Koumentakis

Author: skoumentakis

  • Distribution of Shares: Beneficiaries and Bodies

    Distribution of Shares: Beneficiaries and Bodies

    We explored, in our previous article, the distribution of shares (with or without consideration) to members of the SA Board of Directors, its executives and employees. Also, to those who provide their services to it. We will be concerned, here, with the share allocation program in the form of an option to acquire them (: art. 113 of law 4548/2018). The beneficiaries, in particular, and the competent bodies for its issuance.

     

    Beneficiaries of Acquisition of Shares

    The SA (more precisely the General Assembly or, subject to conditions, its Board of Directors) may establish a share allocation program, in the form of granting an option for the purpose of acquiring its shares (art. 113 §1 Law 4548/2018).

    Beneficiaries of such a program may be the members of the Board of Directors and the staff of the SA that disposes of shares. Also, natural persons who have the corresponding properties in any legal persons connected to the SA in question (see art. 32 of Law 4308/2014).

    The concept of “personnel” includes the natural persons employed by the SA in a dependent employment relationship (in accordance with the dependency theories developed in the context of Labor Law). The concept of “personnel” also includes management employees [despite the fact that they hold “… a position of supervision or management, or a position of trust” (: art. 2 par. a’ of the International Convention of the Washington International Conference, sanctioned by the first paragraph of Law 2269/1920) and despite their high degree of independence and their significantly higher salaries compared to other staff].

    The right to acquire shares is not recognized, on the contrary (in the best opinion – and despite the lack of a relevant legislative provision), to persons who are employed by the company on a temporary, merely, basis (e.g. in the case of an employee employed by the SA in the context of a hiring-out of workers program). The specific assumption, in fact, seems reasonable as any allocation of shares to employees of this category cannot meet the justification and purposes of the institution: The creation, i.e. incentives for optimizing their performance and consolidating strong ties with the SA.

    In addition to the above persons, the share allocation program – as it was also applicable based on the existing provision (: art. 13 §13 law 2190/1920) – can be addressed, in addition, to anyone who provides their services to the SA (who disposes of its shares) on a fixed (and not occasional) basis (: art. 113 §1 in fine). Among the beneficiaries it is possible to include persons connected to the company through relationships of independent services, salaried project mandate, etc. However, those who provide their services on a regular basis to companies affiliated with the SA cannot be beneficiaries.

    In the category of beneficiaries who provide their services on a fixed basis, it is possible to include, therefore, regular partners of the company whose provision of services is characterized by repetition. As such they could be lawyers/solicitors, accountants, suppliers, distributors and so on. Of course, any occasional and haphazard cooperation is not enough. Precisely because of the valuable (usually) contribution of the above persons to the corporate development, it is reasonable that the SA wishes not only to reward them, but also to strengthen and maintain the ties between it and them.

     

    Competent Corporate Body

    Competence of the General Assembly

    The authority to take a decision to establish a share distribution program in the form of an option belongs, by law, to the (statutory) General Assembly. A summary of the relevant decision of the General Assembly is published in the company’s file kept at the Business Registry (art. 113 §1 section a’).

    The importance of the specific decision makes understandable the requirement of the law for an increased quorum and majority regarding its adoption (art. 113 § 1 paragraph a’ – as correspondingly, it is also required in the (regular) increase of the share capital). Through this decision, moreover, the shareholder composition of the SA is changed and shares are allocated to third parties. Such a change can only presuppose broad acceptance by shareholders.

    It is noteworthy that the shareholders of the SA are not granted a right of preference in the event of an increase in the share capital in order to distribute the shares that will arise to the beneficiaries of such a program (art. 113 §3 in fine). Besides, the matter of possible exclusion of the right of preference of the old shareholders does not arise when the distribution of shares is addressed to the staff of the SA (: art. 27 §2 in fine). And further: since, from the beginning, there is no right of preference, it is not possible to ask (despite the wording of the law) the question of its exclusion.

    It should be noted that there is no need for authorization of the distribution program by virtue of a decision of the General Assembly if such was included in the decision deciding on the Remuneration Policy (see Petition Report n. 4548/2018 on art. 113 §5).

    Competence of the Board of Directors

    The legislator did not exclude the involvement of the Board of Directors from the process of establishing a share allocation program. In particular, the company’s Board of Directors can:

    (a) Obtain, exceptionally, the competence to take the relevant decision, after a relevant authorization from the General Assembly, which is also obtained with an increased quorum and majority (art. 113 §4).

    The aim of this regulation is, on the one hand, to ease the work of the General Assembly and, on the other hand, to create a program that is as attractive as possible (in the prevailing market conditions). The authorization to the Board of Directors follows, in particular, the corresponding standard that also applies to the authorized competence of the Board of Directors for an extraordinary increase (art. 24) of the company’s capital. Especially regarding its maximum five-year duration. The above-mentioned authorizations of the Board of Directors (: to establish a share allocation program and an extraordinary increase) do not affect each other – despite the fact that they are, potentially, concurrent (art. 113 §4 section b’). And, further: the fulfillment (or not) of the conditions applicable, by law, in one case (e.g. the quantitative limitations of art. 24) in no way affect the fulfillment (or not) of those applied in the other.

    Although according to article 113 §4 sec. c) the decision of the Board of Directors “…is taken under the conditions applicable to the General Assembly”, a normal-only, and not an increased, quorum and (absolute) majority of its present and represented members is required (: art. 92 §§1 and 2). Moreover, there is no legislative provision for increased percentages in terms of decisions of the Board of Directors.

    (b) Participate, in part, in determining the minimum content of the program, after a relevant authorization from the General Assembly (art. 113 §2 section c)

    The decisive competence for the allocation of shares does not escape, therefore-in this case, the General Assembly. The Board of Directors can, e.g., (also) be assigned the determination of the beneficiaries.

    (c) Take decisions of an executive nature and take actions to implement the disposal program.

    The specific competence of the Board of Directors does not require the authorization of the General Assembly. On the contrary, it is provided for by law.

    In this context, the powers of the Board of Directors include, among other things, the issuance of share acquisition rights certificates to the beneficiaries of the program who have exercised the option (art. 113 §3 paragraph a’). The nature of said certificates is, exclusively, evidential. This implies that it simply incorporates the beneficiary’s claim on the shares to be acquired.

    The issuance of the specific certificates does not imply the self-righteous emergence of the shareholding relationship. This depends on the fulfillment of the conditions set in each case. In this context, the issuance and delivery by the Board of the shares provided for by the program to their beneficiaries as well as the acquisition, consequently, of the status of shareholder takes place, in principle, with the conclusion of the contract for the acquisition of (newly issued) shares or sale (of the already existing) own shares of the company. The shares that have already been issued are delivered to their beneficiaries per calendar quarter – at the latest (art. 113 §3 section a’).

    In the event that shares resulting from an increase in the share capital are available, the Board of Directors is responsible for the payment in full of the amount of the increase. Also, for the amendment of the relevant article of the company’s articles of association (art. 113 §3 sec. a’ and c’). The actions in question take place on a regular basis – per calendar quarter (by way of derogation from the provisions of art. 20). They are also subject to the relevant publicity formalities.

     

    Beneficiaries of the share allocation program in the form of an option to acquire them are, primarily, employees, executives and members of the SA’s Board of Directors. But they can also be close regular partners of the company. The competent body for the issuance of such a program is the General Assembly – subject to conditions and the Board. But their decisions need special attention. (And not only in substance but) also on a legal level. Correspondingly, serious issues arise in the case of free distribution of shares. About them, however, see our next article.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 13th, 2023).

     

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Distribution of Shares to Management and Staff

    Distribution of Shares to Management and Staff

    The distribution of shares (with or without consideration) to members of the SA Board of Directors, executives and employees is a modern and alternative way (additional-in-kind) of rewarding them for their services. The institution is not new. Its spread and development, however, in the Greek corporate world is due – one might say – to the (relatively recent) codification of the (existing, albeit scattered) relevant regulations with the law on SAs (art. 113 – 114 of law 4548/2018). The benefits are significant. And the risks, respectively, not insignificant.

     

    Historical Review – Current Legislative Framework

    The institution of the distribution of shares to members of the Board of Directors of the SA, to those, in general, who exercise management as well as to its employees, was introduced in Greece in the late 1980s. Since then, however, it has undergone multiple legislative interventions. The basic network of provisions was established, by authorization of no. 25 §2 of Law 1682/1987, with the Presidential Decree no. 30/1988. The latter contained regulations regarding the free allocation of shares to employees (“stock awards”), as well as the granting of options to acquire shares for consideration (“stock options”) – (see, in this regard, Memorandum to law 4548/2018 on art. 114).

    However, the arrangements of said Presidential Decree for stocks options (it is rightly argued that) were implicitly abolished due to the special and detailed regulation of options by (previously enforced, now) par. 13.9 of law 2190/1920. On the other hand, until the entry into force of Law 4548/2018, the provisions of the above Presidential Decree remained in force, which were related to the acquisition and subsequent disposal by the SA of own shares as well as the issuance and disposal of shares from capitalization of profits (see in this regard, Memorandum to law 4548/2018 on art. 114).

    Today, the possibility of establishing a “program for the distribution of shares to the members of the Board of Directors and the company’s staff in the form of an option” is enshrined in the law on SAs (Art. 113 Law 4548/2018). According to the Memorandum of Law 4548/2018 on the specific article, with the provision in question the (flexible) provisions of paragraphs 13 and 14 of Article 13 of Law 2190/1920 are repeated (as these were introduced by virtue of article 19 of law 3604/2007 and replaced the -mentioned above- 13.9).

    As for the regulatory framework for the possibility of free allocation of shares (outside, that is, of a program), this was still being determined, as was said above, even after the implementation of par. 9 para. 13 of law 2190/1920, from the above Presidential Decree its related regulations, however, ceased to be valid, firstly, with the introduction of the current (today) provision of art. 114, Law 4548/2018.

    According to the law (: art. 114 §4 ed. a΄4548/2018), the SA is allowed to decide on a combination of the above alternative share allocation systems. This particular solution serves, one might say, particularly the (intentionally unregulated – due to the complexity it would create) case of shares being made available by the company, not without consideration, but, simply, at a lower price than their nominal value (see Memorandum to Law 4548/2018 on Article 114).

     

    The Systematic Integration of Current Regulations

    The modern legislator decided to include the above distinct provisions on the allocation of shares, in the context of Law 4548/2018, in the section on the remuneration of the members of the Board of Directors.

    Under the previous regime, the corresponding provisions were part of the share capital increase provision. The systematic inclusion of the now independent regulations on the distribution of shares in the section on the remuneration of the Board members becomes more correct under the following position: the distribution of shares does not require an increase in share capital. It is possible, on the contrary, to take place through already existing, own shares.

    However, the above inclusion does not correspond to the following: Any shares (existing or newly issued) may be allocated to persons who are not members of the SA’s Board of Directors, but are part of its staff.

    Clearly, the aforementioned inclusion raises the question of whether or not the other provisions on remuneration for members of the Board of Directors (and in general, for the directors of the SA) apply or not in the case of the sale of shares. Reasonably (it is argued that) the provisions on the disposal of shares are more specific and – in principle – prevail.

    Given the above, it should be noted that in the context of art. 113 and 114, the concept of “advance” fees is not answered. And this is because, (as we will see in our next article), the time points for exercising the options (in the case of the “disposal program” of art. 113) or acquiring the free shares (of art. 114) are predetermined.

    In addition, due to the increased-by-law collateral that governs the allocation of shares, there does not seem to be any room for judicial intervention, with the aim of reducing the remuneration of a member of the Board of Directors in accordance with what the law provides (: art. 109 §5 law 4548 / 2018). Such a decision would be in contrast with accomplished but also, probably, irreversible events. On a practical level: it would require, in practice, disproportionate and rather impractical remedial actions (: return of the allocated shares and, as a result, further disruption of the shareholding composition of the SA).

    However, the possibility of applying the provisions concerning the remuneration policy (art. 111) and the remuneration report (art. 112) is not there. As for listed companies, in fact, there is, by law, an obligation to include in them (remuneration policy-report) the rights of those who exercise the management of the SA to participate in a share distribution program and/or to acquire free shares (art. 109 §1 and art. 110 §1). As for the other SAs, a corresponding obligation may arise on the basis of a statutory provision (art. 110 §1 ed. c΄).

