Koumentakis

Blog

  • Partial payment of the SA’s capital

    Partial payment of the SA’s capital

    1. Preamble

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

    What had happened?

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

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

    Is this also true for investments? For business plans?

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

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

     

    2. Partial payment of the SA’s capital

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

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

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

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

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

     

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

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

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

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

     

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

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

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

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

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

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

     

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

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

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

     

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

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

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

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

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

     

    7. In conclusion

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

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

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

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

    μερική καταβολή partial payment

  • Submission of financial statements to the BoG

    Submission of financial statements to the BoG

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

    Preamble

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

    In Arabic countries that is the job for camels.

    In our country that is what companies do.

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

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

     

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

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

    In other words:

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

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

     

    Time of the disclosure and what it entails

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

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

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

     

    The sanctions

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

    In other words: exhausting …

     

    The reactions

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

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

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

     

    Conclusion

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

    Always MANY years behind.

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

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

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

  • Presentation of the new Act on S.A.s to Mamaras and Partners

    Presentation of the new Act on S.A.s to Mamaras and Partners

    [vc_row][vc_column][vc_column_text] One more presentation on the new Act on Société Anonyms took place, as part of the presentations and seminars organized and held by KOUMENTAKIS & ASSOCIATES. To be more precise, the resent presentation was made for Mamaras and Partners, the well-established company of Financial Advisors.

    Mr. Stavros Koumentakis, Senior Partner, highlighted the business opportunities emerging after the changes introduced by the new Act on Société Anonyms, presented the new framework and referred in detail to specific provisions, ways on how to protect the client from “internal and external dangers” and on how to utilize the options offered by Act 4548/2019 regarding:

    • Minimizing expenses
    • Attracting and maintaining capable executives
    • Attracting investors
    • Making good use of technology.

    As Mr. Koumentakis put it: “The new Act on Société Anonyms is a great opportunity, one that businesses must take advantage of. Act 4548/2018 broadens the responsibilities and exposure of the Board of Directors to civil, penal and administrative sanctions, a fact that may end up being a serious problem if there are no relevant insurance provisions in place.” Mr. Koumentakis also highlighted that “introducing relevant statutory provisions is deemed necessary”.

    The Administration and Executives of Mamaras and Partners partook in the presentation, which was an excellent opportunity to exchange views on extremely important aspects of the Act.

    Mamaras & Partners was established in 1990, is based in Thessaloniki and is offering high quality consultancy services to businesses of all sectors.

    [/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=”37490,37484,37488″ img_size=”” speed=”6000″ slides_per_view=”6″ hide_pagination_control=”yes”][/vc_column][/vc_row]

  • Legal Persons and their Real Beneficiaries

    Legal Persons and their Real Beneficiaries

     Preamble

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

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

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

     

    “Money Laundering”

    Things are not that simple!

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

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

     

    Act 4557/2018 on money laundering

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

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

     

    Who does this Act concern?

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

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

     

    The “predicate offence”

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

     

    Special (and Central) Registry of Beneficial Owners

    In General

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

     

    Information registered on the Special Registry

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

    Keeping of the Central Registry and its interconnections

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

    “4. within the General Secretariat of Information System (G.S.I.S.) is created, with the use of an internet application, the Central Registry of Beneficial Owners, which is electronically connected with the tax registration number of all legal entities and for which the Independent Authority for Public Revenue (IAPR) keeps all the necessary data from the tax registrations, despite other provisions in place…

    1. The General Registry can, also, be connected to the Hellenic Business Registry of Ministry of Finance…”

     

    Sanctions for not keeping the Registry of Beneficial Owners

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

     

    The (implementing) decision of the Minister of Finance

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

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

     

    In conclusion

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

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

     

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

     

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

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

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

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

    So, in the end: “Beati possidentes”?

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June, 30rd, 2019).

