties undertake to recognise: a. the right of all workers not to have their employment terminated without valid reasons for such termination connected with their capacity or conduct or based on the operational requirements of the undertaking, establishment or service; b. the right of workers whose employment is terminated without a valid reason to adequate compensation or other appropriate relief. To this end the Parties undertake to ensure that a worker who considers that his employment has been terminated without a valid reason shall have the right to appeal to an impartial body.”

Regarding the nature of the Revised European Social Charter, the content of article 24 and the “valid reason”, in accordance with the provision in question (:article 48 of Act 4611/2019), we are referring to our relevant, previous article.

6. The explanatory memorandum of the abolition of the “valid reason” requirement

The explanatory memorandum for the abolition of the “good” cause adopts, as expected, certain political views. What is interesting, though, is the reference to the premises of decision 1512/2018 of Arios Pagos.

6.1. The referenced assumptions of decision 1512/2018 of the Arios Pagos

The explanatory memorandum references certain parts of this decision of the Supreme Court of Cassation. Specifically:

“1. From the provisions of article 669 par. 2 of the Civil Code, 1 of Act 2112/1920 and 1 and 5 of Act 3198/1955, it is concluded that terminating an employment contract initially set for an indefinite period is the right of either the employer or the employee and is a unilateral, unjustified legal act. Therefore, its force is not depended on the existence or invalidity of its cause. Nevertheless, terminating such a contract should not, obviously, exceed the boundaries set by good faith or the principles of morality or its social or financial purpose (Civil Code 281). So, when such boundaries are exceeded, that termination is forbitten as abusive and therefore invalid (Civil Code 174, 180). More precisely, the termination of an employment contract by the employer is abusive, when it is dictated by motives other than the purpose, for which it was provided as a right. This can occur in cases when the contract is terminated because of prejudice or vengefulness, after a previous lawful, but unpleasant to the employer, behavior of the employee. The termination is not considered invalid when there is no obvious or true cause. The employee, in order to prove the invalidity of the termination, must invoke and prove certain incidents, because of which, when practicing this right of theirs, the employer exceeded in a clear manner the boundaries set by article 281 of the Civil Code, and therefore it is forbidden.
1. The abovementioned legal status has not changed after the ratification (article 1, Act 4359/2016, in force since 20-1-2016) of the Revised European Social Charter (RESC). It is true that article 24 a’ of RESC recognized “the right of all workers not to have their employment terminated without valid reasons for such termination connected with their capacity or conduct or based on the operational requirements of the undertaking, establishment or service”. Right after that, though, Article 24 b’ of RESC, provides that breeching the abovementioned right is “the right of workers whose employment is terminated without a valid reason to adequate compensation or other appropriate relief.”.
It is deducted from these provisions that even when there is no valid reason for terminating an employment contract or relation initially set for an indefinite period by the employer, the termination is still effective.

6.2. The (non) referenced assumptions of decision 1512/2018 of Arios Pagos

The same decision, though, continues:

“…The obligation of the employer to compensate the employee is acknowledged since a long time ago in domestic law (….) for every case of termination of contract (except the one made due to criminal legal action taken) and cannot be lifted even when the employer could prove the existence of a valid reason for the termination of the contract. Therefore, a positive or negative reference to a valid reason for the termination is, at the end, ineffective. Therefore the validity of the termination is individually examined only through article 281 of the Civil Code, as was it happening beforehand, after a lawsuit of the employee was submitted before the competent court.

6.3. Conclusions

No matter how cautiously or critically one might examine the assumptions of this specific decision of Arios Pagos on a theoretical level, the Supreme Court of Cassation accepts, among others, the following facts:

(a) the termination of an employment contract initially set for an indefinite period is the right or the employer.

(b) when the employer abuses their right to dismiss an employee (something that the employee must prove), this termination of the contract is invalid.

(c) the ratification of the Revised European Social Chapter does not affect the preexisting legal status in our country, since “even when there is no valid reason for terminating an employment contract or relation initially set for an indefinite period by the employer, the termination is still effective”. Therefore, it continues, “a positive or negative reference to a valid reason for termination is, at the end, ineffective … the validity of the termination is individually examined only through article 281 of the Civil Code, as was it happening beforehand, after a lawsuit of the employee was submitted before the competent court”.

Based on these assumptions, this decision of Arios Pagos acknowledges that the preexisting legal status, before establishing the requirement for the existence of a “valid reason”, was completely adequate in relation to the directives of the Revised European Social Chapter.

7. The retroactivity of the abolition of the “valid reason” requirement

Based on the provision of article 117 par. 2a of Act 4623/2019 (Government Gazette A 134/9.8.2019) it is provided that the (problematic in our opinion) provision of article 48 Act 4611/2019 “is abolished after it was in force” and that, unnecessarily, “The provisions of Act 2112/1920 as it is in force and of Act 3198/1955 as it is in force, in combination with article 24 of the Revised European Social Chapter, ratified by the first article of Act 4359/2016 (A 5), are not affected”.

Regarding the issue of the retroactivity of the abolition of the obligation to state a “valid reason” (in case of a termination of an employment contract initially set for indefinite period and the proof of is burdening the employer terminating), no unconstitutionality issues arise -although the opposite view has been supported. Both legal theory and case law (the Supreme Courts -AP and CoS- included) agree on which statutes can pass with retroactive effect -those that do not affect the constitutionally established rights. In this case, such rights are not affected. (Needless to say, an unconstitutionality issue would be raised in case a tax, penal or pseudo-interpretative statute was retroactive.)

The confirmation of the force of provisions of Acts 2112/1920, 3198/1955 and of article 24 of the Revised European Social Chapter, is unnecessary. Towards this way, the Report of Results of the Regulations (attached to the amendment) mentions: “With the abolition of the abovementioned provisions, the rights of the employees, industrial peace, recruitments and jobs are ensured, preventing confusion, ensuring further development, reinstating normality in the employment market, always in accordance with the European and National legislators and the precedents set by the National Judge”.

8. Conclusion

The enforcement of the requirement to invoke a “valid reason” as a prerequisite for the legality of a termination of an employment contract initially set for indefinite period was problematic on many levels. Respectively, so was burdening the employer with the obligation to prove that such a cause existed. The facts that prove those statements right have already shown, during the short life of the abolished provision, in a scientific, business, social, financial and employment level.

The completely (to use Clausewitz’s terms) ambushing introduction for a vote before the Greek Parliament of the amendment to lift the “valid reason” burden, does not decrease the present and future value of its abolition.

The positive results of this abolition (and the return to the, in many ways, tested and healthy legislative framework and environment) will surely be seen in the near future. In employment as well.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 18th, 2019).
August 17, 2019
GDPR: Here we go (the first fine already imposed in Greece)

Ι. Preamble

“The eye of Justice, which sees it all” wrote Menandros in his Monostiha (Single-Line Quotes).

This phrase, more or less, refers to what we know as “divine retribution”, which always, sooner or later, “administers justice”. Since, in reality, “divine retribution” (and often human retribution) does not exist and no authority has “the eye of justice, which sees it all”. Of course, neither the Data Protection Authority (hereafter: “Authority”) has such an eye that “sees it all”.

On the contrary: we know all too well how the human eye works -it (often restlessly) watches over everything taking place and, sometimes, reports to the relevant authorities. Sometimes it reports to the Authority as well (the moral dimension of reporting or the morality of the one making the report is a different, big issue). Specifically when it comes to the Authority, it has to make good use of the human eye (its own or the eye of the person who by name or anonymously makes relevant reports). The Authority is obligated to do so as part of its duties imposed to it by law. Especially the duties of the protector of the General Data Protection Regulation (hereafter: “Regulation”) and imposer of the fines provided, in case of a violation of the provisions of the Regulation.

ΙΙ. It all started when…

The Union of Accountants of the Region of Attica (and of course, behind the Union, an unpleased, probably for irrelevant reasons, employee) logged, on December 2017, a complaint against PriceWaterhouseCoopers S.A. (hereafter: “PwC”). This complaint was logged with the Authority as well as with the Ministry of Labor and Body of Labor Inspectors (ΣΕΠΕ) (obviously to bring more pressure).

The complaint regarded the illegal processing of PwC’s employees’ data (hereafter: “Data”). According to the complaint, the illegal processing was connected with the “Declaration of Acceptance of the Processing of Personal Data” as well as with the new individual contracts of employment, both of which contained provisions stating that the employees were giving their consent to the processing of their personal data and, even further than that, to their, in many levels, surveillance in the workplace (against the provisions of Act 2472/1997). PwC, being on the stronger side as the employer, dictated -according to the complaint- the employees to sign the two documents (contract agreement and declaration).

ΙΙΙ. The requirements needing to be met in order for the processing to be lawful, according to the Regulation

The Regulation came into force on the 25.5.2018. A highly interesting provision of the Regulation is that of article 6 par. 1, stating that:

“1. Processing shall be lawful only if and to the extent that at least one of the following applies:

(a) the data subject has given consent to the processing of his or her personal data for one or more specific purposes;

(b) processing is necessary for the performance of a contract to which the data subject is party or in order to take steps at the request of the data subject prior to entering into a contract;

(c) processing is necessary for compliance with a legal obligation to which the controller is subject;

(d) processing is necessary in order to protect the vital interests of the data subject or of another natural person;

(e) processing is necessary for the performance of a task carried out in the public interest or in the exercise of official authority vested in the controller;

(f) processing is necessary for the purposes of the legitimate interests pursued by the controller or by a third party, except where such interests are overridden by the interests or fundamental rights and freedoms of the data subject which require protection of personal data, in particular where the data subject is a child.

