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Presentation of the new act on S.A.s in TIF, at the Stand of the University of Macedonia

[vc_row][vc_column][vc_column_text] In the Thessaloniki International Fair, and as part of the presentation of the Master in Taxation and Financial Management of Strategic Decisions of the University of Macedonia, Stavros Koumentakis, Senior Partner of Koumentakis & Associates, made a presentation titled: “Shedding light into the new Act on Société Anonyme”.

The Master’s Program was presented by the Program’s Executive Director, professor Karagiorgos Theofanis, and was attended by students and alumni of the university.

The presentation was also attended by the former Rector of the University of Macedonia and former President of the Department of Business Administration, professor Ioannis Chatzidimitriou, and by professors teaching in the program, Dimitrios Soumbeniotis, Iordanis Eleutheriadis, Georgios Drogalas. It was also attended by teachers of the Master’s Program and Executives of the Independent Authority for Public Revenue, Ms. Marina Grigoraki and Mr. Anastasios Partalis and Doctors Alkiviadis Karagiorgos and Ioannis Kroustalis.

Lastly, the Regional Director of Northern Greece’s Tax Authority, Mr. Nikolaos Turovouzis, and the Head of the Audit Authority of Large Enterprises of the Independent Authority for Public Revenue and teacher in the Master’s Program, Mr. Grigoriow Lazos greeted the audience and speakers.

The presentation graced with his presence the Minister of Macedonia – Thrace, Mr. Theodoros Karaoglou.

The new act on Société Anonyme

In his presentation, Stavros Koumentakis, Senior Partner of KOUMENTAKIS & ASSOCIATES, highlighted the multiple business opportunities arising from the changes introduced by the new act on Société Anonyme.

In Mr. Koumentakis’ words: “The new act 4548/2018 is a significant opportunity to get to know a bit better how our own Société Anonyme works, to better secure its founders, shareholders and the investment, to re-design and minimize operational costs, attract new and maintain our most capable executives, create those conditions that will allow access to cheap capital, utilize modern technology and, lastly, prepare our business for the next day”.

The Master in Taxation and Financial Management of Strategic Decisions

The Master in Taxation and Financial Management of Strategic Decisions aims to specialize university graduates in a way that they will be able to contribute to the promotion of knowledge relating to the field, as well as and to develop capable executives, able to efficiently respond in a professional business or public administration environment, and to promote the development of research and its applications in the relevant fields. [/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_text_separator title=”Gallery” border_width=”3″][/vc_column][/vc_row][vc_row][vc_column][vc_images_carousel images=”37767,37769,37771,37773,37775,37777,37779,37781,37783″ img_size=”full” speed=”6000″ slides_per_view=”5″ hide_pagination_control=”yes”][/vc_column][/vc_row]

September 17, 2019
S.A. capital: Contributions in kind and valuating (or not) the contributions

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

1. Preamble

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

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

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

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

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

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

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

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

2.1. In General

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

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

2.2. When can contributions in kind take place?

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

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

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

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

3. The valuation of contributions in kind

3.1. In General

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

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

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

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

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

3.3. Publicity if the valuation report

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

4. The incompatibilities of those drafting the valuation report

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

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

5. The content of the valuation report

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

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

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

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

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

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

Conducting a valuation report is, in general, obligatory.

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

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

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

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

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

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

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

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

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

7. In conclusion

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

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

Stavros Koumentakis
Senior Partner

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

September 15, 2019
GDPR: The use of video recording systems in the workplace
GDPR: The use of video recording systems in the workplace (act 4624/2019)

1. Preamble

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

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

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

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

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

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

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

Spain and Greece turned a blind eye.

2. Greece taken to court by the European Commission

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

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

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

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

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

“7. The processing of personal data in the workplace via closed circuit video recording systems, either if the workplace is accessible to the public or not, is only allowed if it is necessary for the protection of persons and goods. The data collected via a closed-circuit video recording system cannot be used as a criterion for the valuation of the employees’ efficiency. The employees are informed in written, either by being given a printed document or electronically, for the installation and operation of a closed-circuit video recording system in the workplace.
1. For the purposes of the present act, all those working with any work relationship, works contract or service contract, public or private, no matter the validity of the contract, those who are up for a position and past employees are perceived as employees”.
3.2. Conclusions drawn from the provisions regulating video recording.

