Tag: ανώνυμες εταιρείες

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 20^th 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
Senior Partner

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

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

June 16, 2019
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).

June 9, 2019
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
Senior Partner

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

June 2, 2019
Minority Shareholders. Part C: The right of the majority to buy-out the minority
Minority Shareholders

Part C: The right of the majority shareholder to buy-out the minority shareholder

1. Preamble

I have always been a strong believer that “Justice is nothing but the advantage of the stronger”. I could easily claim this quote’s paternity if not: (a) Plato had not beaten me to it (just twenty-four centuries ago) in his work Republic (:“Listen—I say that justice is nothing but the advantage of the stronger”) and (b) if that quote was not all over the internet.

Plato, as proven through the course of history, wasn’t wrong. This specific position Plato took has proven to be true in general – in inter-state relations, in exercising public authority, in family and personal relations… the list goes on! Especially when it comes to intra-company relations, this general principal has even been endorsed by legislators. An example could be the power given to the majority over the minority. Notwithstanding the many restrictions of that authority introduced in the Greek S.A. law, the great power held by the majority is without question.

The opinions of the minority and the positions it takes are not always attractive. Sometimes, not even tolerated. Especially when a company is (or appears to or is anticipated to be) flourishing or when the minority is trying to force its rights (or the rights it thinks it has).

The shareholders holding, on their own or with others, between 50% and 95% of an S.A.’s shares cannot simply decide that “it’s high time we rid of the minority shareholders”. There are of course ways to act -within or outside the law- in such a manner that could push to that direction. But if a shareholder is holding a percentage of 95% or higher over a company’s shares, they do have the right to directly exercise all the rights the Greek law gives them, in article 47 of law 4548/2019.

We have already referred to the (legal) request a minority shareholder can make to be bought-out of a company by either the company itself or by the majority shareholder, as well as the relevant requirements and procedure (read related articles “Minority shareholders. Part A: The claim of redemption of their shares by the S.A.” and “Minority shareholders. Part B: Claim for buy-out by the majority shareholders“). In this article, we will study the obligation imposed on the minority shareholder to be bought-out by the majority shareholder (to be squeezed out). This provision seems and is directly opposing to the principle of freedom of contract (article 361 of the Greek Civil Code) and the right to economic freedom, as stated article 5 paragraph 1 of the Greek Constitution.

2. The right of the majority shareholder to buy-out the minority shareholder

2.1 The requirement for the majority shareholder to be holding at least 95% of the company’s shares

In the case of a private S.A., (as far as public S.A.s are concerned, the rules of public offerings apply, supplemented by the Greek law of S.A.s), the first and most crucial requirement refers to the percentage over the company’s shares held by the majority shareholder. The relevant provision of the Greek law of S.A.s (article 47 of law 4548/2018) strictly refers to the shareholder holding at least 95% of the company’s shares. Needless to say, this percentage of 95% is calculated as a percentage of the nominal value of shares held over the overall nominal value of all the company’s shares. It is irrelevant whether a shareholder is holding 95% or more of the ordinary or of the preferred shares of the company. What is only important is the percentage of the company’s shares held.

2.2 Requirement for at least 95% of the company’s shares to be held by one shareholder

The right to force a buy-out on a minority shareholder lies only with the shareholder holding at least 95% over an S.A.’s shares who accumulated that percentage after the company was established. In case a majority shareholder covered from day one (at the stage of the establishment of the S.A.) at least 95% of the company’s share capital is not entitled to force a buy-out. In other words: the majority shareholder who set up the company and at that time was holding at least 95% of the company’s shares is not entitled to force a buy-out over the minority shareholder at any time.

It is important to stress that this specific provision provides only one shareholder with the right to force a buy-out. So we have to rule out the possibility of a cooperation-occasional or not- amongst two or more shareholders in order to gather up amongst all of them the percentage of 95% of a company’s shares in order to force a buy-out on the minority shareholders.

Let’s remember what happens when you take a look from the “other side”, where non-such restriction applies: the minority shareholder holding 5% or less of the company’s shares has the right (article 46 paragraph 1) to request to be bought out by the shareholder holding at least 95% of the company’s shares. As we already examined (see related article), when calculating the percentage held by the majority shareholder, we count in the shares held by their related parties (ascendants, descendants, spouses, live-in partners and related legal entities). But in the case we are examining in this article, the law requires for only one shareholder to be holding at least 95% of the company’s shares.

We of course have to note that when the majority shareholder is a legal entity (e.g. a holding company or any other kind of company with more than one shareholders) holding at least 95% of the company’s shares, this legal entity will be considered as one shareholder, no matter how many persons are holding said shareholders shares. In that same spirit, when calculating the percentage held by the majority shareholder, we have to count in the shares that they are holding as a security for their claims, but whose ownership they have.