Point (f) of the first subparagraph shall not apply to processing carried out by public authorities in the performance of their tasks.”

IV. The procedure followed by the Authority that lead to the issuing of its no. 26/2019 decision.

The Authority, dealing for the first time with an issue in relation to the Regulation, spent quite some time researching the issue at hand, submitting a wide range of inquiries and requests. To avoid any misunderstandings and the creation of a precedent, the Authority felt the need to emphasize in its decision that “due to the fact that this is the initial period of the GDPR’s application, the Hellenic DPA submits specific questions and requests, while exercising its investigative – inspective powers in order to facilitate the documentation of accountability by controllers. Controllers are obligated, because of the Hellenic DPA’s investigative – inspective powers, to submit on their own, and without any inquiries or requests from the Authority, the measures taken and policies adopted internally in order to comply, since they already know them all, being the ones who planned and implemented that very internal organization” (§ 8).

What does that mean?

Sometime in the near future the Authority will require that the Controllers “justify their accountability”, without it (the Authority) feeling like it has to ask any questions at all. If the Controllers succeed in doing so sufficiently, good. If not, that’s good too…

V. The assumptions of the (no. 26/2019) decision of the Authority

A number of highly significant assumptions are stated in this decision. According to the writer’s opinion, the following are some of the most important ones:

i. Choosing the legal base for the processing of Data

(a) According to the Authority (§ 6):

“Collecting and processing personal data should not take place in secret or by hiding it from the data subject or by hiding all the necessary information (unless it is provided so from relevant legislation, in accordance with article 8 ECHR). The identification and choice of the appropriate legal basis under Article 6(1) of the GDPR is closely related both with the principle of fair and transparent processing and the principle of purpose limitation, and the controller must not only choose the appropriate legal basis before initiating the processing -documenting this choice internally in accordance with the principle of accountability-, but also inform the data subject about its use under Articles 13(1)(c) and 14(1)(c) of the GDPR, as the choice of each legal basis has a legal effect on the application of the rights of data subjects.

The data subject must be informed of its rights, of the lawful and reasonably expected true way its data is being processed as well as of the purpose behind the processing. The way and purpose of processing must not contradict with the reasonable and legitimate expectations regarding the protection of the subject’s privacy, or threat its fundamental rights and freedom, especially that of its right to the protection of its personal data, without the subject knowing.

As per the principle of fair and transparent processing, it is extremely important for the controller to choose the appropriate legal base, so as for the data subject to not falsely believe that it gives its consent as per article 6 par. 1.a’ GDPR, when in reality its data is being processed for the performance of a contract.”

Conclusion:

Choosing the proper legal basis for the processing of personal data (hereafter: Data) is extremely important. It should be one of the legal bases provided for in paragraph 1 of article 6 of the Regulation exclusively and it should be communicated to the subject before the processing starts.

ii. Stating that more than one legal basis apply for the processing of Data

(a) According to the Authority (§ 12):

“While, for the processing of employees’ personal data which immediately relate to their work, the legal basis of article 6(1) b’ of GDPR applies, or for the fulfillment of the employer’s obligations in relation with the employees’ social security or the relating tax obligation the legal basis of article 6(1) c’ of GDPR applies or for the protection of the business’s property and effective operation of the business the legal basis of article 6(1) f’ of GDPR applies, nevertheless, the legal basis of consent, per article 6(1) a’ GDPR only applies to those cases where no other legal basis applies, as, for example, when an employer asks for its employees’ consent in order for them to be filmed in a video containing moments of the life in the workplace … or, for example, for them to be photographed in a photograph that will be posted on the corporate intranet along with other data of theirs…”

(β) Conclusion

Choosing the consent of the subject as the legal basis for the processing of their Data is not a panacea: it solely applies in cases where no other legal basis does.

iii. Regarding the appropriate application of the legal base of consent -in general

(a) According to the Authority

(§ 14): “Where the legal basis of consent is properly applied, in the sense that no other legal basis is applicable, refusal of consent or its withdrawal is equivalent to an absolute prohibition on the processing of personal data.”

(§ 21): “In addition to what is already stated, it has to be stressed that where the controller has doubts concerning the lawfulness of the processing, the controller must, according to the provisions of GDPR and especially according to article 5(1) of GDPR and the principals of accountability according to paragraph 2 of the same article, remove those doubts before processing or refrain from processing until the doubts have been removed.

(§ 24): “Given that the company chose the legal basis of consent, whereas it was obligated, according to the aforementioned (see par. 14), to previously consider and rule out all other regal bases by justifying why it made that choice, so the Authority can examine whether that choice was correct. Thus, the company violated the principal of accountability.”

(b) Conclusion

When the legal basis of consent is appropriately implemented for processing Data, refusal of consent or its withdrawal is equivalent to an absolute prohibition on their processing. Where there are doubts, the controller must refrain from processing until the doubts have been removed and until they first justify their choice.

iv. Regarding the proper application of the legal base in consent in monitoring the employees’ electronic communication

(a) According to the Authority

(§ 16): “Consent does not constitute the proper legal basis for processing employees’ personal data when monitoring their electronic communications, the legal basis of art.6 par. 1 ver. f of GDPR does, as stated before… Respectively, in that case, choosing legal basis of art. 6 (1) b’ of GDPR for the performance of the contract is problematic, because, on one hand, (depending on the nature of the employment) such processing might exceed what is necessary for the performance (of the contract), while, on the other hand, the argument… that controlling the employees for security or management purposes, installing and operating systems for reporting malpractices and for the protection of the physical safety as well as for the protection of IT and networks are generally considered … the legitimate interest of the DPO, is well founded, as long as it is “allowed by law”…”

(§ 23): “The Authority has referenced in detail to the conditions, procedures and guarantees relating to monitoring the employees’ means of communication and electronic equipment by the employer, with its no. 34/2018 decision, where it ruled that among the conditions for the lawful processing of personal data, is the creation and application of an internal regulation for the proper use and operation of the equipment and information network and communications, and it also listed the regulation’s minimum content (policies etc).”

(b) Conclusion

The issue regarding the conditions, procedures, and guarantees in relation to the monitoring of the employees’ means of communication and electronic equipment is extremely wide and important and it exceeds the limits of this article. What can be mentioned and stressed in this regard, is that, usually, such monitoring must take place within article 6(1)f’ of the Regulation: when the processing is necessary in order for the controller or a third party -given the very important restrictions- to serve their legitimate interests.

v. Shifting the obligation for accountability to the employees

(a) According to the Authority (§ 24):

“ Furthermore, as mentioned in no. 18 ii of the present decision, the company shifted its own accountability, with which it was charged in that specific case, over to the employees, violating article 5, par. 2 GDPR. Specifically, the company asked its employees to sign at Annex I that they “recognize”:

First…

Second…

By doing so, the company shifted its own obligation for accountability in relation to the principal of data minimization over to the data to the subjects, when only itself was responsible, as part of its internal organization and compliance, to assess which of the personal data are relevant and appropriate for the pursued legitimate aim pursued, given that the company requests from its employees to give data that are necessary for the interests pursued. In any other case, the employees would submit whichever data they wanted, or even none.

Combining the above with the company’s statement made at the hearing of their memo before the Authority, containing that: “[…] facing the (still) new and specialized legislation for the protection of personal data, we adopted a conservative approach and, trying to be as secure as possible, and also so as to not compromise -not even create any thoughts that we might compromise the rights of our employees, we asked for the consent of our staff…”, we deduct that the company wrongfully assumed that by having the data subjects sign the provisions in Annex I, it is “exonerated from all liabilities”, when, in reality, the employees usually do not have the specialized knowledge to check the legality and compliance with the principles of article 5 par. 1 GDPR, with which, according to article 5 par.2, burdens the Controller. Therefore, the company in this case also, violated the principle of accountability.

Finally, the company by choosing an inappropriate legal basis for the processing, according to article 6, par. 1 GDPR (initially the basis of consent, followed by the basis of performing a contract for all data processed) the company violated its, according to article 5 par. 2, obligation to comply and prove its compliance with paragraph 1 of the same article (principle of accountability)”.

(b) Conclusion:

Accountability is a very important obligation of the Controller, with which the Controller is solely burdened. The shifting of this obligation and the relevant burden over to the employee [i.e. (the Controller) “is doing everything right”] is not only ineffective, but also aggravating and problematic for the Controller.

VI. The ruling no. 26/2019 decision of the Authority

With this ruling, the Authority: a) required PwC to comply with the provisions of the Regulation within 3 months and b) imposed on PwC an “… effective, proportional and deterrent administrational fine of 150.000 euros”.

VII. In conclusion

Most of the companies in our country: either did not bother with GDPR at all until (and/or after) the Regulation came into force (25.5.2018) because of lack of information, indifference or an expectation of “an extension” or did as little as possible [either it being a choice (thinking “let’s do the minimum/cheapest”) or the result from choosing the wrong consultants].

The Authority with its 26/2019 decision proves that the “grace period” has come to an end and that “the salad days are over”. The case we referred to is indicative of the fact that the size and/or specialization of the controller does not mean anything. Among others: neither that they will be treaded favorably by the Authority.

The Regulation is based on the principal of self-regulation. The Authority will neither approve the relevant compliance of the businesses nor become aware of possible diversions. Unless…

Unless it conducts an inspection on its own, as it is entitled to do, or receives a complaint.