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

(a) The use of a closed-circuit video recording system in the workplace:
1. is (exclusively) permitted if it is necessary for the protection of persons and goods
2. is not tolerated (in any way) as a means to evaluate the employees’ efficiency (it must be noted that, notwithstanding the clear prohibition by law, no one can really prevent the employer from monitoring the attitude and efficiency of the employees who are within the range of the existing and lawful video recording system).
(b) The employees must be informed either via a printed document or via email for the installation and operation of a closed-circuit video recording system in the workplace.

(c) Employees are considered those who:
1. relate to the company with an employment contract, full or partial, for a limited or indefinite time
2. relate to the company with a works contract or a service contract
iii. are up for a job (under the wording chosen by the legislator, informing those persons in written will certainly be difficult).
1. are former employees.
3.3. Worth mentioning: The initial wording of the provision regulating video recordings.

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

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

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

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

3.4. Explanatory memorandum.

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

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

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

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

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

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

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

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

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

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

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

5. In Conclusion

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

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

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

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

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

Today.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 8th, 2019).
September 8, 2019
Société Anonyme–its Capital: amount, coverage, payment and certification

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

1. Preamble

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

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

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

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

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

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

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

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

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

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

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

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

3. The coverage of the share capital

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

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

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

4. Payment of the share capital

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

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

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

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

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

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

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

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

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

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

6. Certification of payment of the share capital

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

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

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

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

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

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

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

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

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

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

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

What are those consequences?

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

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

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

8. In conclusion

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

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

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

Stavros Koumentakis
Senior Partner

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

September 1, 2019
The abolition of the collective responsibility of the owner of a project towards the employees
The abolition of the collective and several responsibility of the owner of a project, the contractor and the subcontractor towards the employees: The problem of collective responsibility and liability

1. Preamble

1.1. Regarding the collective responsibility and liability

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

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

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

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

How fair is that?

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

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

2.1. General references

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

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

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

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

Thus: (generally) then intentions are good!

2.2. The specific provisions of article 9

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

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

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

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

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

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

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

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

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

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

(b) The problem

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

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

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

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

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

(b) The problem

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

3.3. Regarding the bureaucracy imposed

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

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

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

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

“6. a) The contractor and/or subcontractor must state all the owner’s or contractor’s information, respectively, at the staff establishment plan they submit to the Labor Inspection Body, for each employee who works in a place other than the base of the business. The contractor and/or subcontractor, who employ employees on two projects or more, are obligated to state in the staff establishment plan the working hours of their employees on each project separately, as well as the information of each of the owner or contractor respectively.
1. b) The contractor and/or the subcontractor are obligated to provide the employees with a copy or abstract of the staff establishment plan when they work in a place other than the base of their business.
2. c) When the contractor’s or subcontractor’s employees work on the owner’s establishment, the latter displays in the workplace a copy of the staff establishment plan described under b
In case of a violation of the principals of this paragraph, the sanctions described in Act 3996/2011 (A’ 170) are imposed.

(b) The problem

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

3.5. Regarding the right of recourse

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

“The owner maintains the right of recourse, in accordance with the relevant provisions in place, especially when they operated in a diligent manner regarding the fulfillment of the contractor’s, or any subcontractor’s, obligations towards their employees. The owner acted diligently especially when they have conducted all of the following:
1. a) has requested from the contractor to receive, in accordance with paragraph 4, all the monthly salary payment and the payment of any severance owed, as well as proof of payment of the social contributions for the contractor’s and any subcontractor’s employees,
2. b) has sent to the contractor and any subcontractor an extra judicial protest as soon as a violation of their obligations towards their employees is brought to their attention, or if the contractor and any subcontractor have not fulfilled their obligations set under a’, requesting that they comply within fifteen (15) days, and
3. c) terminate the contract with the contractor right after the expiration of the fifteen-day (15) period after the communication of the extra judicial protest described under b
The contractor has, under the same conditions, the right of recourse towards the subcontractor”.

