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

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

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

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

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

Conditions for Valid Decision Making

Legal Composition of the Board of Directors

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

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

Quorum

By Law

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

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

By the Statute

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

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

Basis of Calculation

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

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

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

Time of the Calculation of the Quorum

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

Majority

Majority set by the Law

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

Majority set by the Statute

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

Calculating method

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

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

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

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

Waiver of the right to vote is not possible.

Representation of Members

In General

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

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

Conditions

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

Representation Content

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

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

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

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

Stavros Koumentakis
Managing Partner

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

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

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

The Chairman of the Board

Generally

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

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

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

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

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

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

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

Replacement

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

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

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

Responsibilities

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

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

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

Board Meeting Place

Physical session

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

Video conference

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

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

Frequency of Board Meetings

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

Convocation of the Board of Directors

Power of Convening & Invitation

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

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

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

Convening at the Request of Two Board Members

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

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

Differentiation of Conditions and Deadlines for Convening the Board of Directors

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

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

Stavros Koumentakis
Managing Partner

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

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

In our previous article we dealt with the important role of the Board of Directors. We examined, among other things, his powers and powers; additionally: the scope of his powers. We referred to the principle of the collective action of the Board (art. 77 §2 ed. 2 of law 4548/2018) but also to its deviations; for the possibility, e.g. of delegation of powers of the Board of Directors, to individual members or third parties. In the present article we will examine the specific deviations from the rule.

Appointment of Substitute Bodies

In General

In general, the principle (under domestic law) that the Board of Directors acts collectively applies. This particular principle, however, is not without exception. It is possible, e.g., for the Board of Directors to delegate the powers of management and representation of the SA to one or more persons (natural or legal). Members or not. The specific persons are referred to, collectively, as “substitutes” or “subordinates”.

The delegation of powers of the Board of Directors to substitute bodies constitutes, in practice, the rule under which it operates: the Board of Directors operates through its substitute bodies. This seems reasonable. In this way, the everyday operations of the SA is simplified. The speed of its transactions is ensured. The exercise of the tasks and work of the Board of Directors becomes more efficient. Complex issues are easier to manage.

Conditions

The delegation of (organizational) powers to substitute bodies requires compliance with the publicity formalities provided for (not, however, necessary for its validity). Presupposed, however, are cumulatively: the existence of a special statutory provision (art. 87 §1 ed. a΄-1096/1976 plenary session of the Supreme Court) and a relevant decision of the Board of Directors. In more detail:

(a) Statutory Provision: The requirement for the existence of a special statutory provision as a condition for the delegation of organizational powers to substitute bodies does not derive only from the law on SAs (: art. 87 §1 ed. a’). Corresponding provisions are also found in other laws (: art. 65, 67 and 68 CC-1085/2019 QUALEX Legal Database). The provisions, however, of the law on SAs prevail over those, as they are more specific (1510/2006 Supreme Court, NOMOS Legal Database).

In the absence of a special statutory provision, any delegation of power of representation to a member of the Board of Directors or a third party is equated with the granting of a power of attorney (art. 211 et seq. CC -1252/2016 Supreme Court, NOMOS Legal Database).

The articles of association may define the areas for which the Board of Directors will be entitled to delegate management and representation powers. It is also possible to set additional conditions. To limit, e.g., the pool of possible substitute persons by excluding, for example, third parties. Adherence to such terms will constitute an additional condition for the legality of any assignment. The articles of association can, at the same time, define the way of action of the substitute bodies (e.g. with the cooperation of several persons or for specific transactions only).

It is not excluded that the appointment of substitute bodies by the Board of Directors is defined by the statute as mandatory/obligatory. However, there is a difference of opinion as to the binding nature of such an appointment. According to the jurisprudence (and the correct) opinion, it is accepted that the Board must comply with the statutory “order” (ind. 7119/2004 Court of Appeal of Athens, NOMOS Legal Database). In theory, on the other hand, it seems to hold the position that the Board of Directors retains the discretion to choose whether to make a substitution and, if so, which individual persons to appoint.

However, the condition of the special statutory provision is open to deviations. Among other things: (i) the judicial appointment of a special representative of the company to conduct judicial proceedings to annul a decision of the Board of Directors (art. 137 §3) and (ii) the judicial appointment of a special representative of the company to bring a lawsuit against members of the Board of Directors (art. 105).

(b) Decision of the Board of Directors: As long as the required statutory provision/possibility exists, the relevant decision of the Board of Directors for the transfer of its powers can take place.