    It is possible that the distribution of shares to a member of the Board of Directors takes place on the basis – not of the organic one, but – of the possible, special relationship that connects them with the SA (e.g. work). It is considered more correct in this case to observe – along with the provisions for the disposal of shares – the special regulations regarding transactions with related parties (: no. 99-101 of law 4548/2018) .

     

    Rationale & Purpose of Regulations

    The distribution of shares to employees, members of the Board of Directors and/or to the persons, in general, who provide services to the SA constitutes a different (: distinct) method of their compensation and reward. This is, as a rule, an attractive tool for the (active) remaining of the beneficiaries with the company. However, it is also a tool for achieving goals and an important motivation for better quality performance. However, in this context, it is not excluded that the beneficiaries will be lured into making and executing potentially beneficial business decisions, with the aim of (both) achieving goals and (also) obtaining other-new shares. Such decisions entail, however, significant business risks – for which see below.

    The beneficiaries of the shares expect (reasonably so) the consolidation of their relationship with the SA (also) on different/additional foundations – after their acquisition of shares of the SA but also the consolidation of the status of “shareholder-(co)owner”. The conflict of interest found between those who exercise the management of the SA and the SA itself (and its shareholders) is mitigated. Especially with regard to employees, the traditional relationship of dependence between them and the employer SA ceases to be the only link.

     

    Additional “income” of beneficiaries and its payment

    The main objective of the above institution (besides the creation of incentives for the beneficiaries – for the benefit of the SA), is not the increase of the property of the latter. On the contrary, it is the creation of an alternative (and supplementary) income for the beneficiaries. In fact, the payment of this type of remuneration by the SA – given that it does not constitute a salary or any kind of consideration or compensation – is particularly advantageous. And this is because it is not part of its fixed charges but is found at the time of the distribution of the free shares or the distribution of dividends to the shareholders.

    On the other hand, the beneficiaries of the above distribution of shares look forward (secondarily) to the relevant “investment” and to its annuities (ind.: dividends). However, in any case, they look forward to the possibility of liquidation (and ultimately liquidation) in order to obtain any financial benefit. It is up to the future buyers of the investor shares to pay it. The beneficiaries are expected to collect the difference between the preferential (or non-existent) purchase price of the shares and the price of their future sale.

    The allocated shares may be traded on a regulated market. The price that will be paid to the owners of said shares depends on their market value. Based (also) on this they will choose the time to exercise their right to sell – when they assess the benefit to be satisfactory.

     

    The (not negligible) risks for SA and its shareholders…

    The above-mentioned preferential distribution of shares (according to art. 113 & 114 of Law 4548/2018) can have significant (short-term, especially) benefits. Among them it is worth focusing on the boost (sometimes significant) of the profitability of the SA. Also, in the high yields for the beneficiaries. However, it is possible that, in the short and long term, such a preferential distribution of shares will be harmful to the company’s interests. Possibly, in fact, also cause a financial loss to the company and to the existing shareholders. In particular, when the disposal in question is done recklessly and/or without sufficient safeguards for the company and the shareholders.

    To mitigate the associated risks, it is prefered that the decision to dispose of shares is based on realistic financial prospects. Accordingly, the (possibly) set goals should be realistic. Also closely monitor the company’s financial results as well as the business decisions taken by the beneficiaries. To closely monitor and evaluate, continuously, the performance of the latter.

     

    …especially for unlisted SAs

    As far as SAs whose shares are not traded on a regulated market are concerned, however, there are particular risks from the (future) liquidation of the shares that were the subject of the kind of the disposal in question by the SA. The members of the Board of Directors or the employees who acquired them will expect to benefit from their liquidation. This, however, is the most sensitive and dangerous point: Their potential buyers can be investors, shareholders of the SA itself – even its competitors. Moreover, we should not forget that the beneficiaries-recipients of the distribution of the shares are human beings; therefore: susceptible to death, legal incapacity, but also to changes in their feelings and commitments towards the company and its owners.

    Accordingly, it is considered absolutely necessary that any incentives in favor of members of the Board of Directors or employees of the SA for the acquisition of its shares concern  and not freely transferable shares – as long as these are companies with shares listed on a regulated market.

     

    The free (or for a reduced consideration) distribution of SA shares to members of the Board of Directors, management, executives or employees, can become a valuable tool for boosting profitability and further development of the company. It is, in any case, an attractive tool for the recipients of the shares. But it is a given that, especially for SAs whose shares are not traded on a regulated market, the inherent risks are not at all negligible. And, in any case, it is imperative to address them. Regarding the procedure, however, and conditions for the disposal of the shares in question, see our next article.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 8th, 2023).

     

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Responsibility of Board Members: Approval of Overall Management

    Responsibility of Board Members: Approval of Overall Management

    In our previous article, we were concerned with the intra-company (internal) responsibility of the managers of the SA. Is it possible to remove such responsibility with the approval by the General Assembly of the overall management of the administrators of the SA (art. 108 of law 4548/2018)? And, further, what is the possible or appropriate content of such an approval?

     

    The regulation

    According to the law (article 108 §1 paragraph a): “By decision of the general assembly, taken by open vote after the approval of the annual financial statements, the overall management that took place during the corresponding corporate year can be approved”.

    This arrangement deviates significantly from the previous legislative regime. The General Assembly does not “absolve”, as in the past, the Board of Directors “from all responsibility” (a provision that had created intractable legal problems, especially regarding the position of this “exemption” in the system of responsibility of the Board). The GA approves, on the contrary, the “overall management”, the governance, that is, of the company in general. It does not approve individual acts or omissions that have, possibly, damaged the company. The responsibility of the Board of Directors remains intact, and is judged based on the relevant provisions (especially articles 102 et seq. – see also Memorandum to law 4548/2018 on article 108).

    With such a decision, the General Assembly evaluates and (as a rule/custom), approves the way the company is managed by the Board during the monitored corporate year. It demonstrates, that is, with its approval, the satisfaction (or not) of the General Assembly with the way the SA was managed. It is, for this reason, also characterized as a “political decision” or a decision with “moral significance/value”).

    As in all its decisions, the General Assembly is not obliged to make a reasoned decision on the approval (or not) of the overall management. And, as such a (positive) decision is not binding for the General Assembly, it is possible to freely recall, after the fact, the members of the Board of Directors (art. 77 §2 section b’).

     

    Decision on Overall Management

    Objective

    The above decision of the General Assembly has as content the approval or not of the management of those who managed the SA during the past fiscal year. This evaluation can take the form of confirmation or, alternatively, of criticism of the business strategy and action of the Board. The negative decision of the General Assembly, in the last case, will demonstrate the unsuccessful, from a business perspective, management on the part of the administrators.

    Time of the Decision

    The GA decides on the issue of approval (or not) of the overall management after the approval of the annual financial statements. In this way, the shareholders have at their disposal a valid basis and sufficient, presumptively at least, information to make their decision in question.

    The shareholders’ meeting can take the relevant decision either at the regular General Assembly regarding the approval of the financial statements or at a later point in time (: extraordinary General Assembly). In the first case (necessarily) the issue of financial statements precedes the agenda.

    It is recalled that the latest point in time for the approval of the financial statements is, most commonly, September 10 of the year following the end of the corporate year – when the corporate year ends on December 31. Accordingly, March 10 when the corporate year ends on June 30 (art. 119 §1). However, there is no limitation in the law regarding the time of making the decision for the approval of the overall management.

    Persons Affected by the Decision

    The Board of Directors is responsible for the management of the company and, by extension, the management of the company’s assets. It is reasonable, therefore, for the decision of the General Assembly to concern the members of the Board. This does not mean that the decision names specific advisors but, on the contrary, it concerns the entire Board as a whole. It is not excluded, however, that the management of some members will be approved while the management of some others will not. The decision to approve the overall management also covers (art. 102 §5) any substitute bodies (art. 87).

    The relevant decision, however, does not concern the auditors of the company for whom an independent decision is made.

     

    Voting

    Procedure

    As the law expressly states, voting is public. This is justified by the nature of the relevant decision and the need for transparency.

    Under the previous legislative regime, the corresponding provision (art. 35 n. 2190/1920) provided for voting by roll call. This did not necessarily mean, however, that the relevant vote was overt. It was argued, then, that after the roll call, the respective shareholder voted by ballot. However, the new provision dispelled earlier doubts in favor of open voting.

    Finally, voting is special. The relevant provision already existed from the previous legislative regime and is still valid (although it is not explicitly provided for). This means that the management approval decision is discrete. It is, i.e., a separate agenda item from the approval of the financial statements, for which an independent decision is taken.

    Participation right

    The shareholders of the company participate, of course, in the voting of the General Assembly on the approval (or not) of the overall management. The participation of advisors as shareholders or shareholder representatives in said voting is not prohibited. They can, in principle, directly exercise their (potential) right to vote.

    However, according to a special regulation (art. 108 §2) the members of the Board of Directors are entitled to participate in this vote: (a) only with shares of which they are owners or (b) as representatives of shareholders, provided that they have received the relevant authorization with express and specific voting instructions.

    Therefore, advisors can be authorized to vote on behalf of (other) shareholders. The relevant authorization requires explicit and specific instructions. The purpose is to avoid serving the same interests of the members of the Board of Directors and securing a vote in favor of the overall management. Therefore, it is necessary not to leave room for the authorized-consultant to decide on the approval of the management.

    The same applies to the authorization (and participation in the relevant vote of the General Assembly) of the company’s employees. And this is because the latter could be influenced by the management due to the dependent nature of their work and their eventual participation in the management under evaluation. These persons can be either ordinary employees of the company or substitute bodies (therefore what was pointed out above applies to the members of the Board of Directors), who are called upon to exercise the right to vote of third-party shareholders.

    Legal Consequences

    The law distinguishes the decision to approve the overall management from the company’s waiver of its claims due to the responsibility of a member of the Board of Directors or its compromise . These actions of the company can take place “…only under the conditions of paragraph 7 of article 102”. As already, above, we established, regardless of the content of the decision of the General Assembly, the responsibility of the Board remains intact. It is judged according to the provisions on the responsibility of the members of the Board of Directors .

    In the above context, the only legal (but also practical) consequence of the approval of the overall management is its consideration in any lawsuit aimed at the restoration of the company’s damage caused by acts or omissions of members of the Board of Directors. The eventual approval of the overall management will be taken into account – if it was provided – when the issue of liability will be decided in court (see Memorandum to law 4548/2018 on article 108). In essence, the defendant member of the Board of Directors can invoke, in the relevant trial, prior approval of the overall management by the General Assembly. Although, of course, this is not, by itself, a reason for exonerating them from any responsibility. Similarly, any non-approval is not proof of any liability, nor is it a prerequisite for a relevant decision on the matter.

    In any case, it is possible that the General Assembly, despite the approval of the overall management, may later initiate claims against members of the Board. Although such an attitude may seem (and under certain conditions may be) abusive, the raising of claims by the company after a positive decision to approve the overall management may be justified. For the following, in particular, reasons: On the one hand, the shareholders may have become aware, at a time subsequent to the approval of the management, of the real facts that establish the responsibility of members of the Board of Directors. On the other hand, it is not excluded that the minority, representing 1/20 of the paid-up capital, seeks, as it has the right to, to establish liability against the members of the Board of Directors (art. 104 §1). A minority that, even if it had been formed at the time of approval of the management, could not have influenced the relevant voting and decision.

    Therefore, in order to take into account the approval of the overall management (and to consider the raising of claims against the members of the Board of Directors abusive), the General Assembly should receive sufficient, relevant, information and decide based on them.

    Finally, it should be pointed out that there is an open debate as to the time when the approval of the overall management can be taken into account. Part of the legal theory holds that consideration is possible only at the stage of the main trial for the compensation of the company by members of its Board of Directors – as, after all, the law provides. However, it seems more correct that such an approval can also be taken into account during the stages of investigating the feasibility of filing a corporate lawsuit (art. 105 §2 section c and 105 §6).