(b) The problem

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

4. Retroactivity of the abolition of the provision in question

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

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

5. In conclusion

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

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

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

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

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

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

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

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

Thankfully.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 25th, 2019).
August 25, 2019
The abolition of the “valid reason” requirement
Terminating an Employment Contract set for an Indefinite Period of Employment: The abolition of the “valid reason” requirement

1. Preamble

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. What constitutes a “valid reason”?

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

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

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

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

(b) Behaviour of the employee and

(c) Operational requirements of the business

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

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

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

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

5. Article 24 of the Revised European Social Charter

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

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

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

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

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

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

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

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

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

The same decision, though, continues:

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

6.3. Conclusions

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

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

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

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

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

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

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

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

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

8. Conclusion

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

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

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

Stavros Koumentakis
Senior Partner

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

Ι. Preamble

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

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

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

ΙΙ. It all started when…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What does that mean?

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

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

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

i. Choosing the legal base for the processing of Data

(a) According to the Authority (§ 6):

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

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

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

Conclusion:

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

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

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

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

(β) Conclusion

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

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

(a) According to the Authority

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

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

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

(b) Conclusion

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

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

(a) According to the Authority

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

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

(b) Conclusion

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

v. Shifting the obligation for accountability to the employees

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

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

First…

Second…

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

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

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

(b) Conclusion:

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

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

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

VII. In conclusion

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

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

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

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

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

Is there still time?

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

Stavros Koumentakis
Senior Partner

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

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

New instruments for resolving tax disputes within the EU

Ι. Preamble

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

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

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

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

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

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

Their improvement has been sought.

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

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

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

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

What made these men make such statements?

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

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

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

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

“Whereas:

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

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

…

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

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

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

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

The object of this Directive

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

Complaint and amicable settlement

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

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

Advisory Commission and Alternative Dispute Resolution Commission

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

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

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

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

Dispute Settlement

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

The possibility of turning to and implementing this Directive

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

Provisions for natural persons and smaller undertakings

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

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

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

Our country did not.

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

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

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

Entry into force and application of the Directive

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

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

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

Conclusion

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

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

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

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

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

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

Stavros Koumentakis
Senior Partner

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

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

I. Preamble

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

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

“-Oh! Every sin is sweet.”

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

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

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

II. Embezzling from a legal entity

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

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

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

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

IV. The rest, non–penal, consequences

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

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

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

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

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

V. Existing Solutions

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

VI. In Conclusion

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

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

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

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 28th, 2019).
July 28, 2019
Commercial Agents and the Greek export businesses’ growth
Commercial Agents, influencers, brand ambassadors: their contribution to the Greek export businesses’ growth

1. Greece today, after the last Economic Adjustment Program

2019 seemed to not only be the start of a new beginning for the Greek economy, but also a year full of challenges. The conclusion of the last three-year economic adjustment program, as well as the disambiguation of Greece’s advanced surveillance regime for the period following the program, are both factors that could lead the Greek economy into a new statutory framework.

Nonetheless, whereas, in 2018, the consistent achievement of a 1,8% rate of growth of the Gross Domestic Product aided the recovery of the Greek economy, a hamper is expected in 2019. Internal political developments along with, on the one hand, the uncertainty regarding the persistence on the structural reforms and, on the other, the consecutive elections, are among the contributing factors.

Furthermore, the external economic environment is also negatively affecting the country’s economic growth potential. Indeed, since the strengthening of the outward-looking Greek economy has been a major factor attributing to the recovery of the Greek economy, the hampering of the economic growth on an international level and, more precisely, in the eurozone, and the consequent restrictions of world trade, because of the tightening of the protectionist practices, are most likely to act as retarding agents to the growth of Greek economy.