It is noted, however, that any delegation by the Board of Directors to another body (e.g. the General Assembly or a third party) of its authority to be substituted (the Board of Directors) in the exercise of its powers is invalid. This prohibition, in fact, seems reasonable as it goes against the principle of its autonomy. Besides, the Board of Directors is the most suitable body, not only to assign and identify its substitute persons, but also to distribute – at its discretion – the responsibilities between them.

Also, for the same reasons, the direct delegation of responsibilities to members of the Board of Directors or third parties is excluded by the statute. And even more so on the basis of an extra-company agreement (68/2014 Supreme Court, NOMOS Legal Database). However, it is permissible, exceptionally, to appoint the first Board of Directors upon the establishment of the SA. Also, the performance of individual offices (incl.: president, vice-president, managing director or authorized advisor). And the same goes for the delegation of responsibilities to its members or third parties. The Board of Directors, of course, can (also in the latter case) proceed, at any time, to redistribute and/or revoke the specific offices and responsibilities (art. 87 §3). Any limitation of its specific right will be null and void.

(c) Publicity: The validity of the appointment of a substitute body does not require the observance of specific formalities. The special provision of the articles of association and the relevant decision of the Board of Directors recorded in the minutes are sufficient. The latter is not required to be formally stated (1085/2019 QUALEX Legal Database). It is sufficient that such a will clearly emerges from the delegation decision (:in this context it is argued, rather extremely, that even the implied delegation of powers is valid).

However, the observance of publicity formalities is deemed necessary for opposing the assignment against bona fide third parties. The relevant publication is for informational purposes only.

Appointment Of Substitute Bodies

The Nature of Powers

The decision of the Board of Directors to appoint substitute bodies entails the assumption by them of individual powers (: organizational) of management and representation of the SA. The specific substitute bodies have authority through the law and the statute and their link with the SA is the same as that of the Board of Directors (1086/2019 Supreme Court, QUALEX Legal Database).

Substitute bodies become, in other words, bodies of the company. Equal, in fact, to each other, as all substitute bodies are assimilated in terms of powers (and therefore responsibility), regardless of their status as members of the Board of Directors or not. An organic relationship is created between them and the SA. Hence the name “substitutes” or otherwise “subordinates”.

In a logical sequence, therefore, the bodies in question do not act as trustees/representatives of the SA; a special power of attorney is not required for the exercise of management acts.

The Responsibilities

The transfer of powers can, in principle, concern all or part of the powers of the Board of Directors. The responsibility of the substitute may include the business of one or more category of acts (conclusion of contracts with customers, banking transactions) or specific, only, acts (e.g. conclusion of a specific, only, contract). In the latter case, however, there is no need to comply with publicity formalities.

Substitution, however, is excluded for those powers of the Board of Directors that are assigned by law and concern, exclusively, its action as a collective body. Indicative: (a) the authority to approve the transfer of restricted shares (art. 43) and (b) the certification of payment of the capital (art. 20).

From the articles of association or, more commonly, from the decision of the Board of Directors, it is expected to become clear whether the substitute bodies will act individually or collectively. Otherwise, the collective representation rule will apply.

The Relationship of Actions of Substitutes & the Board

The substitute bodies have parallel authority with the Board of Directors to exercise the powers assigned to them (330/2006 Supreme Court, NOMOS Legal Database). Hierarchically higher and, at the same time, the main body of management and representation of the SA remains, in any case, the Board of Directors. The substitutes, therefore, act independently, but must not ignore the Board. Thus, the autonomy they have in the context of their organic relationship with the company is limited.

The Board of Directors is entitled and obliged to supervise the substitute bodies. At the same time, it is entitled to be informed about the progress of the corporate affairs it has assigned to them. It is also entitled, of course, to modify (even revoke) their powers.

The Duration of Powers

The term of office of the substitute bodies (it is assumed that) follows the term of the Board by which they were appointed. Therefore, in the prevailing opinion, the power given will be shorter or equal in duration to the term of the said Board. Reasonably so, as the delegation of their responsibilities takes place within the framework of a decision of a specific Board of Directors. The opposite point of view is also supported – not correctly in our opinion: of absolute independence and lack of connection between the bodies in question and the Board of Directors, in terms of the temporal scope of their powers.

Therefore, the termination of the term of the Board of Directors (or any recall of its members) will automatically bring about corresponding consequences for the substitute bodies.

The Board of Directors has, as already mentioned, absolute power to revoke the substitute bodies. If the revoked person is a member of the Board of Directors, the powers assigned to them will cease, but the status of the member will remain.