2.3 Time Limit

The right given to the majority shareholder (holding at least 95% of the company’s shares) to force a buy-out is subject to a five-year limitation period. This five-year period starts the moment the majority shareholder accumulates at least 95% of the company’s shares. After the lapse of this five-year period, the aforementioned majority shareholder no more has the right to force a buy-out on the minority shareholder.

Needless to say, the law does not force the majority shareholder to notify (when the five-year time starts counting, that is when:) the moment the percentage they hold over the company’s shares reaches or exceeds that of 95%.

2.4 The procedure leading to the buy-out

The majority shareholder that wishes to buy-out one or more minority shareholders has to submit the relevant request to the competent court (article 47 par. 2 of law 4548/2018). The latter will rule whether the requirements set by law are met. If the majority shareholder’s action is upheld, the court will rule on a just and equitable price per share, as well as on the specific terms the buy-out will be implemented. In order to determine the price per share, the court will take into consideration the value of the company. The majority shareholder will provide the court with an independent expert report (article 47 par. 2 and article 17 par. 3 of law 4548/2018) which in most cases is conducted by either two chartered accountants or an audit firm. When conducting the report, said experts are given access to all the company’s financial data by the company’s B.O.D.. This expert report, although required by law, does not bind the court.

2.5 The obligation to deposit the financial compensation in a Credit Institution

Following the publication of the ruling of the court and in case the request filed by the majority shareholder is allowed, the latter has to deposit the financial compensation owed, as determined by the court, to a Credit Institution in the name of the shareholder being bought out. Said deposit will take place only after their identities of the beneficiaries are confirmed. In case six months after said deposit go by without them (the shareholders being bought out) withdrawing their compensation, the Credit Institution reserves the right to “transfer” the sum to the Deposits and Loans Fund.

2.6 Public Declaration

In order to exercise their right to buy-out the minority shareholders, the majority shareholders have to make a public declaration (published on the HELLENIC BUSINESS REGISTRY). This declaration will have to include (article 47 paragraph 4):
- The company’s and majority shareholder’s information, as well as the percentage of the company’s shares the latter is holding.
- Information regarding the court’s decision -its data and ruling
- Information regarding the Credit Institution in which the financial compensation set by court will be deposited and
- Any requirements set in order for the minority shareholders to withdraw their compensation.
2.7 The Obligation of the majority shareholder for a public declaration or personal notification of the minority shareholders.

The transfer of shares from the minority shareholders does not require, in this case, any written agreement. This specific transfer can be completed in two, possible, ways. The choice is left to the discretion of the majority shareholder. Specifically:
- The abovementioned (under 2.6) announcement of the majority shareholder is subjected to publicity (article 47 paragraph 4). Starting from the day of the announcement (in the G.E.MI. (GENERAL COMMERCIAL REGISTRY), the ownership of the shares is automatically transferred to the majority shareholder. The only right the minority shareholder maintains from the shares, following said announcement, is to obtain the compensation for their buy-out, as determined by court.
- The publicity of the discussed (under a) announcement, can be substituted by personal notifications of the majority shareholder to each one for the minority shareholders being bought-out (preferably served to the latter by a bailiff). The automated passing of ownership of the shares takes place after the second personal notification to the minority shareholder (which is done in no more than fifteen days after the first one). A third personal notification of the minority shareholder is also required, referring to the first to.
2.8 Is it possible to delay the enforcement of the judgement for the buy-out of the minority shareholder’s shares?

The law explicitly states (Article 47 par. 7), that it is not possible to delay the enforcement of the ruling allowing the application of the majority shareholder. Any appeals before the court, request of cancellation, reform or application initiating third-party proceedings, will not result in any legal obstacle or delay to the transferring of the ownership of the shares to the majority shareholder, in exchange for the compensation set for the buy-out.

3. In Conclusion

Plato has already spoken, as mentioned in the introduction, for the advantage of the stronger and the protection provided to them by law. No need to repeat his opinion on the subject.

It is true that the power given to the majority shareholder (who holds at least 95% of the S.A.’s shares) to buy-out the shares of the remaining minority, is primarily intended to serve their (the majority’s) interests.

It is most likely, though, that this provision serves the minority’s rights and claims as well. And that is because it provides the shareholders with a (objectively fair) price for shares that in reality (a) provide them with limited rights, (b) could, most likely, only be sold to the majority shareholder and after having a court force the latter to buy them, with the minority shareholders paying for the judicial cost this time.

We should accept that this specific procedure will, most likely, have positive results on the S.A. as well. Restoring the, possibly, severed unity and peace amongst the shareholders cannot have negative results in perusing the corporate goals.

But let’s not be delusional: our experience has shown that the minority is treated, in most cases, as annoying. It doesn’t even have to act in an annoying manner -even stating an opposing to that of the majority opinion will do. A century ago, in “The Trial” by Kafka, it was stated the rather roughly put but otherwise very real statement that “everyone has the right to their own opinion, as long as they agree with me”: more or less, this regards all of us.