Our initial fears, even before the Regulation was implemented, are unfortunately now a reality: the majority of businesses (a) are insufficiently prepared or not prepared at all for their compliance with the Regulation and (b) are exposed to serious sanctions.

Is there still time?

Of course! But only until the “eye that sees it all” discovers the “ills” and decides to make relevant complaints: obviously not to serve a higher cause (e.g. justice) but, most likely, having low motives.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August, 11th, 2019).

August 11, 2019
New instruments for resolving tax disputes within the EU

New instruments for resolving tax disputes within the EU

Ι. Preamble

Even Socrates forced Thrasimahos (as per Plato’s Republic, see 346e–348b), strong supporter of the view of the “law of the most powerful”, aka “might makes right”, to admit that justice is a virtue of the soul that can ensure one’s happiness, we always want to think of justice as the vehicle to ensure our rights, but also as a the way to restore the rule of law.

The delay in the administration of justice is a blight (one of many) for businesses -and, of course, for natural persons as well.

Taking legal actions before Greek courts in order to make administrational claims is, in its very core, very problematic: One must not only be surrounded by the proper legal, financial and tax advisors and have sufficient funds, but also be equipped with the patience of Job. The amount of time it takes for a tax dispute to be resolved (although already improved) can approach or even exceed a decade(!).

The amount of time it takes to resolve a legal dispute before the courts (especially those disputes with an administrational – tax nature) seems to devoid of seriousness.

The possibility that someone may have to go through multiple legal systems of countries between which, for example, there are Double Taxation Agreements in place, is truly horrific: a lifetime does not seem enough…

The EU legal systems in place have not, until recently, neither protected the taxpayer’s rights, nor promoted the acceleration of the procedures in place that needed to be followed in order for a tax dispute to be resolved -a dispute that resulted from a wrong application, or no application at all, of Double Taxation Agreements.

Their improvement has been sought.

II. COUNCIL DIRECTIVE (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union

About three years ago (on 25.10.2016), the European Commission announced its plan for the taxation of businesses in the Union market, “delivering a growth-friendly and fair corporate tax system”.

Vice president Valdis Dombrovskis said, at that time, that: “Tax policy should support the EU’s goals of economic growth and social justice…”.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: “With the rebooted CCCTB proposal, we’re addressing the concerns of both businesses and citizens in one fell swoop. The many conversations I’ve had as Taxation Commissioner have made it crystal-clear to me that companies need simpler tax rules within the EU. At the same time, we need to drive forward our fight against tax avoidance, which is delivering real change. Finance Ministers should look at this ambitious and timely package with a fresh pair of eyes because it will create a robust tax system fit for the 21st century.”

What made these men make such statements?

At that time (October 2016) there were about 900 unresolved disputes in the EU, estimated at 10.5 billion euros. These numbers were extremely high and the problem had to be resolved: The intention was to set clear deadlines so that the Member States commit to resolve the problems created by the double taxation and the agreements to avoid it.

One of the most important actions took was the Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union.

III. Substantial assumptions of Directive (EU) 2017/1852 of 10.10.2017

In the preamble of the Directive (which followed the above statements), there are some extremely interesting references. The most interesting of them can be found, in their original form, below:

“Whereas:

(1) Situations in which different Member States differently interpret or apply the provisions of bilateral tax agreements and conventions or the Convention on the elimination of double taxation in connection with the adjustments of profits of associated enterprises …can create serious tax obstacles for businesses operating across borders. They create an excessive tax burden for businesses, and are likely to cause economic distortions and inefficiencies and to have a negative impact on cross-border investment and growth.

(2) For this reason, it is necessary that there are mechanisms in the Union that ensure the effective resolution of disputes concerning the interpretation and application of such bilateral tax treaties and the Union Arbitration Convention, in particular disputes leading to double taxation.

…

(4) … At the same time, in the spirit of a fair taxation system, it is necessary to ensure that mechanisms for dispute resolution are comprehensive, effective and sustainable. Improvements to dispute resolution mechanisms are also necessary to respond to the risk that the number of double or multiple taxation disputes will increase, with potentially high amounts being at stake, because tax administrations have established more regular and focused audit practices.

(5) It is crucial to introduce an effective and efficient framework for the resolution of tax disputes which ensures legal certainty and a business-friendly environment for investments in order to achieve fair and efficient tax systems in the Union. The dispute resolution mechanisms should also create a harmonised and transparent framework for solving disputes and thereby provide benefits to all taxpayers.

(6) The resolution of disputes should apply to different interpretation and application of bilateral tax treaties…

IV. The core provisions of Directive (EU) 2017/1852 of 10.10.2017

The object of this Directive

This Directive sets the rules for a mechanism used in resolving disputes between member states that emerge for interpreting and applying agreements and conventions aiming to eliminate double taxation. It defines the rights and obligations of the persons concerned (article 1) and it regards both natural and legal persons (article 2).

Complaint and amicable settlement

The legal and natural persons concerned can submit a complaint, containing specific data and information regarding the contested issue, with which objection they will request for the resolution of the issue from the relevant authorities of each Member State concerned. The complaint shall be submitted within three years from the receiving of the first notification of the measure that raised the contested issue. The Member States that received the objection can unilaterally resolve the issue within six months after the objection was submitted or after they received additional information they had requested. In this case, the procedure provided for by this Directive is concluded (article 3).

Alternatively, the competent authorities of the Member States concerned (and assuming they have accepted the submitted complaint) seek to resolve the contested issue by reaching an amicable settlement within two years. If they fail to do so, they inform the affected person for the reasons an amicable settlement was not reached (article 4).

Advisory Commission and Alternative Dispute Resolution Commission

In case an objection submitted is overruled or the Member States cannot reach an agreement, the affected party can request the formation of an Advisory Commission from the competed authorities of said Member States. The Advisory Commission delivers an opinion regarding the contested issue (article 6) and has the composition of one chair, one representative (or two) of each competent authority concerned and one intendent person (or two) of standing, appointed by each competent authority concerned (article 8)

The competent authorities of the Member States concerned may agree to set up an alternative dispute resolution commission instead of an Advisory Commission to deliver an opinion on how to resolve the question in dispute. The competent authorities of the Member States may also agree to set up an Alternative Dispute Resolution Commission in the form of a committee that is of a permanent nature (article 10).

The fees of the members of the abovementioned committees are not borne by the affected natural or legal person but are shared equally among the Member States. The same goes for the fairly substantial fees of the independent persons (1000€ per person per day) (article 12).

The Advisory Commission or the Alternative Dispute Resolution Commission shall deliver its opinion to the competent authorities of the Member States concerned no later than 6 months after the date on which it was set up, period which can be extended by three months. Where the Advisory Commission or Alternative Dispute Resolution Commission considers that the question in dispute is such that it would need more than 6 months to deliver an opinion, this period may be extended by three months. The Advisory Commission or Alternative Dispute Resolution Commission shall inform the competent authorities of the Member States concerned and the affected persons of any such extension.

Dispute Settlement

The competent authorities concerned shall agree on how to resolve the question in dispute within six months of the notification of the opinion of the Advisory Commission or Alternative Dispute Resolution Commission. The competent authorities may take a decision which deviates from the opinion of the Advisory Commission or Alternative Dispute Resolution Commission. However, if they fail to reach an agreement as to how to resolve the question in dispute, they shall be bound by that opinion. Where the final decision has not been implemented, the affected person may apply to the competent court of the Member State that failed to implement the final decision, in order to enforce implementation thereof. (article 15)

The possibility of turning to and implementing this Directive

It is possible that the action of a Member State that gave rise to a question in dispute has become final under national law. It is noteworthy that in this case the affected persons are not prevented from having recourse to the procedures provided for in this Directive. The submission of the question in dispute to the mutual agreement procedure or to the dispute resolution procedure shall not prevent a Member State from initiating or continuing judicial proceedings or proceedings for administrative and criminal penalties in relation to the same matters.

Provisions for natural persons and smaller undertakings

Where the affected person is either: an individual or not a large undertaking and does not form part of a large group (both as defined in Directive 2013/34/EU of the European parliament and of the Council) the procedure the affected person has to follow becomes much simpler. The complaints, requests, withdrawals etc. do not have to be submitted to all competent authorities of all Member States concerned, but only to those where the affected party resides. (Article 17)

V. The consequences of a (non) transposition of this Directive to our national law

The Member States of the European Union where obligated to “bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 30 June 2019 at the latest” (article 22).

Our country did not.

This raises an interesting issue, since the Directive does not apply where a Member State has not taken national measures.

Nevertheless, the Court of Justice of the European Union has ruled that some provisions of a Directive can, as an exception, be implemented directly in a Member State, even if said State has not yet taken national measures for its implementation, under the following conditions: a) the Directive has not yet been transposed to the national law or it has been transposed incorrectly; b) the provisions of the Directive are obligatory and are adequately clear and accurate; and c) the provisions of the Directive recognize rights to specific persons.

Since these conditions are met, specific persons can invoke the provisions of this Directive before all public authorities. Even when a provision of this Directive does not recognize a specific right to an individual, resulting in the first and third condition not being met, the authorities of the Member State are legally obligated to take the non incorporated Directive under consideration. The aforementioned precedent is mainly based on the principles of efficiency, prevention of infringement of the Treaty and effective protection. Contrariwise, an individual cannot invoke a non incorporated Directive before another individual (the “horizontal direct effect”; Case C-91/92 Faccini Dori, ECR I-3325 et seq, point 25).

