Koumentakis

Author: skoumentakis

  • New Law on SAs: the Liability of the Member of the Board of the Directors

    New Law on SAs: the Liability of the Member of the Board of the Directors

    The Liability of the Member of the Board of the Directors of a Societe Anonyme

    Part 1: The Responsibilities arising from the new Law on Sociétés Anonymes

     

    Α. GENERAL 

    Preamble

    Power in Greece has always (with a special interest most people, if not everyone) attracted us. Whether to exercise it or to engage with those who have it. Hence, we seem to despise that power, at some point, is over. We also seem to forget (?) that its exercise poses risks. Sometimes serious ones.

    When Henry Kissinger concluded that “power is the supreme aphrodisiac”, we can be sure that he knew something more than we know. For the consequences of exercising power? Homer had already spoken: “He who is in power cannot sleep for a whole night”. And then, later, Charles Caleb Colton followed to clarify: “The sufferings of power are real, its joys fantastic”.

     

    The extent of the liability of the members of the Board of Directors

    The management of legal entities is related to the exercise of power. It is true, however, that if one goes back to the domestic (and of course, to the international) literature, it is unfortunately not possible to identify a study, a workbook, which will record all the risks involved in its exercise. Many individual risks, yes. An overall no. What does this mean at a practical level: that the extent of the liability of those exercising power and the risks they face are neither fully documented nor identifiable.

    In the operating environment of Sociétés Anonymes, as this is currently the case, the greatest concern of the directors is the extent of their liability: for acts or – more precisely – for their omissions.

    In this context (on the occasion of not only the new law on Sociétés Anonymes, but also of the timeless questions and concerns of interested parties involved), it is attempted to approach some basic areas of the liability of the members of the Board of Directors.

     

    Criminal liability – in general

    Criminalization of individual actions of entrepreneurship, business choices and management decisions of a Société Anonyme is a (not theoretical) possibility. The admission of public prosecutors to the day-to-day management of the business, as well as the attempt of (some of them) to be transformed into “Antonio Di Pietro” of the country’s economic and business life by adopting “Clean Hands” actions, sometimes works steadily and some other deterrent for beneficial business decisions.

    On the other hand, the involvement of the members of the Board of Directors (not necessarily the executive ones) in criminal (and not only) acts is quite common, due to omissions involving obligations towards the State (for example, non-payment of established debts, non-repayment of taxes levied-i.e. VAT, non-payment of insurance contributions). It is also not an uncommon thing, the involvement (not only criminal) of members of the Board of Directors in events related to (or attempted to relate to) entrepreneurship. We can also have in mind that a member of the Board of the Directors may be found “trapped”, whether responsible or not, for any matter.

    In what areas does the liability of the members of the Board of Directors of modern SAs extend? An initial record of the responsibilities/liability (civil and criminal) arising from the new Law on Sociétés Anonymes is being dealt with here.

     

    Intra-corporate liability under the new Law on Sociétés Anonymes

    The members of the Board of Directors of a Société Anonyme are liable for the remedy of any damage caused by their actions and omissions. All members can be liable either individually or jointly (and severally). The competent Court may share responsibilities between members according to the data and the attributes of each, individual.

    The limitation of the company’s claims against the members of the Board of Directors is three years, but it is suspended for as long as they have that status. For a maximum of ten years. What does this mean at a practical level? If, for example, the CEO of a Société Anonyme “misconducted” seven years ago – in the course of his duties and he transfers the company today (possibly under his capacity as a major shareholder and owner), the company (under its new ownership regime) is entitled to exercise its claims against him within ten years starting from the illegal act or omission.

    The approval of the financial statements, the management of the members of the Board of Directors and their possible discharge from “any liability” by the ordinary General Assembly of the Shareholders is considered to as a waiver. This will be “taken into consideration”, among other things, by the competent Court.

    The prerequisites for the exercise of the action as well as the exercise thereof are clearly and sufficiently documented and detailed in the new law. The exercise of the corporate action may be entrusted by the competent court (if it is not a choice of the Board of Directors) to a Special Representative.

     

    The criminal liability of the members of the Board of Directors on the basis of the new Law on Sociétés Anonymes

    The new law devotes (and logically) a separate section on the criminal liability/ responsibilities of the members of the Board of Directors. The threat of imprisonment for offenders is not the cause of concern as it is not expected that none of them will be taken to prison – for that reason alone. Interestingly, however, are the imminent financial penalties (from € 5.000 to € 100,000): We can be certain that no such sums are in sort for anyone. Exercising the duties of a member of the Board of Directors is not a story without (and) memorable criminal dangers. It would be extremely useful for those members who either have a “lose consciousness” or are being asked to make decisions and provide assurances on specific issues (in a false, e.g. certification of the payment of share capital or in the approval of financial statements that are not “absolutely accurate”) to think twice. It is also assumed that they should exercise the utmost care when performing their duties and faithfully adhere to (with the assistance of appropriate advisers) the law.

     

    In conclusion

    The acceptance of an “honorary” proposal for entering a Board of Directors of a Société Anonyme, the service of a good friend for the same reason (“to reach the minimum number of three members”), but also the participation in the corresponding body of a family business- is not a decision that has to be “lightly set” to take. Not that every member of the Board of Directors is assumed that “will not avoid interference”, but it is good to know that the (co) exercise of power is not a simple aphrodisiac.

     

    Α. SPECIFICALLY (and in detail)

    1. The intra-corporate liability of the members of the Board of Directors on the basis of the new law on SAs

    The extent and the conditions of the liability of the members of the Board of Directors

    The members of the Board of Directors of the Société Anonyme are responsible for the reparation of damages caused by their actions and omissions (Article 102 par. 1 of Law 4548/2018).

    There is no responsibility when the members are able to prove that they have shown “the care and diligence of a prudent businessman” (Article 102 par.2 of Law 4548/2018).

    Additionally, when we have to do with a joint act of the members of the Board of Directors (e.g. BoD decision), the joint and several liability of all its members applies. The competent court reserves the right to share the responsibility of each of the parties involved, but also to regulate the right of recourse (subrogation) between them (Article 102 par. 3 of Law 4548/2018).

    It is assumed that there is no liability of the members of the Board of Directors when they basically manage to prove that their actions or omissions: (a) are based on a previous legitimate GA decision or (b) concern a reasonable business decision taken in good faith, based on sufficient information and solely on the basis of the corporate interest, as well as (c) are based on a suggestion by an independent body or committee (Article 102 par.4 of Law 4548/2018).

     

    The limitation of the SA’s claims and its resignation from them

    The limitation of the claims of the Société Anonyme against the members of the Board of Directors is three years and is suspended for as long as the capacity of a member remains. In any case it occurs after a decade (article 102 par. 6 of Law 4548/2018)

    It is possible for a Société Anonyme to resign from its claims against the members of its Board of Directors after two years and with the mandatory consent of the General Assembly, provided that there is no opposition of the 10% of the share capital (article 102 par. 7 of Law 4548/2018)

     

    The conditions and the procedure for the exercise of the Company’s claims against the members of its Board of Directors. The involvement of the shareholders

    The Board of Directors is obliged to exercise the company’s claims at the expense of the members liable for compensation, “balancing the corporate interest”. In any case, the members of the Board of Directors are obliged to provide sufficient explanations to the shareholders when they fail to fulfill their specific obligation (Article 103 of Law 4548/2018).

    The shareholders of the company who have acquired more than 5% of the share capital during a six-month period are entitled to submit a request to the Board of Directors for the exercise of claims against its members (article 104 par. 1 of Law 4548/2018). They shall provide the necessary information and data to substantiate the damage and provide one month, at a minimum, for evaluation and for reaching the respective decision (Article 104 par.2 of Law 4548/2018).

    The Board of Directors shall take such a decision after a hearing of nominated members, but without the voting rights of the parties concerned. If the other members do not form a quorum, it is considered that no decision is taken (Article 104 par.3 of Law 4548/2018).

    When the request for the exercise of the corporate action is submitted by the majority of the shareholders, the exercise of same is obligatory for the Board of Directors (article 104 par. 4 of Law 4548/2018).

    The majority of the shareholders who have submitted a request to the Board of the Directors for a corporate action are entitled to appeal to the competent court when: (a) their request is rejected; (b) the period prescribed for assessment expires; (c) a period of four months following the decision for the corporate action expires; (d) the Board of Directors has not been able to reach a decision, or (e) a period of two months without bringing any action if the request is made by a majority of the shareholders has expired (Article 105 par.1 of Law 4548/2018).