We can safely assume that this provision is one of the safest (legal) ways for the majority shareholder to rid of those opinionated minority shareholders and establish their monarchy!

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 19th, 2019).
May 19, 2019
Minority Shareholders. Part Β΄: Claim for a buy-out by the Majority Shareholder(s)

Minority shareholders.

Part Β΄: Claim for a buy-out by the Majority Shareholder(s)

1. Preamble

It is redundant to say that in any country that respects its laws, the principle of freedom of contract stands strong. In Greece, this principle is introduced in our legal system in article 361 of the Greek Civil Code (: “For the establishment or modification of any legal obligation a contract is required, unless the law provides otherwise”). This principle is based on article 5 paragraph 1 of the Greek Constitution, which refers, amongst other things, to the [right to] economic freedom.

Specific aspects of the principle of freedom of contract are the freedom to enter (or not) into an agreement, as well as the freedom to choose what said agreement (should one choose to enter into one) will provide.

According to this, no one is obligated to enter into an agreement (even more so in a predefined one), unless a specific law “provides otherwise”.

Respectively, when it comes to S.A.s, no one is obligated to buy the shares of any minority shareholder -especially when the latter’s share is so small that it has no real value in terms of assisting to the formation of the so needed majority. In this case, it is highly likely that nobody will be interested (or nobody will let show they are interested) to purchase such kind of a minority shareholding.

Amongst his other quotes, the actor and director Clint Eastwood has infamously said that “if you want a guarantee, buy a toaster”. If the minority shareholder decides that their investment is not profitable or even problematic, they cannot just simply return it for a refund: shares are not toasters. Shares are not covered by guarantees, as are toasters.

A safe assumption could be that, at least at a first glance, no one can be obliged to acquire a minority share package, unless some specific requirements are met…

There has already been a reference to the legal claim a minority shareholder may have against the company, for the latter to buy them out, as well as all the relevant requirements and procedures (read related article). In this article, we will mainly focus on a minority shareholder’s possible claim against the majority shareholder to buy them out.

2. The right of the minority shareholders to request a buy–out by the majority shareholder

The requirement for the minority shareholding to be holding shares that do not exceed 5% of the total of the company’s shares

In the case of a private S.A., (as far as public S.A.s are concerned, the rules of public offerings apply, supplemented by the Greek law of S.A.s) the main requirement is in regard of the percentage of the minority shareholding. The Greek law of S.A.s (article 45 paragraph 1 of law 4548/2018) is strictly limited to shareholders holding a maximum of 5% of a company’s shares. This percentage is calculated as a percentage of the nominal value of the shares the minority shareholders hold on the overall total of the total nominal value of all the shares of the company. It is irrelevant whether a shareholder is holding 5% or less of the ordinary or of the preferred shares of the company. Only the percentage of the company’s shares held matters.

Furthermore: Minority shareholders holding a percentage higher than 5% of the company’s shares are not entitled to require a buy-out by any shareholder. Not even for a sum of shares equaling to less or up to 5%.

This provision seems fair. Most of the minority rights recognized under Greek law are recognized to the minority shareholders that are holding more than 5% of a company’s shares. If a shareholder is not holding 5%, their protection seems, and is, extremely limited.

The requirement for at least 95% of the company’s shares to be held by one (?) shareholder

The majority shareholder -of 95% or more, a percentage gathered after the company was set up- has (originally) the obligation to buy-out the minority shareholder. In case the minority shareholder accepted at the stage of the very establishment of the company that they would have a percentage lower to 5%, the law assumes that they also consciously accepted that they would have limited protection under the law. Because of that assumption, Greek law has chosen not to “force” the majority shareholder to buy-out such a minority shareholder.

It is noteworthy that in calculating the required 95% of the shares held by the majority shareholder, one must also count in the shares held by the parties related to them. The legal entities characterized as “related parties” to the majority shareholder and whose shares are considered as shares of the majority shareholder when calculating the percentage of shares the latter is holding, are identified as such by article 32 of law 4308/2014. The persons characterized as “related parties” to the majority shareholder and, again, whose shares are considered to be shares of the majority shareholder when calculating the percentage of shares the latter is holding, are identified as such by Appendix A of the aforementioned law. To be more precise:

Regarding the related parties that are legal entities, article 32 of law 4308/2014 is extremely detailed. It is redundant, in the context of this article, to get into great detail. One general rule that would be useful to keep in mind is that related parties are generally considered to be the parent company and the subsidiaries of the majority shareholder or of a company that is related to the majority shareholder. It should also be noted that those legal entities that choose to or legally have to prepare consolidated financial statements with the majority shareholder or with related to the latter legal entities are also related parties to the majority shareholder.