Entry into force and application of the Directive

According to the above, this Directive (although not yet incorporated into the national law) is applied in every appeal submitted since the 1^st of July, 2019 and on in debated issues, that have to do with income or capital that was acquired in a fiscal year starting the 1^st January 2018 or after this date (article 23).

According to the precedents of the Court (joined cases Francovich, Collection 6/90 and 9/90), a citizen can claim compensation from a member state that does not apply EU legislation. In the case of a Directive that has not been incorporated or it has been incorporated in a non-comprehensible manner in the national law, similar appeal is possible when: a) the directive aims to give rights to individuals, b) the content of the rights can be determined based on the provisions of the directive, and c) there is a causal link between the violation of incorporating the directive into the national law and the damage the individual suffered. To substantiate responsibility of the member state, there is no need for liability to be proven.

Therefore: possible denial of applying the provisions of this Directive by our country (by not incorporating it in our national legislation) arises claims for compensation against it.

Conclusion

The delay in the administration of justice is one of the hundreds of issues that concern the business community – and not only them.

It was something the Institutions tried to improve by the support programs. Unsuccessfully in my opinion.

The delay in resolving administrational – tax disputes, can only cause desperation (even without taking into consideration the delays of the recent, even, past).

The problem was more severe when more than one states were involved (i.e. when trying to avoid double taxation agreements): reaching deadlocks was not so rare or manageable.

Council Directive (EU) 2017/1852 of 10 October 2017 looks towards facilitating persons and businesses facing situations (for which they have no responsibility) in the context of resolving tax disputes where persons and more than one states are involved. The time frame expected for these procedures is not so short. It is, though, for sure a very important step to the right direction, but still far from the objective: delivering right and justice.

Because (according to the British suffragette Emmeline Pankhusrt): “Justice and judgment lie often a world apart”…

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August, 4th, 2019).

August 4, 2019
The company’s cash (… and its owner’s pocket)
The company’s cash (… and its owner’s pocket)

I. Preamble

Alexandros Papadiamantis writes, in his novella “The Murderess”, that when the main character, Ms. Haidoula (Fragkogiannou) realized that the police was about to arrest her, she run to the aid of Marouso: That night she tried to avoid the consequences of the multiple crimes she had committed, the justice of men and the wrath of the, closed at that time, society of the island of Skiathos.

Papadiamantis writes, as if he was present, his character’s electrified, on many levels, conversation. One specific extract applies to the present article:

“-Oh! Every sin is sweet.”

“-That is true! … and how bitter is it at the end! Added Marouso in melancholy”.

The undersigned is not known for his knowledge in psychology or criminology or for having relevant experiences. We can, probably safely, assume that when committing any (more or less serious) illegal act, the perpetrator seems to satisfy an inner impulse and/or think that their act is righteous and that in the end the consequences of the illegal acts will somehow be avoided. Obviously, there is no intent to relate the perpetrator of any illegal act with any well-respected entrepreneur. We do, however, assume that the later must feel similarly when blurring the boundaries between their business’s and their own finances– between the cash of their business and their pocket.

To be fair, the boundaries are, very often, not clear…

II. Embezzling from a legal entity

The provision of Article 375 (§§ 1 & 2) of the recently passed Penal Code (Act 4619/19), in force since 1.7.2019, (containing minor modifications from its previous form) does not leave any margin for doubts when it comes to committing the crime of embezzlement from a legal entity. There is no margin as for the severity of this crime’s consequences, either:

“1. Anyone illegally appropriating a foreign (wholly or partially) movable property that came in their possession by any means, is punished with incarceration for up to two years or a fine and if the object is of an especially high value, with incarceration and a fine. If the object has been entrusted to the person liable …due to their capacity as trustee …or manager of foreign property, the person responsible is punished with at least one year on incarceration and a fine.”
1. If the value of the object of paragraph 1 is more than 120.000 euros in total, the person liable in punished by incarceration up to ten years and a fine.” It must be noted that the amount of the fine imposed to the perpetrators, according to article 57 of the new Penal Code, can be up to 18.000 euros, for cases where a fine is provided by law as an alternative penalty and up to 36.000 euros for cases where a fine is provided by law as a cumulative penalty.
III. The perpetrators, relative precedents

It is accepted (especially when it comes to SAs) that even a company’s legal representatives (the President and the members of the BoD, among others) can commit embezzlement. Embezzlement can also be committed in many ways and not only in the most common way (the direct taking of money from the physical cash kept in the company’s headquarters or from the company’s bank accounts). To mention a few: by registering in the company’s ledgers and paying off false (fictitious) invoices (invoices that do not relate to the company’s practice and the achievement of the company’s objects), by appropriating company’s movable property, by paying off personal (or third party) obligations, by using corporate credit cards for personal (not corporate) expenses, by paying overpriced goods acquired by the company and ending up in the perpetrators pockets, by partial or total discharge of debt of third party-debtors to the company (see Arios Pagos 883/2004 -6^th criminal division Council).

In cases like these there will, οf course, be more people criminally involved (e.g. those who assist the perpetrators before or after the embezzlement, i.e. financial managers, accounting supervisors etc.).

IV. The rest, non–penal, consequences

Besides the certain criminal liabilities, a possible embezzlement committed by the company’s representatives/managers (usually the majority shareholder or from the latte’s associates) causes a number of problems in many levels:

In case of a clear embezzlement of cash from the company’s physical “cash drawer” (cash physically kept by the company), we may be facing a notional fund (a fund that will appear in the company’s financial statements but will not truly exist) or a “problematic” account (i.e. “claims from shareholders”, which remains “outstanding” for years).

If we come across fictitious invoices, notional contracts or expenses that only appear to be liabilities of the legal entity but in reality have to do with physical persons or a third, unrelated, legal entity, we will, probably, be facing serious tax offences, but also the liability of the parties involved before the injured legal entity (for SAs see about the liability of the members of the Bod).

Problematic activities (and/or accounting documents) may be detected by tax authorities, by a minority shareholder practicing their rights, or, maybe, by the next manager or owner of the company.

It is common for the minority shareholders (and/or the next owners or managers) to act (either fairly or unfairly) as the pursuers of Fragkogiannou, who “while running she had climbed up, higher to the shore, exhausted, breathing heavily in and out. As she was going, she stood for a brief moment, trying really hard to listen. She wanted to know for sure whether her two pursuers were behind her… But she did not feel safe, the poor woman…”

V. Existing Solutions

Law, in general, provides a wide range of secure options that facilitate the transfer of liquidity from the company to the businessman / majority shareholder: Concluding an employment agreement, works or service contract, paying (or prepaying) dividends, capital decrease (or return) and, alternatively, the amortization of capital are only some of the options of the businessman -especially when dealing with SAs. Given the range of legal options given, it is not logical of someone to expose themselves to (potentially very severe) civil, criminal, administrative and tax penalties.

VI. In Conclusion

The owners of the (mainly family-owned) businesses often confuse their own financial means and pocket with those of their business. How easy is it for a businessman (majority shareholder, partner of owner) to understand that it is illegal and a “sin” to blur that boundary? Exactly this inability to understand is what often leads to wrong moves and wrong decisions. It is true that sometimes this tactic is followed because there are important needs of the businessman or because the businessman simply feels a lot of joy by satisfying their desires or material needs with “THEIR” company’s cash, but the question remains: is it worth it?

The consequences on a civil, criminal, tax and administrative level are nothing but minor. The path that this will lead to, comes with great dangers. As Papadiamantis put it: “Every sin is sweet.”… and how bitter is it at the end!”- let’s not forget that the relevant liabilities, at least the civil ones, have a statute of limitations of three years and, under circumstances, ten years (article 102 par. 6 Act 4548/2018)

On the other hand: (Most) options offered by law are sufficiently accommodating the transferring of liquidity from the company to its owner or to the majority shareholder/partner. As a result, it does not seem that there is any point in (the logical and well-respected) businessman taking on all that risk by making the wrong choices – the paths of anguish taken by Fragkogiannou…

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 28th, 2019).
July 28, 2019
Partial payment of the SA’s capital

1. Preamble

Five days from now, it will be 81 years since the day the Edwardsville Intelligencer (a local newspaper from Edwardsville, Illinois) came out, on 19.7.1938, under the title “Corrigan Flies By The Seat Of His Pants”.

What had happened?

One of the few (at the time) aviators, Douglas Corrigan, had submitted a transatlantic flight plan from Brooklyn to Dublin. The flight plan was, probably fairly, rejected, since the bold aviator seemed that he did not have the proper navigational instruments. Later, a (more reasonable, as it seems) flight plan from Brooklyn to California was approved. The journey started smoothly and ended after 29 hours in Dublin(!). The bold pilot never admitted that he ignored the rejection of his flight plan: He claimed failure of the navigational instruments of his airplane.

The phrase “fly by the seat of your pants” has since then been used to describe an action fully realized by someone’s own means, initiative and perception, without any outside help: always attractive – often reckless!

Is this also true for investments? For business plans?

Each one of us, depending in its personality and business profile, has already given its answer.

But how do SAs respond? Is there a framework favoring the slightly more “reckless” investor?

2. Partial payment of the SA’s capital

The provision allowing the partial payment of an SA’s capital is not new. But with the recent legislation regarding SAs (Act 4548/18), this provision was reintroduced, considerably stricter.

What does a partial payment consist of and what comes with it?

Partial payment of the share capital at the stage of a company’s incorporation (as well as at any time a company’s share capital increases), is the payment of only a part (and not its entirety) of the par value of a share (article 21 §1). The liable shareholder takes on (along with the “facilitation” provided) the obligation to pay the rest of the share’s value in a future time – depending on what is prescribed in the statute of the company.