     

    Based on the previous law, the General Assemblies of the SA took decisions “on the exemption of the Board of Directors from all responsibility”. Such decisions and formalities no longer have any legal basis or legal value. The possibility provided by the law to approve the management of the members of the Board of Directors can, apart from its moral value, acquire particular importance in a trial for the restoration of the damage of the SA at the expense of a member/members of the Board. We should, therefore, be absolutely careful either as the providers of approval and/or as the applicants for its receipt.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 16th, 2023).

     

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Ευθύνη Μελών ΔΣ: Λόγοι Απαλλαγής

    Ευθύνη Μελών ΔΣ: Λόγοι Απαλλαγής

    Σε προηγούμενή αρθρογραφία μας εξετάσαμε τους λόγους θεμελίωσης της ευθύνης των μελών του ΔΣ έναντι της ΑΕ, εξαιτίας πράξεων ή παραλείψεών τους, που συνιστούν παράβαση των καθηκόντων τους (102 §1 ν. 4548/2018). Διαπιστώσαμε εκεί πως ευθύνη δεν υφίσταται, εφόσον το μέλος ΔΣ «…αποδείξει ότι κατέβαλε κατά την άσκηση των καθηκόντων του την επιμέλεια του συνετού επιχειρηματία που δραστηριοποιείται σε παρόμοιες συνθήκες» (άρ. 102 §2). Θα μας απασχολήσουν, εδώ, οι συγκεκριμένοι λόγοι απαλλαγής των μελών του ΔΣ από την ευθύνη αυτή (άρ. 102 §4). Θα μας απασχολήσουν, επίσης, η δυνατότητα και προϋποθέσεις της ΑΕ να παραιτηθεί ή συμβιβαστεί, εφόσον θεμελιώνεται σχετική ευθύνη μέλους και γεννάται σχετική αξίωση της ΑΕ. Θα μας απασχολήσει, τέλος, η παραγραφή των συγκεκριμένων αξιώσεων.

     

    Απαλλαγή Μελών ΔΣ

    Ευθύνη μελών του ΔΣ δεν στοιχειοθετείται για πράξεις ή παραλείψεις που (α) στηρίζονται σε σύννομη απόφαση της ΓΣ ή (β) αφορούν εύλογη επιχειρηματική απόφαση (5626/2020 ΕφΑθ, ΤΝΠ ΝΟΜΟΣ). Εκτός από τους συγκεκριμένους λόγους, το δικαστήριο μπορεί να θεωρήσει ότι δεν υφίσταται ευθύνη στις περιπτώσεις πράξεων που έχει προηγηθεί σχετική εισήγηση ανεξάρτητου οργάνου ή επιτροπής που λειτουργεί στην εταιρεία σύμφωνα με το νόμο.

    Οι Κατ’ Ιδίαν Λόγοι Απαλλαγής

    Σύννομη Απόφαση Της ΓΣ

    Απαλλαγή από την ευθύνη των μελών του ΔΣ παρέχεται, από το νόμο, όταν η επίμαχη πράξη ή παράλειψη του μέλους στηρίζεται σε απόφαση της ΓΣ. Η γενική πρόβλεψη του νόμου (κατ΄ αντιστοιχία του προϊσχύσαντος καθεστώτος–άρ. 22α α.ν. 2190/1920) οδηγεί σε δυνητική διεύρυνση των αρμοδιοτήτων της ΓΣ. Το ΔΣ, δεδομένης της σχετικής πρόβλεψης, ενδέχεται (και μάλλον μοιάζει αναγκαίο) να οδηγήσει σωρεία αποφάσεων ενώπιον της ΓΣ, προκειμένου να μην υπέχει την ευθύνη που, ενδεχομένως, του αναλογεί.

    Σε κάθε περίπτωση, όμως, μια τέτοια απόφαση της ΓΣ πρέπει να είναι «σύννομη» (:νόμιμη). Ελαττωματική απόφαση της ΓΣ [άκυρη (εφόσον δεν έχει παρέλθει ο χρόνος προβολής της ακυρότητας), ακυρώσιμη (εφόσον έχει ακυρωθεί) ή ανυπόστατη] δε μπορεί να οδηγήσει σε απαλλαγή από την ευθύνη.

    Περαιτέρω, η απόφαση θα πρέπει να έχει τα σχετικά, αναγκαία, τυπικά χαρακτηριστικά. Δεν αρκούν απλή οδηγία ή κατευθύνσεις της ΓΣ ή της πλειοψηφίας των μετόχων ή ακόμα και του μοναδικού μετόχου.

    Μια τέτοια απόφαση της ΓΣ πρέπει να προηγείται, χρονικά, της επίμαχης πράξης ή παράλειψης του μέλους του ΔΣ, που διαφορετικά θα οδηγούσε σε ευθύνη του. Το αντικείμενο της απόφασης και η έκταση της δοθείσας έγκρισης θα πρέπει να προκύπτουν από την απόφαση της ΓΣ.

    Μια σύννομη, πάντως, απόφαση της ΓΣ, οδηγεί σε απαλλαγή μόνο εφόσον δεν προβάλλεται κακόπιστα. Δεν μπορεί, λ.χ., το μέλος του ΔΣ να επικαλεστεί την απόφαση της ΓΣ εφόσον έχουν αλλάξει ουσιωδώς οι συνθήκες από τη λήψη της.

    Εύλογη Επιχειρηματική Απόφαση (Business Judgement Rule)

    Ο συγκεκριμένος λόγος απαλλαγής αποσκοπεί στην αποτροπή τυχόν αδρανούς στάσης από τα μέλη του ΔΣ και της μη λήψης εκ μέρους τους επιχειρηματικών πρωτοβουλιών, υπό τον φόβο της προσωπικής τους ευθύνης.

    Τούτο το ενδεχόμενο είχε εντοπιστεί, ήδη, υπό το προϊσχύσαν καθεστώς, οπότε και  αναγνωριζόταν ένα περιθώριο διακριτικής ευχέρειας στα μέλη του ΔΣ. Μάλιστα, ζημία προκληθείσα από λήψη επιχειρηματικής απόφασης εντασσόταν, νομολογιακά, στους επιχειρηματικούς κινδύνους που δέχεται και αναλαμβάνει η διοίκηση μίας εταιρείας (419/2005 ΠρωτΠρωτΑθ, 1698/2013 ΑΠ, αμφότερες σε ΤΝΠ ΝΟΜΟΣ).

    Υπό το ισχύον καθεστώς, προβλέπεται, ρητά, ότι η εν λόγω ευθύνη των μελών ΔΣ δεν υφίσταται, εφόσον οι πράξεις ή παραλείψεις τους αφορούν εύλογη επιχειρηματική απόφαση, η οποία ελήφθη: (α) με καλή πίστη, (β) με βάση επαρκή, για τις συγκεκριμένες συνθήκες, πληροφόρηση και (γ) με αποκλειστικό κριτήριο την εξυπηρέτηση του εταιρικού συμφέροντος.

    Προκειμένου, επομένως, να γίνει αποδεκτό το εύλογο της επιχειρηματικής απόφασης, θα πρέπει να συντρέχουν (σωρευτικά) συγκεκριμένες προϋποθέσεις:

    (α) Εύλογη Επιχειρηματική Απόφαση

    Προϋποτίθεται η ύπαρξη επιχειρηματικής απόφασης του ΔΣ (λ.χ. επί ζητημάτων χρηματοδότησης ή επενδύσεων). Συμπεριλαμβάνονται τόσο οι πράξεις όσο και οι (τυχόν) παραλείψεις του ΔΣ. Την εν λόγω προϋπόθεση (:της επιχειρηματικής απόφασης) δεν πληρούν αποφάσεις του ΔΣ που ελήφθησαν στο πλαίσιο καταστατικών ή νομικών τους υποχρεώσεων-χωρίς οποιοδήποτε περιθώριο απόκλισης.

    Επιπρόσθετα: η επιχειρηματική απόφαση απαιτείται να είναι εύλογη. Θα πρέπει, δηλ., να  μπορεί να δικαιολογηθεί με βάση αντικειμενικά κριτήρια. Θα πρέπει, επιπρόσθετα, να μη θέτει σε αδικαιολόγητα υψηλό κίνδυνο την ΑΕ.

    (β) Καλή Πίστη

    Προϋποτίθεται, επίσης, η λήψη της εύλογης επιχειρηματικής απόφασης με καλή πίστη. Έννοια που διατρέχει το σύνολο του εθνικού μας δικαίου. Το μέλος του ΔΣ οφείλει να δρα (αντικειμενικά και υποκειμενικά) καλόπιστα. Κατά τη λήψη της απόφασης δεν θα πρέπει να συντρέχει περίπτωση σύγκρουσης συμφερόντων (:αντικειμενικό κριτήριο). Ταυτόχρονα, όμως, το εκάστοτε μέλος του ΔΣ οφείλει να μην δρα δόλια ή χωρίς να πιστεύει στην ορθότητα της εκάστοτε επιχειρηματικής απόφασης (:υποκειμενικό κριτήριο).

    (γ) Επαρκής Πληροφόρηση

    Τα μέλη του ΔΣ είναι αναγκαίο να ενημερώνονται «επαρκώς» πριν τη λήψη της εκάστοτε επιχειρηματικής απόφασης. Τούτο δεν σημαίνει ότι είναι αναγκαίο να εξαντληθεί κάθε πηγή πληροφόρησης (και πώς θα ήταν, άλλωστε, δυνατό;). Αντίθετα, η ίδια η διοίκηση της εταιρείας θα κρίνει πότε και υπό ποιες συνθήκες έχει ενημερωθεί αρκετά, ώστε να προβεί στη λήψη απόφασης.

    Η επαρκής πληροφόρηση του ΔΣ κρίνεται ad hoc. Λαμβάνονται υπόψη κριτήρια όπως: η σημασία της συγκεκριμένης απόφασης για την εταιρεία, το μέγεθος της επιχείρησης, η δραστηριότητά της, ο  διαθέσιμος χρόνος για τη συλλογή πληροφοριών κ.ο.κ.

    (δ) Εξυπηρέτηση Αποκλειστικά Εταιρικού Συμφέροντος

    Η απόφαση θα πρέπει, ακόμη, να αποσκοπεί, αποκλειστικά, στην εξυπηρέτηση του εταιρικού συμφέροντος. Τούτο σημαίνει ότι το μέλος του ΔΣ που λαμβάνει την επιχειρηματική απόφαση δεν πρέπει να τελεί σε κατάσταση σύγκρουσης συμφερόντων. Η εξυπηρέτηση του εταιρικού συμφέροντος (γίνεται δεκτό ότι) επιτυγχάνεται με την επαύξηση της μακροχρόνιας αξίας της εταιρείας και τη μεγιστοποίηση του κέρδους των μετόχων (όπως έχει κατοχυρωθεί και για τις εισηγμένες ΑΕ, άρ. 2 §1 ν. 3016/2002).

    Εισήγηση/Γνώμη Ανεξάρτητου Οργάνου Ή Επιτροπής

    Όπως, ήδη, επισημάνθηκε, ο ν. 4548/2018 αναγνωρίζει διακριτική ευχέρεια στον δικαστή να αποφασίσει πως δεν συντρέχει ευθύνη μελών ΔΣ, προκειμένου για πράξεις ή παραλείψεις που στηρίζονται σε εισήγηση ή γνώμη ανεξάρτητου οργάνου ή επιτροπής, που λειτουργεί στην εταιρεία, σύμφωνα με το νόμο (102 §4 in fine). Πρόκειται για πρόβλεψη που συναντάται, για πρώτη φορά, το πρώτον στον ν. 4548/2018.

    Η πρόβλεψη αυτή δεν εισάγει νέο λόγο απαλλαγής από την ευθύνη του άρθρου 102. Αντίθετα, κατά το γράμμα του νόμου, πρόκειται για δυνατότητα του δικαστηρίου να αποφασίσει ότι δεν συντρέχει ευθύνη των μελών.