Annex A of law 4308/2014 instructs us in counting in shares held by natural persons- members of the majority shareholder’s close family- when calculating the latter’s share over the company. According to this law, such persons are the majority shareholder’s ascendants, descendants, spouses, and live-in partners.

Time Limit

The right given to the minority shareholder (holding a 5% or less of the company’s shares) to request a buy-out is subject to a five-year limitation period. This five-year period starts the moment the majority shareholder (along with their related parties) is holding at least 95% of the company’s shares. After the lapse of this five-year period, the aforementioned minority shareholder no more has the right to request a buy-out by the majority shareholder holding 95+% of the company’s shares.

The shareholder obligated to buy

Article 45 of law 4548/2019 refers to the obligation of the majority shareholder to buy-out the minority shareholder holding less or equal to 5% of the company’s shares. As already stated, in calculating the majority shareholder’s share over the company (in order to determine whether they are holding 95% or more) one must also account in the shares held by related parties of the shareholder (legal entities or members of their family). In case there actually are related to the majority shareholder parties holding company shares, one should take it as a given that the related parties will be obligated to acquire the shares sold by the minority shareholder analogically to the company shares they hold prior to the buy-out. It goes without saying, these related parties will have to pay for the shares they are acquiring, at the price determined by the competent court. This approach seems the only logical one since anything else would disturb existing balance amongst the remaining shareholders.

The procedure leading to the buy-out

The minority shareholder that wishes to be bought-out has to submit the relevant request to the competent court (article 46 par. 2 and article 46 par. 4 of law 4548/2018). The latter will rule whether the requirements set by the law are met. If the minority shareholder’s action is upheld, the court will rule on a just and equitable price per share, as well as on the specific terms the buy-out will be implemented. In order to determine the price per share, the court will take into consideration the value of the company. In this case it is more than fair (as well as allowed by law) for a report to be requested by an independent expert regarding the value of the shares sold; In most cases, the independent experts that will provide said report to the court will usually be either two chartered accountants or an audit firm. This independent expert report will evaluate the arguments made by the opposing parties.

3. In conclusion

The protection offered to the minority shareholder holding a percentage of less than 5% of the company’s shares is extremely limited by law. To counterbalance this extreme risk exposure (and in contrast to the right to economic freedom and the principle of freedom of contract, as they are both stated and protected by the Greek constitution) the above-mentioned minority shareholder has the right to request to be bought out from the company by the company’s majority shareholder of 95% or more.

The law does not force S.A.’s shareholders to notify the moment the percentage either they or their related parties hold over the company’s shares reaches or exceeds that of 95%. As a result, the minority shareholder has to be alert as for when their rights kick in, otherwise said minority shareholder on the one hand risks to miss their opportunity to exercise their rights to be bought-out altogether, on the other to fail to achieve a good price for their shares.

As for the majority shareholder, they have every reason to avoid holding 95% of the company’s shares. If they succeed in doing so, they will be able to enforce onerous terms on the minority shareholder while negotiating a possible buy-out of the latter. Such a negotiation could easily start by reminding the minority shareholder of the infamous abovementioned quote by Clint Eastwood…

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 12th, 2019).

May 12, 2019
Minority Shareholders. Part A: The Claim of redemption of their shares by the S.A.

Minority Shareholders.

Part A’: The Claim for Redemption Of Their Shares By The Société Anonyme.

The existence and exercise of minority rights – as described in an earlier article – “Minority and its rights in the Société Anonyme” and “Minority rights in the SA: the exceptional auditing” – are not always enough to achieve of the necessary balance in its (the minority’s) relationships with the company. Nor, in the end, in the company itself.

Sometimes “divorce” seems necessary …

The majority of shareholders exercising their voting rights are entitled (and rightly) to make critical decisions about the future of the company. Critical, in a logical sequence, also for the future of minorities. Sometimes even potentially damaging to the latter.

What are these potentially harmful decisions? And, if they are taken, the minority shareholders remain unprotected? And under what conditions would it be possible to implement a “divorce” between the company and the minority shareholders?

According to English actor Carrie Grant: “Divorce is a game played by lawyers”. And from this particular “divorce” they could not miss …

Causes For The Claim Of Shares Redemption

It is a fact that within the framework of democracy (and of the law of the Société Anonyme) the majority shareholders are the decision makers. Sometimes, however, these same decisions could be assessed as making it “in an obvious manner, particularly unprofitable” to retain the minority shareholders in the company (Article 45 par.1, section an of the l. 4548/2019). The assessment, of course, belongs to the minority shareholders themselves. The latter will exercise their statutory rights if they adopt this position.

The Law on the SAs (Article 45 par.2) recognizes as potentially harmful to minority shareholders decisions concerning: (a) the transfer of the registered office of the company to another State; (b) the introduction of restrictions on the transfer of shares; (c) the change of corporate purpose and finally (d) any other event which, according to the company’s articles of association, activates respective rights of the respective shareholders. In the latter case, however, it is necessary to provide for a time limit for their exercise.