2. The outward-looking Greek economy as a foundation for a sustainable growth model

In any case, and regardless of the country’s economic growth rate in 2019, the Greek economy has to transit to a viable growth model, based on knowledge, entrepreneurship and investments. In order to achieve that, it is necessary, among others, to continually improve the country’s exporting performance. It is not coincidental that what drives the growth of the Greek economy is the dynamic turn of Greek businesses towards foreign markets. In this context, it would not be an exaggeration to highlight that, during the years of the economic crisis, the increase of exports is probably the only noteworthy positive element of the Greek economy.

Conversations regarding the further development of the outward-looking Greek economy are usually focusing on matters regarding the competitiveness of Greek businesses, as well as the requirements to, on the one hand, incorporate new technologies in the corporate bodies and, on the other, significantly invest in knowledge (education, research, innovation). None of those conversations refer to the significant attribution a proper specialization of exports per product or service and region could have towards boosting the exporting activity of Greek businesses, a phenomenon which is the stimulus of the present memorandum.

3. The, yet, insufficient improvement of Greek companies’ exporting activity

When studying the country’s exporting performance and assessing the development of the market shares of exporting Greek goods (and services), it is generally accepted that Greek exporting companies usually offer products and services of exceptional quality to the international markets. That very exceptional quality is their main advantage in an environment of global competition.

Nonetheless, these products (and services) have a cost disadvantage, as:
- foreign competitors are bigger and better organized – the small (size-wise) Greek labor, the small internal market and the inability to achieve scale economies render Greek products (and services) -at least those that are offered by labor-intensive businesses -insignificant in quantity when compared to global competitors,
(b) Greek businesses are fighting against extremely high tax and social insurance obligations, as well as a significantly high labor cost (despite the adjustments forced since 2010),

(c) Greek businesses do not have access to bank lending or at least to cheap bank lending.

Furthermore, Greek entrepreneurship has not yet incorporated in its everyday practice the culture of cooperation, resulting in its inability to counterbalance its cost disadvantages.

Concluding, the following paradox often appears: despite that Greek entrepreneurs or producers are solely interested in the production of a specific, qualitatively exceptional product (and service), they are completely disinterested in the essence of entrepreneurship and trade. This means that they have no interest in whether and in what way their product (or service) can become known to the end consumer, distributed to the market for which it is intended and, in the end, get sold.

For these reasons, it is found that the current improvement of the outward-looking Greek economy is far inferior to the exceptional quality of Greek goods (and services) exported. Furthermore, the question on how Greek exporting businesses can augment their shares in the global market with the limitations on internal funding and the long-term investment in knowledge in place still remains.

4. The contribution of commercial agents to the distribution of products (and services) in a specific region

According to the abovementioned, the conversation regarding the improvement of the outward-looking Greek economy has not focused, among others, on the need to properly specialize exports per product (and service) and region, meaning on the need to properly match them. Consequently, all conversations around the topic of the improvement of the exporting activity of Greek businesses disregard the decisive influence a specific person could have on distributing a product (and a service) to the targeted markets and, eventually, get it sold. This means that all relevant conversations disregard the key contribution of a commercial agent.

In a nutshell, a commercial agent could be described as the person that takes on, as an intermediary and on a permanent basis:

(a) negotiations on behalf of other persons (natural or legal), persons that are called principals (the present memorandum only focuses on Greek exporting businesses), the sale or purchase of goods or services and

(b) depending on the context of the agency agreement, the conclusion of those transactions in the name of the principal.

In this regard, it could be stated that in an agency agreement Greek exporting business acting as principals entrust, in exchange for a fee, on a permanent basis to an independent businessman, the commercial agent, the administration of all their cases with the abovementioned content, (usually) taking place in a specific region.

Thus, it can be deducted, from the (abovementioned) general content of an agency agreement, that a commercial agent can place the products (and services) offered by Greek exporting businesses for the first time in the region the commercial agent operates, or strengthen a business’s market share in said region. This way commercial agents decisively contribute to the improvement of the outward-looking Greek economy.

5. Greek exporting businesses perspective – what is required from an up-to-date commercial agent

In this regard, in order for Greek exporting businesses to place their products (and services) in a specific region or to increase their market share in it, the contribution of a modern-day and competent commercial agent is deemed necessary. The latter has to adequately respond to the, mentioned above in great detail, business and exporting environment, as well as to the needs and requirements of Greek businesses.