    Για την εφαρμογή της συγκεκριμένης ρύθμισης, εύλογα αναρωτιέται κανείς ποιος εμπίπτει στην έννοια του οργάνου ή της επιτροπής. Η εφαρμογή της φαίνεται να έχει περιορισμένο πεδίο εφαρμογής. Τέτοιου είδους όργανο λ.χ. συνιστά το Συμβούλιο Εμπειρογνωμόνων που προβλέπει ο ν. 3986/2011 για το ΤΑΙΠΕΔ Α.Ε (άρ. 4). Σε κάθε περίπτωση, η εφαρμογή της πρέπει να αναζητηθεί ακόμη και σε υποκατάστατα, όπως γίνεται δεκτό, όργανα ή σε επιτροπές που προβλέπονται στο νόμο περί ΑΕ ή σε ειδικό νόμο ή δημιουργούνται δυνάμει καταστατικής διάταξης.

    Βάρος Απόδειξης – Κρίσιμος Χρόνος

    Το βάρος απόδειξης της συνδρομής των προϋποθέσεων της απαλλαγής (:άρ. 102 §4) φέρουν τα μέλη του ΔΣ. Κρίσιμος χρόνος για την εκτίμηση της συνδρομής τους είναι αυτός της λήψης της συγκεκριμένης απόφασης-υπό το πρίσμα των συνθηκών που τότε συνέτρεχαν (βλ. Αιτιολογική Έκθεση ν. 4548/2018 επί του άρ. 102). Πρόκειται, συγκεκριμένα, για ένσταση, την οποία υποχρεούνται να προβάλλουν και αποδείξουν τα μέλη ΔΣ.

     

    Παραίτηση Της Εταιρείας Από Αξιώσεις – Συμβιβασμός

    Δεν είναι δυνατή, χωρίς τήρηση συγκεκριμένης διαδικασίας και πλήρωση συγκεκριμένων προϋποθέσεων, παραίτηση ή συμβιβασμός της ΑΕ με υπεύθυνο μέλος ΔΣ (άρ. 102 §7). Τούτο μοιάζει απολύτως εύλογο καθώς είναι αναγκαίο να αποτραπούν δόλιοι συμβιβασμοί/παραιτήσεις σε βάρος της εταιρείας (και μειοψηφούντων μετόχων). Απαιτείται, ως εκ τούτου, συγκατάθεση της ΓΣ στην οποία, όμως, μπορεί να προβληθεί veto της μειοψηφίας. Συγκεκριμένα θα πρέπει:

    (α) Η παραίτηση ή ο συμβιβασμός να έχουν συγκεκριμένες μορφές (πλήρης ή μερική άφεση χρέους, αρνητική αναγνωριστική σύμβαση, σύμβαση συμβιβασμού).

    (β) Να έχει παρέλθει διετία από την γέννηση της αξίωσης, προκειμένου η ΑΕ να αποφασίσει (:όχι βεβιασμένα) την όποια παραίτηση από τυχόν δικαστική επιδίωξη των αξιώσεών της. Πριν τη συμπλήρωση της διετίας, σχετικές ενέργειες είναι άκυρες. Στην περίπτωση, όμως, που ασκηθεί εταιρική αγωγή, η ΑΕ έχει τη δυνατότητα να παραιτηθεί από τυχόν αξιώσεις της ή να συμβιβαστεί οποτεδήποτε.

    (γ) Να ληφθεί σχετική απόφαση (συγκατάθεση) της ΓΣ. Στη σχετική συνεδρίαση, μετά την άσκηση εταιρικής αγωγής, καλείται να παραστεί και ο ειδικός εκπρόσωπος που τυχόν έχει ορισθεί. Τέλος,

    (δ) Να μην έχει αντιταχθεί κατά της ανωτέρω απόφασης το 1/10 του εκπροσωπούμενου εταιρικού κεφαλαίου (αν δεν έχει προηγηθεί εταιρική αγωγή) και το 1/20 (στην περίπτωση που έχει ήδη ασκηθεί αγωγή).

     

    Παραγραφή

    Οι αξιώσεις της εταιρείας για αποζημίωση, κατ’ άρθρο 102, παραγράφονται με την πάροδο τριετίας. Η προθεσμία παραγραφής αρχίζει με την τέλεση της πράξης ή της παράλειψης που οδήγησε στη ζημία της εταιρείας. Δεν συνιστά, αντίθετα, έναρξη της παραγραφής η γνώση του ζημιογόνου γεγονότος από την εταιρεία ούτε και η εμφάνιση των αποτελεσμάτων του (1483/2010 ΑΠ, 131/2022 ΑΠ, ΤΝΠ ΝΟΜΟΣ).

    Η παραγραφή αναστέλλεται για το διάστημα που ο υπεύθυνος παραμένει μέλος του ΔΣ (είναι υποκατάστατο όργανο, εκκαθαριστής κλπ.) Ομοίως, αναστολή χωρεί και στην περίπτωση υποβολής της αίτησης της μειοψηφίας προς το ΔΣ για την έγερση των αξιώσεων της ΑΕ (κατ΄ άρ. 104 §1, η οποία σε επόμενη αρθρογραφία θα μας απασχολήσει). Σε κάθε περίπτωση, οι αξιώσεις παραγράφονται μετά από δέκα έτη από την τέλεση της πράξης ή την τυχόν παράλειψη.

    Αν η ζημία της εταιρείας προκλήθηκε από παράβαση της απαγόρευσης ανταγωνισμού, προβλέπεται συντομότερη παραγραφή (άρ. 98 §3). Συγκεκριμένα, οι σχετικές αξιώσεις παραγράφονται μετά από ένα έτος και σε κάθε περίπτωση, μετά από πέντε.

     

    Όπως επανειλημμένα έχουμε διατυπώσει, η συμμετοχή σε ΔΣ Ανώνυμης Εταιρείας δεν είναι χωρίς ευθύνες. Τυχόν ζημιογόνες αποφάσεις, πράξεις ή παραλείψεις μελών του ΔΣ είναι δυνατό να τεκμηριώσουν, υπό προϋποθέσεις, προσωπική τους ευθύνη. Για την τυχόν απαλλαγή τους από την ΑΕ, παραίτηση από αξιώσεις ή συμβιβασμό της ΑΕ θα πρέπει να συντρέχουν συγκεκριμένες προϋποθέσεις. Σημαντικό ζητούμενο: η διασφάλιση των συμφερόντων της ΑΕ και των μετόχων μειοψηφίας. Το ΔΣ, εξάλλου, υποχρεούται σε έγκαιρη, πλήρη και επιμελή άσκηση των σχετικών αξιώσεων. Περί αυτών, όμως, σε επόμενη αρθρογραφία μας.-

    Σταύρος Κουμεντάκης
    Managing Partner

     

    Υ.Γ. Συνοπτική έκδοση του άρθρου δημοσιεύτηκε στην Εφημερίδα ΜΑΚΕΔΟΝΙΑ, στις 21 Απριλίου 2023.

     

    Η πληροφόρηση που εμπεριέχεται στο παρόν άρθρο δεν συνιστά (ούτε και έχει σκοπό να αποτελέσει) νομική συμβουλή. Μια τέτοια νομική συμβουλή είναι δυνατό να παρασχεθεί μόνον από αρμόδιο δικηγόρο ο οποίος θα λάβει υπόψη του το σύνολο των δεδομένων που θα του εκθέσετε για την υπόθεσή σας. Αναλυτικά.

  • Obligation to Legality of the Board Members

    Obligation to Legality of the Board Members

    In our previous article, we dealt with the powers of the Board of Directors. However, its members as well as the substitute bodies (art. 87-collectively: “the members of the Board of Directors”) cannot exercise them outside of specific limits. The relevant discussion seems completely technocratic, theoretical and, ultimately, boring; however, it has an absolutely tangible, as well as important result: potential liability of the members of the Board of Directors for exceeding the limits in question, will activate the relevant provisions and the possibility of attribution to the offenders. The present article regards the obligation on their part to observe legality.

     

    Obligations of Board Members

    The main obligations of the members of the Board of Directors are: (a) the duty of care (art. 96) and (b) the fiduciary duty (art. 97).

    Under the previous regime, there was only one legislative basis for the first of them (duty of care). On the contrary, the fiduciary duty was recognized in theory and jurisprudence. The law on SAs provides a more complete regulation of the two, specific, pillars of responsibility.

     

    Duty of Care

    Content

    The members of the Board of Directors must, while performing their duties, comply with the law, the statutes and the legal decisions of the Board of Directors (art. 96§1). They must also manage corporate affairs in order to promote the corporate interests, supervise the execution of the decisions of the Board of Directors and the General Assembly and inform the other members of the Board of Directors about corporate affairs.

    Such are reflected in the law as “the generally applicable provisions regarding the obligation to diligently perform the duties of the members of the Board of Directors” (see in this regard, Memorandum to the law 4548/2018 on art. 96). The members of the Board of Directors must, among other things, pay, during the exercise of their duties, the diligence of a prudent entrepreneur, who operates in similar circumstances (art. 102 §2). Otherwise, they are liable against the company (despite any exceptions – ind.: the rule of business judgment).

    Subcategories

    The content of the duty of care of the board members is broken down into three sub-categories:

    (a) the obligation to comply with legality (art. 96 §1 sub. a)

    (b) to the duty of due diligence in the narrow sense, which concerns their management duties in accordance with the due diligence set forth under the law (art. 96 §1 sub. b’ & 102§2) and

    (c) in the obligation to supervise and control the organization and operation of the SA (art. 96 §1 para. b’).

    In the present article we will look into, in particular, as mentioned in the introduction, the obligation to legality. Specifically:

     

    Obligation to Legality

    Concept – Content

    The obligation of the Board Members to observe legality (in other words: the obligation to ensure the legal operation of the company), is established, as already pointed out, in the law on SAs (art. 96 §1, section a’ and, and regarding listed SAs, art. 4 §2, c. e’ of Law 4706/2020). This is a basic and completely self-explanatory obligation that binds the members of the Board of Directors (see related, Memorandum of law 4548/2018 on art. 96) to:

    Comply with the law: The members of the Board of Directors are obliged, as a matter of course, to comply with the law. In this context, their compliance with the relevant provisions of the law on SAs (internal obligations) is mandatory. Among them and their obligation to refrain from taking decisions that fall within the responsibilities that (even by custom) belong to the authority of the company’s General Assembly. Any violation of this obligation gives rise to their liability towards the SA.

    Obligations of the members of the Board of Directors are also found in other provisions, apart from the law on SAs. These are legislative obligations of the SA itself (incl.: obligations to comply with the rules of competition law, environmental law, capital market, personal data, civil, tax, bankruptcy law, labor and social security legislation, etc.). The necessity of aligning the members of the Board of Directors with the aforementioned obligations seems self-evident. Possible illegality on the part of the SA (violation, e.g. of its tax obligations, detection of the violation by the tax authority and imposition of fines) will, as a rule, be associated with a violation of the obligations of the members of the Board of Directors. It will possibly trigger their own (:internal) liability.

    The prohibition of deviating from the principle of legality continues to exist even if the deviating results in a beneficial outcome for the SA (e.g. the conclusion of contracts following bribes).

    Board members should observe (and comply with) business ethics. Any deviation may tarnish the image and prestige of the SA. A related obligation, by law, does not exist due to the non-existence of related-specific legislative regulations (apart from the general clauses: 178, 179 and 288 of the Civil Code).

    (b) Comply with the statute: The members of the Board must, in addition, comply with its statute. They must, in this context, move within the logical limits set for the persuit of the corporate objectives (art. 86). They are obliged, therefore, to perform acts which are under it or promote its fulfillment. They are also obliged to comply with other requirements of the statute such as, for example, when the consent of the General Assembly is required for the conclusion of a contract by the Board.

    (c) Compliance with decisions of the General Assembly: The members of the Board of Directors must, finally, comply with the (legal) decisions of the General Assembly of the shareholders of the SA. Regarding, in particular, the “…legality of the decisions of the General Assembly should either have been judged by the courts or not have been validly disputed” (: Memorandum of law 4548/2018 on article 96).

    Special Obligations

    Coexisting with the general obligations of the members of the Board of Directors, other more specific ones are also found (no. 96 §2).