The “Way Out” Of Minority Shareholders And The Relevant Conditions For The Shares Redemption Claim

In the event that any of the above events occurs, the law provides (significant) protection to minority shareholders: they are entitled to address to the competent court asking for the redemption of their shares by the company (Article 45 par.1: “redemption by right”-internationally known under the Anglo-Saxon term as sell-out). It imposes, however, a double condition on the applicants (and claiming to be protected): Firstly, there having been represented in the General Meeting which took the disputed decisions and, on the other, their opposition. Possible absence from the relevant General Meeting, voting in favor of the relevant decision or abstaining from the vote, it removes the aforementioned right (i.e. to appeal to the Court asking for the redemption of their shares). However, if a statutory provision refers to an event not related to a decision of the General Meeting, this (double) condition does not stand.

The term within which “the injured” minority shareholder must “take action” – i.e. bring the claim and exercise his / her right – is three months from the completion of the amendment of the articles of association. This time limit applies in cases of transfer of the company’s registered office to another state, of the introduction of restrictions on the transfer of shares and the change of the corporate purpose. In the other cases provided for by the Articles of Association, the deadlines indicated therein shall apply.

The Case Of Introducing Restrictions On The Transfer Of Shares

The company’s interest requires that the company’s continuity be safeguarded. And this is sometimes, to a considerable extent, dependent on its shareholder structure. The introduction of restrictions on the transfer of shares sometimes proves to be crucial (refer to the article on Restricted Shares). The relevant provisions in the Articles of Association at the time of the establishment of the company appear to be a “sine qua non” element to ensure the relations between the shareholders and the achievement of the corporate purpose.

In the vast majority of cases, unfortunately, such statutory restrictions are not provided for when establishing the company. When the need is identified subsequently, the majority shareholders are in fact able to impose the necessary statutory change. However, the minority shareholders are then (reasonably) entitled to request the redemption of their shares and, ultimately, their exit from the company. It is for the court to decide on the reasonableness of the request of the minority shareholders and, in particular, “if their stay in the minority becomes manifestly unprofitable”. In other words: minor restrictions on the transfer of shares could not justify meeting the request of minority shareholders.

However, for the cases where the necessary restrictions on the transfer of the shares have been provided since the company’s establishment, there is no reason for the corresponding minority shareholders’ rights.

The Case Of Modifying The Company’s Purpose

A similar assessment will, of course, be made by the Court even if the minority shareholder complains (and exercises his/her rights) due to a change in the corporate purpose. It would reasonably be considered to be particularly unprofitable for the applicant to convert, for example, a holding company into a CD production company. On the other hand, it would not be possible to (severely) support the minority shareholder requesting the redemption of his shares from a (painless) expansion of corporate activities.

The Court’s Judgment On The Claim For Shares Redemption

The minority shareholder’s claim for the redemption of its shares by the company is assessed by the competent court (Article 45 par.4). The latter is to determine whether the conditions laid down by the law and the substantive merits of the applicant’s arguments are fulfilled. If the claim is accepted, the Court shall determine the fair and reasonable consideration (in exchange for the redemption of the minority shares) and the terms of payment. In determining the price, the value of the company is taken into account. It is logically expected (and not only legally permissible) to request a relevant expert report, which is usually carried out by two auditors- chartered accountants or an auditing firm. This expert opinion is also the one to evaluate both sides’ arguments.

The court decision is always binding on the company (Article 45 par.5). In the event of the fault being breached within the time limit set by the court order, it may be decided the company’s dissolution.

However, the judgment is not binding on the requesting shareholder. If the price to be determined by the court decision is not evaluated by the applicant as satisfactory, it is entitled to refuse to complete the relevant procedure (transfer of its shares to the company). In that case, of course, he/she is charged with the costs of the relevant proceedings.

In Conclusion

Coexistence in life is not always easy – possibly once and unacceptable. Respectively in business – much more when particularly important (sometimes) economic interests are at stake. The law recognizes the minority shareholder’s right to ask for “dissolution” and for “compensation” by the company when certain important conditions are met. It is, however, particularly important to stress that the importance of the Articles of Association is once again as distinct. Its provisions should either take place in a timely manner (i.e. when the company is established) or in a way that does not affect minority shareholders (unless the aim is precise to affect their rights) …

There is no doubt that the specific legislation is a means of protecting minority shareholders. But as this divorce, as already mentioned, “is a game played by lawyers”, it is likely to become a weapon, important in the hands of the majority.

Particular attention, therefore, in both the articles of association and the lawyers …

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 5th, 2019).