In principle, the General Assembly does not have the power to revoke the substitute bodies. If the General Assembly revokes, however, members of the Board (as always, only it has the right to act) any parallel status as substitute bodies will be automatically revoked. It is noted, however, that if it is a third (non-member of the Board of Directors) substitute body, appointed with the establishment of the SA (art. 87 §3), the General Assembly has the power to revoke it by simply amending the relevant statutory regulation.

Ability to Further assign powers

The substitute body may further delegate all or part of the responsibilities assigned to it to other members of the Board of Directors or third parties. As long as there is (art. 87 §2): (a) Absence of a relevant statutory prohibition (: negative prerequisite) and (b) Provision in the decision of the Board of the possibility of further assignment (: positive prerequisite).

The further assignment takes place under the same conditions as those required for the assignment. At the same time, the further delegation of powers from substitute bodies to other “sub-substitutes” implies, for them, the acquisition of organizational powers of the company. They clearly exercise their powers alongside the substitute bodies and are subject to the supervision of the latter.

The operation of the SA would prove, practically, unfeasible in the event that collective, exclusive action of the members of the Board of Directors would be required to take any decision related to its daily operations. Therefore, the assignment of responsibilities (by the Board of Directors) to substitute bodies is absolutely necessary. Correspondingly, however, of significant importance is the design of the company’s engagement and representation system. Not (only) for the alignment with corporate governance rules (and the always valuable ESG criteria) but also, in particular, for the safety of the company and those involved. In the context, however, of this and also of the possibility of establishing an Internal Audit and an Executive Committee, about which, however, see our next article.-

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 15th, 2022).

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

The important role of the Board of Directors has already concerned us in our previous article. We referred there, among other things, to the management duty of the Board. Also, to the scope of its powers and responsibilities. We closely approached its responsibilities for management and representation of the SA (: internal relations and relations with third parties – respectively). Here, too, we will be looking into the specific powers in light of the rule of the unlimited and unrestricted power of representation.

The Responsibilities of the Board of Directors

While examining the responsibilities of the Board of Directors, we were already explored the relevant provisions of the law (art. 77 §1 Law 4548/2018). According to them, the SA is managed by the Board of Directors. The content of the administration is the management as well as its judicial and extrajudicial representation. Every management act belongs to the management of the SA. Also: every act of representation constitutes, at the same time, an act of management. Every act of management, however, does not constitute an act of representation.

However, the other provisions of the law also apply. Among them is the one (art. 86§1) which provides that the Board of Directors is competent to decide on every act concerning the management of the company, the management of its property and, in general, the pursuit of its objectives. As far as the fulfillment of the corporate purpose is concerned, the management of the SA is the function that tends, primarily, to its realization – in the narrow sense.

The Corporate Objectives

The term “corporate objective” has two meanings.

In its broadest sense, the corporate objective is what determines the general direction of the SA: it refers to the type of its activity. On the other hand, the exercise of administration and management are carried out with the aim and goal of realizing, as already noted, the corporate objectives – in the narrow sense of the term. The implementation and promotion, i.e., of the object of the corporate activity, as described in the company’s articles of association.

In this specific sense, it is accepted that the corporate objective is not limited only to acts that fall clearly within the exercise of the corporate activity. It includes, on the contrary, an expanded area of actions that serve the long-term goals of the business, based on the perception of transactions. According to the jurisprudence, such actions constitute, indicatively, the acceptance of bills of convenience or the provision of guarantees in favor of a third party (67/2019 Court of Appeal of Dodekanisa, QUALEX Legal Database).

Board Actions unrelated to the Corporate Objectives

The Rule of Unlimited Power of Representation

The rule of the unlimited representation power of the Board of Directors is based on the law (art. 86 §2). It aims, in fact, at the protection of third parties and transactions.

According to the specific regulation, acts of the Board of Directors, even if they do not serve the corporate objectives (either in its broad and/or narrow sense), bind the company vis-à-vis third parties. This rule is not, however, without any exceptions.

The national legislator made use of the exemption provided by the first corporate Directive (2009/101/EC). The Directive in question allows, in particular, an exemption from the commitment of the company from acts outside the corporate purpose in the event that the third parties were, in fact, aware of the relevant violation. And this knowledge can either be proven or indirectly inferred from the fact that the third party could not, given the circumstances, ignore it (see Explanatory Report law 4548/2018 on art. 86).