    μητρώο πραγματικών δικαιούχων

  • Presentation given to the University of Macedonia

    Presentation given to the University of Macedonia

    [vc_row][vc_column][vc_column_text] As part of the series of presentations and seminars held by KOUMENTAKIS & ASSOCIATES, a presentation was given to one of the post graduate programs of the University of Macedonia, addressing the needs and opportunities emerging for companies, from the implementation of the newly introduced provisions of the new Act on Société Anonyms.

    Following an invitation of the director of the postgraduate program “Tax and Financial Management of Strategic Decisions”, professor Theofanis Karagiorgou, and before a number of students of the program, Stavros Koumentakis, Senior Partner of the Law Firm, highlighted the multiple business opportunities emerging from the changes introduced by the new Act on Société Anonyms.

    As Mr. Koumentakis put it: “The new Act is a great opportunity to better familiarize with the functions of Société Anonyms, to better safeguard the company’s founders, its shareholders and the investment itself, to start planning from scratch and minimize operational costs, to attract new and keep the most capable executives, to create the right conditions for access to cheap funding, to make good use of modern technology and, finally, to prepare business for the next day”.

    During the presentation the most important pillars of Act 4548/2018 were analyzed, while the options offered were highlighted in the form of a DECALOGUE:

    (1) Fast and inexpensive establishment,
    (2) Attracting and maintaining executives,
    (3) Reduction of expenses,
    (4) Attracting investors,
    (5) Various ways of raising liquidity,
    (6) Managing the minority shareholders,
    (7) Making good use of technology,
    (8) Preparing for the succession,
    (9) Protecting the investment and
    (10) Protecting the natural persons.

    Mr. Koumentakis and the Legal Consultants of KOUMENTAKIS & ASSOCIATES continue to respond, as often as possible, to requests to give relevant presentations and hold relevant seminars all over Greece, as this Act has already started being implemented. In the present video one can find a brief mention of the most important changes introduced.

    [/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=”37496,37498,37500,37502,37504,37506,37508″ img_size=”full” speed=”6000″ slides_per_view=”5″ hide_pagination_control=”yes”][/vc_column][/vc_row]

  • The abolition of bearer shares

    The abolition of bearer shares

    1. Preamble

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

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

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

     

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

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

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

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

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

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

     

    3. The abolition (and replacement) of bearer shares

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

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

     

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

    The Board of Directors of the S.A. that has issued bearer shares, must (article 184 par. 3) decide on the procedure for the registration of the bearer shares, by 1-7-2019, at the latest. More precisely, its decision should address:

    1. how those who have rights on bearer shares (shareholders or other beneficiaries) will declare their rights to the company and register on the Shareholders Book, and
    2. how the new, registered share titles will be issued and distributed to the beneficiaries.

    It is worth mentioning that after 1-1-2020, if not dully registered, the bearer shares will no longer incorporate any rights and they will not be transferable.

    Until their registration, (article 184, par 3 in conjunction with article 50, par. 1), the bearer shares:

    1. incorporate no voting rights nor any rights to participate in general assemblies,
    2. are not counted in calculating quorum and majority,
    3. do not receive dividends payments, and
    4. do not give their holders a preferential right in case of an increase of the company’s share capital.

    With the above-mentioned decision of the BoD of the S.A., the way of declaring the relevant rights is specified (article 184, par. 4), as is the way of issuing and distributing the new registered share titles to their beneficiaries (unless the company has already decided on not issuing share titles or issuing intangible shares).

     

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

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

     

    6. Regulations for listed S.As

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

     

    7. Other regulations

    Until the completion of the registration procedure of the bearer shares and the delivery of the relevant titles to the beneficiaries, a set of regulations is in force (article 184, par. 7). The most important amonsgt them are:

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

     

    8. In Conclusion

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

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

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

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

    Beware – do not rest!

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June, 23rd, 2019).

  • Board of Directors or a Consultant-Manager? 

    Board of Directors or a Consultant-Manager? 

    Board of Directors or a Consultant-Manager? 

    1. Preamble

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

     

    2. Facts change

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

    Until 31.12.2018.