    They are obliged to (legally) observe the -according to the law (law. 4308/2014 on Accounting Standards)- books, files and other data of the company (art. 96 §2 para. a’). They have the collective duty to comply with the formalities related to the drafting and publication (art. 96 §2 para. b) of the annual financial statements (art. 147) and the annual management report (art. 150), the corporate governance statement (the listed companies – art. 152), the consolidated (for a group of companies) financial statements, the management reports and corporate governance statement, the remuneration report (art. 112).

    The members of the Board of Directors are charged with the specific (special) obligations collectively. Accordingly, their liability is collective and joint and several (in deviation from the apportionment rule – art. 102 §3).

     

    Special Legality Obligation Issues

    Situation of Legal Uncertainty/ Ambiguity

    The path to aligning board members with legality (and fulfilling their related obligation) is not always clearly delineated. More alternatives are often presented, created due to legal gaps, different legal opinions, reversals of jurisprudence. In this case, it is the duty of the members of the Board of Directors to seek appropriate legal advice and the appropriate, given the circumstances, legal control. If doubts remain after such an audit, the Board should, at its discretion, carry out a risk-benefit assessment.

    Such actions by the members of the Board of Directors seem necessary to defend the interests of the SA. The most important thing: for the removal (or mitigation, at least) of their personal responsibility towards the SA – in case of a negative outcome of their choices.

    Compliance with Contractual Obligations

    We should distinguish the observance of the SA’s contractual commitments vis-à-vis third parties from the obligation to observe legality. The SA is obliged to align with them, but this is not always possible (in cases, e.g., of financial hardship). Sometimes, possibly not even advisable. The responsibility of the members of the Board of Directors does not arise, in principle, towards the SA for the (non)fulfillment of the contractual obligations it has undertaken. Issues of liability of the members of the Board of Directors will arise, possibly, if any unnecessary violation of contractual obligations will result in increased financial loss of the SA.

    “Profitable Violations of Legal Regulations”

    The members of the Board of Directors are prohibited, as we found above, to take illegal actions in order to satisfy corporate interests. Any “beneficial violations of the rules of law” (as they are usually called) constitute unacceptable behavior. In addition, they represent an unfair way of exercising administration, and absolutely incompatible with the obligation to observe legality.

    Adherence to the principle of legality obviously takes precedence over the corporate interest. Moreover, the purpose of the SA cannot be illegal; much more so, the way of pursuing it. Possible illegal behavior of members of the Board of Directors gives rise to their obligation to compensate the SA. However, any profit earned by the SA due to their illegal conduct should be taken into account.

     

    The obligation to observe legality (obeying the law, the statute and the decisions of the Board of Directors) on the part of the members of the Board of Directors, is not a wish list or a statement without meaning. It constitutes the members’ clear obligation. A possible violation of this obligation damages the SA and activates the relevant provisions on the responsibilities of the violators. Invoking arguments of the kind “the end justifies the means” cannot, under any circumstances, be tolerated. However, the obligations of the members of the Board of Directors and its substitute bodies do not end here. About the other duties of care, see our next article.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 5th, 2023).

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Conditions for Invoking the Invalidity of the Decisions of the BoD

    Conditions for Invoking the Invalidity of the Decisions of the BoD

    In a previous article we dealt with the defective and non-existent decisions of the Board. But what are the conditions of invalidity? In the present article we will look into the relevant procedural conditions.

     

    Standing to Bring an Action: The Claimants

    Those who are entitled to rely on defects of the decisions of the Board of Directors are many. We will refer to the two important categories: (a) decisions with substantive defects (art. 95 §1) and procedural defects (art. 95 §2) as well as (b) those that resemble decisions of the shareholders’ General Assembly (art. 95 §4). For the first category, special arrangements are provided (art. 95 §3). For the second, the corresponding provisions for the decisions of the General Assembly (art. 137 and 138) apply by analogy. In more detail:

    Who can Invoke Invalidity of Decisions With Substantive & Procedural Defects

    With regard to the specific defective decisions of the Board of Directors, the persons entitled to invoke their nullity are:

    (a) The members of the Board individually

    The power of the members of the Board of Directors to invoke the invalidity of its decisions seems both reasonable and obvious. The members of the Board of Directors are responsible for what the body has decided and, therefore, they have every reason to want to maintain the legality of the Board and to avoid all liabilities. In fact, their right to challenge the decisions in question exists whether or not they participated in the (defective) decision (see related Memorandum to law 4548/2018 on art. 95). Those who voted against the problematic decision are entitled, in any case, to invoke any invalidity. However, those who voted in favor can do so as long as they do not operate in a contradictory and abusive manner (281 CC).

    The Board of Directors, however, is not entitled to invoke, collectively as a body, potential invalidity.

    (b) Third parties (shareholders or non-shareholders)

    Third parties (shareholders or not) may retain the right to invoke any invalidity. Under the condition, however, that they justify a personal and special legal interest (art. 95 §3 section a) and, in this context, damage to their personal interests.

    Moreover: “… (as is also the case in the case of direct damage) the shareholder or the third party has an individual right of protection and will have a legitimate interest to invoke the nullity of the decision… but not with reference to the corporate interest and the expediency of the management judgment of the Board of Directors ” (therefore the control of the decisions takes place in the light of other provisions, i.e. 102) “…but with reference to the harm that they personally and directly suffer” (: Petition Ex. Law 4548/2018, on the article 95). Correspondingly, that is, to their standing to bring an action in order to claim the direct damage they suffer from acts of the Board of Directors (1214/2021 Supreme Court, 1298/2006 Supreme Court, NOMOS Legal Database), likewise, they can invoke the invalidity of a decision of the Board “…which damages them personally and directly (e.g. the Board of Directors decides not to pay a dividend, which was legally decided by the General Assembly to be paid)”.

    Beneficiaries of Invoking of Decisions Simulating General Assembly Decisions as Null/Invalid

    For the restrictively mentioned, in the law, decisions that are similar to decisions of the General Assembly (art. 95 §4), the provisions on defective decisions of the General Assembly (art. 137 and 138) shall apply by analogy. In this context, the annulment of the decision of the Board of Directors (art. 137) can be invoked by a shareholder representing at least 2% of the capital. And so can each member of the Board of Directors, individually. On the contrary, any person, shareholder or third party who has a relevant legal interest to invoke nullity (art. 138).

    In this case the invocation (and proof) of the shareholder status is enough. Proof of personal, special, legitimate interest is not required, as is required in decisions of the Board of Directors with defects of substance or procedure.

    Ex officio Audit

    Lastly, any invalidity of a Board decision can be taken into account ex officio by the court. Provided that it is a continuous violation of legal provisions of a mandatory nature. In this case, the illegality of the decision can also be invoked by the shareholders, regardless of whether they are personally and directly harmed (art. 95 §3 in fine). A justifiable reason is the fact that it is intolerable for the shareholders to perpetuate an illegal situation in the SA and for them to be unable to react (see Memorandum of Law 4548/2018 on Art. 95).

     

    Invocation Deadline

    The Rule

    The possibility of invoking the invalidity (or annulment) of a Board decision cannot exist in perpetuity. The relevant deadlines vary.

    (a) Regarding decisions with a defect in substance (95 §1) or procedure (95 §2): The relevant appeal can take place within six months from the entry of the contested decision in the SA minutes book (according to art. 93). If, however, it is a decision to be published, the six-month long deadline starts from its registration in the Business Registry (according to art. 12).

    (b) Regarding decisions that are similar to decisions of the General Assembly (95 §4): The deadlines applicable to defective decisions of the General Assembly shall apply proportionally. In particular, with regard to annullable decisions (137), any action to annul them is required to be brought within a four-month period. Whereas, as regards the invalid ones (138), the invocation of the invalidity is subject to a short period of time. The deadlines, in both cases, start from the taking of the relevant decision of the Board of Directors. In other cases, from the moment it is published to the Business Registry – as long as it is a decision to be published.

    The Exception

    In the event that the decision of the Board of Directors results in a continuous violation of provisions of mandatory law, the invocation of any invalidity is not subject to a time limit (art. 95 §3 section b and 138 §4).

     

    Competent court

    The competent court (in terms of matter and place) for adjudicating cases concerning defective decisions of the Board of Directors is the Single-Member Court of First Instance of the company’s registered office. This is provided by a special regulation (95 §4) for the case of decisions that resemble decisions of the General Assembly (95 §4) and the legal consequence of their defect is annulment (137). We should, however, accept a corresponding competence (according to the correct point of view, see art. 3 §1) for all other relevant cases as well.

    If, moreover, different competences were accepted (Multi-member and Single-member Court of First Instance of the company’s headquarters), we would be led to a division of competences. Specifically, lawsuits against decisions of the Board of Directors, the reality of which would probably be reviewed both in the light of annulment and invalidity, should be brought to the Single-Member and Multi-Member Court of First Instance respectively. Which is illogical.

     

    Interim Measures

    With regard to the decisions of the Board of Directors that are similar to those of the General Assembly, there is no doubt as to the possibility of recourse to interim measures (art. 95 §4, 137§11 & 138§7). The same goes, in the opinion we adopt, also in the cases of decisions with defects of substance (art. 95 §1) or procedure (art. 95 §2).

     

    Disclosure Requirements

    The court decision, which recognizes any invalidity of the decision of the Board of Directors, should be published in the Business Registry, since the said decision is subject to publicity (art. 95 §5). This regulation follows the spirit of the articles on defective decisions of the General Assembly (art. 137 §12 and 138 §8).

    Third Party Protection

    On defective decisions of the Board of Directors (it should be accepted that) protection is provided for bona fide third parties (no. 95 §6 and 86 §§2 and 3) with regard to all defective decisions (as it is argued: even the non-existent ones). Provided that they have been published and rights have been created in favor of third parties.

    Consequently, the flaw in the decisions of the Board of Directors cannot be suggested against third parties in order to avoid, e.g., contractual obligations on the part of the company.

     

    The members of the Board of Directors of the SA must operate within the framework of what the law, the statutes and the decisions of the General Assembly define (a topic that will concern us in our next article). Reasonably, according to a logical sequence, decisions of the Board of Directors that go beyond the specific limits can be challenged by its members and third parties-shareholders or not). The relevant conditions and deadlines derive or are inferred from the law. However, the legal decision-making and their wording in a way that guarantees the rights of the SAs, the shareholders and, of course, the members of the Board of Directors themselves, is of priority.

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 26th, 2023).

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Defective Board Decisions

    Defective Board Decisions

    In our previous article, we explored issues related to the conditions for valid decision-making by the Board of Directors. Possible violation of procedural conditions and/or substantive provisions leads to defective decisions. This article is about them.

     

    Necessity of Special Provisions

    Under the previous regime, the legislator did not provide for dealing with the relevant cases. However, with Law 4548/2018, firstly, a special legislative provision was established regarding defective decisions of the Board of Directors (no. 95).

    The provisions for defective decisions of the Board of Directors are not the same as those for the General Assembly. This is clearly due to the different nature of the decisions of the two bodies and in particular (as also pointed out in the Memorandum of Law 4548/2018 on Article 95):

    (a) The decisions of the Board of Directors mainly concern management issues. Therefore, it would be imprudent to subject administrative decisions to judicial review. Given the – mentioned below – rule of business judgment.

    (b) The decisions of the Board of Directors are taken by a body that is liable towards the SA. On the contrary, shareholders are, in principle, under no liability. The relative liability of the Board, therefore, can be considered as a safety net, which will adequately deal (even ex post) with the issues arising from any illegal decisions of the Board.

    (c) The decisions of the Board of Directors, once made, are executed. Therefore, it may be meaningless to consider whether or not decisions were valid. Still, even if they have been executed, the liability of the members of the Board of Directors is still in place.

    Given the above and for reasons of legal certainty on the one hand and unsafe conclusions of jurisprudence on the other, special regulation was deemed necessary to deal with the defective decisions of the Board of Directors.

    The law, in particular, distinguishes, with regard to defective decisions of the Board of Directors, between: (a) decisions with substantive defects (art. 95 §1), (b) decisions with procedural defects (art. 95 §2) and (c) decisions which resemble decisions of the General Assembly of Shareholders (art. 95 §4).

     

    Decisions With Substantive Defects

    Any decision of the Board of Directors, the content of which contradicts the law or the statutes of the SA, is invalid (art. 95 §1).