    The competent court accepts the shareholder’s request when there is no overriding interest in not exercising the claim. In this case, it appoints a Special (and possibly also a Deputy) Representative for the exercise of corporate action (Article 105 par.2 of Law 4548/2018).

     

    The Special Representative for raising the corporate claim

    The Special Representative: (a) has the special and sole power to bring the action, but also to carry out the proceedings promptly and diligently, (b) has access to evidence, documents and information, (c) is bound by the historical the legal basis of the judgment. The Court may award him reasonable remuneration (Article 105 par.4 and 5 of Law 4548/2018).

    The Special Representative, after his appointment, may reach a negative decision with regard to the liability of the designated members of the Board of Directors. In this case, he informs the Board of Directors and the shareholders who have requested the relevant action. These shareholders may, however, be reinstated with a new application (Article 105 par.6 of Law 4548/2018).

    In the event that the application is dismissed at first instance, the Board of Directors may, on the recommendation of the Special Representative, waive the right of appeal (Article 105 par.7 of Law 4548/2018).

     

    The suspension of the limitations and the costs related to the respective trials

    The submission of a request by the shareholders to the Board of Directors for the enforcement of corporate claims suspends, in general, the limitations (article 106 par. 1 of Law 4548/2018).

    The costs of the trial for the appointment of the Special Representative, the trial against the members of the Board of Directors, as well as any remuneration are borne by the company (article 106 par. 3 Law 4548/2018).

     

    Direct damage of third parties from actions or omissions by members of the Board of Directors

    The provisions of Law 4548/2018 on the liability of the members of the Board of Directors do not affect or limit their liability in respect of claims arising out of direct damage to shareholders or third parties suffered as a result of their (of the members of the Board) actions or omissions. They also do not affect the liability of the members of the Board of Directors vis-à-vis corporate creditors under the provision of Article 98 of the Bankruptcy Code (: failure to file an application for bankruptcy of the société anonyme, as well as causing the suspension of payments by willfulness or gross negligence of the members of the Board of Directors) – (article 107 par. 3 of Law 4548/2018).

     

    The discharge of the members of the Board of Directors from the ordinary General Meeting

    It is possible for the General Assembly to approve the overall management by the members of the Board of Directors when approving its annual financial statements and exempting them from “any liability”. However, this approval – when and if provided – is NOT considered to as a waiver of claims by the company (for the proper waiver, Article 102 par.7 applies). Such an approval is estimated “accordingly” (whatever that means) by the Court that may be seised in the future against the members of the Board of Directors (article 108 par.1 of Law 4548/2018).

    The members of the Board of Directors take part in the vote for the approval of the overall management as well as employees of the Société Anonyme with their own shares, and with the shares they represent, provided that they have been given express and specific voting instructions (article 108 par. 2 of Law 4548/2018).

     

    2. The criminal liability of the members of the Board of Directors under the Law on Sociétés Anonymes

    False or misleading statements to the public (Article 176 of Law 4548/2018)

    There is a threat of imprisonment and a fine of € 10.000 to € 100.000 when a knowingly false or misleading statement is made to the joint founder, by a member of the Board of Directors or by the director of the company regarding (a) the cover or payment of the capital; (b) data of the company with substantial influence over corporate affairs – for the purpose of subscribing to securities issued by the company.

     

    Infringements made by the members of the Board of Directors (Article 177 of Law 4548/2018)

    There is a threat of imprisonment and a fine of € 10.000 to € 100.000 for a member of the Board of the Directors who:

    (a) Drafts or approves (knowingly) inaccurate or misleading financial statements or draws them up in violation of the law as to their content.

    (b) Distributes profits or other benefits to shareholders or third parties that do not arise from the Company’s financial statements or without the preparation of financial statements or based on (knowingly) inaccurate, misleading or financial statements drafted in breach of the law.

    (c) Acquires redemptive shares in breach of the relevant provision (Article 39).

    (d) Causes the acquisition by the company of its own shares (or its parent’s shares) or warrants (of its own or its parent’s company) in violation of the relevant provisions (Article 48, 49, 52 or 57).

    (e) Provides an advance, loan or guarantee (in violation of Article 51) either by charging the company with a view to a third party to acquire shares of the company or by charging its subsidiary with the purpose for a third party to acquire shares of its parent company.

    (f) Drafts (knowingly) an inaccurate or incomplete management report or other statutory annual reports.

     

    Infringements relating to the orderly operation of the company (Article 179 of Law 4548/2018)

    Threatened imprisonment of up to three years or a fine of 5.000 € to 50.000 €:

    (a) To whoever concludes a contract on behalf of the company without the prior authorization required under Article 100. (The offense shall be terminated if the necessary authorization is subsequently granted)

    (b) To the member of the Board of Directors who violates the obligation to certify the payment of capital within the time limit provided for in Article 20 or makes a false certification.

    (c) To the member of the Board of Directors who fails to draft or drafts after the expiry of the time limit: the company’s annual financial statements, the consolidated financial statements, the annual management report, the consolidated annual management report or the remuneration policy, the salary report or other annual report provided by law.

    (d) To the member of the Board of Directors who violates the obligation to re-adjust the share capital

    (e) To whoever hinders the auditing of the company by the statutory auditors or auditors designated to perform an extraordinary audit or does not provide the auditors with the information, he is required to provide.

     

    Infringements concerning the General Meeting of shareholders and bondholders (Article 180 of Law 4548/2018)

    A fine of 5.000 € to 15.000 € is threatened:

    (a) For any person who fails to convene the General Meeting of Shareholders or Bondholders or to include a specific item on the Agenda in contravention of the law or bond issuance program.

    (b) For any person knowingly taking part in or voting, without right, at a General Meeting of Shareholders or bondholders.

    (c) For the member of the Board of Directors who violates the obligation to provide information to shareholders.

     

    Penal and administrative penalties (Article 181 of Law 4548/2018)

    The imposition of penal penalties does NOT preclude, under this provision, the imposition of administrative sanctions. This simply means that, in the course of some criminal proceedings, it is possible to impose penalties on a member of the Board of Directors, but any administrative sanctions may follow …

     

    C. Epilogue

    The extent of the liability of the members of the Board of Directors is unfortunately not exhausted in the above sections and provisions (much more so in their “business view”). However, in subsequent articles, it will be sought to record the other sections of their liability and, of course, how to mitigate it. Above all, however, the way to remove the (potentially) adverse consequences and the relative risks that these members face.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

     

    stavros-koumentakis-article-ευθύνη-μελών-δσ

  • (Common) Founders’ Shares

    (Common) Founders’ Shares

    An old story

    In the 1990s, a businessman with a very good financial standing was deciding on his next business venture. He had no doubt (and rightly as it turned out) about his success. The whole venture, apart from the robust business plan, was based on two pillars:

    (a) multi-share scheme (through the involvement of robust financially shareholders); and

    (b) participation in the shareholding scheme of certain, high-level executives, with 10% of the total share capital – but without payment of money on their part.

    The share capital of the new, then, société anonyme was extremely high and the agreement with the other shareholders was simple: 90% of their holding would be transferred to the company’s bank account (to form the share capital) with themselves as depositors. The remaining 10% would be re-routed to the corporate bank account but with (alleged) depositors the aforementioned executives. This would achieve the realization of the design and the participation of these executives in the company’s share capital. And even without these executives paying their own money.

    It should be noted here that in the 1990s one did not know that such a design could be auditable as a donation (from the shareholders to the benefiting executives). Today, in such a case, we would have all the consequences, potentially negative or very unpleasant, (civil, tax and criminal).

    This business venture was a major success.

    Yet, with a small side effect: People’s relationships never, as a rule, prove to be eternal. And as I am accustomed to saying, people are likely to argue, to get sick or crazy. Additionally, surely, they will eventually die.

    (And) in this case determinedly some of the specific events have occurred …

    Since then, based on these negative experiences, I have deterred customers and friends from proceeding with such plans. Sometimes my suggestions were accepted and sometimes not. (Unfortunately)

    The law, however, did not provide for the tools it provides for today.

     

    Conflicting interests and the available solutions

    It is clear that, at a first level, the interests of the company and its executives are not in line.