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

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

     

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

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

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

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

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

     

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

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

     

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

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

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

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

     

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

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

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

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

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

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

     

    7. Risks that come with this choice

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

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

    It does not seem very likely…

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

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

     

    8. In Conclusion

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

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

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

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

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

    consultant-manager σύμβουλος-διαχειριστής

  • Calculating the value of a (minority) shareholding

    Calculating the value of a (minority) shareholding

    1. Preamble

    There is often the need to valuate a company, either as a whole or just a share of it (most likely a percentage of its shares / a specific shareholding). This need for valuation is associated either with a business deal (still at the stage of negotiations) (e.g. a merge or an acquisition) or with a legal dispute.

    The newly introduced law on S.A.s in more than one cases (e.g. articles 30, 45, 166 of Act 4548/2018) calls for a valuation of an S.A. or for a valuation of a specific share of it.

    In previously published articles {Minority Shareholders. Part A: The Claim of redemption of their shares by the S.A.,  Minority Shareholders. Part Β΄: Claim for a buy-out by the Majority Shareholder(s) and Minority Shareholders. Part C: The right of the majority to buy-out the minority} we have examined cases where the courts come in and, with the help of experts, valuate a company and a specific share of it. But what are the methods they follow in order to calculate how much a company is actually worth?

    Are there any laws?

    The answer is no.

    When it comes to public companies (listed either on regulated or unregulated markets), they all have something in common: the price of their shares is undisputable. The value of public companies (at least the value the stock market appoints to them) is easily calculated. “Blocks of shares” can of course reach prices that differ from the stock market value of the shares, but not by much.

    The question is: How are private companies valuated?

    A private company has no objective “market value”. No one can undisputedly assess its shares at any given point. Since such shares are not traded, the market has not been given the chance to show how much a private company is worth for it (the market).

    There are a few valuating methods that are generally (and globally) accepted.

    When it comes to assessing a specific share of a company, one must first valuate the company as a whole, according to specific financial information.

     

    2. Valuating a company

    According to experts, the most commonly used methods are based on:

    The company’s Balance Sheet (BS)

    Valuating a company according to its BS is, by far, the easiest and shortest way to go, since a BS is nothing but a snapshot of a company, taken the day the Balance Sheet is drawn. On the other hand, as a snapshot, the information a BS entails are static and thus could never represent the true value of a company. Although a BS could not, on its own, reliably evidence a company’s value, it is a good place to start an assessment and build on from that using other financial information.

    Profit and Loss Statement (PNL)

    When valuating a company according to its PNL, the focus is more on the company’s profits, dividend and sales. Such methods, when it comes to private companies, mainly take into consideration the return on capital. That seems to be the (only?) matter that interests an investor. When valuating a company using methods focusing on its PNL, when talking about profits we consider profits after tax.

    Goodwill

    A company’s goodwill is calculated mainly when negotiating a sale of said company. Goodwill is what is left when subtracting the company’s objective value from the sum a seller is willing to pay for it. Goodwill is the sum of a company’s intangible assets, such as its reputation, brand, place in the market, consumer and employee relations etc.

    Cash flow discounting

    This method valuates a company according to its cash flow discounting. The rationale behind it is that such a method will show a potential investor if a company is worth investing in the discounted cash flow finds the present cash value based on an expected cash flow -an x sum today is more valuable than the same x sum collected a year later. To elaborate, if one is holding 1€ today, with an annual interest rate of 5%, this 1€ will be worth 1,05€ in a year. Similarly, if 1€ payment is delayed for a year, today’s 1€ value is 0,95€.

     

    3. Valuating a company’s shares

    After figuring out how much a company is worth as a whole, its value is divided with the number of shares the company has issued. The result of this division is the value of each of the company’s shares (we have to stress that this is the most simplistic approach, as we, in this article, do not take into consideration the different kinds of shares a company can issue).

