Tag: μειοψηφία

Minority rights in the Sosiete Anonyme. Part II. The Exceptional Auditing

Minority Rights In The Société Anonyme: An Internal Enemy Or A Determinant Of Health?

Part B’- The Exceptional Auditing

According to Solon the Athenian: “Best governance is where the people obey the rulers and the rulers obey the laws”. In the course of history, it has turned out that everyone who rules embraces (apparently, or even deeply) Louis Ludwig’s XIV saying “L ‘etat c’ est moi” (“the state is me” – for which we have already referred to in Part A of the present). In order to ensure legitimacy in the parliamentary democracy, the principle: “the government rules and the opposition controls” (rightly) applies.

All of this, of course, does not concern politics alone, as it would be easy (and reasonably) able to make the visibility in life and business: Thus, obviously, brought birth to the need for control of the (small or large) majority of each minority. To safeguard the property of the latter but also the property of the enterprise. To ensure its prosperity and its growth.

And finally: A company under the watchful eye of multiple controls and auditors pretends (and potential investors and/or creditors) for clear financial and “clean” representations …

Regular And Exceptional Auditing In The Société Anonyme

We have referred to minority rights (interests) in the Société Anonyme in a previous article. In the present, our reference is limited to the minority rights that are linked to the exercise of exceptional auditing.

The regular auditing is distinguished for its periodicity as it relates to the approval of the annual financial statements by the General Meeting of the companies concerned (but not necessarily for those designated as small and very small entities). Therefore, exceptional auditing may be carried out in a company under regular auditing.

In this context, it is not paradoxical to overlap (partial or total) specific auditing areas: for example, checking the fund is subject to regular auditing but it may also be the subject of exceptional auditing.

In any case, the exceptional auditing may:

(a) also cover areas not covered by the regular auditing such as, for example, the feasibility of managing the company;

(b) be always more targeted than the regular;

(c) be carried out, in principle, by persons other than those carrying out the regular auditing and in different ways by the appointed ones;

(d) result in a finding that is not primarily addressed to the same recipients.

Types, Conditions and Exceptional Auditing Procedure

In the event that the conduct of acts contrary to the law, the articles of association and/or resolutions of the General Meeting is assumed, shareholders representing more than 1/20 of the share capital of the Société Anonyme (or, for listed companies, by the Securities and Exchange Commission) are entitled to submit a request to the competent Court for the purpose of carrying out the relevant auditing (article 142, par. 1 & 2, l. 4548/2018). The relevant application shall be submitted within three years from the approval of the financial statements for the year in which the transactions in question appear to relate.

However, if the circumstances show that the management of the company is not exercised in a proper or prudent manner, shareholders representing more than one fifth (1/5) of its share capital shall be entitled to apply to the competent court for the purpose of carrying out the audit ( Article 142 par.3, l. 4548/2018).

The court decides whether or not to accept the verification request after checking whether or not the aforementioned conditions are met. It is likely that the requesting minority shareholders are represented in the Board of Directors (either because they have directly appointed members or because they have been elected members of the list of potential shareholders nominated by the shareholders). In this case, the court may also assess that there is no justification for the submission of such a request which, in such a case, will be rejected.

The Auditors And the Conduct Of The (Exceptional) Auditing

f the court accepts the request for auditing, it specifies the persons who will carry it out (Article 143). The persons entrusted with the auditing may be:

(a) an audit firm or, at least, a statutory auditor;

(b) Holders of an A class accountant’s license from the relevant Economic Chamber and, in addition (when it comes to the legitimacy or good governance)

(c) persons with any specific knowledge, if required.

The court, when accepting the request, also determines the amount of the remuneration of the appointed auditors, as well as the procedural issues regarding the time of payment, the possible advance payment and the person charged (if the applicants are liable for payment or the company under auditing).

The auditors appointed will have to complete the auditing assigned to them in the shortest possible time. The relevant result is handed over to the applicant as well as to the Company. The Board of Directors is obliged to inform the shareholders of the company (no later than the next General Meeting) and the Hellenic Capital Market Commission – in the case of a listed company.