    The business, especially the newly established, needs executives who will do their best to achieve its goal without, at the same time, being burdened with the high salaries they will look for. We also need executives who will share their vision and (if they achieve their goals – why not) be rewarded accordingly.

    The executives, on the other hand, look forward, and reasonably, to material and moral rewards. The participation in the company’s profits is an additional consideration not at all worthwhile. And not on a material level only.

    Of course, there is always the stock options solution with both positive and negative aspects – see the article about Stock options

    A solution, which is clearly more attractive in certain cases, is that of issuing Common Founders’ Shares.

     

    The (Common) Founders’ Shares

    This type of instruments/ shares allows considerable flexibilities to the founders.

    Some of the founders (: shareholders) will be involved in the creation of the company and the accumulation of the initial share capital.

    In some other (other than the founders or third parties – i.e. executives) it is possible to recognize through the (Common) Founders’ Shares the right to withdraw part of the profits of the société anonyme. And this without they themselves being shareholders. In other words, without having participated in the concentration of the initial share capital.

     

    The institutional framework governing the (Common) Founders’ Shares

    On the basis of the provisions of the new Law on Sociétés Anonymes (Article 75 of Law 4548/2018), the Common Founders’ Shares are provided to some of the founders (and / or to all) as well as to third parties. The reasoning for this benefit is defined as “reward for specific actions at the company’s establishment”. In fact, they cannot exceed 10% of the total number of shares issued.

     

    What rights do the (Common) Founders’ Shares grant and what they do not

    The exclusive benefit (yet not least, Article 75 par.3 of Law 4548/2018) of the (Common) Founders’ Shares is the right to an amount equal to (maximum) 25% of the net profits after deduction of the amounts for the statutory reserve (Article 158 of Law 4548/2018) and the minimum dividend (Article 161 of Law 4548/2018). And, what does this mean at a practical level? That those (founders or third parties) who, at the stage of the establishment of the société anonyme, have received (Common) Founders’ Shares, are:

    (a) entitled to receive ¼ of the excess of the minimum dividend. And this without contributing, to a minimum, to the concentration of the share capital and

    (b) not entitled to receive anything if the minimum (Article 161 of Law 4548/2018) or not (Article 159 of Law 4548/2018) dividend be distributed (Article 75 par.5 of Law 4548/2018)

    However, the (Common) Founders’ Shares, which have no nominal value, do not confer any additional rights on their holders (such as participation in the management and administration of the company, voting at the General Meetings, participation in the proceeds of the liquidation – Article 75 par. 2 of Law 4548/2018).

     

    Redemption Right

    It seems logical not to keep in the forefront the rights resulting from the (Common) Founders’ Shares. Moreover, the basis for issuing and delivering them to the founders (or third parties) is the “reward for their specific actions when setting up the company”.

    Thus, the (Common) Founders’ Shares may be redeemed by the company for a period of 10 years after their issuance (Article 75 par.4 of Law 4548/2018). However, the redemption may take place earlier if there is a provision in the articles of association.

    The cost of their acquisition by the company will be what the articles of association lay down. In any case, however, it may not exceed ten times the average annual dividend received over the last five years.

     

    Issuance, registration and transfer of (Common) Founders’ Shares

    The law deals with the specific issues corresponding to those mentioned in the shares (Articles 75 par.6 and 40 to 42 of Law 4548/2018). In this context, securities may be issued (in paper or in book format). At the same time, their registration may take place in a particular book (equivalent to the Shareholders’ Registry), which can be kept electronically. Their transfer (acquisition or succession) is free.

    It is the company’s articles of association that determines how to prove the status of the holder. The delivery to the company of the document for their transfer or the utilization of other means provided by the articles of association is, in any case, sufficient for the “legalization” of their holder. In the event of the death of the holder, the rights are inherited and recognized in the person of the person (s) who will prove their status as heirs.

     

    In Conclusion:

    Making use of the institution of the (Common) Founders’ Shares looks (and is) an excellent tool for the sociétés anonymes under establishment. This is because (inter alia) this particular institution:

    (a) recognizes the services that certain persons (founders, employees or third parties) provide at the establishment stage of a société anonyme,

    (b) rewards their specific services and links their rewards to the profitable, only, course of the company – without being required to contribute money to its share capital,

    (c) associates their holders with the profitable and developmental path of the business and identifies, to a significant extent, the interests of both (holders of (common) Founders’ Shares and business)

    (d) does not upgrade their holders to shareholders (with the result that their holders do not have the rights of the latter and, in particular, the voting and minority rights, the right to elect the Board of Directors, the receipt of the proceeds of the liquidation and so on)

    (e) limits the presence and rights of their holders in the company and determines / limits the amount of their compensation at the time of the redemption of the securities they hold.

    In other words: This particular institution can remove the reservations of the most skeptical, as the signatories, regarding the participation of specific persons (i.e. executives or third parties) in the business process and in the financial result of a société anonyme.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 17th, 2019).

  • The employment of employees in more companies of the same Group

    The employment of employees in more companies of the same Group

    The employment of employees in more companies of the same Group: a problem without solution?

     

    The “headache” of the heads of HR: Is it possible for a “Group” to be the employer?

    It has always been a problem, and not an insignificant one, for the heads of the HR Departments of Groups of companies operating in our country (and of course for the heads of the Group themselves) the employment of employees in more than one company in the same group.

    This is because, although they are recruited and paid by one of the companies that form the single Group, they are nevertheless required to work on objects that concern other “sister” companies (subsidiaries).

    Under Greek law, however, the Group cannot be considered as a single employer, so that for certain rights of the employee (salaries, compensations, etc.), all companies be responsible regardless of which company employs the employee at a given time (SC 650/82 and SC 10/18-NOMOS).

     

    Important definitions: Employer and Group of companies

    The meaning of Employer

    Under the employment contract, an employer is considered to be any natural person or legal entity in whose service another natural person is employed who provides him or it with that specific service and not necessarily the person who has recruited him (the employee). Usually, but not always, the employer is the owner of the business the interest of which the employment contract serves. (SC 1290/2010, SC 873/2009 and SC 10/18-NOMOS).

    The meaning of Group of companies, of parent company and of the subsidiary

    It is acceptable (in the light of the definitions in Law 4308/2014-Annex A and Article 2 of Law 4172/2013) that the group of companies is characterized by joint management, common economic policy, joint financing, i.e. common financial interests. While it is composed of many independent legal entities, it is an economic unit (SC 10/18-NOMOS)

    Furthermore, according to the definitions in Annex A of Law 4308/2014:

    (a) Group of companies is “the parent company and all its subsidiaries”,

    (b) Parent company is “the entity that controls one or more subsidiaries” ) and

    (γ) Subsidiary is that “entity which is, directly or indirectly, controlled by a parent company”.

     

    The provision, centrally, of individual services to the Group’s companies.

    For the sake of ease of administration and because of the economies of scale, most of the companies in the same Group often share the same headquarters and facilities. So, the accounting department, the HR department, the procurement department, the secretariat, the reception, the quality department, and so on. can only provide their services to all, at the same time, the (co-owned or not) companies of the same group. The same stands for the employees employed in them. The CEO, the CFO, the COO is not (in general) more than one in each Group of Companies. The accountants account for the transactions of most of the Group’s companies and the reception does not welcome only the visitors of their employer’s company.

    Often, the companies of the Group are in different locations – even in different cities. In this case, executives and employees are often required to move to the headquarters of the other companies of the same Group in order to provide (also) to those (and not only to the employer company) their valuable services.

     

    The “thesis” of the individual involved and the corresponding one of the legal advisors: HR managers in despair!

    This particular problem could be classified as old, classic, but at the same time very serious with multilevel effects. However, it becomes more complex if viewed from the point of view of individual stakeholders. (Among other:)

    CEOs are demanding (and reasonably) the maximum possible group-level utilization of the human resources.

    CFOs require (budgeted and outturn -also reasonably) the allocation of employment costs per legal entity.

    Employees sometimes dislike such obligations (formal or informal) imposed on them, and sometimes they “take notes” in order to seek for legal redress against most of the companies in the same group. It is unlikely that they have not wondered about this “ataxia”: “Is it possible for another company to have recruited me and for me to be employed in more?”