In case of issuing share titles that have not been fully paid, it is obligatory to write on their front side that they are partially paid as well as the terms under which their payment in full will take place (article 21 §7).

Partial payment is not allowed in two cases: when contribution of a shareholder is made in kind and when we are referring to listed companies (article 21 §2).

3. Why would we choose (or allow) partial payment of share capital?

It is a fact that the bigger the capital base of a company, the stronger the company. But it is not always a given that the shareholders have the capability (or prioritize) to immediately pay their share of the capital at the time of incorporation of the company (or at the time of an increase of its share capital). It is possible, in the context of a smaller business venture, to be hoping for the participation in the business venture of a capable “partner”, associate or executive, to the traits of whom we are counting on for the venture to succeed. Another possibility is that there is a specific person who we want as part of the original shareholding scheme or who we want to join in at the company at a later stage (at an increase of the company’s share capital) but they do not have (not only the capability but also) the means to justify the wealth needed to cover their share of the capital (e.g. it could be one of the family’s children, in a family business).

In all these cases (and not only them), partial payment of the share capital is the way to go.

It is important to emphasize that the partially payed shares offer their beneficiaries the same rights as the fully paid ones (among these rights are voting and receiving dividends).

4. Arrangements that must be made in case of apartial payment of share capital

When partial payment of the initial share capital or of the capital increased is decided (in the context of statutory provisions), the following are obligatory (article 21 §3):

(a) The deadline for the payment in full (of the outstanding amount) of the share’s par value cannot be set for more than 5 years.

(b) At least one quarter (1/4) of each share’s par value must be paid immediately (e.g. if a share’s par value is 10€, then the minimum amount that must be paid is 2,5€). In case the shares are issued above par, the amount that equals to the sum above the par value is paid in full at the time of the payment of the first installment for the shares (e.g. if the par value of a share is 10€ and the price they are issued at is 20€, the extra 10€ must be paid along with the first installment that has (probably) been agreed on beforehand, for the payment of the outstanding amount of the par value).

(c) The fully paid off part of the share capital cannot be, in any case, smaller than 25.000€.

(d) In cases when shares, not yet fully paid off, are transferred, the transferor is responsible for the consideration of the shares still owed to the company for two years following the registration of the transfer of the shares to the Shareholders Book.

5. Is it mandatory to pay the (partially payed) shares’ par value in full in one installment?

It can be provided in the company’s statute that the payment in full of the outstanding amount owed for the par value of the partially payed off shares will take place either at once or in more installments.

In cases when partial payments (traches) are made for the outstanding amount, these payments are “evenly spread” to all shares that have been obtained by the same person (article 21 §4). This means that the shareholder-debtor cannot just fully pay off some of their (partially payed for) shares.

6. What is the “cost” of not paying what is owed for the partially payed for shares?

If the liable shareholder fails to make any of the instalments for the payment of the remaining amount due for the shares, they will face (strict) -but necessary for the company- repercussions (article 21 §§5 & 6). In such a case, the company’s BoD will set a one-month deadline to the liable shareholder to fully pay off what they owe for the shares. At the same time, the BoD is required to let them know what the repercussions will be if the one-month deadline passes and the liable shareholder has not fully payed off the sum owed for the shares they hold.

What will the repercussions be? In case the deadline passes with no results, the company will cancel the partially payed for shares and it will keep all sums already payed by the liable shareholder (instalments, a possible above par value sum). At the same time, the company will issue as many new a shares as the ones it cancelled and it will offer them to the other shareholders (:preferential right). In case the existing shareholders do not exercise their right, the company then offers the shares to the public.

If the cancelled shares are restricted, or if offering the shares issued as a replacement to the public is (at part or in total) not fruitful, the company is obligated to decrease its capital (at its first general assembly) by the sum of the nominal value of the shares not sold.

It must be stressed that the shareholder who has not paid a sum for their shares within the deadlines set is still, in any case, liable for the sum they owe, as well as for the legal interest, which is piling on until the invalidation of the shares. Further penalties or other claims of the company against the person liable may be provided for the company’s statute or in the decision for the increase of the capital.

7. In conclusion

A possible partial payment of the share capital is a “rift” on the admission that the person participating in a company’s incorporation (or in a company’s capital increase) pays for their shares in full. The aforementioned provisions allow shareholders to decide on paying only for a fraction of the par value of some (or all) of their shares. It is a given, though, that if the obligations taken on by the liable shareholders are not met, there are serious repercussions: they will not only lose their shares, but also the sum they have already paid for the shares’. It is also possible, as mentioned above, that more sanctions or other claims by the company may be in place in case of such a violation.

Douglas Corrigan (aka «Wrong Way Corrigan») managed to successfully conclude, in 1938, on his own – without the proper navigational instruments the (transatlantic and amazing for its time) flight from Brooklyn to Berlin. The result not only vindicated him, but also gave him the opportunity to play himself in the 1938 movie: «The Flying Irishman».

That was because he managed to finish his journey. What if he had not?Much like that, if the shareholder relies on luck, good conditions and future proceeds to pay off what they owe for their (not fully payed-for) shares:If they manage to come through, as an outstanding achievement.If not? As a disaster.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 14th, 2019).

July 14, 2019
Submission of financial statements to the BoG

The requirement to submit a company’s financial statements to the Bank of Greece: (one more headache)

Preamble

Mules are known, among other things, for their patience, persistence, strength and ability to carry heavy loads. In the western world mule have been widely used -up until World War II.

In Arabic countries that is the job for camels.

In our country that is what companies do.

The keeper of the animal has always been (and still is) under the impression that the animal (mule or camel) can carry “something more”. It is obvious: that cannot always be the case. Brits use the phrase “the last straw”. To be more precise: “the last straw which breaks the camel’s back”: that insignificant load that will kill the poor animal.

There is not such a phrase in Greek, at least none that I know of. Maybe that is why companies are still used here: because they have all the aforementioned traits of a mule.

One, more, obligation: the submission of a legal entity’s financial statements to the Bank of Greece

A recent act of the Governor of the Bank of Greece [2682/3.6.2019 -published in the Government Gazette B 2453/2019 -as part of the obligations imposed on the Bank of Greece by the European Central Bank – Regulation (EC) 2533/1998 of 23.11.1998-article 5 §1 and 6 §4], “nonfinancial legal entities that are S.A.s (listed or unlisted), private limited companies, limited partnerships with a share capital or private limited companies and that are obligated, per article 1 Act 4308/2014, to prepare annual financial statements have to, along with publishing them, submit them to the Bank of Greece by filling out a specific “financial statements” template, which is attached to this Act and is an integral part of it.” (article 1).

In other words:

S.A., public limited liability, private limited and limited partnerships with a share capital companies are obligated, from now on, to submit to the Bank of Greece their financial statements by “filling out” certain financial statement templates the Bank of Greece approves.

So just publishing their financial statements is not enough for these legal entities. It is also mandatory to submit them to the Bank of Greece, conforming to a certain template.

Time of the disclosure and what it entails

The first submission of the aforementioned legal entities’ financial statements will take place from the 1^st till the 30 of November 2019. Said financial statements will regard the accounting years of: (a) 2016 (for the accounting years ending from 1.4.2016 till 31.3.2017), (b) 2017 (for the accounting years ending from 1.4.2017 till 31.3.2018) and (c) 2018 (for the accounting years ending from 1.4.2018 till 31.3.2019),

Regarding the following accounting years, the submission of the relevant data to the Bank of Greece will take place at the same time with their publication, as dictated by law.

In any case (article 5) “the Bank of Greece maintains the right to request additional data and clarifications regarding the data already submitted by businesses”.

The sanctions

In case of incomplete, incorrect or late submission of the aforementioned data by the businesses, the sanctions that may be imposed on them are those described in article 2 and 55C of the Statute of the Bank of Greece, and they are not at all (at least the maximum penalties) insignificant: a bit less than three hundred thousand (!) euros and in case of repeated infringement, a bit less than six hundred thousand (!) euros.

In other words: exhausting …

The reactions

A recent letter, signed by the Accountant Association of Athens on the 25.6.2019 and sent to the Governor of the Bank of Greece and the Union of Hellenic Chambers of Commerce, is protesting about the situation every Greek business experiences: “Unfortunately, until today, we have been obligated to send the same data to different agencies too many times, while this information is already available to a state agency”.

What is requested with this letter is what should be a given in the first place, which is “the direct interconnection between the databases of Hellenic Business Registry with the databases of the Bank of Greece”.

What all Greek businesses experience is pointed out as well: the imposition of an additional expense on their operation due to the state’s disinterest or incompetence.

Conclusion

While reading the abovementioned letter, I remembered something that happened when I first started practicing law (late ‘90s): A fellow lawyer from Frankfurt visited my office. He saw me sticking stamps on a lawsuit I was preparing to file. He started laughing. I was surprised. “What are these” he asked, pointing to the stamps (which he had never seen before and which he had no idea what they were used for). I explained to him. He laughed even more. I remained surprised (and sad…) until about two years ago, when this kind of bureaucracy came to an end.

Always MANY years behind.

The Greek State continues to, most of the times, not choose to self-improve. It just opts out for the easy way: the pass of its own obligations on to the businesses. It operates with the certainty that the “mule” can carry “something more”.

Perhaps, the State is right to do so according to its logic (unless this “something” turns to be the “last straw” for some of them…)

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 7th, 2019).