However, it is important to underline that there is an independent obligation for auditors to submit their findings to the competent public prosecutor in case they find that criminal offenses have been committed.

Exceptional Auditing: A Blessing or A Curse

The exceptional auditing is usually conducted either when there is evidence or suspicion of mismanagement or when the demand for applicants is to exert pressure on the managers.

Taking into account the potential scope and depth of the auditing being carried out, the exceptional auditing may work:

(a) dissuasive or unlawful or unauthorized acts;

(b) as a means of exerting pressure on their executives or (under certain conditions) of their extortion;

(c) as (critical) evidence in the context of claims against the persons involved.

It follows from the above that the right to conduct exceptional auditing is of particular importance in the operation and (conditionally) in the life of the société anonyme itself. This is even more perceptible when criminal offenses are identified, so the competent prosecutor must also be involved.

In any case: The emergence of unauthorized or unlawful acts through an official (legally ordered) auditing procedure can only cause problems for the company itself – and not only to the case-by-case, insolvent or legally culpable persons.

Minority rights in Conclusion

The recognition of the (exceptional) auditing of the société anonyme by minority shareholders is of no doubt that it sometimes works positively (sometimes even beneficial) in the exercise of its management and in the achievement of the corporate purpose. There is also no doubt that it works in the direction of assisting the development of entrepreneurship as well as potential synergies.

The mediation of the competent court to investigate the fulfillment of the conditions for carrying out the exceptional auditing adds value to the procedure, but also to the seriousness of its outcome. It is basically a result that can hardly be ignored by the members of the Board of Directors, the shareholders and the competent authorities. (And especially with regard to the latter let’s always keep in mind that no business is able to work absolutely thoroughly …).

Accordingly, any abuse (sometimes simple exercise) of the right in question is harmful not only to the majority shareholder but also to the legal entity it concerns, itself. From this perspective, we all (majority and minority shareholders, legal representatives, courts dealing with such cases) work towards balancing potentially opposed interests and, ultimately, towards safeguarding the interests of the société anonyme.

Only.-

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article for minority rights has been published in MAKEDONIA Newspaper (April 27th, 2019).

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 Societes Anonymes

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At Koumentakis & Associates Law Firm we have a deep faith in the values and benefits of preventive law practicing. We are not limited to just good conventional predictions and / or developing the right strategy in our clients’ affairs. We are proceeding with the evaluation of the adverse effects of existing legislation and, consequently, with proposals for legislative interventions to prevent them.

This includes the comments of Stavros Koumentakis, Senior Partner of our firm, on the (unfortunately poor) predictions while implementing the new Law on Sociétés Anonymes regarding its provisions for contracts between their shareholders and their directors.

The risk of abuse of existing legal options by shareholders of the minority acting in bad faith is (more) visible. Our proposed legislative intervention has already been adopted by FINF (Federation of Industries of North Greece) and has been properly processed.

The public debate has opened!

THE NEW LAW ON SOCIETE ANONYMES

The Contracts Of The S.A. With Main Shareholders, Members Of The Board Of The Directors And Related Parties: The Problem With The (Potential) Dramatic Consequences

A. INTRODUCTION: THE VIEW OF THE COMPANY

1. The New Law On Societes Anonymes

With the recent law (L. 4548/2018), a commendable effort to reform the law of Societes Anonymes as well as the replacement of a hundred-year (old) statute were concluded. Changes are, in some sections, sweeping. The (careful) adaptation of the articles of association of Societes Anonymes should take place in 2019. However, the effect of the provisions of this law begins immediately: from 1.1.2019.

2. The Contracts Of The S.A. With Main Shareholders, Members Of The Board Of The Directors And Related Parties

One of the most important issues that the new law is regulating is the conclusion of these contracts.

The matter has already been dealt with by the European Union legislator in Directive 2017/828: thus, this concerns exclusively companies listed on a regulated market. The new law adopts (Articles 97, 99 et seq.) the provisions of this Directive for all companies. Is this right for non-listed?