    The concept of law includes the prohibitive provisions of compulsory law. Not provisions of injunctive law, from which deviation is allowed.

    In this sense, any decision of the Board of Directors that contradicts prohibitory provisions of the Civil Code is invalid. E.g.: decisions that are contrary to accepted principles of morality (Civil Code 178, 179), decisions taken by abuse of right (:281Civil Code-subject to the consequence of the violation of 281Civil Code in the enumerated decisions of §4 of art. 95).

    The same applies to any decision that violates the provisions on the exclusive competence of the General Assembly. As expressly provided, the General Assembly is the only one competent to decide – among other things – on amendments to the articles of association, the election of Board members and auditors, the approval of the overall management and the annual financial statements, the allocation of annual profits. Therefore, decisions of the Board of Directors on these issues or others listed in the law are null and void (117 §1).

    Also invalid are the decisions of the Board of Directors, the content of which conflicts with (valid) statutory provisions or (legal) decision of the General Assembly.

    However, a decision contrary to an extra-corporate (extra-statutory) agreement is not invalid. Even if all shareholders have agreed to its conclusion.

     

    Decisions With Procedural Defects

    The Rule

    The legislator chose the rule of nullity whether it is decisions with defects in substance or defects in the process of making them. Similarly, therefore, decisions of the Board of Directors that were taken in a way that is not in accordance with the law or the statutes are invalid (art. 95 §2). Decisions, i.e., for which a procedural error occurred when they were taken.

    Such defects refer to decisions taken in violation of the:

    (a) legal composition of the Board of Directors: e.g., in violation of the provisions on quorum and majority (see Memorandum of law 4548/2018 on article 95). In this context, a decision taken with the presence of a smaller number of Board members than that provided for in the articles of association or in the decision of the General Assembly has been deemed invalid (8064/2017 Multimember Court of First Instance of Thessaloniki, NOMOS Legal Database, 2070/2011 Court of Appeal of Athens, “Dikaio Epixiriseon kai Etairion” 2011). Also, and only indicatively, a case of illegal composition of the Board of Directors is the non-representation or presence of more than half of the members of the Board of Directors. Also, the non-compliance with the minimum number of three (present or represented) members, provided for in the law (art. 92 §1).

    (b) legal convening of the Board of Directors: Such a case occurs when, e.g., the invitation was not communicated to all members of the Board of Directors. Or this was not notified within the deadline provided by the law or the statute.

    The Exemption of the Unanimous Decision of the Board of Directors

    An exception is, however, introduced to the rule of invalidity in respect of procedural violations. In particular, when a decision was taken unanimously – by all the members of the Board of Directors (present or legally represented), any invalidity is not justified (see Memorandum of law 4548/2018 on article 95). On this specific regulation, serious reservations are expressed (and rightly so). And this is because from the letter of the law, it appears that this regulation covers all procedural errors. Whether they concern the legal convocation or the legal composition.

    Such an admission, however, would constitute a deviation from more specific provisions for the Board of Directors. Those concerning the validity of off-site meetings (90 §3) or the non-listing (clearly) of the items on the agenda (91 §2 section b) – as long as all the members of the Board are present (or represented) and no one objects.

    Also, this admission is inconsistent with the provisions on quorum and majority. The violation of these, in particular, excludes the achievement of unanimity.

    Given the above, the interpretation (according to others, in particular and, according to us, more correctly: the teleological contraction) of the said provision on the exception is proposed.

    First of all, it should be accepted that this exception excludes errors concerning the legal composition of the Board of Directors. Secondly, the justification of the non-nullity of the defective decision should not be sought in its unanimous adoption. On the contrary, in the presence (and/or representation) of all the members of the Board of Directors and in the non-formulation of objection to the taking of this decision.

     

    Application by Analogy of the Relevant Provisions for the General Assembly

    Specially Regulated Decisions of the Board of Directors

    In addition to the above decisions of the Board of Directors, for certain others it is reserved (art. 95 §4), in case of their defect, application by analogy of corresponding regulations for the General Assembly (art. 137 and 138).

    In particular, these regard the following decisions of the Board of Directors, limited to those mentioned in the law:

    (a) The decision taken by a majority of 2/3 of the members of the Board of Directors, on the limitation of or deviation from the right of preference (art. 27 §4).

    It must be accepted, reasonably (given also the subordination of the case of art. 117 §2 para. a’ to the mentioned decisions of the Board of Directors), that articles 137 and 138 are applied by analogy to the previous (main) decision of the Board of Directors for an extraordinary capital increase due to the principal-subsidiary relationship that connects them.

    (b) The decision concerning the issuance of warrants (art. 56 §2).

    (c) The decision regarding the issuance of a bond loan with convertible bonds (art. 71 §1 para. b΄).

    (d) Decisions regarding capital increases or capital readjustment operations, the amendment or adjustment of provisions of the articles of association and the merger (art. 117 §2 par. a’, b’, e’).

    By taking the above decisions, the Board of Directors functions, in essence, like the General Assembly. For this reason (and with the aim of uniform treatment of decisions with a similar subject matter, regardless of the body that issues them), the legislator opts for the solution of the proportional application of the provisions for defective decisions of the General Assembly.

    Therefore, any defective relevant decisions become voidable, since procedural rules have been violated when they were taken by the Board. Otherwise they are invalid, as long as their content is contrary to the law or the statute (according to the provisions of articles 137, 138).

    The Special Case of Abuse of the Power of the Majority

    From the application by analogy to the defective decisions of the Board of Directors of the provisions for the corresponding (: defective decisions) of the General Assembly (art. 137 and 138) the case of annulment of a decision by the General Assembly which was taken by abuse of the power of the majority (art. 137 §) is expressly excluded 2, c. b’). The provision in question provides for annulment (281 Civil Code – even though it is a defect of substance).

    The legal theory is devided regarding how these decisions will be dealt with. That is, whether they will become invalid or voidable and based on which provision. The answer to the relevant question is the subject of extensive legal debate and even the contra legem interpretation is proposed.

    In any case, however, this exception would not justify any position regarding non-control of abuse of said decisions (this was also accepted under the previous law, 1408/2010 Supreme Court, NOMOS Legal Database, 8064/2017 Multimember Court of First Instance of Thess, NOMOS Legal Database). Otherwise, an impermissible gap would be created in the protection of any minority shareholders from abusive decisions of the Board of Directors.

    Nonexistent Decision

    Contrary to the legislative provisions for defective decisions of the Board of Directors, the law (no. 95) does not deal with the case of any non-existent decisions of the Board of Directors. The application of the appropriate provisions, as the case may be, is left to the court to decide.

    These are, however, completely exceptional cases: Non-existent is (among others) the decision in which only non-members of the Board participated. Correspondingly, when a decision of the Board of Directors is taken by minutes with signatures only, and the signatures of all its members are absent (547/2019 Supreme Court, NOMOS Legal Database, also see Memorandum of law 4548/2018 on art. 95).

     

    Particular Issues Regarding the Decisions of the Board of Directors

    Mismanagement by the Board

    It is accepted (and rightly so) that possible mismanagement on the part of the Board of Directors does not affect the validity of its decisions. Otherwise, the control of the decisions of the body in question would end up being a control of expediency and not only of legality. Such would be incompatible with the rule of board autonomy and business freedom (as it is founded on the basis of the rule of business judgment).

    After all, issues related to management by the Board of Directors are dealt with by more specific provisions and, specifically, by the provisions on the liability of the members of the Board of Directors (art. 102 and 107).

    Defects of Individual Votes

    As explicitly stated in the Memorandum of Law 4548/2018 on Article 95: “it is understood that defects in individual votes cast by members of the Board of Directors (e.g. a consultant with a conflict of interest votes) will affect the validity of the decision only if without this vote a majority would not have been formed.”

    This assumption stems from the theory of relevancy (found in German law). The content of this theory is explicitly reflected in the legislative regulation for the decisions of the General Assembly (art. 137 §5). However, its application is, reasonably, accepted -by analogy- also in the defective decisions of the Board of Directors.

    Validation of Defective Decision

    The application by analogy of §6 c’ of article 137 on the validation of a defective decision of the General Assembly to the decisions of the Board of Directors is also accepted.

    According to the opinion held in theory and jurisprudence, the Board of Directors is required to take a “newer decision”, freed, this time, from any defect (876/2010 Supreme Court, 2182/2013 Supreme Court, NOMOS Legal Database). Reasonably, confirming the previous one, without the defect. Otherwise, it would be a new decision, which would render the possibility of validation irrelevant.

    This validating decision – with regard to the invalid and voidable decisions that have been judicially annulled – does not have retroactive effect. As it is accepted that the private will cannot cure any invalidity (2182/2013 Supreme Court, NOMOS Legal Database). Whereas, in a different case, the purpose of the invalidity would be defeated (907/2000 Court of Appeal of Piraeus, 134/2014 Single Membered Court of Appeal of Thrace, NOMOS Legal Database).

    The Board of Directors that made the defective decision becomes the competent body for issuing the validating decision.

     

    The signatory has repeatedly expressed the opinion that the Board of Directors is, for many reasons, the most important (although not the hierarchically superior) body of the SA. Its decisions are therefore of particular importance and value both for the SA itself and for its members. Therefore, it became necessary to establish a special regulation to deal with its defective decisions. However, more important than the subsequent management of any related problems is their avoidance and prevention. Otherwise, we get involved in legal actions, but more on those, in our next article.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 19th, 2023).

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Minutes of the Board of Directors

    Minutes of the Board of Directors

    In our previous article , we dealt with issues related to the conditions for valid decision-making by the Board of Directors. At the present article we will look into their recording in the minutes.

     

    Minutes of Board Meetings & Decisions

    Book of Minutes

    As provided by law, the discussions and decisions of the Board of Directors are summarized in a special book, which can also be kept electronically (art. 93 §1 a’). This is the board’s minutes book. It also contains the list of members who attended (or were represented) at each meeting of the Board of Directors (art. 93 §1 paragraph d). This particular book constitutes a special commercial book, which is mandatorily kept at the headquarters of the SA – just like the books of shareholders and minutes of the General Assembly.

    The book in question is, at the same time, among the additional books or records, which entities, such as SAs, are required to keep, based on the legislation on Greek accounting standards (law 4308/2014).

    Adherence to the Board of Directors minutes book aims at the best possible organization of the company. Also, in the transparency of corporate affairs.

    A corresponding book of minutes is also kept regarding the decisions of the General Assembly (art. 134). In fact, the law provides the possibility of uniform observance of both the minutes books of the Board of Directors and of the General Assembly. However, this possibility concerns, exclusively, SAs whose shares are not listed on a regulated market (art. 93 §4).

    Compliance & Content Liability

    The responsibility for keeping the board minutes book is borne by the  .

    This book records, in summary, the (possible) discussion of the members of the Board of Directors, the voting on the agenda items as well as (especially) the decisions taken on them.

    The chairman of the Board of Directors is not obliged, in principle, to record in the minutes the distinct, individual opinion of each member of the Board of Directors. They are obliged to register a summary of it, if requested (art. 93 §1 sub. b). Such a registration will, however, take on special significance in some special cases. When, e.g., questions are raised regarding the liability of the members of the Board of Directors (art. 102 et seq.).

    The chairman of the Board of Directors is entitled, however, to refuse the (otherwise mandatory) registration of the opinion of the member of the Board of Directors who requested it (art. 93 §1 paragraph c). This can happen when—beyond all doubt— (a) the opinion expressed refers to matters clearly outside the agenda, or (b) its content is clearly contrary to accepted principles of morality or the law. Such a case also exists when the member of the Board of Directors attempts to disclose, without sufficient justification, business secrets of the company (see Memorandum to law 4548/2018 on art. 93).

    Signing of Minutes

    Under the previous law (as it applied after the amendment of Law 3604/2007), the minutes were signed by the chairman of the Board of Directors (or another person designated by the articles of association). There is now an obligation by law (corresponding to the one existing before Law 3604/2007) for the signing of the minutes by all the members of the Board of Directors who attended the meeting (art. 93 §2 paragraph a).

    Any refusal to sign by a member of the Board of Directors is noted in the minutes, which are signed by the other directors (art. 93 §2 section b). Failure, therefore, to sign does not invalidate the relevant decision (6884/1995 Multimember Court of First Instance of Athens).