July 7, 2019
Legal Persons and their Real Beneficiaries
Preamble

“Blessed are those who possess” is a well-known quote that very much reveals, even today, as a system of values, the ethics of our society. It is an expression that interprets the latin quote “Beati possidentes”, which, according to some people, is attributed to Euripides.

It seems, though, that the international legal order does not blindly agree with such assumptions anymore. Assets are now investigated thoroughly in order to discover whether they have a lawful origin. Legalization of income that comes from illegal activities is getting harder by the day.

The registration of bearer shares is a step to that direction. Another step is identifying the actual shareholders of S.A.s, or maybe further than that: searching for the real beneficiaries “behind” those appearing as shareholders. Towards the direction of revealing the beneficiaries are clearly heading: a) Act 4557/2018 (which was recently updated), as well as b) the very recent Ministerial Decree on the creation of the Central Registry of Beneficial Owners.

“Money Laundering”

Things are not that simple!

Europol, among others, is seeking to locate, in a trans-European level, all assets that do not derive from lawful activities, to detect all attempts of inserting money deriving from illegal activities into the “lawful” economy as well as money laundering networks relating to such attempts. In details: “… organized crime, in most cases, shares a common denominator – the financial motive. Organized crime organizations increase their assets and then insert those assets into the “lawful” economy through money laundering schemes.” Tracking those assets means tracking the networks” (in other words: “follow the money”).

This targeting is common on an international level. Our country’s legal system (being always updated and enforced) is heading towards that direction, mainly by following international developments as well as european directives.

Act 4557/2018 on money laundering

This Act is under the title: “Prevention and repression of laundering money deriving from criminal activities and the funding of terrorism – integration of Directive (EU) 2015/849”.

The aim of the Act is defined in its introductory provision, (article 1): ”the integration in the Greek Legal System of Directive (EU) 2015/849 of the European Parliament and the Council of 20^th of May 2015“ on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC” and the codification of the relevant provisions in national legislation”.

Who does this Act concern?

Article 2 of this Act defines the objective of the Act altogether: “preventing and repressing laundering money that derives from illegal activities and terrorist funding…”,

When first glancing at this article one will most likely thing that this Act does not concern them or (most) people they know. But when looking at it a bit more carefully, this act does not only address assets that derive from terrorism, guns, drugs, human trafficking or other detestable (to most) activities. This Act applies to so many cases. Article 2 paragraph 3 states that: “Laundering money deriving from criminal activities is the case even when the criminal activities took place in a different state, as long as such those activities would be illegal under Greek law, had they taken place in Greece.”

The “predicate offence”

The infamous “predicate offences” are, as far as this Act and all relevant acts are concerned, all offenses “generating” an (unlawful) pecuniary advantage and can possibly result in laundering money deriving from criminal activities. On the list of “predicate offences” we find not only offences that receive the utmost condemnt by society (e.g. terrorist acts, human trafficking, drugs or guns) but also offences (par. 4. XVI) that relate to tax evasion, not paying debts owed to the State as well as offences punishable with the minimum sentence of six (6) months, from which a “pecuniary advantage can be obtained”: this list is proven to be extremely long and “wide”.

Special (and Central) Registry of Beneficial Owners

In General

Act 4557/2018, article 20 (as recently amended by article 62 Act 4607/2019 – Government Gazette Α 65/24.4.2019) provides for the creation of a Special and Central Registry of Beneficial Owners. According to that provision, the legal representative of all legal entities residing or taxed in Greece is obligated to keep in a Special Registry of Beneficial Owners with detailed data about the legal entities’ beneficial owners. That Special Registry is registered with the Central Registry of Beneficial Owners, which is kept at the General Secretariat of Information System of Ministry of Finance.

Information registered on the Special Registry

Paragraph 1 of article 20, Act 4557/2018 provides that: “1. Companies and other legal entities residing in Greece or doing business that is taxed in Greece are obligated to collect and keep a special registry in their headquarters with adequate, accurate and updated information regarding their beneficial owners. These data must at least include the first and last name, date of birth, citizenship and county of residence of the beneficial owners, as well as the kind and extend of the rights they hold. The registry is updated with all necessary information for the identification of the beneficial owner. The legal representative of the legal entity is responsible for keeping the special registry well-documented and updated … and … is registered with the Central Registry of Beneficial Owners … within sixty (60) days from the date of the phased registration per type of legal entity, as determined by the decision of paragraph 11. Changes of the beneficial owner’s information have to be registered within sixty (60) days after they take place.”.

Keeping of the Central Registry and its interconnections

Paragraphs 4 and 5 of article 20 of Act 4557/2018 provide, among other things, that:

“4. within the General Secretariat of Information System (G.S.I.S.) is created, with the use of an internet application, the Central Registry of Beneficial Owners, which is electronically connected with the tax registration number of all legal entities and for which the Independent Authority for Public Revenue (IAPR) keeps all the necessary data from the tax registrations, despite other provisions in place…
1. The General Registry can, also, be connected to the Hellenic Business Registry of Ministry of Finance…”
Sanctions for not keeping the Registry of Beneficial Owners

In case the Registry of Beneficial Owners is not kept, there are sanctions in place (par. 8 and 9 of article 20 of Act 4557/2018): If the legal entity liable does not provide a tax clearance certificate, there is a financial penalty of ten thousand (10.000) euro (which doubles in case of failure to comply) are only some of the sanctions. The rest: Much more serious!

The (implementing) decision of the Minister of Finance

In the provision of par. 11 of article 20 of Act 4557/2018, there was a provision for the publication of a decision of the Minister of Finance for the establishing and the details of operation of the Central Registry of Beneficial Owners. The relevant decision of the Minister of Finance, under the n. 67343 ΕΞ 2019, decision was very recently published (Government Gazette B, no. 2443, 20.6.2019): The Central Registry of Beneficial Owners is now reality.

The obligation to register the information of the beneficial owners in the Registry for most company types is extended from 14.10.2019 to 29.11.2019. For the rest legal entities, it begins on the 16.9.2019.

In conclusion

Someone may think that they are “blessed those who possess”. But they are not “blessed” those who possess assets and chose to do so in secret.

In cases where those assets were obtained through illicit activities, who (besides those directly involved) could make any comment?

But, when assets are obtained in a completely lawful way and those who “possess” have chosen not to present them in a “glass box” as a way of life, for their protection, in the context of their national or international tax planning or/and any other (not ethically reprehensible) reason?

The thinking behind the registration of the Beneficial Owners is not, of course, blameworthy. The restriction, though, of the beneficiaries’ economic freedom cannot be ignored – at when it comes to the righteous ones among them. Even more so: the Beneficial owners are in actual danger from a possible (unlawful) disclosure of their financial assets and data as well as from unauthorized people possibly accessing the Central Registry of Beneficial Owners.

In any case: the recent publication of the decision of the Minister of Finance, which activates the provisions of the Act for the creation of the Central Registry of Beneficial Owners, is a fact. All liable legal (and natural) persons must comply, within the specific time limits set.

Everything, from now on, are in (almost) plain view and, in any case, “under the eye” of the authorities.

The sanctions defined by law are not to be taken lightly. Non compliance or (even worse) the concealment of the Beneficial Owners is certain to create, further, serious problems for those involved as well as those liable.

So, in the end: “Beati possidentes”?

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June, 30rd, 2019).
June 30, 2019
The abolition of bearer shares
1. Preamble

Robert (Rob) Woodward and Carl Bernstein are, to my knowledge, amongst the most celebrated journalists of all time. And that seems fair: while those two young, at the time, journalists of Washington Post were researching a story, they revealed the, since then well-known worldwide, “Watergate” scandal. A scandal that led to President R. Nixon resigning in 1974. For their research they received the Pulitzer Prize.

“Follow the money” is probably the most famous quote of the 1976 movie “All the President’s Men”, a movie that was based on a book about the “Watergate” scandal (since the scandal essentially started when money was stolen from the slush fund of the Democratic Party), published under the same title, by the abovementioned journalists. Since then, this phrase has been used to locate and identify those who participate in illegal activities.

Over the course of time, money laundering has been getting harder and more dangerous. Not only the use of cash in (real) economy is getting more uncommon by the day, but so is the ability of one to hold high value assets without having them connected to their name.

2. The place of bearer shares in the international legal order

It has always been possible to issue securities for registered or bearer shares, in order to prove one’s ownership over a part of the share capital of an S.A.

The transfer of bearer shares has, of course, always been easier (without formalities, without fanfares, without taxes being imposed) and for that reason, for some people, preferable. But, because it is nearly impossible to identify their true owner, bearer shares were often used for not so honourable causes. This fact could not pass unnoticed by the jointly responsible international organizations (i.e. OCDE, Global Forum on Transparency, Financial Action Task Force) and, of course, without them taking any action.

The European Union has also (with the relatively recent Directive 2015/849) imposed on its member-states the obligation to integrate in their national legislations’, provisions that would support the global effort to fight money laundering. Our country has fulfilled its duty, with some delay, with Act 4557/2018.

It was only a matter of time for Greece to abolish bearer shares. Bearer shares were already “dead”. And their death certificate came in the new law of S.A.s (article 184, Act 4528/2018).

One could, reasonably, ask: since bearer shares were abolished, why do we keep the “A” in “S.A.” (Société Anonyme)? The answer is found in French law, the principals of which we have always followed in Greek corporate law. The name “anonyme” never had anything to do with bearer shares -it was always about the lack of responsibility the S.A.’s shareholders had towards the S.A.’s creditors.