The national legislator, contrary to the previous law (2190/1920), did not provide for an exception in the case where the third party should have known of the excess exercise of power. That is, they deleted the phrase “or should have known”, which also included third parties who were not aware of the excess of the corporate objective because they did not exercise due diligence. And this is because the specific possibility did not seem to be in line with the aforementioned Directive (see Explanatory Report of law 4548/2018 on art. 86).

The non-commitment of the SA (according to the prevailing opinion in the legal theory), does not occur only in the cases of knowledge by the third party of exceeding the corporate purpose, but also in the cases of their gross negligence.

It is noted, further, that the SA itself bears the burden of proving the incidents that cancel its commitment. The specific, indeed, burden of proof is justified by the purpose of the rule of the unlimited power of representation: the protection, i.e., of third parties and transactions (art. 86 §2. ed. b). However, in cases where there is a clear excess of the corporate purpose, it is accepted that proof of knowledge on the part of the third party is not required. In the case, e.g., of the sale of all the company’s assets (4839/1979 Court of Appeal of Athens, “Epitheorisi Emporikou Dikaiou”, 1980, 249, which concerns the sale of raw materials and equipment of an LLC).

In fact, it is expressly provided that the mere observance of the publicity formalities regarding the company’s statute or its amendments does not constitute proof of the knowledge of the third party (art. 86 §2. ed. c).

It is argued, reasonably, however, that the protection of the third party (even a bona fide one) does not reach, in any case, to the point of binding the SA (also) for actions for which by law the board cannot bind the company. In the case, e.g., when actions are exclusively in the competence of the General Assembly.

Legal Consequences

If the Board of Directors acts in excess of the corporate purpose and the third party-dealer is in bad faith regarding the fact of the excess, concerns arise regarding the legal consequences.

From a point of view, the contract that the Board of Directors enters into with the bad-faith third party is of absolute nullity. The SA is not bound in this case. And in fact, anyone can invoke the invalidity.

From another point of view, the invalidity is relative in favor of the SA: only it is able to project and implement it.

According to a third point of view, however, the provisions of the law (229 et seq. CC) regarding the abuse of power of attorney should be applied, in this case-analogously. According to it, a contract of the Board of Directors, in excess of the corporate purpose with a bad-faith third party, is pending for as long as the Board of Directors does not decide for or against it. Specifically, in the event that the General Assembly, with an increased quorum and majority, approves the above contract, it becomes effective and binds the SA. However, if the SA expressly decides not to approve it, it is not bound.

It should be noted that the SA can take action against the members of the Board of Directors who act in excess of the corporate purpose – as long as the conditions of the law are met (art. 102).

Restrictions From the Articles of Association or the General Assembly

The Rule of Unrestricted Power of Representation

The law, in addition, is what establishes (article 86§3) the rule of non-limitation of the organic power of representation – aiming, likewise, at the protection of third parties and transactions. It provides, in particular, that limitations of the authority of the Board of Directors by the statute or by a decision of the General Assembly are not opposed by third parties. Even if they have been made public.

This provision takes into account the limitation of administrative authority that becomes permissible. In particular, the members of the Board of Directors are obliged to observe the limitations of their authority, whether they are set by the statute or by the General Assembly.

Legal consequences

However, in case of non-observance of these restrictions by members of the Board of Directors, they are not opposed to third parties – even if the latter were aware of them. These restrictions have – as a rule – effect only in the context of internal relations.

The specific regulation (no. 86§3) does not provide for an exception to the non-limitation rule. It is important, however, to note that its absolute and unexceptional wording creates risks for the SA: even in the case of collusion between the Board of Directors and a third party with the aim of not complying with any restrictions, the SA (should be) bound by the carried out transaction with the third party acting in bad faith. Such an approach would, obviously, be dangerous for the SA. The teleological contraction of the provision in question is argued, and rightly so: bad faith third parties should not be protected by the non-limitation of the power of representation.

The protection of those acting in bad faith vis-à-vis the SA should not prevail over the latter. And rightly so. Consequently, acts of the Board, even outside the corporate purpose, bind the company against those who either did not know or were unreasonably unaware of the relevant excess. At the same time, limitations of the power of representation of the Board of Directors set by the statute or the General Assembly will (and must) be opposed against those, only, who operate based on bad faith and with intent to harm the interests of the SA. But often the boundaries between good and bad faith are, unfortunately, indiscernible. Therefore, special attention is required in transactions of particular importance and/or value. The risks, otherwise, will not be negligible for the SA, the (bona fide) third parties and the transactions themselves. –

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 8th, 2022).

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