    Legal advisers often propose solutions that are inapplicable, poorly practicable or, at a practical level, problematic (e.g. recruitment by one and lending to the others, more recruitment-reduced-time employment, for the same employee, to each of the most companies of the group – with specific hours and days of employment for each of the involved companies, and so on). However, all solutions have a common problem: The inability to determine in advance (sometimes even afterwards) the exact time that the employee will need to work (or, respectively, has already worked) for each company in the Group. And then: the cost! Any of these solutions creates, in addition to the disruption to the organization and to the employees, increased costs for the Group.

    HR managers, sometimes in despair, are called upon to reconcile incompatibilities …

     

    The case law

    The (relatively recent) decision 10/2018 of the Supreme Court confirms its earlier decision (: SC 1222/2003), which provides the solution: “Thus, for a group of companies having common financial interests, even in the case of where the employee’s employment contract was drawn up with one of the group companies and his work is also used by other companies in the same group, the employer remains the employee’s counterparty, who manages his work and is responsible for all payments of any salary nature)

    In simple words it is accepted by virtue of the specific decision that:

    • It is possible for an a-SA to recruit an employee and for this employee to provide his services not only to the specific SA (the a-SA) but also to b-SA and c-SA companies in the same group.
    • In this example, as the employee’s employer remains the company with which the employee has contracted his / her contract of employment (the a-SA) even though the employee provides his / her services also to other companies (b-SA and c-SA) of the same group.

     

    Untying the “Gordian” knot

    As it is clear from the case law of the Supreme Court, it is acceptable for the employee to provide his / her services to other companies in the same group and not only to the one from which he was recruited.

    This assumption proves to be extremely important for groups of companies. Subject (of course) to appropriate contractual arrangements:

    (a) the employee is not entitled to oppose to the provision of his services to other companies in the same group

    (b) the other companies, other than the one which hired him, are not exposed to legal risks to the employee and / or the state

    (c) the individual companies constituting the group are entitled to use the services of an employee in one of them.

    A recurrent problem proves to have its (simple) solution!

     

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 10th, 2019).

  • Stock Option

    Stock Option

    Stock Option Plan for the distribution of shares to members of the Board of the Directors, employees and permanent associates

     

    A. Generally

    What are Stock Options?

    Stock Options are an institution for which there is no long experience in our country. At an international level, however, there is not only a long experience, but also a number of categories of same.

    Those that are most well known in Greece (and will be of interest to us here) are the ones that are intended to act as an incentive for senior and supreme executive staff. And in addition: the close-permanent associates of a business. Then, for reasons of brevity, all potential beneficiaries will be referred to as a whole as “executives”. The internationally accepted relevant terminology for stock options of this category is “Employee Stock Option” and abbreviated “ESO”.

    These Stock Options, in practical terms, are only the option that an executive (or a group of executives) of an enterprise acquires (at one or more subsequent times) the company’s shares in a predetermined, attractive, price. At a price that the executive himself/ herself is called to pay.

    Under the American model (:american options), this right is exercised at any time by the beneficiary, from the time of the issue of the Stock Option Plan up to its maturity. Under the European model (: european options or share options in the UK) this right is exercised by the beneficiary at the time of expiration and / or at predetermined, interim times.

    Any withdrawal /removal of an executive before the time at which the right may be exercised shall, as a rule, result in its loss.

    How do Stock Options work?

    First of all, let’s note that the Stock Options do not (and must not) concern all executives.

    But even with this constraint, we have to accept that the categories of executives to which they are addressed are two: To those which the company seeks to attract and those with whom it is already associated under some form of contractual relationship, more usually, labor.

    On the other hand, companies that decide to issue ESO can be of all kinds: Start-ups, businesses with a history (with liquidity problems or limited financial capabilities), businesses that are developing (and promising) or even developed companies (with significant financial capacity). A common feature of all: An attempt to motivate executives to either start or continue working with them.

    Both the core proposal of the company that decides to issue them and the specific parameters are known: “Come (or stay) with us and you will have serious expectations to derive significant benefits from the increase in the value of the business (in proportion to its part that corresponds to the stock option you receive)”.

    Internationally, it is adopted (at least in terms of listed companies) also one more alternative to (direct) ESO provision. The business undertakes instead of delivering the Stock Options to the executive to pay him money at predetermined times in the future. In particular, the difference in the present value of an agreed number of shares relative to the price they will have at those predetermined future dates.

    Stock Options on the side of the business and the executive

    With the adoption of Stock Options, the company creates significant incentives to attract an “expensive” executive, as it no longer faces him as a mere employee. The executive is upgraded from the level of the simple (and least important) employee to the potential tomorrow’s shareholder, a participant in the vision, development and, as a result, profitable course of the business.

    The enterprise (start-up, in difficulty, developing or developed) thus achieves a threefold goal: (a) to reduce the financial requirements of the executive in terms of his/her expected fixed earnings, (b) to increase his/her commitment to the firm (c) to raise (logically) his/her qualitative and quantitative performance.

    The executive, on the other hand, “attaches” stronger ties to the company’s chariot as is no longer a simple worker but upgraded to a potential (or tomorrow) shareholder. And even more: Looking forward to the profits he/she could make from his/her stay in the business, he/ she would hardly think of not paying off his/her full potential or leaving before the “full limit of the time”.

    By realizing the institution of Stock Options, the target of shareholders, management and executives becomes common: developing the value of the business and, consequently, the value of its stocks.

    Especially: The worries of the entrepreneur and the way they can be dispelled.

    However, there is also a serious (and quite reasonable) argument on the basis of which an entrepreneur (especially in companies with few shareholders) would not choose to make Stock Option available to his/her executives. Let’s note, among other things, the most common: What will happen if, once the relevant rights have been exercised, the executive (as a shareholder) leaves (resigns or be dismissed), bankrupts, dies or faces a mental health problem? Will then be as a partner an old friend and tomorrow’s enemy? Or will there be the widow and his orphans? Or maybe an insolvency administrator, someone irrelevant or even worse, the most important competitor of the business?

    In these critical questions can be given not only satisfactory answers but also absolutely adequate safeguards. The combination of individual legal options can safely succeed in achieving this.

    For example, the combination of stock options with the provisions on the issue of restricted stocks may create feelings of security for such concerns (For matters relating to the issue of restricted stocks, you may refer to our related article).

     

    B. The regulations of the new Law on Sociétés Anonymes

    On a procedural level, the issuance of Stock Options presupposes (Article 113 par.1) a General Assembly resolution on the beneficiaries of the plan (members of the Board of Directors, executives and / or persons providing their services on a stable basis) as well as on the details of such issuance. In this context, the decision of the General Assembly specifies (Article 113 par. 2) whether the Stock Options will be issued using the Company’s own shares or an increase in its share capital, the maximum number of shares to be issued, the subscription price or the method for its determination, the terms of sale of the shares, the duration and the beneficiaries of the plan, the manner in which the rights be exercised. However, especially with regard to the beneficiaries, the Board of Directors may be entrusted with the designation (by the Board of Directors) of either the beneficiaries, namely, or of the groups of beneficiaries

    The Stock Οptions issued may not exceed a maximum of 10% of the share capital (Article 113 par.2), although in practice it would hardly exceed even 1% or 2%.

    It is also noteworthy that the General Assembly may delegate (Article 113 par.4) for a period of five years its relevant power to the Board of Directors although such an assignment must be given sparingly as it could possibly lead to unpleasant reversals of sensitive balances between shareholders.

    In any event, the Board of the Directors is that body (Article 113 par.3) to:

    (a) issue the certificates of exercise of the relevant rights but also

    (b) (per calendar quarter) to either deliver the shares involved in the exercise of the Stock Options or to increase the share capital and amend the Articles of Association (by issuing and delivering the newly issued shares and certifying the relative increase).

     

    C. Epilogue

    Making use by an enterprise of a modern tool, such as Stock Options, can be beneficial at various levels. Although this approach is simplified, the potential risks to the entrepreneur can be reduced to a significant level (using safe legal tools) – if not eliminated. At the same time, the design of the relevant product can greatly safeguard the central focus of the business: whether it is to attract skilled executives or to maintain the most competent ones and / or to maximize what the benefiting executives are able to offer.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

  • Warrants

    Warrants

    A. Introductory

    Warrants are a modern financial instrument, known to those who teach economics, but also to those involved with stock markets around the world. Warrants, little known to the general public, may be a means of attracting financing but also of supporting business development. Their operation is twofold: On the one hand, they align the expected future positive course of the company with the individual interests of third parties directly or indirectly involved. On the other hand, they broaden the framework of those who “struggle” for the success of the corporate venture – which is now becoming a common goal for more. Warrants may prove to be more attractive than issuing preference shares or convertible bonds.