3. The abolition (and replacement) of bearer shares

The provision of article 184, Act 4548/2018, as already mentioned, addresses matters regarding the abolition of bearer shares. Since the publishing of this Act (13-6-2018), it is no longer possible to issue bearer shares, while the existing bearer shares must, until 1-1-2020, all be registered (article 184, par. 1).

For the replacement of the share titles issued for bearer shares with share titles issued for registered ones, the provisions of the company’s statute must be followed. In case there are no such provisions, a specific procedure is provided by law (article 184, par 2).

4. First Step: The decision of the Board of Directors for the registration of bearer shares

The Board of Directors of the S.A. that has issued bearer shares, must (article 184 par. 3) decide on the procedure for the registration of the bearer shares, by 1-7-2019, at the latest. More precisely, its decision should address:
1. how those who have rights on bearer shares (shareholders or other beneficiaries) will declare their rights to the company and register on the Shareholders Book, and
2. how the new, registered share titles will be issued and distributed to the beneficiaries.
It is worth mentioning that after 1-1-2020, if not dully registered, the bearer shares will no longer incorporate any rights and they will not be transferable.

Until their registration, (article 184, par 3 in conjunction with article 50, par. 1), the bearer shares:
1. incorporate no voting rights nor any rights to participate in general assemblies,
2. are not counted in calculating quorum and majority,
3. do not receive dividends payments, and
4. do not give their holders a preferential right in case of an increase of the company’s share capital.
With the above-mentioned decision of the BoD of the S.A., the way of declaring the relevant rights is specified (article 184, par. 4), as is the way of issuing and distributing the new registered share titles to their beneficiaries (unless the company has already decided on not issuing share titles or issuing intangible shares).

5. Failing to declare a procedure for the registration of bearer shares

In case a BoD fails to fulfil its duties by the 31-12-2018, any third party has the right to appeal to the competent court and ask for it to be recognised as a beneficiary of bearer shares, its registration to the Shareholders Book and the issuing to tis name and delivery to it of registered share titles (article 184, par. 5).

6. Regulations for listed S.As

When dealing with listed S.A.s, the procedure of registering their shareholders is relevant to the procedure followed when their shareholders wish to participate in a general assembly. The Securities Exchange Commission may address and regulate specific issues that may arise regarding the registration (article 184, par. 6).

7. Other regulations

Until the completion of the registration procedure of the bearer shares and the delivery of the relevant titles to the beneficiaries, a set of regulations is in force (article 184, par. 7). The most important amonsgt them are:
1. In case of a partial payment of the share capital, the shares must be registered until their payment in full.
2. Up until their registration, the transfer of bearer shares takes place exclusively either by a notarial deed or by a private document of certain date (article 184, par. 7.c, in conjunction with article 54 par. 1, Act 4557/2018).
3. In case an S.A. has not yet registered all its shareholders, its general assembly cannot make decisions without an actual meeting taking place (by Article 135).
4. The rights of the minority shareholders holding bearer shares are somewhat limited and said shareholders cannot be members of shareholder groups.
8. In Conclusion

The registration of bearer shares is one of the most well-known provisions of the new law on S.A.s. Yet, it was not a choice originally made by the legislative drafting committee, nor was it a choice made by the Greek legislator itself: it has been a result of our country’s international obligations, as part of the (worldwide) effort to fight laundering money deriving from criminal activities.

The phrase “Follow the Money” from the movie “All the President’s Men” was attributed by the screenwriter William Goldman to Deep Throat, the informer who contributed to the revealing of the Watergate scandal. However, its value has been legendary and timeless, always linked to revealing those who try to launder money. So, it would not be possible for the international community to tolerate the ability to acquire and maintain significant assets, like bearer shares, without being able to identify their real owner. The one who wants to launder money, should not have the ability to acquire bearer shares: Setting insurmountable obstacles was essential. This was proven impossible without abolishing bearer shares altogether!

It is time for our country to, also, abolish the issuing of bearer shares. It is true that this specific provision of the newly introduced law has been widely known. So has the deadline set (1-1-2020) for the deprivation of all the rights that previously followed them, if the have not been registered until then.

However, the obligation of an S.A.’s BoD to make a decision regarding the procedure that should be followed in registering bearer shares (the “road map” if you will) until 1-7-2019 is less known.

Beware – do not rest!

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June, 23rd, 2019).
June 23, 2019
Board of Directors or a Consultant-Manager?

Board of Directors or a Consultant-Manager?

1. Preamble

His unique personality and work are why the Austrian – American university professor, writer and advisor Peter Ferdinand Drucker, received, during his life of almost a hundred years (:1909-2005), the highest honors and titles. Some people gave him the title of the “Founder of modern management”. Although, since his time, his views have been challenged, his quotes still are of value. Among his others quotes: “The leader of a team must be able to say: “This has to be done. You will do it. In that way.” The survival of the team is depending on this unquestionable power. Without it, no one feels safe”.

2. Facts change

The multimembered/multi-shareholder and financially stronger business schemes are, in most cases, S.A.s. An essential part of an S.A.’s function: its Board of Directors. This collective body is the one that is, by law, exclusively given the power of the S.A.’s management.

Until 31.12.2018.

The management of an S.A., usually and essentially, is at the hands of the (capable or less capable) “leader of the team”, as Peter Drucker found, and that is such a person in every company.

Facts have already changed (since 1.1.2019) for the Small and Very Small Businesses (as those are defined in Act 45488/2018) and for the unlisted companies.

3. “Single-Member Administrative Body” or “a Consultant-Manager”

According to Article 115 of Act 4548/2018, the Board of Directors of an S.A. can be replaced by one only manager – until now, that was the case only for Partnerships and other limited companies.

This specific provision, since it constitutes a very important diversion from the pre-existing legal framework, seems to be the most “famous” among the one hundred and ninety (190) provisions in total of the new Act.

The title meant to be given to this one person (which can now officially operate on its own, substituting the Board of Directors) is: “Single Administrative Body” or “Consultant-Manager” (from this point forward “Consultant-Manager”).

Since 1.1.2019 (and as long as there is the relevant provision in the company’s statute) the Small and Very Small Businesses as well as the unlisted companies, can (now formally) trust their management to a single person.

4. The legal framework around the “Consultant–Manager”

The provision of article 115, par.2 of the new Act of S.A.s regulates the issues concerning the Consultant-Manager, by referring to the “rules in place for the Board of Directors, to the point they are compatible to the nature of the single-membered body”. A special (although indicative, par.5 of the same article) reference is made in this specific provision to the issues of appointment, conditions of electing, term of office, responsibilities, duties, powers of the Consultant-Manager, the appointment of its alternate, the Consultant-Manager’s civil and criminal liabilities, its payment and other relevant subjects to these, by referring to the relevant provisions in the Act set for the Board of Directors.

5. The obligation of informing the “Consultant-Manager”, keeping Minutes and conclusion of agreements in which the “Consultant-Manager” has any interest.

Among the obligations each member of the Board of Directors has, is the obligation to inform the other members of the Board (e.g. the obligation to reveal to them about any self-interests or conflicts of interest with the corresponding interests of the company – article 97 par.1). Given the lack of “other members”, the obligation of informing the rest of the BoD members is in this case an obligation to inform (article 115, par. 3) the company’s shareholders in a general assembly or each one individually.

Furthermore: the decisions of the Consultant-Manager (the ones that are outside the sphere of the decisions taken regarding the “every day running of the business”) are recorded (article 115 par. 4) in the relevant book of Minutes (article 93), which can be kept digitally, as happens with the Board of Directors.

Finally: for the conclusion of agreements between the Consultant-Manager and the S.A., the decisions (according to article 99) are taken and approved by the General Assembly (article 115 par.3) – instead of the, non-existing in this case, Board of Directors.

6. Electing a Consultant–manager instead a Board of Directors can be useful

The explanatory report of the new act of S.A.s mentions, among others, regarding this specific, new, article: “this is hoped to reduce the functional cost of the unlisted companies that wish to adopt this system, if they don’t have the size to justify a bigger number of people in administrative positions. Experience has shown that in many small S.A.s, there essentially is only one administrator, while the other members simply have a decorative function.”

This specific assumption, although not expected in the context of an explanatory report, reflects the reality. And that is because it verifies, very vividly, the (true) observation that there is a “leader” in every team and also that in small (and not only) businesses in our country, the role of the Board of Directors is decorative.

By selecting a Consultant-Manager instead of a Board of Directors, the management of the S.A., responds better to current conditions, because it is appointed to the only person that truly exercises this authority anyway. Additionally, it costs less and is more flexible. Afterall, the same explanatory report mentions: “Additionally, the ability to elect a “Consultant-Manager” simplifies the obligations in which the limited company has.”

These reasons are not the only ones that point towards an S.A. electing a Consultant-Manager instead of the, until recently necessary, Board of Directors.

We have already mentioned in previous articles (New Law on SAs: the Liability of the Member of the Board of the Directors and Other Liabilities of the Members of the Board of the Directors of a S.A.) the kinds and the extend of the liabilities of the members of the Board of Directors. Not rarely, the primary (usually one) businessman was in search, “using the lamp of Diogenes the Cynic”, of members to fill the empty seats of the (at least three-membered) Board of Directors. It is not uncommon either for people who accepted the, out of necessity (or out of wickedness, it doesn’t really matter) invitation from the businessman to «grace with their presence” this specific body and ended up being dragged to courts trying to prove their innocence or that “they don’t have blood in their hands”… In other words: when we limit the number of people involved, we automatically limit the range of people that could possibly be implicated in legal disputes or/and be exposed, in any way, to legal risks.

