Koumentakis

Tag: μεταβίβαση επιχείρησης

  • Transfer of business & employment relationships

    Transfer of business & employment relationships

    The entrepreneur has the right, in the context of their business freedom and action, to make the best decisions. Some of their decisions can significantly change the current state of their business. Others may even mean the change of the person who operates and exploits it. Sale, acquisitions, mergers, and secessions are (not infrequently) business decisions, which may mean what the law considers a “transfer of business”. However, when the “transfer of business” occurs, its legal consequences occur automatically. Some of them also concern the automatic transfer of employment relations to the new business. This possibility can be positive. But it can also be dangerous. Especially for the one who acquires them.

    The regulatory framework of the institution of the transfer of business

    EU law

    The first attempt to regulate the issue of business transfer at the level of the European Union took place in 1977 with Directive 77/187. It was subsequently amended in 1998 by Directive 98/50. It was finally codified with the current 2001/23.

    The central goal of the first Directive (: 77/187) was the protection of employees and the maintenance of jobs and working conditions. And all this in the case of the change in the structure of the business that is carried out through the transfer of businesses, facilities or parts of facilities to other entrepreneurs. Also, the convergence of the level of protection between the rights of the Member States, and eventually the regulation of a single market.

    In its recent decisions, however, the ECJ, deviating from its till then established case law, accepts that the Directive also seeks to protect the interests of the person acquiring the business. It has characteristically considered that the Directive “… does not have the sole purpose of safeguarding, in the event of a business transfer, the interests of employees, but seeks to ensure a fair balance between their interests on the one hand and the interests of the transferee, on the other…” ECJ C-426/11, Alemo-Herron etc).

    National law

    The legislator’s concern for the protection of employees’ rights, in case of transfer of the business, was manifested early (and) at the level of national law. With the provisions, specifically, of articles 6 §1 L. 2112/1920 and 9 §1 Royal Decree 16 / 18.7.1920 which provide that the change in any way of the employer’s person does not affect the application of the provisions which have been adopted in favor of the employees for the termination of the employment contract. Article 8 of the Presidential Decree of 8.12.1928 stipulated that, in case of enlistment, when a change of the employer’s person occurs, the obligations established by this legislation for employers are automatically transferred to the new employer. Furthermore, according to article 6 par. 2 L. 3239/1955, the obligations and rights arising from a collective employment contract are automatically transferred to the successors of the employer bound by it.

    In addition to the above fragmentary arrangements the P.D. 572/2002 was initially issued, in order for the Greek legislation to be harmonized with Directive 77/187. Then, in view of the newer Directive 98/50, the current P.D. no. 178/2002 was issued. (which abolished the previous PD 527/1988).

    The conditions of the “business transfer”

    Directive 2001/23 provides that: “… as transfer, within the meaning of this Directive, we consider the transfer of an entity that retains its identity, which is understood as a set of organized resources for the purpose of conducting economic activity, either main or secondary. (Article 1 §1 b).

    In order for there to be a “transfer of business” and for the implementation of the specific Directive and the P.D. 178/2002, the following conditions must be met:

    (a) The transferee shall be an “economic entity” prior to the transfer.

    (b) For this economic entity a transfer should take place, which presupposes on the one hand the change of the control and on the other hand the preservation of its identity.

    The designation of a unit as an economic entity

    From article 1 §1.b. of the Directive and the established case law of the ECJ, it appears that there are two elements that characterize a unit as an economic entity. Specifically:

    (a) it should be a set of organized resources, ie a set consisting of human resources, materials and intangibles; and

    (b) the organized resources should pursue a certain economic purpose (even non-profit).

    The ECJ, in addition, considers that the transfer should concern a, on a permanent basis, organized economic unit. That is, the activity of the latter should not be limited to the execution of a specific project only.