    But let’s get to know them better.

     

    B. Getting acquainted with warrants, national and international experience

    What are the warrants

    Under the Law on Sociétés Anonymes (Article 56 par.1), warrants are the securities issued by a société anonyme and confer the right to the of the beneficiaries (: option) to acquire (more precisely: to buy) shares of its (of the issuer-in this case we are talking about corporate warrants).

    Reasonably, though, one could support that lawyers are not the most competent ones to talk about what warrants really are. This is because, in a wider (and correct) view, it is a stock derivative that creates the right (but not the obligation) to buy (or sell) a share at a specific price (: “exercise price”), before its expiration (an indicative definition can be found here: https://www.investopedia.com/terms/w/warrant.asp ). Thus, the institutional framework that governs the operation of warrants affects, on a multi-level basis, not only the operation of a société anonyme, but also the relationships formed around it. The relevant regulations could not therefore be missing from the new law on Sociétés Anonymes (Articles 56 to 58). It could also be impossible not to be of the concern of the legal community of the country. [The most complete, at present, work in our country is: “Warrants corporate and covered”, John Linaritis, Nomiki Bibliothiki, 2018)].

    The use of warrants in the context of the recapitalization of Greek banks (2012-2013)

    The experience of the recapitalization of Greek banks is the one that first brought us into contact with warrants (precisely with covered warrants – in contrast to the aforementioned corporate warrants). The relevant legislative framework was already in place in 2010 (from article 7a par. 1 and 2 of law 3864/2010, as it was in force with subsequent amendments of the years 2012-2013), before being replaced by Article 2 of law 4254/2014. It was further specified by the relevant Ministerial Council Acts No. 38/2012, 6/2013 and 43/2015.

    The attempts to attract private investors to recapitalize systemic banks have been achieved (even partly) through the use of warrants as “sweeteners” (as per the international terminology).

    Thus, those who decided to participate in the recapitalization of Greek banks during the period 2012-2013 were found to have warrants in their hands. Accordingly, on the basis of the MCA 38/2012, the holders of the warrants received from the Financial Stability Fund (FSF) free of charge, one Warrant for each common share of the Credit Institution they acquired. There was provision in this MCA for the readjustment of the number of shares attributable to each warrant “in the case of corporate actions”. The relative provision was further specified,by the MCA 43/2015.

    The beneficiaries of the warrants, thus, acquired the right to exercise them fifty-four (54) months from the date of issue of the securities – half – yearly. The exercise price of the warrants was set at the acquisition price of the respective shares by the FSF, plus an interest rate of 3% and a margin (proportional to time when the exercise of the relevant right) on the number of shares that the holder of the warrant was entitled to acquire while exercising the right.

    The valuation of warrants

    Since 1973, the “Black-Scholes” model has been adopted (with various supplementary interventions and adjustments) in the international literature on the valuation of warrants. This model takes into account: (a) three basic parameters for determining their value: the exercise price, the remaining time to the maturity date and the stock price of the share; and (b) at least three additional financial parameters: the expected dividend yield, the risk-free interest rate, and the expected volatility of the underlying share.

    In practice, however, for all of us non-economists: When the share price at the time of the exercise of the relevant right (i.e. that acquired by the warrant at the time of its acquisition) falls short of the amount to be paid (per share) for its exercise, it makes no sense to put any other parameter in the equation. This was done in the aforementioned case of bank recapitalization: The share price of systemic banks was downgraded, in contrast to the warrant exercise price, which was initially agreed on a constant basis over the individual periods of potential exercise.

    Thus, individuals who participated in the recapitalization of systemic banks received warrants, but they never exercised their right because the share price to which they were quoted was clearly lower than their warrants.

    This particular project was not to be successful.

    Exercising rights from warrants and related questions

    Regarding listed companies (as referred to above “systemic” banks), the aforementioned reasoning seems as self-evident and simplistic: Why exercise my warrant right when it is financially advantageous to buy the corresponding stock from the stock market with a smaller cost?

    But does the same also happens with non-listed companies? In those that their shares are not traded on a regulated market, so they are not freely available? And what happens when they can only be available in the context of a free transaction where the vendor’s and buyer’s “declarations of will” are identical?

    And, ultimately, the key question: Are warrants a failed and non-functional institution? Or can it be used multilevel in the context of boosting entrepreneurship? The answer to the specific, nodal questions is attempted below.

    The potential use and utilization of warrants

    The range of potential exploitation of warrants seems almost inexhaustible.

    Warrants can be an instrument (but most of all: a motivation) for business financing – it is not accidental that the term “sweetener” already mentioned and internationally used: I am currently participating in a share capital increase and I am excited that in the (near or far) future I will have, IF I choose, on favorable terms (in relation to the then data), an additional number of shares.

    This logic may prove attractive not only to attract equity start-ups but also to correspondingly growing and / or simply healthy businesses. On the other hand, it may prove to be appealing in the attempt to provide capital support to companies with liquidity & solvency problems and the inability or difficulty of drawing external financing or (joint) capital support. It is a strategy tool for venture capital, for individual investors, but also a tool for individual shareholders’ personal strategies.

    Moreover, it is not possible to disregard the potential use of warrants as a motivation for those who run the company, executives, associates, suppliers or creditors. And with regard to the latter (suppliers or creditors) – in addition as a means of partial or total repayment or favorable settlement of financial obligations.

    In all the above cases, warrants can have a dual function: (a) To align the (prospective) future positive course and prosperity of the company with the individual interests of third parties directly or indirectly involved (and not only shareholders) but also (b) To broaden the framework of those who (for tangible reasons of immediate interest) “struggle” for the success of the corporate venture that is now becoming a common goal.

    In all these cases, warrants may prove, multi-level, to be (and are) more attractive and preferable to the issue of preferred shares or convertible bonds.

     

    C. The approach (and regulation) of warrants by the law on the SAs

    Bearing in mind the above mentioned (under A) introduction, the choice of the relevant Legislative Committee (and of course of the Greek legislator) for integrating warrants into the regulatory field of the new Law on Sociétés Anonymes can be more clearly understood.

    Option to issue warrants

    By the provision of Article 56 par. 1 of the new law, the General Assembly shall be the competent body for the issue of the warrants, which shall decide with increased quorum and majority. A simple quorum and a majority of the General Assembly or a decision of the Board of Directors is sufficient if there is a relevant statutory provision (paragraph 2 applying mutatis mutandis the provisions for the extraordinary increase of the share capital – according to article 24).

    Individual decision parameters of the competent body

    The relevant competent body of Société Anonyme in its decision to issue warrants (which is subject to the publication of the law on the increase of the share capital) includes the following:

    (a) the time, the manner, the price for the issue of the warrants and the method of payment
    (b) the time limit and other conditions governing the exercise of the right which the warrants incorporate
    (c) the category and number of shares to be issued after any exercise
    (d) the value or method of calculating the value of shares to be paid when exercising the right
    (e) the number of shares to which each warrant is entitled to acquire
    (f) adjusting the terms of the warrants and of their rights in the case of corporate actions; and
    (g) any other relevant detail

     Other issues related to the issue of warrants

    Existing shareholders at the time of the issue of the warrants retain a relevant pre-emption right at the time of their issuance (Article 56 par.6) and reasonably as their future exercise would disrupt any equity balances. At the same time, it is possible to recognize (Article 56 par.7) the option of partial coverage of the warrants for which the issuance will be decided (in proportion to the application of Article 28 for the partial coverage of the share capital increase). Finally, it is stipulated (Article 56 par. 8) that the relevant warrants are nominal – reasonably also in this case as the shares of the Sociétés Anonymes can only be nominal.

    Acquisition of own warrants by the company (Article 57)

    The Société Anonyme cannot cover its warrants or take warrants of its own or its parent company.

    However, the Company may acquire warrants of its own (except in the case of a successor or a gratuitous cause) following a decision by the Board of Directors to: (a) justify the company’s interest; (b) record the purpose and (c) determine the maximum number of warrants to be acquired; (d) the duration of the approval (max 12 months); and (e) the minimum and maximum value of the acquisition.