    This approach makes a lot of (mathematical) sense. But it makes no economic sense. How can a minority shareholding, for example 2% of the company’s shares, have a value proportional to that of the remaining 98% of the same company?

    When negotiating a sale of a minority shareholding, it is common that a discount is applied [discount from the value the shares come to have after the division: (company value/number of shares) x number of shares sold]. In practice we are shown that the discount applied has almost everything to do with the percentage of the company sold – that is with the powers over the company sold.

    The smaller the shareholding, the less powers come with it.

    Let’s talk with numbers

    The discount that is in practice applied is as follows:

    % of the company sold Discount applied
    < 10% 60% – 75%
    10% – 25% 45% – 55%
    26% – 49% 30% – 40%
    50% 15% – 25%
    >50% 5% – 10%

     

    A precedent set in the UK (case Lynall, Lynall v IRC (1971) 47 TC 375) is, at this point, worth mentioning, where the court ruled that, when calculating the value of a private company’s shares one has to, no matter the size of the shareholding sold, apply an additional discount of 25% to 50%.

    Nothing is fixed

    In order to apply any discount, all factors relating to the sale have to be taken into consideration. The aforementioned discounts are just a place to (or to not) start negotiations.

    For example, the sale price will be affected not only by the percentage sold, but also by the percentage held by the rest shareholders. There is a big difference, for example, if the shareholding sold is that of 11% when the rest shareholders are holding 5% comparing to when there is one shareholder holding a percentage of 40%. The sale price will also most likely be affected by to the rights following the shares regarding the receiving of dividends, the appointing of BoD members, legal issues regarding the right to vote in GAs, the person buying the shares (for the shareholder already holding 98% over a company, compared to an “outsider”, a 2% shareholding is far more valuable) and so on.

    Anti-embarrassment provision

    When a minority shareholding is sold to existing shareholders, it can be agreed in advance (in a private agreement) that, within a specific time period following the sale, if the buyer of the minority shareholding decides to sell their shares to a new buyer, the initial seller of the minority shareholding will benefit from a (possible) surplus value of the shares they sold in the first place.

    Forced sale

    No discount is applied when there is a case of a forced sale (e.g. a drag along).

     

    4. In Conclusion

    One has to always align with everything all national or international (e.g. EU Regulations) laws compel. But when it comes to everyday functions of the market, we come to realize that there are some “laws” set by the market itself. Those “laws” set and chosen by the market are often more powerful than the actual legislation that is in place. In any case (and despite all the exceptions), “laws” set by the market are the ones that, in the end, will prevail: the free market (no matter its rivals) will always know what is best, what should be required, how to valuate, to appreciate and, in the end, how to attribute the true value to things.

    Lida Koumentaki
    Junior Associate

    Υ.Γ. The article has been published in MAKEDONIA Newspaper (June 9, 2019).

    value of shareholding

  • Equity Instruments

    Equity Instruments

    Preamble

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

    Different times.

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

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

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

    This is as far as the listed companies are concerned.

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

     

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

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

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

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

     

    The company’s Shareholders Book

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

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

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

     

    Keeping the company’s Shareholder Book in an electronic format

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

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

     

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

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

     

    In Conclusion

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

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

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

     

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

  • Changes regarding the termination of Employment Contracts

    Changes regarding the termination of Employment Contracts

    Changes regarding the termination of Employment Contracts that are initially set for an Indefinite Period: The New, Important, Data

    1. Preamble

    All of us, no matter our political beliefs or which party we support, seem to want the (long-awaited) development of our country. We will all, most likely, agree that this development requires, among others, private investments and the creation of new jobs (when we, permanently, succeed in breaking away from Carl Marx’s position that: “Capital is dead labor, that, vampire-like, only lives by sucking the blood of the living labor. The more it lives, the more labor it sucks”).

    In our country, we have encountered all possible employment models: from medieval working conditions to the uncontrolled (most likely met as a pre-election campaign strategy and usually catastrophic for our country’s economy) benefits given to the private and public sector employees.