To be more precise, Greek exporting businesses require from a modern-day commercial agent to promote and protect their interests and to act according to good faith. Specifically, all Greek exporting companies need a commercial agent who:

(a) consistently monitors the market of the region they have taken on (monitoring) and adequately tracks all of the product’s (and service’s) distribution channels, which they have taken on (tracking) -nowadays only addressing “friendly” distribution channels is considered as inadequate,

(b) to adopt the vision, strategy and goals of their principal

(c) to understand that they are an integral part of the structure of the sales department of their principal and to collaborate closely with all persons working in that department,

(d) to protect, promote and improve the principal’s image, not only the one the distributing channels of the region have, but also the one the end consumer-the general public of the region they operate in have as well. In other words, fostering good personal relations with the persons that constitute the distributing channels is not enough, since nowadays the systematic use of social media and direct influence of the end consumer is necessary,

(e) to care for the cultivation of long-term business relations between the principal and with the ones the latter transacts (wholesale dealers, distributing channels, retail dealers and end consumers) and add value to the principal,

(f) make the needs, demands and wishes of all parties involved in the business explicitly and clearly known,

(g) make all information they have and which relates to the principal, to the latter’s products (and services) and to the region known to the principal and

(h) not represent other products or services that are directly competing to the ones offered by the principal in the region.

6. Influencers, brand ambassadors and promoting awareness of a brand, a product and a service.

In addition to the abovementioned, it is more than clear that a necessary precondition for the distribution of a product (and a service) to the market and for its sale to the end consumer is the business’s high brand awareness. That is why businesses have developed organized marketing departments and programs.

Nevertheless, the rapid growth of social media during the last decade seems to have reformed marketing methods, as it highlighted the importance of influence marketing. This type of marketing, which limits and content are both rapidly and, along with social media, evolving, is focusing on specific people. Those people, who are in a place to influence the end consumers, fall into the following categories:

(a) Influencers, who are the people that are in a place to influence the behavior, views and decisions of other people, because of their power, knowledge, place or relationship with the people they address. The influence they have is mainly built online and through social media, and their relations with businesses is relatively loose. They promote the products or services offered by the business they collaborate with, but they are not part of the business structure, since, most of the times, their services are used for short periods of time. It is obvious that they neither negotiate nor enter into agreements in the name of the principal.

(b) The brand ambassadors, who in a way are both influencers and commercial agents. They increase the principal’s brand awareness and sales, but do not negotiate or conclude agreements on their behalf. They use the internet and social media, but do not overlook physical social presence, interaction and influence. They may be part of the business entity, or an independent associate. In any case, their commitment to the business is stronger than the one influencers have and their commitment comes with longer lasting contractual relations.

7. The commercial agent as an influencer and brand ambassador

From all the above, it is clear that in the age of social media, internet, technology and speed, commercial agents, in order to promote the Greek exporting companies with which they collaborate, have to, simultaneously, be influencers and brand ambassadors for these companies and the products (and services) they are assigned with.

Modern day commercial agents have to systematically use social media and to influence the end consumers. At the same time, as already mentioned, they have to have physical social presence, interaction and influence. This is the only way they will be able to maintain, promote and improve their principal’s image before the distribution channels of the region in which they operate, and, also, before the public. At the end, this is the only way modern-day commercial agents will be able to place the products (and the services) of Greek exporting businesses in a certain region or increase their market share in in.

8. Conclusion – the role of the legal advisor in signing an agency agreement

In any case, introducing and extensively using influence marketing in commercial and business practices give the modern-day commercial agent new and diversified abilities for the representing of Greek exporting businesses – beyond and above the traditional practice of their activity. As a result, the services (of such a diverse range) offered to the principal, require the conclusion of a clear and explicit written agreement that will satisfy the needs, expectations and goals of the agent as well as the principal. In other words, the services of a qualified legal advisor are required.

Petros Tarnatoros
Senior Associate

P.S.: A brief version of this article has been published in Greek in MAKEDONIA Newspaper (July 21st, 2019).
July 21, 2019

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