    For the particular decision of the Board of Directors, a certified auditor’s report is required on the reasonable value of the acquisition. This specific value may not result in a reduction in the share capital to lower levels than those specified in the provision of Art. 159 §1.

    In the event that the issuer decides to acquire (and ultimately acquires) its own warrants in order to amortize them, it is obliged to immediately cancel it. Also, when the issuer acquires its own warrants either due to a succession or by a gratuitous cause, it is obliged to take a decision, within one month, either to cancel or to resell them. In any case, however, of an acquisition by the company of its own warrants (in contravention of the specific provisions) is obliged to transfer them not later than one year after their acquisition.

    Exercise of warrant rights (Article 58)

    The right resulting from warrants is, as already mentioned, a right of option. This means that the exercise of the right by the beneficiary is unilateral. The sole condition for its exercise is the payment to the company (in advance) of a given price.

    The nominal value of the shares to be issued may not, however, exceed the sum of the amount paid on the acquisition of the warrants and that paid in the exercise of the right in question.

    However, when the relevant right arising from the warrants be exercised, there is an increase in the share capital. In this increase, the old shareholders have no right of preference. The Board of the Directors is obliged to adjust, within two months, the share capital of the company.

    Finally, it is noted that the provision of a reserve to the issuing company is mandatory as long as the warrants remain valid. This reserve cannot be distributed and is at least equal to the value paid when the warrants were issued.

     

    D. Epilogue

    From the above, I do not think there is any doubt that the incorporation of warrants into national law provides an important (multi) tool for Sociétés Anonymes. An important tool for financing and for facilitating their financing, for creating incentives to help their productive, efficient and ultimately optimal operation and development. Above all, however, it is a tool that widens decisively the circle of natural persons and legal entities directly and indirectly (more or less) associated with it while, at the same time, with many interests in achieving the corporate objectives.

    It is up to businesses, entrepreneurs, financial (but especially our legal) advisors to optimize their use.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

  • The new law on SAs: Issuing restricted stocks

    The new law on SAs: Issuing restricted stocks

    Is it an option of the law or a minimum guarantee of the (founding and other) shareholders and of the smooth operation and continuity of the société anonyme?

     

    Past experience

    It is well known that the Société Anonyme has always been (and remains by law) a capital company. In our country, however, it continues to have, in general, strong personal attributes.

    Founding (and non) shareholders always have a lot of concerns. One such is the possibility that one of the other shareholders (with whom they shared the “common dream”) would transfer its shares to a third party irrelevant to the original group. Possibly malignant and / or competitor. Where data permitted, we proceeded with statutory provisions based (primarily) on the needs of the main shareholder or, better, of the shareholder who had chosen us as his lawyers.

    These provisions were aimed at protecting the remaining shareholders from the potential surprise of the emergence of a new “partner”. An associate with whom the old shareholders owed (regardless of their personality and intentions) to coexist and co-create.

    These provisions usually referred to the recognition of the preference rights of the remaining shareholders when a shareholder externalized his intention to transfer his shares. Even more so: when the shareholder had already pre – arranged, with a proposed acquirer, the transfer of his shares. Sometimes even the architectonic proceedings that were chosen were intended to make a potential transfer of shares de facto impossible. Especially in the event that a specific shareholder would not approve it.

     

    The possibility of denying the requested authorization and the “red line” to the restrictions that can be set.

    The law on sociétés anonymes accepts, in the provision of Article 43, that the competent body of the company (Board of Directors or General Assembly) may refuse to approve the requested transfer. Hence, not arbitrarily but under a respective statutory provision (paragraph 1).

    The same provision (paragraph 2) introduces a systematic (but indicative) list of some restrictions that are possible but also tolerable on the basis of the Articles of Association to be borne by the company’s shares. For these restrictions, however, there is a significant, twofold, “red line” as it is not acceptable: (a) to make the requested transfer impossible; (b) for a quarter to expire without the company responding to a request of this respect, from the shareholder.

    In the event of a violation of the aforementioned “red” line, the company is obliged to buy the shares for which the request itself, in accordance with the procedure provided by the law. The relevant provision (Article 45) provides for the mediation of a court decision, the determination of the redemption price through this court decision, the possibility of the mediation of an expertise. Also, the threat of a company’s dissolution in the event of non-compliance with what said (court decision) orders.

     

    Restrictions and bodies of approval

    The respective provision of the law on Sociétés Anonymes refers to some more common restrictions that may be set in the Articles of Association with regard to the transfer of shares. This reference is indicative, as there is no restriction other than the pre-mentioned “red line”.

    The involvement of a company’s statutory body has always been (and still remains) already) given and necessary when there is a statutory provision on the future transfer of shares (based on a predetermined procedure). The General Assembly or the Board of the Directors (most commonly the last) was chosen as the body that would give the necessary approvals. Thus, the shareholder who had the majority of the votes in the General Assembly or of the members of the Board of Directors was the regulator of the relevant issue. The absolute, more or less, archon!

    Certainly, with the new law, things are not different. And this is reasonable.

     

    Potential restrictions

    The provision of art. 45 par. 2 provides for, indicatively, certain restrictions that may be imposed on a possible transfer of shares.

    In this context, the obligation of the shareholder requesting the transfer to offer the shares to the other shareholders or to some of them (paragraph 2, case a -recognizing their right of preference) is accepted. It is also defined as tolerable, the mandatory transfer of said shares, ONLY, to the one who will be indicated by the company (paragraph 2, case b).

    More interesting, at a legal and practical level, are the other two restrictions. The ones met in international terminology as Tag Along Right (par. 2, case 3), and Drag Along Right (par. 2, case d) as potential and tolerable constitutional provisions. Those which, we, with some originality and sometimes moving hand over hand, incorporated as statutory provisions or arrangements for an extraterrestrial shareholders’ agreement.

    In the first case (: Tag Along Right), the third-party potential share buyer is obliged to acquire a corresponding number of shares of other shareholders (and not only of the one with whom he initially “agreed with”).

    In the second case (: Drag Along Right) the remaining shareholders undertake the obligation to co-transfer to the third-party corresponding number of shares with the transferor.

    Experience has shown that these alternatives have often successfully tackled and resolved complex problems in respect with the relationship between shareholders.

     

    Statutory regulations

    The Company’s Articles of Association may (or not) provide for the existence of restrictions, such as above, in respect of share transfers. In the affirmative, it must regulate “the procedure, the conditions and the time limit within which the company approves the transfer or indicates a buyer”. In the event that such a period has elapsed, the requested transfer is free. Hence, if there is a transfer of shares in breach of the statutory provisions, the transfer is declared null and void.

     

    Abolition of transfer restrictions.

    Possible existing statutory restrictions on the transfer of shares do not apply unconditionally. Like, e.g. in the event of a shareholder’s death. Also, in case of attachment of his property, bankruptcy or other collective proceedings of transfer of his property. In such cases, it is possible to be statutorily provided: (a) the designation of a purchaser within one month starting from the company being informed of the respective event – the price is determined by the court or, alternatively, (b) the preference right of the other shareholders.

    The reasons for the abolition of the statutory restrictions as well as the statutory provisions for the respective management of such events are assessed as perfectly reasonable. The latter even ensure the company’s continuity within what the founding (or the subsequent) shareholders had envisaged.

     

    Corresponding (potential) restrictions also on bonds

    Respective restrictions with those mentioned above may be made by the decision of the competent body when a convertible bond is issued.

     

    In conclusion

    The statutory restrictions regarding the transfer of the shares of a société anonyme contribute effectively to the smooth operation of the company when one of the shareholders expresses the wish to transfer its shares.

    The relevant statutory provisions should, however, be reasonable and not lead to dead ends (since they will be self-defeating). Additionally: not to create the background of extortionate behavior by any of the shareholders.

    The new law provides us with the right tools.

    It is up to us to use them appropriately, along with the past experiences.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    Υ.Γ. A brief version of this article has been published in MAKEDONIA Newspaper on Sunday, 20th of January 2019.

  • Technology at the service of the Société Anonyme

    Technology at the service of the Société Anonyme

    At the risk of “betraying” my age, I have to quote that I learned to typewrite in the early 1980s. One, newer then, Olivetti was the one which tolerated me (the younger ones and the eager may navigate to the internet for the relevant pictures).