    We will also (most likely all) agree that, we will have to by all means protect the balance between conflicting interests in employment relationships, in order to avoid leading the country to dead ends, as past practices have done; dead ends that contributed to the “crisis” that brought us in the current adverse financial situation.

    There has been an intense discussion for the past month (which peaked in the recent vote, on Friday, 17th of May, of article 48 Act 4611/2019, which replaced subparagraph 1 par.3 article 5 Act 3198/1955) about how making terminating employment contracts set for an indefinite period more complex affects employment relationships: the existence of a “valid reason” for the termination of the employment contract from the part of the employer was added to the requirements, with the employer being responsible for invoking and proving its validity.

    But what has the status been so far and what will be happening from now on?

     

    2. The important changes made

    2.1 Terminating employment contracts initially set for an indefinite period in the previous legal scheme

    According to the first subparagraph of par. 3 of article 5 of Act 3198/1955:

    “3. Termination of the employment agreement is valid, as long as it is done in writing, the compensation due has been paid and the employment of the employee being laid off has been registered with IKA (insurance body of Greece) or the laid off employee has been insured”.

    Therefore: The termination of the employment contract set for an indefinite time was valid without the employer invoking any reason. The only obligation of the latter was the payment of the compensation that was due to the employee. When the latter regarded the employer was misusing the right given to them by law to terminate the employment agreement, the employee could appeal before the courts and as for the cancellation of the termination and the continuation of the employment relationship. In this case, the employee had to prove the claims they made.

    2.2 The New Legislation

    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), is replaced, effective immediately, as follows:

    “3. The termination of employment is valid, only if it is based on a valid reason, as such is defined in Article 24 of the revised European Social Charter, ratified by article one of law 4359/2016 (A’ 5), it is done in writing, the compensation due has been paid and the employment of the laid off employee has been registered with IKA or the laid off employee has been insured. In case the termination is challenged, the employer is responsible for invoking and proving that the requirements were met”.

    Therefore: From this point forward, the law requires, in order the termination of an employment contract set for indefinite period to be valid, a “valid reason”, which the employer terminating the employment has to invoke and prove. For the definition of the term “valid reason” (in detail below, under 3.3) the provision is referring to the revised European Social Charter (below, under 3.3), which is already ratified by Greece, (with an increased formal power) and more specifically in article 24 of said Charter (below, under 3.2).

    2.3 What changed comparing to the previously exiting legal scheme when it comes to terminating an employment contract initially set for an indefinite time?

    According to the pre-existing legislation, the employer could terminate any employment contract set for an indefinite time, with the main requirement being the payment of the compensation of dismissal. When the employee considered there was a misuse of this power, they applied to the competent courts and the employee was responsible for proving the misuse of thee employers right.

    The new regulation brings fundamental changes: the employer now must invoke and prove the requirements of a valid termination are satisfied, therefore the existence of a (now required) valid reason.

    This position the Greek law has taken is compatible with the explanatory memorandum of the recent (article 48 of act 4611/2019) regulation concerning the necessity of the existence of a valid reason (see the report), as well as with the position the European Committee of Social Rights took on the provision of article 24 of rESC.

    2.4 In Conclusion

    In contrast with what was been happening so far, the employer can no longer rest assured just by paying the compensation of dismissal when terminating an employment contract initially set for an indefinite time. They shall keep in mind that a valid reason must be invoked. This reason should have something to do with the behavior or the skills of the employee, or the operational requirements of the establishment. Even more so: invoking and proving the existence of this valid reason, is theirs (the employer’s) responsibility.

    Concluding: The requirement for the existence of a valid reason for the termination of the employment contract set for an indefinite time and also the “burden” of invocation and proof of such reason being on the employer, is certain to fill the court halls (a first “taste” of the stand the courts will take under 4), boosting our (lawyers’) bank accounts -no matter whose side you are defending.

    Let us all just hope that it will have positive effects not only in ensuring the employees’ rights (as the law maker intends it to) but also to the development of the economy, the businesses and the country.