7. Risks that come with this choice

This choice (the election of a Consultant-Manager instead of a Board of Directors) is not without risks: The shareholders should consciously and in a formal manner accept the “ruling of one man” and everything good (and of course everything dangerous) that comes with it.

What about the public image of the business? Will the potential future shareholders, investors or financiers accept the, at least in a first place, uncontrolled management of the Consultant-Manager?

It does not seem very likely…

Do the risks for the Consultant-Manager and/or the only (or primary) member of the shareholding scheme of the company increase?

There is a long, ongoing, discussion regarding the issue of the requirements for “lifting the corporate veil” (of formally “seeing” in the legal world the owner of the company as the person behind it, and thus being able to claim from the owner what was initially due by the company). This can more easily be implemented where there are only a few shareholders or just one shareholder holding a company. In any case, one thing must be clear: Choosing a Consultant-Manager instead of a Board of Directors, is not by itself going to make the S.A.’s only representative liable for everything the company does. The lifting of the corporate veil, under the terms and requirements (mainly) set by precedents, cannot be referred in this case. The lifting of the corporate veil foremost refers to the cases where only one shareholder or partner take over (or tend to take over – directly or indirectly) the capital and the function of the legal person – hiding behind its legal form. But taking over the management of the S.A. by its Consultant/Manager who also happens to be the sole shareholder will, undoubtfully, push a court towards lifting the corporate veil.

8. In Conclusion

Thucydides, in his work “Stories”, outlines the personality of Pericles and while assessing its way of practicing politics mentions [2.65.10]: “It was in name a democratic state, but in fact a government of the principal man”. The distance between democracy and monarchy, in this case, is significantly smaller.

The operation of an S.A. has, for the last one hundred years, gone hand in hand with its Board of Directors. This specific collegiate body functioned/functions, in most cases, only typically – as the explanatory report of the recent Act of S.A.s, bravely, admits. The BoD actual meetings have been replaced by the written BoD Minutes, that rarely need to be signed by the BoD members. In many cases those Minutes were/are only signed after they are published on the HELLENIC BUSINESS REGISTRY (in the past on the Government Gazzette) and after exact copies and excerpts of them have been issued by Drucker’s “leader” and Pericles’ “principal man”.

This newly introduced provision of a Single-member Administrative body / Consultant-Manager is here to shift the legal frameworks and at the same time align it with everything reality and experience are demanding. It is here to make life and S.A.s’ function a lot easier. It is here to minimize the number of persons liable before the Government, Social Insurance Institutions and others that are possibly able to impose an indefinite number of administrative, criminal and civil liabilities on them.

A careful application of this provision and a conservative use of it can, no doubt, make it successful.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June, 16th, 2019).

June 16, 2019
Equity Instruments

Preamble

“When there is something in written, no one can dare question it” -this is a Greek quote referring to the necessity of putting all agreements in writing. It also captures, in a neat and crystal-clear way, the relationship we elders have with “tangible pieces of paper” but also the insecurity that comes with their absence. This is how we were raised: with the need to hold “paper proof” engraved to our subconscious!

Different times.

Different times, but this “entry” in our subconscious is, more or less, still with us.

Besides those “paper proofs”, in the general sense, there are some kind of “pieces of paper” that, as security instruments, have some special weight and value to them. One example would be the equity instruments. In the past, when discussing share transfers in a Stock Exchange Market, we were referring to nicely (and securely?) printed equities that “changed hands” through contracts made by the shouting pit brokers.

Just before the dawn of this millennium (when we left behind the stockbrokers and were “introduced” to brokerage firms) we started talking about “the dematerialization of shares”. Printed shares of listed public limited liability companies would gradually be replaced by a simple entry in a ledger and transfers would no longer be done in the pit, but through the Automated Integrated Trading System of the Athens Stock Exchange.

This is as far as the listed companies are concerned.

Today, in the age of technology, the “paper” -the printed document- is gradually starting to lose its value. The certification of share ownership and some tangible piece of paper could no longer remain indissociable.

The obligatory publishing of equity instruments (final, no longer temporary ones).

The share capital of a company is divided to shares (Article 34, sub. 1, Act 4548/2018). Shares can from now on only be registered (Article 40, par. 1, sub. A). When no regulation is providing otherwise, all companies have to (Article 40, par. 3) issue and deliver to their shareholders equity instruments, incorporating one or more shares (: single or multiple equity instruments). In most cases (of issuing equity instruments that incorporate multiple shares), the company has to replace existing equities with new ones, incorporating fewer shares.

Pre-existing legislation (Article 8b, par. 3, Act 2190), provided for the right to issue temporary equity instruments. This provision no longer exists, thus the era when (in common practice) only temporary equity instruments where issued by limited liability companies, is well gone. From this point forward, we will only have permanent equity instruments.

In any case, shareholders have the right to decide whether they will issue equity instruments or not (Article 40, par. 4 sub. A). A decision to not issue equity instruments will result in the need to define a way to certificate who is holding ownership over the company’s shares, in order for them to exercise the rights that come with said ownership. The shareholders are the ones to choose (and state in the company’s article of incorporation) the exact way the certification of ownership of said company’s shares will take place and thus be proven. In case they do not do so, the law defines (Article 40, par.4 sub. c) that the way to prove one is a shareholder is through the data entered into the company’s Shareholders Book. Since we have entered the “paperless era”, the law gives all S.A.s (listed or not, article 34, sub. a) the freedom to choose to either issue printed shares or intangible ones -shares not incorporated in some “piece of paper” and are nothing more than an entry in a ledger.

The company’s Shareholders Book

The certification of share ownership is mainly given through the company’s Shareholders Book, which all S.A.s must keep (Article 40, par. 2, sub. 5). The shareholders’ information (full name or company name, address or seat, occupation and nationality) are registered in the company’s Shareholders Book (Article 40, par. 2, sub. 2&3). But not only that. In this Book, the number and the class of shares (i.e. ordinary, preferred, redeemable etc.) that each shareholder owns is registered, along with the rights they have on them and the rights that derived from them (i.e. full or bare ownership, usufruct, voting, receiving dividends etc.).

Experience has shown that the company’s Shareholders Boos is a rather “sour subject” for S.A.s: Sometimes it is kept, sometimes not. And the times it is kept, we are surprised (most of the times negatively) by the findings, because it is kept by people that do not know how to properly update it. The problems companies face because the Book is not properly updated are showing more and more during the past few years: the companies are now receiving more request for access to the Book’s data, by those who have the right to make such requests (e.g. banks, funds, interested investors, interested shareholders, courts etc.).

When the company’s Shareholders Book is properly kept, things are simple: Not only the company’s shareholders information are shown in it, but also the number of shares they hold and all other necessary, and specified by law, information and rights. The (commonly) improper keeping of the Shareholders Book seems to be the reason (with the law accepting it) that the certification of the shareholder capacity cannot exclusively rely on the Book’s entries (article 40, par. 4, sub. c). In case of emergency (when there is simply no relevant entry in the Book, or there is an entry that is wrong or incomplete) the shareholders can provide any other document they hold, that is stating or proving their shareholder capacity and the relevant rights that come with it.

Keeping the company’s Shareholder Book in an electronic format

The very important for the company and the shareholders keeping of the Shareholders Book does not have to be done in paper. According to law (article 40, par. 2, sub. 4), the Book can be kept electronically by the company itself or by a third party. The keeping of the Book in an electronic format by the S.A. itself will, most likely, not solve the problems that have since this day been arising by the Book being held in a tangible paper format.

Third parties that are allowed (by law) to electronically keep Shareholder Books on behalf of S.A.s are credit institutions, investment companies (that specifically have that right) as well as Central Securities Depositories. Under the current conditions of the Greek market, it does not seem safe for an S.A. to opt out to let the keeping of its Shareholder Book to a bank or an Investment Services Firm. The safest solution seems to be the digital keeping of the Shareholders Book by the Central Repository of the Athens Stock Exchange, which now offers this service not only to listed, but to not listed S.A.s as well. The relevant procedure is in progress.

Keeping the S.A.’s shares in book entry form

A company’s shares, as mentioned above, do not have to be issued -and even more so, do not have to be issued in paper form. The law (article 40, par. 5) provides that the S.A.s can keep them in a book entry form. For the procedures that lead to the dematerialization or immobilization of the shares, Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 applies. The company’s articles of incorporation should, in any case, predefine the specific method that will be used for the issuing and keeping of the shares in a Central Securities Depository.

In Conclusion

The day we will no longer be using actual and tangible pieces of paper is not far. The new law on S.A.s has chosen to give the freedom of either issuing or not shares and, in case someone opts out for issuing shares, the choice of either issuing them on tangible pieces of paper or as intangible entries in a log. Respectively, the company’s Shareholders Book, with the special place is holds to this day, can either be held as a tangible, thick and old actual book or as an electronic log that can easily be fed data and be easily held on a computer in an office, on a cloud etc.

It seems that the value of the infamous quote “when there is something in written, no one can dare question it” seems more old fashioned by the day. All the more when it comes to S.A.s. The obsession with using tangible pieces of paper because it (supposedly) provide us with more security as well as with past practices and experiences will with not so much doubt be characterized by the younger amongst us with one, condescending word: inflexibility.

If we do not manage to be amongst those who guide the rest to the future, at least we should try to be amongst the first who walk towards the future.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June 2nd, 2019).

June 2, 2019

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