    Issuance of Copies of Minutes

    Copies of the minutes are issued, officially, by the chairman of the Board of Directors or “another person” to be appointed. The “other person” is defined by the statute or decision of the Board of Directors and can even be a third party who is not a member of the Board of Directors. Possibly, in fact, more than one person who will act on their own or not (art. 93 §2 ed. c΄).

    Obligation to validate the above copies (e.g. certification of the original signature of the president or by a competent Authority or a lawyer), in principle, does not exist.

    Ratification, however, will be required, since it is a decision of the Board of Directors to grant a power of attorney (art. 216 et seq. of the Civil Code, when required by law). In this context and the (special) decision of the Board of Directors that authorizes the submission of a criminal record, in which case it is considered necessary according to jurisprudence to have the signature of the representative members of the Board of Directors certified by a lawyer.

    Submission of Proceedings to the Business Registry

    The law requires submission to the competent service of Business Registry of the copies of the minutes of the Board of Directors, for which there is an obligation to register (according to art. 12 or other provisions). The submission must take place within 20 days of the corresponding meeting of the Board of Directors (art. 93 §3).

    The rules for publicity in the Business Registry, regarding SAs, are found, in general, in articles 12-14 of Law 4548/2018, in combination (and) with the provisions of Law 4919/2022. The publicity in the Business Registry is, however, of a declarative (and not a constitutive) nature.

    The following must, among other things, be published in the company’s section of the Business Registry: (a) the minutes of the formation of the Board of Directors in a body and (b) the minutes of any “reorganization” thereof. Also, (c) the minutes of the decision of the Board of Directors for the appointment of a substitute body (1204/2000 Supreme Court) – reasonable, after all, given that the Board grants, in this case, “organic” authority. The SA, on the contrary, is not obliged to a corresponding registration, in case the Board of Directors, by its decision, grants a simple power of representation (according to the CC).

    Legal Consequences of (Non/Faulty) Keeping of the Minutes

    Evidential Value

    The keeping of the book of minutes is of evidentiary value only. The evidentiary value in question is equivalent to that of other commercial books (art. 444 §1, 448 of the Civil Code): they are full proof of what is written in them. However, counter-evidence is allowed (448 Code of Civil Procedure, 6884/1995 Multimember Court of First Instance of Athens). In addition, it is possible for them to constitute complete proof in favor of the one who observes them, under the conditions of the law (art. 445 Code of Civil Procedure).

    Non/Defective Keeping of the Minutes

    The substance and validity of the decisions of the Board of Directors do not at all depend on the preparation or not of the relevant minutes. Much more, it is not affected by any faulty keeping of them.

    Consequently, any omissions or defects regarding the observance of the protocol do not lead to the invalidity of the corresponding decision of the Board of Directors. The decision in question, on the contrary, produces results from the moment of its adoption (286/1980 Supreme Court, NOMOS Legal Database).

    Burden of proof

    The SA bears the burden of proof that the decisions of the Board of Directors took place on the date and time indicated in the minutes book (93 §2 ed. d). The relevant provision aims to prevent the (not rare in practice) alteration (especially pre-dating or post-dating) of the records. A similar provision also exists for PCCs (art. 66 of law 4072/2012) – (see Memorandum of law 4548/2018 on art. 93).

     

    Minutes By Simple Signatures

    Concept – Purpose

    Law 4548/2018 preserved the -already protected (under art. 21 §5 of law 2190/1920)- possibility of taking decisions by the Board of Directors with minutes signed by all its members, without holding a meeting (art. 94). To be precise: this possibility was strengthened (see Memorandum of law 4548/2018 on article 94).

    The decision-making process is facilitated, modernized and adapted to the needs and rhythms of the time. After all, the times when the meeting of the members of the Board of Directors (even via video call) turns out to be, in fact, particularly difficult.

    In terms of consequences and results, the endorsement of the minutes of the Board of Directors by simple signatures is, by law, fully assimilated to a decision taken in the context of a meeting (according to art. 91). These are, therefore, two mutually exclusive but entirely equivalent ways of making decisions by the management of the SA (art. 94 § 1 ed. a’).

    It is noted, moreover, that all SAs (registered or not) can make use of the relevant discretion. In contrast to the possibility of taking a decision by circulation by the General Assembly, which is offered only to non-listed SAs (art. 136).

    Conditions – Decision Making Process

    No Statutory Provision Obligation

    In contrast to decision-making by teleconference, decision-making by signature, by circulation, of the minutes of the Board of Directors is provided by law; it does not require a statutory provision (8064/2017 Multimember Court of Fist Instance of Thessaloniki, NOMOS Legal Database). The proposal to use it belongs to the discretion of each member. Usually: the president will make it.

    Lack of a Meeting

    A conceptual feature of decision-making in the above manner is the non-convening of a meeting of the members of the Board of Directors. On the contrary, any decision is taken by signing the minutes by all members. The recording (and taking), in particular, of the relevant decision by the minutes passing and being signed by each member one by one is simple – and yet necessary.

    Signing of Minutes

    The members of the Board of Directors (and/or their representatives) successively sign the minutes one by one. Where each of them is, is of no concern. The signing of the minutes by all, without exception, the members serves a dual purpose:

    (a) A necessary condition for taking a decision is fulfilled (art. 94 §1 paragraph c): any non-signature on the part of even one advisor renders the relevant decision non-existent, which in turn does not bring about legal consequences (549/2016 Court of Appea of Thessaloniki, NOMOS Legal Database).

    (b) At the same time, the vote of the members (or even their abstention from voting) on the respective issue is declared. The decision, therefore, although it must be signed by everyone, it is possible that it will not be taken unanimously and voted for. For this reason, after all, the law speaks of recording in the minutes the majority decision of the members of the Board of Directors (art. 94 § 1 ed. b’). The decision is, to be precise, some pre-formulated (in terms of its content) minutes. The latter is, usually, the result of some earlier -informal- agreements between the members of the Board of Directors of the SA.

    Entry in the Book of Board Minutes

    Obligation to comply with formalities of invitation and notification of agenda items is not understood in making a decision by simple signatures. However, the relevant minutes are registered in the aforementioned special book of minutes of the meetings and decisions of the Board of Directors (art. 94 §3).

    Use of E- mail or Other Electronic Media

    As expressly provided, the signature of the advisors (or their representatives) may be replaced by electronic means. For example, by sending e-mails. However, a relevant statutory provision is required (art. 94 §2).

     

    The minutes of the Board of Directors record the decisions and, possibly, the related discussions between the members of the Board of Directors. And, although decisions are valid from the moment they are made, the importance and value of practices is easily perceived. Serious matters, such as the legalization of the SA for important transactions, for the submission of crimes for important criminal proceedings arise from the observance of the necessary formalities. Issues of responsibility of the members of the Board of Directors as well as the opinions they expressed will arise from the minutes- either exculpatory or aggravating. The drafting, therefore, of the minutes cannot (and should not) be treated as a “standard” procedure – especially when conflicting interests are represented on the Board of Directors or different “factions” are represented in the shareholder structure. From the minutes, finally, the possibly defective decisions of the Board of Directors will also emerge. But more on that on our next article.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 12th, 2022).

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Board Decisions: Valid Taking & Representation

    Board Decisions: Valid Taking & Representation

    We have already established the critical role of the Board of Directors for the SA. We referred, in the context of our related article, to the beginning of its collective action. The legal making of its decisions requires a number of conditions. On them, but also on the representation of its members, the present article.

     

    The Principle Of Collective Action Of The Board; Its Assurance.

    From the principle of collective action of the Board of Directors mentioned in the introduction (art. 77 §1 ed. b’ of Law 4548/2018) it follows that the specific body acts, in principle, collectively. Ensuring the possibility of the participation of all the members of the Board of Directors proves, in this regard, to be particularly important. Let it be reminded, parenthetically, that from the principle in question, statutory deviations are tolerated (: the common practice) [ ind.: the appointment of a substitute body and the sovereignty of the president’s vote in the event of a tie (art. 92 par. 2 sub. b’)].

    In order to ensure the participation of all the members of the Board of Directors in the decision-making process, specific conditions must be met: the existence of a legal composition and the concentration of the quorum and majority prescribed by law and/or the articles of association. If a decision is taken, without observing them, the consequence is that it becomes defective (according to art. 95). In fact, it results in the absolute nullity of the decision (art. 174 CC), which is considered as if it did not take place (art. 180 CC).

    A later legal administration, however, can retroactively enforce invalid acts of the previous non-legal one, by approving them (ind.: 966/2014 Court of Appeal of Athens, NOMOS Legal Database). The same goes in the case of a subsequent approval by the same body, which legally meets and takes a decision.

     

    Conditions for Valid Decision Making

    Legal Composition of the Board of Directors

    In order for the composition of the Board to be legal, it is required that: (a) the election or appointment of the Board does not contravene the law and (b) the number of members of the Board, as determined by the articles of association or the General Assembly, does not exceed the limits of the law and the statute – and neither falls short of them. The number of members of the Board of Directors (see for reference) cannot, by law, be less than three or exceed fifteen (art. 77 §3).

    During the term of office of the Board, a member or members may lose their status in any way. In this case, in order for the composition of the Board to be legal (from that point on), their substitution or replacement is required (art. 81 and 82, respectively). This, of course, does not exclude a statutory provision for the continuation of the operation of the Board of Directors without replacing the missing ones (art. 82 §2). It is sufficient that the remaining members are more than half of those elected/appointed. Additionally: that they are no less than three.

    Quorum

    By Law

    A prerequisite for the valid decision-making of the Board of Directors is the observance of the quorum, required by law (art. 92 §1 ed. a’). The Board is in a quorum and meets validly-by law, when at least half plus one of its members are present (:50%+1 advisors). Any fraction is omitted (art. 92 § 1 sec. b).

    In no case, however, is it possible (here as well) for the number of advisors who are either present or/or represented to fall short of three. The older rule, which required, in any case, the physical presence of three members, was deemed unnecessary, since even in the case of the minutes signed in circulation (art. 94) the members of the Board of Directors can all be represented (see in this regard, Memorandum to law 4548/2018 on Article 92).

    By the Statute

    The provision for the legal quorum is of mandatory nature, in the following sense: It determines the minimum quorum percentages for making a valid decision of the Board of Directors. Determining, therefore-based on a statutory provision, lower percentages for the formation of a quorum than those required by law is not tolerated.

    The articles of association, however, may require higher quorum percentages than those provided for in the law (: art. 92 §1). In fact, it is argued (not without objections) that the articles of association may require the presence/representation of all the members of the Board of Directors (: 100% of the advisors) for the formation of a quorum.

    Basis of Calculation

    To find the number of advisors required to form a quorum of the Board of Directors, the basis of calculation is the total number of its members. The specific number is determined, as a rule, by the articles of association. It is specialized, alternatively, by the General Assembly within the minimum and, respectively, maximum limits that may be set by the statute (art. 77 §3).

    A condition for the formation of a legal quorum is the possibility to participate in the meeting of the Board of Directors of all its members. This means that in the event of a member losing their specific capacity, it does not matter if the remaining members of the Board of Directors are sufficient to form the required quorum. This is because the condition of the legal composition of the Board of Directors is not met (1408/2010 Supreme Court, NOMOS Legal Database). It is, however, possible for the number of remaining members of the Board to be the basis for gathering the required quorum. This, provided that the continuation of the operation of the Board of Directors is allowed by the statutes – without the replacement of any missing members.

    In the case of an impediment to the participation of a consultant in the decision-making of the Board of Directors, the specific member is not included in the determination of the quorum. Without, in fact, the need to substitute them. This occurs in case of a conflict (in the obstructed person) of own and corporate interests (855/2007 Court of Appeal of Athens, 6648/1999 Court of Appeal of Athens, NOMOS Legal Database). Possible participation of the obstructed party in the taking of the contested decision results in its nullity. Much more so, when the vote of the disqualified person was a decisive for the taking the relevant decision.

    Time of the Calculation of the Quorum

    The start of the discussion of the Board of Directors marks the time of verification of the required quorum in each case. Mandatory, however, for the legitimacy of the decision of the Board of Directors, that its percentage be maintained throughout the meeting.