     

    3. The Revised European Social Charter and the “Valid” Reason

    3.1 The European Social Charter and the Revised European Social Charter

    According to the explanatory memorandum for the Ratification of the revised European Social Charter:

     “The European Social Charter (ESC), international convention for the protection of social rights, was adopted by the Council of Europe in 1961 and ratified by Greece with Act 1426/84 (Government Gazzette No 32A/21-2-84).”

    The ESC is constantly developing by the precedents set by the European Committee of Social Rights, which oversees its application, and by incorporating Protocols in the ESC that widen the range of the rights protected and improve the mechanisms set to control. In 1998, the Additional Protocol was added to the ESC, which expanded the scope of the Charter with the recognition and protection of new rights. In 1995, a new Additional Protocol was added, providing with a system for Collective Complaints. Greece ratified the two Additional Protocols with the Act 2595/98 (Government Gazzette 63A/24-3-98). In 1991, the amending protocol was added, which improved the mechanisms set to ensure the application of ESC and was ratified with Act 2422/1996 (Government Gazzette 144A/4-7-96).

    In 1996, the European Social Charter was revised, in order to be more up to date and to include more rights. The Revised European Social Charter was adopted on the 3rd of May, 1996, in Strasbourg, where it was open for signing, and was entered into force in the 1st of July, 1999, after the three necessary ratifications. It takes in consideration the developments in labor legislation and social policy, the ones that happened since the creation of the Charter in 1961, and intends to replace it.

    The rights protected by the ESC divided to four areas: a) Employment, Training and Equal Opportunities, b) Health, Social Insurance and Social Protection, c) Labor Rights and d) Protection of Children, Family and Immigrants.

    Greece has already signed the Revised European Social Charter in the 3rd of May 1996. The ratification of the Revised Charter improves, beyond any doubt, the level of protection provided in the area of social policy and proves the active interest of our country in the protection of human rights.

    The Revised European Social Charter is already national law since its ratification with Act 4359/16. In addition, it is protected under the Greek Constitution (article 28 par. 1).

    3.2 Article 24 of the Revised European Social Charter (RESC)

    The European Social Charter (ESC) is, as already mentioned, an international convention for the protection of social rights. In 1996, the ESC was revised in order to be more up to date and to include more rights.

    According to article 24 of RESC: “In order to reassure the effective application of the right of protection of the employees in cases of termination of the employment relationship, the parties must recognize that: a. the right of all employees to not have their employment relationship terminated without a valid reason relating to their ability or behavior, or based on the operational requirements of the establishment, of the facilities or the agency, b. the employees’ right, those ones whose employment relationship is terminated without a valid reason, to a sufficient compensation or other proper rectification. For this reason, the parties have to make sure that the employee, believing that their employment relationship is terminated without valid reason, has the right to appeal to an impartial body.”

    3.3 What constitutes a “Valid reason” according to Article 24 of RESC

    It is accepted that the valid reason required by article 24 of RESC (and now by paragraph 3 of article 5 of Act 3198/1955) is the one justifying the proper use (and not misuse) of the termination.

    There is no obstacle in ratifying this article, as long as the causality of the termination of employment coincides with article 281 of the Greek Civil Code, which is setting the requirement of good faith intention and in accordance with the financial and social objective of the right of the employer to terminate the employment contract. The reasons for termination mentioned in article 24.a. are related to the reasons that lift the unfairness of the termination of the employment contract …”

    The current position of the legal theory on the “valid reason” is basically the same as the abovementioned opinion of the European Economic and Social Committee Draft Law “Ratification of Revised European Social Charter”.

    Valid reason is any reason relating to the employee them self, the way they work and their attitude as an employee, the technical and financial aspects of the establishment (not necessarily the establishment’s financial difficulties) or its operational requirements. Such a valid reason could not be tolerated, of course, outside this specific context: The dismissal of an employee for reasons irrelevant to the employment relationship and business could not be tolerated (i.e. vindictiveness, union activity, sexual orientation, political beliefs, racial discrimination etc.).