3. The Options Of The New Law And The (Dramatic) Risks For The Shareholders Of The Majority

Based on the options of the new law it is NOT entitled to participate in the decision-making process in the Board of Directors and the General Assembly the member of the BoD or any shareholder, who derives interest (directly or indirectly) from the particular transaction. It is noteworthy that the final decision belongs to the General Assembly, which is convened on this issue at the request of 5% (only) of the share capital. Only the remaining shareholders – in practice, i.e. ONLY the (usually one) minority shareholder – can vote in this particular General Assembly.

This choice (as it appears) is intended to protect the minority shareholders and the company itself from the unfair influence of the persons entitled to make decisions on its behalf.

Unfortunately, it is expected to lead to exactly the opposite effects to those that the Legislative Committee was looking at: The privilege of 5% minority shareholders to decide unilaterally on the matters relating to the company’s relations, for example, with the shareholder of the majority is expected to lead to abusive (and / or extortionist) behaviors.

The possibility, which tacitly is given to the majority shareholder (even if it owns 95% of the share capital of the SA) to defend himself with (multiannual and costly) legal actions, does not ensure his own interests nor the company’s.

4. The Solution of the “Gordian Knot”

Therefore, there is no doubt that there is a strong need to find a different solution. For example, to return to the former (safer and fairer) “regime” (article 23a of Law 2190/1920): Shareholders who derive interest from a contract are entitled to participate in the General Assembly that will provide the final approval, but the authorization to conclude it will be provided only if it 1/3 of the share capital represented in it does not oppose.

This particular issue poses serious risks to the smooth operation of Sociétés Anonymes.

The solution should be simple and immediate!

Otherwise: The only ones to be happy shall be the malignant shareholders of the minority and their lawyers (and of course, the lawyers of the shareholders of the majority) ….

Β. THE DATA FROM A LEGAL POINT OF VIEW – THE PROPOSED SOLUTION

1. Preamble

1.1 According to the chairman of the legislative committee on the reform of the law of SA Prof. Evangelos Perakis (Evangelos Perrakis “The New Law of the Société Anonyme”, Nomiki Bibliothiki, 2018, p. 59) “two major issues of great difficulty were the subject of the new law … the question of the remuneration of the members of the board of directors … and the issue of related party transactions … of those transactions that are suspected of occurring through the unfair influence (and for the benefit of) persons controlling or managing the company …”

1.2 The Legislative Committee, which has been set up for this purpose, successfully completed the titanium project of the transition from hundred-year (old) statute (L.2190/1920) to a modern statute (Law 4548/2018) that will govern the operation of the Société Anonyme. However, in such a large project it would be impossible to avoid problems; some, indeed, serious.

2. Related Party Transactions Management – Selected Solutions

2.1 The way selected by the Legislative Committee for dealing with the above mentioned (under 1.1) significant problems and finally adopted by Law 4548/2018 is basically reflected in the provisions of Art. 97, 99 & 100 as well as to that of Art. 109.

2.2 The rule in Art. 99, par. 1, L. 4548/2018 provides for the prior authorization by the Board of Directors of the Société Anonyme for the purpose of concluding contracts with related parties (members of the BoD of the company, persons controlling the company, close members of their family, the legal entities controlled by them, General Directors and Managers of the company etc-99 par. 2)

2.3 The rule in Art. 97, par. 3, L. 4548/2018 provides that when there is a conflict of interest between the members of the Board of Directors (or the aforesaid, under 2.2, related persons) and the Société Anonyme, these members are NOT entitled to vote. As a matter of fact, if failure to vote concerns so many members so as not to have a quorum, the issue is referred to the General Assembly. However, even if the number of remaining members is adequate for the decision by the Board of Directors to be taken, a minority shareholder holding 1/20 (i.e. 5%) of the share capital may impose (in any event) the convening of a General Meeting with the subject of the provision of or not of the relevant approval (Article 100 (3)).