    Majority

    Majority set by the Law

    The final condition for the valid decision-making of the Board of Directors is the observance of the required, by law, majority. The decisions of the Board of Directors are validly taken by an absolute majority of those members who are present as well as those who are represented during the meeting of the Board of Directors (art. 92 § 2 paragraph a). Those cases where the law itself defines otherwise are excluded from this rule. Indicative: the requirement of an increased majority (2/3 of all the members of the Board of Directors) for the decision to make an extraordinary increase in the share capital of the SA (art. 24 §1).

    Majority set by the Statute

    Deviations from the specific rule can also be introduced by the statute by claiming increased (: exclusive) percentages for making a specific decision. Or even unanimity (with the existence, however, of an opposing position on the matter). What is certain, however, is that the introduction of relevant statutory provisions for all decisions of the Board of Directors (especially unanimity), will make decision-making more difficult and, at times, impossible.

    Calculating method

    The majority required for a decision by the Board of Directors is calculated based on the persons/members of the Board. Each director has (by law) one vote (principle of equality of board members).

    An exception is brought about by any statutory provision for overriding the vote of the  . Only, however, if there is a tie (art. 92 §2 ed b) A related clause aims to remove situations of inability to make corporate decisions (“deadlock”). Statutory clauses that, possibly, refer, e.g., to overriding, in general, the vote of the president or member of the Board of Directors (ind.: depending on the method of their election/appointment) are not legal.

    To calculate the majority, the votes of the present and represented members are counted. In the minority, on the contrary, the blank votes and those of the abstaining members are included (apart from the votes that express positions different from the majority).

    A case of non-counting of a member for the calculation of the required majority constitutes, as happens in the calculation of the quorum, the case of the existence of a voting obstacle in the person of the member (ind.: art. 66 CC and 97 §3).

    Waiver of the right to vote is not possible.

     

    Representation of Members

    In General

    The presence in person of the advisors at the meetings of the Board of Directors is not necessary for their participation. The members of the Board of Directors, as already mentioned, have an (inalienable) right to participate in it and to exercise the right to vote (also) by proxy. In this way, the conduct of the discussions of the Board of Directors body is simplified and issues of actual impossibility of representation of its members are resolved.

    The possibility of representation constitutes a compulsory right and cannot be abolished by the statute (6884/1995 Multimember Court of First Instance of Athens, NOMOS Legal Database).

    Conditions

    It is not necessary to follow specific formalities for the representation to be valid. Necessary, however, is the cumulative occurrence of the following conditions: (a) representatives of advisers are appointed, exclusively, among the (regular or substitute) members of the Board of Directors (art. 92 § 4) and (b) each adviser can, validly, represent one, only, other advisor (art. 92 § 3).

    Representation Content

    The power of representation is exercised, in principle, within the limits and orders that may have been provided by the represented person. However, a vote of the representative contrary to the instructions they received from the represented member is considered (and correctly) as not rendering the decision of the Board defective. Even if the representative’s vote was decisive for achieving the majority (application by analogy of art. 128 §3).

    However, the case of the presence of an obstacle regarding the participation of the representative (e.g. conflict of interest) is different. In this case, the represented person must provide the representative with a special instruction regarding the exercise and content of the vote (5834/1991 Single Member Court of First Instance of Athens, NOMOS Legal Database).

    Participation with a representative in a meeting of the Board of Directors remains unacceptable, however, when the represented member faces an obstacle to participation (e.g. conflict of interest).

     

    Although not the highest hierarchically, it could certainly be argued that the Board is the most important body of the SA. Its involvement, moreover, in defining the strategy, approving the business plan, budget, financial statements and, in general, in making important decisions is all the proof one needs. However, precisely because of the importance of the Board of Directors, it is understandable that the participation of its members should be protected by all means, and so must the alignment with what the law and the statute require for its operation. As, in fact, the law provides sufficient, relative, leeway, the statute must be adapted to the needs of each SA and, first of all, to the rules set by its shareholders. The decisions taken by the Board of Directors must be recorded, for the aforementioned (and many other reasons), in its relevant minutes. About them, however, see our next article.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 5th, 2022).

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • President, Convocation and Board Meetings

    President, Convocation and Board Meetings

    We have already examined the important role of the Board of Directors in our previous article. We were also concerned with its function and members; the rule and exceptions as to the manner of electing members and their alternates; the conditions of eligibility and the defects of their election or appointment. Finally, the scope of the powers of the Board of Directors and the possibility of appointing substitute bodies. In the present article, we will look into issues related to the convening of the Board of Directors: the place, the time and the conditions for a legitimate convening. Also, its head: the Chairman of the Board and their role.

     

    The Chairman of the Board

    Generally

    The role of the chairman of the Board of Directors is critical for the operation of the Board of Directors.

    Under the previous regime, matters relating to the chairman of the board (and their deputy) were tackled in practice on the basis of, usually, relevant statutory provisions. Under the current regime, it was considered appropriate to have such provisions in the relevant law, for the sake of completeness and to avoid disputes, taking into account: (a) the existence of scattered references in the law on SAs to the powers of the chairman (and his deputy) and (b) the lack of provision for the case of non-appointment of a president (see Explanatory Report n. 4548/2018 on article 89).

    The relevant legislative provision (art. 89 n. 4548/2018) regulates issues related to the election (or appointment) of the president and their deputy, their replacement as well as the powers of the president.

    Election/Appointment of Chairman (And Deputy) of the Board

    As provided in the law (art. 89 §1), the president is (usually) elected by the Board of Directors, at its constituent sitting. Their election may be subject to certain conditions, provided for in the articles of association.

    It is possible to appoint the first president from the statute-during the founding stage of the SA. Also by the General Assembly during the election of the members of the Board. It is therefore clearly concluded that the chairman of the board must also be a member of it. There is, however, an important exception: if there is no president (nor a deputy), the shareholder with the largest number of voting rights can temporarily act as president (art. 89 §1). The purpose of this regulation is to deal with emergency situations that arise in the absence of the president (and their deputy). The duties of the said (temporary) chairman may be to convene the Board of Directors for the election of a (new) chairman and to issue copies of the Board and General Assembly minutes.

    The articles of association, the General Assembly and/or the Board of Directors may also elect a deputy president (usually: vice-president), in order to replace them in cases of unavailability or absence.

    Replacement

    The Board of Directors can (art. 89 §2) replace the president and their deputy – at any time.

    In order to take the relevant decision of the Board of Directors, as long as there is no more specific regulation, a simple quorum and majority is required (according to art. 92 §§1 and 2). However, in case the president and the deputy have been designated by the statute or the General Assembly, then an increased quorum (2/3 of all members) and a majority (2/3 of those present) are required for the decision to replace them.

    If the president (or their deputy) is replaced (or resigns), they still remain an ordinary member of the Board.

    Responsibilities

    The chairman of the Board of Directors exercises the powers provided by the law and the statutes (art. 89 §3). Their responsibilities are mainly of a coordinating nature regarding the functioning of the Board. The president convenes the Board of Directors and determines the agenda (art. 91 §2). They are charged with the authority to receive requests to convene the body. They decide on the entry of an opinion in the minutes of the Board of Directors and issues copies thereof (art. 93 §§1 and 2 respectively). They give the floor to the substitute members to speak to the Board (81 §3). The vote of the president prevails, in case of a tie, for the decision of the Board of Directors – as long as there is a relevant statutory provision. The chairman of the board, in one sense, can be granted a veto right when making decisions of the board.

    In addition to the above, important powers for the operation of the Board, the chairman of the Board signs the amended statute (art. 4 §3). Receives requests to convene the General Assembly (art. 121 §2 and 141 §1). Is the temporary president of the General Assembly until the election of the final president (art. 129). Signs the balance sheet (art. 147 §1).

    The chairman of the board may also be the managing director of the SA (or have such responsibilities, as executive chairman) – unless, however, it is provided otherwise, such as e.g. in financial institutions.

     

    Board Meeting Place

    Physical session

    According to the general rule, the Board of Directors must meet in the municipality where the seat of the SA is located (art. 90 §1). In the articles of association, it is possible to provide for another place of meeting of the Board of Directors – even abroad (art. 90 §2). In case of more alternates, the choice of the place of the meeting of the Board of Directors rests with the president who convenes it. The Board of Directors, however, validly meets in any (other) place, as long as all its members are present or represented and no one objects (art. 90 §3). Similarly, in this case, the choice of the place of meeting belongs to the chairman of the Board of Directors. The latter must, however, ensure, in advance, the consent of the members of the Board of Directors for the off-site meeting.

    Video conference

    If there is a relevant statutory provision, the invitation to a meeting of the Board of Directors may stipulate that it will be held by teleconference (art. 90 §4) with respect to some and/or all of its members. In this case, the invitation must include the necessary information and technical instructions for the members’ participation in the meeting. The Board of Directors can also meet this way (as a whole), as long as all its members agree – regardless of a lack of a relevant statutory provision.

    Each member of the Board of Directors is entitled, subject to conditions (art. 90 §5), to demand the holding of the meeting by teleconference only for them. Specifically, if: (a) they reside in a different country from the one where the meeting takes place or (b) there is another important reason, in particular illness, disability or epidemic.

     

    Frequency of Board Meetings

    In terms of the frequency of the meetings, there is no provision for a minimum number or for meetings at specific, regular intervals. The Board of Directors meets whenever the law, the statutes or the needs of the company require it (art. 91 §1).

     

    Convocation of the Board of Directors

    Power of Convening & Invitation

    The Board of Directors, as we have already established, is convened by the chairman or their deputy (art. 91 §2, section a’) or, in their absence, by the majority shareholder (art. 89 §1).

    For the legal convening of the Board of Directors and, by extension, its valid decision-making, a timely invitation of its members is required: (a) two working days before the meeting or (b) five working days, if the meeting is to be held outside of the company’s headquarters (art. 91 §2, section a’). For these deadlines, the day of the invitation and the day of the meeting of the Board of Directors are not taken into account. It is not necessary to publish the invitation to the General Assembly, nor to officially serve the invitation to the members of the Board of Directors with a bailiff (according to art. 122 et seq. of the Civil Code). It is sufficient to notify it in any convenient way (4377/2004 Multimember Court of First Instance of Athens) – e.g. to the e- mail that has been provided to the SA.

    Furthermore, the items on the agenda must be clearly stated in the invitation. Issues that are not listed on the agenda can be the subject of a decision if all the members of the Board of Directors are present or represented and no one objects to the decision-making on them (art. 91 §2, section b).

    Convening at the Request of Two Board Members

    The initiative, competence and authority to convene the Board of Directors and determine the agenda items does not belong, exclusively, to its president. The convening of the Board of Directors may be requested by at least two of its members with a (preferably written) request to the president or their deputy. The latter two are required to convene the Board of Directors in a timely manner, so that it meets within seven (calendar) days from the submission of the application.

    If the Board is not convened (by the president or their deputy) within the specified seven-day period, the requesting members are allowed to convene the Board themselves. The relevant invitation can be addressed to the other members within five days after the previous seven-day period has passed. If the five-day deadline elapses, it is considered that they (the requesting members) have waived their right to convene it.

    Differentiation of Conditions and Deadlines for Convening the Board of Directors

    In derogation of the publicity formalities and the deadlines set by the law (no. 91), it is possible, with a statutory provision, to shorten the deadlines for convening the Board of Directors as well as to define other formalities. The specific possibility concerns, exclusively, non-listed SAs. In any case, however, any statutory regulations should not make it more difficult, in the end, to convene the Board of Directors.

     

    The role of the President of the SA Board is pivotal for the functioning of the body and, ultimately, of the SA. They ensure, among other things, the convening, meetings and smooth operation of the Board. In the case, however, that they are unavailable, unable or refuse to fulfill their duties, the law provides important freedoms and adequate safeguards. Their utilization is imposed not only through the activation of the other members of the Board of Directors and, possibly, the shareholders, but also through the appropriate statutory regulations. It is a given that all this will work in favor of the SA. They will also contribute to the smooth and optimal taking of the appropriate decisions of the Board of Directors, which, however, will be further explored in our next article.=-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 29th, 2022).

     

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

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