    Therefore, we could conclude that valid reason is any reason that negatively affects the employment relationship and justifies its termination from the part of the employer.

     

    4. How will the courts react?

    (A First Taste of The Future… From The Past)

    Obviously, we cannot possibly know how the courts will rule on, very recent, new regulation. However, there is a very interesting ruling coming from the past.

    The ruling of the Court of First Instance of Piraeus 3220/2017 is definitely the first, and till this day only one, as far as the writer knows, published court decision that accepts that the status of unjustified termination (ruled according to subparagraph 1 par.3 article 5 Act 3198/1955) was not compatible with Article 24 of RESC. This ruling accepted that RESC had already (after its ratification with Act 4359/16 – and according to Article 28 of the Greek Constitution) increased formal power over common Greek laws.

    “With the above provision (Article 24 of RESC) is introduced for the first time in the European legislation for Human Rights a new fundamental right, which is the protection of the employee from dismissal with the initiative of the employer. The main scope of the provision is that an arbitrary and unjustifiable dismissal offends the merit and the dignity of the employee. The protection Article 24 of RESC ensures that: a) every termination of an employment contract by the employer must be based on a valid reason, which should be relevant to the behavior or the skills or the operational requirements of the establishment, b) the employer must be properly compensated for being unjustifiably dismissed by the employee, or be provided with some other form of rectification and c) adequate lawful protection must be ensured.

    After the ratification of Article 24 of RESC it is clear the status of the “unjustified” termination by the employer is not compatible with the termination due to a valid reason as required by the new article. Therefore, the principle of justified termination is directly adopted by the Greek legislation and from now on the Greek courts should investigate the existence or not of a valid reason and deem invalid every dismissal that is not based on such a reason. This can be done by either directly referring to Article 24, which sets precise requirements that are explicit and free of contingent, at least regarding this issue, of course along with the provisions of 174 and 180 of the Greek Civil Code – solution that is deemed more appropriate by this Court -, or by interpretating Article 281 of the Greek Civil Code, resulting to deeming all dismissals not taking place in accordance with Article 24 of RESC (par. 23) unfair.   

    Regarding the consequences of unjustified terminations – besides them being invalid according to article 174 and 180 of the Greek Civil Code, the employer has to provide adequate compensation or other form of rectification, as required by national law. It should be noted that the European Committee for Social Rights has consistently held rulings that the invalidity of the dismissal and the claim of salaries of late payment and the reinstatement of the invalidly dismissed, are considered as adequate rectification, so there is no need for financially compensating the illegally dismissed. [Gavalas, What is changing to labour law after the ratification of the revised European Social Charter, E.L.L.(ΕργΔ) 2016, 130 and on].

    In view of all of the above, it is clear that the rulings the court made until now resulting that a dismissal is valid even if it is not based on a valid reason (due to its “acausal” nature) and that in order for a dismissal to be considered unfair it is not enough for the reason the employer based the dismissal on to be untrue or for the dismissal to lack an obvious cause, but the for the dismissal to be invalid it should be considered to oppose to article 281 of the Greek Civil Code, should be considered to contradicts to the provision of Article 24 of the RESC, which forbids the arbitrary and unjustifiable dismissal of the employee”.

    In other words: The court rulings addressing cases about actions for the cancelation of terminations of employment contracts set for an indefinite time will focus on investigating the existence of a “valid reason”. When the employer succeeds in proving the existence of a “valid reason” (relevant to the behavior or the skills or the operational requirements of the establishment) the relevant action will be dismissed. But when the judge is not convinced by the argument of the employer, the action of the employee is upheld and the employer is obliged  to reinstate and pay all the salaries of late payment.

    What a great opportunity this is!

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

    καταγγελία σύμβασης

     

This site is registered on wpml.org as a development site. Switch to a production site key to remove this banner.