    At that time, if anyone was talking about technology, perhaps we would have thought, if we thought, the (electric) typewriters (with the “ball”) that were to follow.

    At that time, we would notthing of internet, of the e-mail or of the teleconference.

    At that time, it was not possible to imagine how technology could be used by a société anonyme or by a law firm (there were not even law firms then).

    But there have been almost forty years since then.

    The changes, since then, sweeping.

    Also in the law of Societes Anonymes!

    (refer to The new law on Sociétés Anonymes and Sociétés Anonyme: The new law).

     

    The recent law

    The recent law (4548/2018) for sociétés anonymes provides a wealth of opportunities related to the exploitation of technology. Which, without a doubt, make our lives (entrepreneurs, accountants, lawyers) easier. Helping to the more efficient and effective operation of the société anonyme.

    It is noteworthy, however, that the use of technology is not required by law. In a number of provisions, the law regulates the option of statutory provisions for technology’s exploitation.

     

    The ability to exploit technology

    Solely indicatively, may one refer to the provisions of the new law that refer (provided of course that there are corresponding statutory provisions) to:

    In the operation of the Board of Directors

    • The possibility of the Board of the Directors having meetings by teleconference (Article 90).
    • The possibility of decision making by the Board of Directors by means of email exchange (Article 94).

    In exercising shareholder rights

    • The ability of the shareholders: (a) to request information by email for the forthcoming General Meetings of the companies (article 122) but also (b) to be sent to them the subject to a vote by the ordinary General Assembly financial statements of the company (Article 123).
    • The obligation for companies to comply with such requests.

    In the procedures of the General Assembly

    • The ability of shareholders to participate in a General Meeting (Article 125) on-line (real-time) by audiovisual or electronic means.
    • The ability of shareholders to participate in a vote of a General Assembly from a distance that is preceded by a “letter” vote (Article 126). This particular ability is exploited: (a) by the availability of issues and ballot papers via the Internet and (b) by filling in the ballot papers electronically. It is noted that when a distance voting takes place, it is compulsory that the vote be (reasonably) an open one (Article 131) but also that the company ensures the identity of the participant in the process as well as the electronic or other connection.
    • The ability of non-shareholder-members of the Board of the Directors, auditors or third parties to participate in a General Meeting by electronic means (Article 127)
    • The ability of shareholders to appoint, recall and replace (by electronic means) their representatives (Article 128)
    • The ability to hold General Meetings without a meeting (Article 135) when all shareholders have communicated to the company their e-mail addresses. In such cases, the proposal of the Board of Directors is sent electronically to the shareholders along with: (a) a draft decision, (b) the relevant suggestion of the Board of Directors, (c) the way of declaring acceptance or refusal but also the deadline for shareholders’ reply / vote (7-30 days). [In such a case, shareholders are also entitled to submit information requests electronically within three days of receipt of the Board’s proposal. These requests are required to be answered within two days of receipt].
    • The ability of countersigning General Meeting minutes without a meeting (Article 136), together with the ability to replace shareholders’ signatures by e-mail.

    In the Shareholders’ Unions

    • The ability to provide information from Shareholders’ Unions (Article 144) via the internet on the rights of shareholders, investors, and the ways of, among others, namely conciliation.

     

    The (necessary but also rational) use of technology and its capabilities.

    Almost one hundred years since the first law on sociétés anonymes (2190/1920) and almost forty years since I learned to type, are so many.

    So (I think) I have the right to “strongly qualify” to encourage (also) the exploitation of the latest law on the use of technology.

    The legal background exists.

    What remains is the (evaluated but also rational) incorporation of the respective options in the articles of association of the sociétés anonymes – which in any case must be aligned with the new data and the requirements of the law.

     

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A short version of this article has been published in MAKEDONIA Newspaper (13 January 2019).

  • Sociétés Anonymes: The new law

    Sociétés Anonymes: The new law

    The agreements of an SA with its main shareholders, the members of its BoD and with related parties: The correction of the “wrongly raised” issues

    The seriousness of the matter and how the new law on SAs deals with it

    The issue of the agreements signed between a Société Anonyme and its main shareholders, members of its Board of Directors and related parties is one of the most important issues that the new Law (Law 4548/2018) was required to deal with for Sociétés Anonyme.

     

    Our work with this particular issue

    This particular issue has already been addressed in the recent past (in the column “Business: Law and Practice” in the Sunday edition of the newspaper Makedonia on 18.11.2018), but also in a previous article on the blog of our law firm.

    In summary, in the above-mentioned article on the blog, among other things, we mentioned: “Based on the options of the new law it is NOT entitled to participate in the decision-making process in the Board of Directors and the General Assembly the member of the BoD or any shareholder, who derives interest (directly or indirectly) from the particular transaction. It is noteworthy that the final decision belongs to the General Assembly, which is convened on this issue at the request of 5% (only) of the share capital. Only the remaining shareholders – in practice, i.e. ONLY the (usually one) minority shareholder – can vote in this particular General Assembly”.

    This choice … is expected to lead to exactly the opposite effects to those that the Legislative Committee was looking at: The privilege of 5% minority shareholders to decide unilaterally on the matters relating to the company’s relations, for example, with the shareholder of the majority is expected to lead to abusive (and / or extortionist) behaviors.

    …Therefore, there is no doubt that there is a strong need to find a different solution. For example, to return to the former (safer and fairer) “regime” (article 23a of Law 2190/1920): Shareholders who derive interest from a contract are entitled to participate in the General Assembly that will provide the final approval, but the authorization to conclude it will be provided only if the 1/3 of the share capital represented in it does not oppose.

     

    The activation

    This issue was a matter of particular concern for a Body of our city (which, for reasons of modesty, has asked for its involvement not to be mentioned). We worked together to achieve the best solution. With our law firm’s letter dated 6.11.2018, we recommended the amendment of the critical provision (Article 100 (5)) of the new law.

    In the Body’s letter dated 13 November 2018, addressed to the competent ministers, there was asked for the pre-existing legislative provisions on non-listed companies to be reintroduced. It mentioned, among others:

    “It is therefore necessary to return to the previous regime (article 23a of Law 2190/1920) according to which the shareholders affected by the decision may take part in the General Meeting in question, but the authorization to conclude the contract will only be given if the 1/3 of the share capital represented in the General Assembly does not oppose…

    In the context of the above, there is no doubt that there is an urgent need to restrict the provision for the application of Article 100 (5) of Law 4548/2018 to listed companies and to amend it as soon as possible as the new law comes into effect on 1.1.2019”.  

    The response of the political authorities

    We are accustomed to addressing to the “ears of those who will not listen” when we rush to the competent authorities for any issues – sometimes critical. In this case, however, the prementioned activation seems to have been completely effective. Through an amendment that has already been submitted to Parliament for voting, it is expected that paragraph 5 of article 100 4548/2018 be amended in the proposed direction.

     

    The Explanatory Memorandum for the amendment of article 100 of Law 4548/2018

    This explanatory memorandum verbatim states:

    “7.   With paragraph 7, paragraph 5 of Article 100 of Law 4548/2018 is amended in order to alleviate the consequences of the full ban to vote for the shareholder who will participate in the General Assembly that will provide the authorization in order for the company to conclude a transaction with a related party, should (this shareholder) be this related party. While Directive 2017/828 provides that in this case the shareholder does not have the right to vote, thus, it allows the provision of interim solutions if the interests of the minority are protected. Given that the abstraction of the vote applies, in accordance with the Directive, only to listed companies, it is appropriate not to apply the prohibition to non-listed companies, while for those listed there is an intermediate system where voting rights are preserved in the assembly provided that the independent members of the BoD have reached a majority agreement on the granting of the authorization. It is added that in every case (both listed and non-listed companies), the minority of 1/3 of the capital represented in the meeting has the right of veto to the granting of the authorization, as provided for in Article 23a (3) of Law 2190/1920. It should be kept in mind that according to par. 4 of article 100 of law 4548/2018, if, prior to the general assembly’s decision, the transaction has already been concluded, a minority of 1/20 has the right of a veto”.