2.4 In the event that the person directly or indirectly involved in the conclusion of the contract happens to be a shareholder, the votes corresponding to his shares are not counted either in the quorum formation or in the majority (Article 100 (5)). Equally, however, neither the votes corresponding to the shares of the related parties are counted. Therefore: The minority shareholder of 5%, for example, (whether acting in good faith, or not), and he ALONE is the one who will take the decision concerning the shareholder of the majority – 95%, for example, after taking into consideration his personal view, and of course his personal interest, and not necessarily that of the company.

2.5 The choices of the new law (L. 4548/2018) and especially the abovementioned deprivation of the right to vote are based on the provision of Art. 9c (4) of Directive 2007/36 / EC (inserted by Directive 2017/828).

2.6 [As an aside, it is to be noted that the rule of Art. Article 99 (3) of Law 4548/2018 provides for a series of exceptions to the application of the above formal (and in our view problematic) procedure. From these exceptions, it is, in our view, to be proved more important in practice the exception provided in case (f): from the generally risky and problematic procedure are excluded the contracts of the company concluded with other directly or indirectly controlled ones, which are concluded with the objective of the interests of the company or from which the interests of the company and of the at shareholders of the minority are not jeopardized. This case is expected to be popular in practice, but it is quite vague as to its specific criteria while it concerns only part of the disputed transactions].

2.7 The above mentioned regarding the deprivation of the voting rights in the Board of Directors and the General Assembly, unfortunately also apply when remuneration is to be paid to the members of the Board of Directors in the framework of a special relationship (in the framework, for example, of the most commonly selected contracts of employment, management contracts or mandates – Article 109 (3)): In such cases, the SOLE member to decide is the shareholder of 5% and not the 95% shareholder (if the latter is also the member of the Board of Directors whom concerns the discussion of the fees to be paid).

2.8 Conclusion: In any of the above cases (: conclusion of a contract between the SA and related parties and / or members of the Board of Directors – the contracts for their remunerations included), and of course also in a number of others, is shown the absolute contradiction that the one to whom the power to take a potentially very important decision within a SA, is not the shareholder of 95% but the one of 5%.

3. The Scientific Approach

3.1 On the basis of what Prof. Evang. Perakis mentions (Evang. Perakis, “The New Law of Societe Anonyme”, Nomiki Bibliothiki, 2018, p. 63): “In any case, deprivation of the right to vote may be considered to be an excessive measure because of its possible consequences, as for example the ability of an obstructive minority of 1/20 of the share capital to seek for a General Assembly to convene in order to reject itself the transactions with shareholders – members of the management of the company with whom they have bad relations while the latter will be unable to vote. It must therefore be accepted that the refusal of the minority to grant the license to conclude the contract should also be reviewed under the provision of Article 281 of the Civil Code”.

3.2 The proposed by Professor Evang. Perakis solution (the judicial ascertainment of the abusive refusal of the shareholder holding the 5%) seems to refer the issue in the distant future and at considerable cost to the companies involved and, above all, to uncertainty as to the outcome. Business decisions, however, should not wait for long lasting legal procedures. It is widely known (to all, lawyers, entrepreneurs, “institutions”, etc.) what it means to wait for the issue of a final judgment (first instance proceedings, appeal) and / or an irrevocable decision on any matter; a fortiori, a judgement on the ascertainment (or not) of the abusive exercise of a right.

4. The Ratio of the Regulations of Directive 828/2017

4.1 The ratio of the regulations of Directive 828/2017 (beyond any doubt) is to ensure: (a) the smooth and unhindered operation of the companies whose shares are admitted to trading on a regulated market as well as the adequate management and performance of the company and (b) the encouragement of the long-term active participation of the shareholders and the improvement of the transparency between companies and investors; as it is already apparent from the recitals 2 and 3. The ultimate goal seems to be the smooth functioning of the “markets” in view of the participation of large sections of the population in Europe and of their general effect on the individual national economies. Particularly, in relation to the transactions of these companies with related parties, “adequate protection of the interests of the company and the shareholders who are not related, including minority shareholders” (recitals 42 and 43) is also sought.