May 5, 2019
Workshop on the New Law on the SAs At the Money Show 2019

[vc_row][vc_column][vc_column_text] On Saturday, April 13th, at the Hyatt Hotel, within the framework of the 30th Money Show 2019, a workshop on “Family Businesses in the New Business Environment” was held. The event was co-organized by Capital Markets Experts, the Institute of the Association of Greek Financial Managers (SEODI) and the law firm of KOUMENTAKIS & ASSOCIATES.

In a packed room, those interested had the opportunity to listen to speeches on three different axes. More specifically, the President of SEODI referred to the role of the Ecumenical Director as part of a family business, Mr. Vasilios Margaris, founder and chief executive of Capital Markets Experts, referred to the necessity of entering a family business on the Stock Exchange, while Mr. Stavros Koumentakis, Senior Partner of KOUMENTAKIS & ASSOCIATES Law Firm briefly presented the new Law on Sociétés Anonymes and referred to its application in family businesses.

Stavros Koumentakis highlighted the multiple business opportunities that the changes brought by the new Law on Sociétés Anonymes are making and noted that Law 4548/2018, which has already begun to be implemented, offers many benefits that we need to focus on. In the relevant DECALOGUE, Mr. Koumentakis stressed that the new Law on Sociétés Anonymes offers options for:
(1) Quick and economic start;
(2) Attracting & retaining executives;
(3) Cost reduction;
(4) Attracting investment funds;
(5) Various ways of raising liquidity;
(6) For managing small shareholders;
(7) Exploiting technology;
(8) The preparation of succession
(9) Protection of investment and
(10) Protection of persons.

As Mr. Koumentakis characteristically mentioned: “The new law is an important opportunity to get to know the operation of our Société Anonyme. With proper guidance and implementation of the new law, we can ensure better protection for founders, shareholders and the investment, redesign on the right bases and reduce operating costs. We can also attract new people and maintain the most capable executives, create the conditions for access to “cheap” funds and use modern technology, and finally, we can better prepare for the next day of our business”.

In the relevant presentation and video briefing, the most important of the changes were briefly described and a special emphasis was placed on the need to inform entrepreneurs who need to understand the new law and ensure that this knowledge exists among executives and close associates. Lastly, the urgent need for immediate adaptation of the articles of association has been highlighted not only as compliance with the new law but, in particular, to meet the needs of each entrepreneur and each company to adequately meet present and future requirements – particularly those relating to their safe development course.

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April 30, 2019
Minority and its rights in the Société Anonyme

Minority and its rights in the Société Anonyme: an internal enemy or a determinant of health?

Part A’

«L’ etat c’ est moi» (: “The state is me”) is the most well-known saying, more known than him himself – of Louis IV, that refers to the omnipotence of the ruler and, consequently, to the inability of the existence of a different view. In France in the seventeenth and eighteenth centuries, every minority view was obviously judged to be repugnant: The Ruler knew!

For the opposition, various views have been formulated over time (where and when) its existence has been accepted. One of the most characteristic views was that of Vladimir Ilic Lenin: “The best way to control the opposition is to guide them”. In this case, we have recognized the right of the (minority) opposition to existing with (yet acknowledged) rights of “guiding” it by the ruling (and majority) filiation.

Needless to refer in both cases mentioned above, to the protection of minorities.

Let us consider, accordingly, what the non-recognition of any right to minorities would mean in any business formation.

So, is the (in substance) recognition and safeguarding of minority rights in corporate formations a safety factor not only for the minority but also for potential investors and creditors?

1. Minority rights in the Société Anonyme

In the light of the above considerations, the recognition of minority interests in the (corresponding) shareholders – and not only in the light of the constitutionally protected right of property – seems more obvious. It is also perfectly normal for the current legislator to (slightly) strengthen the rights of minority shareholders in the recent law on sociétés anonymes.

It is true, of course, that we should always “weigh” the rights of the majority shareholders with the corresponding ones of the minority shareholders. The result, in any case, cannot be either the frustration of the proper functioning of the company or the rights of the latter (the minority). The right balance, at least as far as the legislator’s intentions are concerned, seems to be significantly reflected in the recent law.

The recognition (on a formal level) and the existence of (in essence) minority rights, sometimes those that the law imposes on those who the investor (or the creditor) requires, is a prerequisite for seeking and finding investment (or loan) funds – as a rule critical for the smooth operation of the société anonyme.

2. The extent and the nature of minority rights in the société anonyme

The already in force Law on Societes Anonymes recognizes (like its predecessor) a series of rights to minority shareholders depending on the amount of share capital each one or more of them represents. Minority rights are mentioned on the one hand into the provision of article 141 of the new law and, on the other, are spread into its other provisions. Of particular interest, however, are the rights recognized by the law to minority shareholders (those representing 1/20 and 1/5 of the share capital) as regards the control of the company. However, because of their seriousness, we will deal with than in an article to follow.