     

    The introduced amendment and the amendment to the disputed (problematic) provision

    The introduced amendment verbatim states:

    “7.   At the end of paragraph 5 of Article 100, paragraphs are added as follows:

    “This does not apply (a) to companies with shares not listed on a regulated market and (b) to listed companies if the authorization of the Board of Directors pursuant to paragraph 1 was granted with the agreement of the majority of its non-listed members. In any event, the authorization by the general meeting is canceled if shareholders representing one third (1/3) of the capital represented in the meeting object to it”.

     

    The problem “with the potentially dramatic consequences”: NO longer exists

    The aforementioned activation (with the assistance of our Law Firm) proves to have had the desired effect: The problem “with the potentially dramatic consequences” (i.e. the 5% minority being a regulatory factor for critical decisions with the assumption that the company and shareholders will be involved in long-standing litigation) will not exist since the very beginning of the implementation of the new law.

    We can be both happy and proud.

    Congratulations, however, must be given to those who have decided to activate while refusing to submit to (the usual) practices of introversion.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    Υ.Γ. A short version of this article has been published in MAKEDONIA Newspaper (December 30, 2018).

    ανώνυμες εταιρείες

  • Corporate Governance: Competitiveness and Growth

    Corporate Governance: Competitiveness and Growth

    [vc_row][vc_column][vc_column_text] Corporate Governance is, in general, a set of principles and rules that must govern certain areas of the organization, operation and management of a Société Anonyme. But how are they related to Competitiveness and Growth?

    The Regulations of Corporate Governance Codes

    In the Greek Corporate Governance Code, these rules refer to the Board of Directors, internal control, fees and shareholders.

    The Corporate Governance Codes are not mandatory unless some of their provisions (or all of them) have the form of the law (e.g. some of the provisions of Law 3016/2002 on listed companies, of the recent Law 4548/2018 concerning the reform of the law of Sociétés Anonymes, the commonly known law 2190/1920).

    Objective and Purpose of Corporate Governance: The Component of Competitiveness

    The purpose of Corporate Governance under the Greek Code is “to promote good governance in the conviction that it will enhance the long-term success and competitiveness of Greek companies”.

    The reference to enhancing competitiveness is not accidental: We can be sure that there would be no investor to invest in a company that operates with the well-known methodology of most (family) businesses in Greece. A methodology in which the entrepreneur identifies the fund of the company with his “pocket”. The company, with his home.

    To what extent is the entrepreneur willing to retreat from unwavering practice and habits of years?

    Necessity and value of Corporate Governance. From theory…

    Regarding the necessity and value of Corporate Governance, a great deal has been written. In the preface to the Greek Code of Corporate Governance, Iakovos Georganas (then President of HELEX – for the older the “Patriarch of the Hellenic Capital Market”) states: “… Strengthening corporate governance is a prerequisite for creating an attractive investment climate in Greece, as in every country and the adoption of the Code by the companies, helps restore investors’ and lenders’ trust, attract domestic and foreign capital, and enhancing business competitiveness …”.

    …to practice. Indicatively: Roots Programme

    Helping businesses to grow but also boosting their competitiveness requires, among other things, access to low-cost investment funds. The Athens Stock Exchange is pursuing an important step in this direction, through the Roots programme, which, with a modern methodology, attempts to facilitate the access of small and medium-sized companies to investment funds. Already, on 13.5.2018, the first event took place at the Thessaloniki Stock Exchange Center, with recipients, innovative startups and promising small and medium-sized companies in Northern Greece. Companies that think they have an interesting investment proposal and are looking for investors. “The success of the companies that will join this program will be judged by their ability to raise the funds needed to implement their investment proposal, meeting the requirements of organization, transparency and good corporate governance under the conditions demanded by investors”, says the President of HELEX Mr. Socrates Lazaridis.

    Once again, corporate governance!

    Is (quite) clear?

    Without good corporate governance, there is no access to finance!

    Without funding, there is no way for growth!

     

    Koumentakis-and-Associates-Stavros-Koumentakis

    Stavros Koumentakis
    Senior Partner

    Υ.Γ. The article has been published in MAKEDONIA Newspaper (December 16, 2018)

  • Acquisitions: Is it enough just to shake hands on?

    Acquisitions: Is it enough just to shake hands on?

    [vc_row][vc_column][vc_column_text]

    Acquisitions and business development

    The procedure of a company to acquire another of the same industry or of an industry in which it would like to expand its business, is connected to its growth.

    In procedural terms this is one of the agreements “concluded” between those who have the authority to do so: The, normally, strong party (that is, the acquiring party) and the, normally, weak one (that is, the party to be acquired).

    In any case, the “acquiring company” aims to its further (direct) development, utilizing the structures, the staff, the activity and the customer base of the acquired company.

     

    dikhgoriko-grafeio-koumentakis-kai-synergates-law-firm-The risks of an acquisition

    The acquisition of a company, however attractive it may be, poses significant risks to the acquiring party, buyer. What are these risks? Legal, economic, tax risks and so on.

    These exact risks the person who is interested in acquiring must explore and consider and the assess whether to proceed to the next steps.

    At this point, specific consultants are, perforce, involved in order to carry out the necessary legal, financial, tax, technical audits (or, as per the international terminology: legal, financial, tax, technical due diligence).

    And it is true that we have all heard of acquisitions where the entrepreneurs simply “shook hands on the deal” in the view that “everything is ok” or that they would not face serious or just unmanageable problems. Such a choice certainly could not be classified as wise as no one would want to find himself in difficult (or unmanageable) situations: If the new owner, for example, subsequently found out that a third party has initiated actions for significant amount of money against the acquired company or that there are legal actions challenging the ownership of the shares that have been transferred or that a tax audit has never been carried out in that company or that the lease of the main premises expired only a month ago …

    No one, I’m sure, would want to find himself in such situations. No one would want to risk his financial position because he did not carry out audits or because the audits conducted were proved defective.

     

    dikhgoriko-grafeio-koumentakis-kai-synergates-law-firm-Standard audits

    The various audits explore certain areas of the company’s life and activity and are intended to reduce the business risk of the acquiring party. Indicatively:

    Legal audit: There are analyzed (indicatively) the data concerning the company itself, its holdings, its assets (movable, immovable, intangible), its labor relations, its legal cases, its relations with the authorities (fulfillment of its obligations linked to its activity),

    Financial Audit: The company’s financial statements are audited, and the correctness of their representation is verified, the accounting books and data are checked, the potential “gray” areas are searched (and clarified), the existence (or non-existence) of financial problems is confirmed. (Or, in another, most modern version of EY Canada: “The diligence exercise probes deeply into the quality and sustainability of earnings by examining underlying risks and exploring previous financial performance to determine whether it can reasonably be expected to continue, and to understand how changing circumstances and trends may impact the future of the business”)

    Tax Audit: There is an audit on tax liabilities and corresponding outstanding issues of the company

    Technical Audit: All issues of technical nature related to the operation of the company are checked; it is differentiated according to its subject.

     

    dikhgoriko-grafeio-koumentakis-kai-synergates-law-firm-The acquisition contract

    Upon the completion of the above audits, is the maximum possible assurance for the acquiring party achieved? Apparently not as the “gentlemen’s agreement” should be followed by the relevant contract, which will contain the important parameters of this agreement. Indicatively:

    (a) The price and method of payment (provided, of course, that there has been the company’s value assessment)

    (b) Any supplemental agreements relating to parameters for increasing, under condition, the price and / or other earnings,

    (c) Shareholders’ individual rights (when the transferor remains with a minority stake in the acquired company, e.g. tag and drag along rights, management issues, a shareholder agreement beyond the company’s Statute),

    (d) The obligations undertaken by the acquiring party in relation to the transferor (e.g. exemption from bank guarantees, removal of any charges/mortgage prenotations in personal property),

    (e) The assurances and warranties provided by the acquired party, with regard to the data and the information provided,

    (f) Penalties in the event of ex-post liabilities occurring prior to the transfer, and so on.

     

    It is obviously NOT enough just to shake hands on!

    The acquisition of a company is undoubtedly an important stop for the company itself, for the transferor and, of course, for the acquiring party. The risk that the latter assumes should be reasonable and measurable. And its safeguards should be the best possible.

     

    Koumentakis-and-Associates-Stavros-Koumentakis

    Stavros Koumentakis
    Senior Partner

    Υ.Γ. A brief, Greek version of this article has been published in MAKEDONIA newspaper (December 2, 2018)

     

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