4.2 These objectives and, more generally, the provisions of Directive 828/2017 refer explicitly to “listed” companies and do not extend to “non-listed” companies. This choice of the EU legislator is not accidental: If the reasons for the specific arrangements for “listed” companies were at the same or at a similar level as in the case of “unlisted”, it would be obvious that the latter would also be included (even with minor variations) in the regulatory scope of the Directive.

5. The Greek Reality

5.1 The rule of the Directive, as already mentioned, refers ONLY to the listed companies. However, it was consciously chosen by the relevant Legislative Committee to extend to the non-listed, ignoring the harsh Greek reality that has at least two strands:

(α) Until 2007, the creation of a single-member Société Anonyme was not allowed. Until then, we used to set up Sociétés Anonymes by providing a small percentage (for example 5%, and why not!) to a friend of the exclusive shareholder. Obviously, no one was aware that the percentage of 5% would be able to gain power in “life and death” …

(b) The shares of unlisted Sociétés Anonymes usually belong to a narrow circle of persons (members of the same family, close relatives or friends), whereas as a rule one person is the main shareholder and “runs” the company. Shareholders with small shares in the share capital either acquired them by transfer from the main shareholder or participated in the formation of the company (in both cases with or without payment of the corresponding “price”, having full knowledge of who is managing the company) or, finally, due to succession. Vesting them with the same heightened protection that the shareholders of the “listed” companies need due to the wide dispersion of their shares would not only be unjustified but would also turn these shareholders into potential blackmailers of the majority while it would undermine the proper operation of company and could even lead it to complete depreciation.

5.2 In view of this, the extension by Law 4548/2018 of the provisions of Article 9c (4) of the Directive (Articles 99-101 of Law 4548/2018) also to the “unlisted” companies not only is no self-evident but it is also lacking convincing justification. The legitimate weighting of the interests of the regulated entities in every legislation does not seem to justify the extension but, on the contrary, it fails to appreciate or, at the very least, does not adequately assess the reality of the “unlisted” companies mentioned above in 5.1 Thus, the reasons for the specific arrangements for “listed” companies do not apply neither in the same nor to a similar extent for “unlisted” companies”, which makes the Greek legislator’s choice for “expansion” to the latter problematic.

6. The Proposed Solution

The aforementioned leave no doubt that there is a major need to restrict the application of the provision of Art. 100 par. 5 of Law 4548/2018 to the listed companies and to amend it (before the beginning of the implementation of the new law-1.1.2019, with the additions in bold) as follows:

“Article 100 ….. Par.5.

(a) For a company with shares listed on a regulated market, in the case where the transaction concerns a shareholder of the company, that shareholder does not participate in the vote of the general assembly and is not counted for the formation of the quorum and the majority. Similarly, no other shareholders with whom the counterparty is linked by a relationship under Article 99 (2) shall participate in the vote.

(b) For a company with shares not listed on a regulated market, in the case where the transaction concerns a shareholder of the company, that shareholder participates in the vote of the general assembly and is calculated for the formation of the quorum and the majority. Similarly, other shareholders with whom the counterparty is linked by a relationship subject to paragraph 2 of Article 99 shall likewise participate in the vote. In that case, however, the provisions for the quorum and the majority of Articles 130 (3) and 132 (2) shall apply.”

7. Moral

This piece of legislation (Law 4548/2018) seems to be legally in order. It will be tested along the way. It is appreciated successfully.

The Legislative Committee seems to have done a great job. Its President continues to be, for us all, a teacher.

However, despite all these, it is a fact that the aforementioned provision of Art. 100 par. 5 seems (and is) problematic with regard to non-listed companies.

Its amendment is desirable, as above.

Stavros Koumentakis
Senior Partner

P.S. A shorter, Greek version of this article has been published in MAKEDONIA newspaper (November 18, 2018)

November 18, 2018

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