For the rest, an indicative escalation of the minority rights is attempted, divided into two sections: The one which concerns the (presumably) more important and the other, concerning the remaining, individual rights

3. The most important issues

3.1 Approval of the conclusion of (in principle) prohibited agreements

Shareholders representing 1/20 of the share capital are entitled (Article 100 par. 3) to request the convening of a General Meeting for a final decision on the granting of an authorization to conclude an agreement for the cases in which the conclusion is prohibited without a special authorization granted by the Board of Directors (Article 99 et seq.). In the General Meeting that convenes to this respect (:Article 100 par. 4), the right of shareholders to oppose to the granting of an authorization to conclude the agreement is granted as follows: (a) for listed companies to the shareholders representing a percentage equal to or greater than 1/20 of the share capital and (b) for non-listed companies to the shareholders representing a percentage equal to or greater than 1/3 of the share capital (especially for the latter subject see related article<).

3.2 The critical issues of GM’s competence

Shareholders representing a percentage equal to or greater than 1/3 of the share capital are entitled (:Article 132 par.3) to oppose a decision-making on critical matters pertaining to the operation of the company (indicatively: change of the company’s nationality, its subject, the increase of shareholder obligations, the regular increase of the share capital, the change in the way the profits are distributed, the merger, the division, the transformation, the revival, the extension or the dissolution of the company, or renewing the power to the Board of the Directors for an increase in capital, etc.).

3.3 The distribution of the minimum dividend

A right is recognized (:Article 161 par.2) to shareholders representing a percentage equal to or greater than 1/3 of the share capital to be involved in the decision of the General Meeting to reduce the distribution of the minimum dividend to a percentage less than 35% of the net of profits (after deduction of the reservation for the statutory reserve and other credit lines of the statement of results that are not derived from realized profits). Shareholders representing a percentage equal to or greater than 1/5 of the share capital are entitled to oppose the decision of the General Meeting to not (in whole) distribute or reduce the distribution of the minimum dividend to less than 10% of the net profits.

4. Individual rights of the shareholders

4.1 Rights of individual shareholders

In the law on sociétés anonymes a series of rights is recognized to the individual shareholders of the société anonyme. Indicatively:

The right (: article 79 par.1), if provided for in the Articles of Association, for a shareholder to appoint directly members of the Board of Directors, the number of which should not exceed 2/5 of the total number of its members.

The right (on a non-listed company – under Article 122 par.4) for the shareholder to require the company to send to him by email individual information for forthcoming general meetings at least ten (10) days prior to the date of the General Meeting.

The right (: article 123 par.1) to require the company to make available to him the annual financial statements of the company and the relevant reports of the Board of Directors at least ten (10) days prior to the date of the Ordinary General Meeting.

The right (: article 141 par.10) to require the company to make available, within 20 days, information on the amount of the company’s capital, the classes of shares issued and the number of shares in each class, especially preferred, (with the rights granted by each class) and the number of the restricted shares, with the restrictions, per case.

The (conditional) right (: article 141 par.11) to require the company to make available to him the company’s shareholders holding a percentage of more than 1%.

The right in case of dissolution of a company (: article 168 par.4) to require the competent court within three months of the dissolution of the company to determine the minimum selling price of the property, branches or divisions or of the enterprise under liquidation, as a whole.

The right (: article 184 par.5) of any shareholder with bearer shares to request by 31.12.2019 from the competent court to oblige the company to register him/her in the shareholders’ registry, to issue and deliver new registered shares.

4.2 Rights pertaining to a minority of 1/20 of the share capital

The same law recognizes a series of rights to shareholders that accrue more than 1/20 of the share capital. Indicatively:

The right (: article 102 par.7 case b) to consent to the resignation or reconciliation of the company with respect to its claims for compensation against members of the Board of Directors after the relevant action has been brought.

The right (: article 104 par.1) of filling a claim for the company’s claims against members of the Board of Directors (as part of their intragroup liability).

The right (: article 109 par.5 case b) to apply to the competent court to reduce the amount of remuneration or benefit paid or decided to be paid to a specific member of the Board of Directors (subject to the objection, in the relevant General Assembly) of shareholders representing 1/10 of the share capital).

Right (: article 137 par.3 case b) to bring an action for annulment of a decision taken without the information demanded having been given to the claimants.

The right to submit a request to the Company’s Board of Directors for the convening of a General Meeting (article 141 par. 1) for the inclusion of items on the Agenda of the General Meeting (article 141 par. 2), for the provision of information about paid-up amounts and payments to members of the Board of Directors and the Managing Directors (article 141 par. 6), to postpone the decision of the General Meeting (article 141 par. 5) and finally to make an explicit vote (article 141, par.9).

The right (: article 142 par.1) to submit a request to the competent court for an extraordinary audit of the company in the case of acts that violate provisions of the law or the company’s articles of association or decisions of the General Meeting.

The right (: article 169 par.2) in the event of rejection or non-approval of the acceleration and liquidation plan, submission to the competent court for approval of the above plan or other appropriate measures.

4.3 Rights pertaining to a minority of 1/10 of the share capital

For shareholders holding more than 1/10 of the share capital, a series of rights are recognized. Particularly:

The right (: article 79 par.3 case (c)) to apply to the competent court for the revocation of a counselor appointed by a shareholder (in the context of exercising the relevant right provided by the articles of association- in accordance with paragraph 1 of same article), for a significant reason related to the person appointed.

The right (: article 102 par. 7 cases (a)) to consent to the resignation or reconciliation of the company with respect to its claims for compensation against members of the Board of Directors, before the possible exercise of the relevant claim.

The right to information on the course of corporate affairs and the assets of the company (Article 141 par.7).

Finally, the right to request a court to interrupt or omit the liquidation stage and to immediately take the company out of GEMI – if the company’s assets are not expected to be sufficient to cover the costs of the liquidation (article 167 par.6).

4.4 Rights pertaining to a minority of 1/5 of the share capital

For non-listed companies the right is granted (: article 135 par.1 case d) to shareholders representing a percentage equal to or greater than 1/5 of the share capital to be involved in the decision-making by the General Meeting by a vote without a meeting.

In addition, the minority of 1/5 of the share capital is granted with the right (: article 142 par.3) to seek extraordinary insolvency by the court if the management of corporate affairs is not exercised as required by sound and prudent management.

5. Shareholder’s Unions

The Shareholders’ Unions (: institution first emerging in the new Law on Sociétés Anonymes – Article 144) are entitled to exercise the rights granted to the individual shareholders but not those relating to each one of them individually.

In conclusion

The Law on Sociétés Anonymes recognizes (and correctly) a set of rights for shareholders with minority shareholding interests. Naturally, minority rights become more important as greater is the percentage of the share capital held by a shareholder. Of the most important are those of controlling the majority and its actions, which, however, because of their seriousness, will concern us in the next article.

The existence and the ability to exercise minority rights are, in principle, beneficial for the company and the achievement of corporate goals – of course, for attracting investment funds as well. However, it is absolutely harmful to the company to abuse minority rights as well as to exercise it for the benefit of the existing shareholder rather than the company. However, given that what is (and is) the priority of the company rather than that of the individual shareholders, such situations need to be prevented, and, if necessary, decisive. It is important, however, not to forget, in any case, that what matters is the corporate interest.

And that_ Only.-

Stavros Koumentakis
Senior Partner

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

April 21, 2019
The new law on SAs: Preferred shares

Preferred shares (as a means of attracting investment funds)

The notion of heroism is connected to our thinking, on a first level, with battlefields and national struggles – it is well known what Winston Churchill said to this respect for the heroes and the Greeks. But true heroes are also those of everyday life-those of the next door. Not only today but always. It has been written that “in the Odyssey, heroism is not that of battlefields but the endless struggle of the survival and success of post-war peaceful purposes such as development, trade …”.

It is, therefore, a rule for companies to have the need (and, sometimes, a lust) to obtain liquidity. Other times the basic one and sometimes the necessary for investments. As the banking system does not tend to “prosper” to such demands, entrepreneurs (smaller or bigger heroes of everyday life) seek to create the necessary conditions and incentives to attract capital. Such incentives, taking advantage of the law’s options, can be given, as already stated in our previous articles, through warrantsand/or redeemable shares.

The “privileges” of investors and the benefits for the business

Why, however, preferred shares are seen as an instrument or form of financing and, moreover, more attractive than others (e.g. a bond loan or common stock)?

The investor (whether a retail investor or not) is looking for alternatives other than to date to place his savings. Most of it and its participation in the share capital of the company-as owner of preferred shares.

The privileges that can be given to the shares in question can be moved in a very broad context. In some cases, however, more interesting for the investor (and probably also for the business) would be: (a) the provision of a fixed dividend, (b) the drawing of interest and (c) the participation, in priority, to the company’s profits from particular business activity.

The ability to liquidate them could also be a special “privilege”: As we can redeem preferred shares, the time and manner of liquidation of the investment will be predetermined. As well as the overall-final benefit of the investor.

And in terms of business? It is important to stress that preferred shares broaden their capital base and improve its financial ratios and creditworthiness. Voting rights may not be a problem as preferred shares may be issued without voting rights.

In conclusion

The institution of the issue of preferred shares is, to a considerable extent, unknown in terms of its potential exploitation at the business level. However, the options and flexibility of the law and the possibility of combining it with similar institutions (e.g. redeemable shares) can make preferred shares an important tool in trying to attract investment funds. Finally, the potential claim of investors to place their funds in a company through the acquisition of shares with privileges focused on their desires, needs and requirements, and with a predetermined time and price for their disintegration, can make their respective investment more attractive and safer.

Stavros Koumentakis
Senior Partner

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

April 7, 2019

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