    It should also be noted that the ECJ has ruled that the entity is not identified with the very activity it carries out. This assumption leads to the conclusion that if we have a transfer of activity it does not mean, without a doubt, that there is a transfer of the entity.

    The concept of an economic entity, in addition to the business as a whole, also includes its individual parts. The division of the business, however, according to the ECJ, must have functional autonomy without, necessarily, being required to be complete (ECJ, C-664/17, Hellenic Shipyards).

    The concept of the transfer of the entity

    After the existence of the entity is confirmed, based on the two, above-mentioned criteria, the verification of the existence of its transfer follows. Specifically, it is verified:

    (a) Whether the transferred entity retains its identity after the transfer.

    (b) Whether there is a change in the entity. That is, if the person in charge of the operation of the business changes, without it mattering whether its ownership is transferred.

    Maintaining the identity of the entity

    According to the case law of the ECJ, the decision to maintain (or not) the identity of the entity depends on the overall assessment of the circumstances of each case. In the above context, the ECJ considers some elements as crucial for the establishment of identity retention.

    These are:

    (i) the transfer or not of tangible assets (equipment and facilities);

    (ii) the transfer or not of intangible assets and their value (including: trade marks, patents, distinctive titles);

    (iii) the hiring or not of a significant part of the workforce by the new entrepreneur,

    (iv) the transfer or not of the customers,

    (v) the degree of similarity of the activities carried out before and after the transfer; and

    (vi) the duration of any interruptions of the specific (under v) activities.

    The above elements do not need to be cumulative. Instead, they are taken as indications in the context of the specific circumstances that apply in each individual case.

    It is crucial, however, to distinguish whether an entity that survives the change of its control is transferred. Conversely, if some assets of the business are simply sold without continuing to operate with each other, then a transfer is not considered to take place.

    Change in the control of the economic entity

    The transfer of a business presupposes the change of its operator. The operator of the economic entity means the natural or legal person who exploits it and operates it in its name and on its behalf (1553/2002 Supreme Court). The operator is also the employer of the employees of the business. When there is a change of the operator, the employer also changes.

    Consequences of the transfer of business

    The automatic transfer of the employment relationship

    According to our national law (: article 4 §1 PD 178/2002), through the transfer of the economic entity-and from the time of its realization, all the (existing) rights and obligations that the transferor has from the employment contracts (or relationships), are transferred to the successor. This is a transfer by law of all the employment relationships (1478/2006 Supreme Court). From the time of the transfer, then, the successor employer automatically enters the position of the previous one (employer), in terms of rights and obligations arising from the employment relationships. At the same time, with the transfer of employment relations, the new employer is obliged to comply with the working conditions provided by collective labor agreements, arbitration decisions and labor regulations (: article 4 §2 PD 178/2002).

    Protection against dismissals

    The transfer of a business or establishment does not in itself constitute a reason for dismissal of employees (article 5 §1 PD 178/2002). This regulation introduces, therefore, an independent reason for the invalidity of the dismissal and complements the protection provided by the general provision (: article 4 §1 PD 178/2002).

    It is argued, of course, that the provision of article 5 §1 PD 178/2002 does not prohibit dismissals, when they are a consequence of taking measures in order to rationalize and consolidate the business, in view of improving its sales prospects. In any case, however, the violation of article 5 §1 by the successor brings all the consequences of the invalid termination (obligation to pay arrears of wages, claim for actual employment, etc.).

    The entrepreneur, of course, is the one to plan for the future of their business. However, their adoption of the best, according to them, relevant options is not, in principle, without consequences. Employment relations are important and should, in this context, be taken into account.

    However, it is important to point out that the adoption of one or the other option does not only concern the entrepreneur who, possibly, transfers their business. It concerns, respectively, perhaps even more, the businessman that acquires the business.

    The evaluation of the individual data, based on the assumptions mentioned above, is crucial in this context. It is absolutely necessary to reduce the “legal risk” and, consequently, to reduce the related business risk.

    It is absolutely necessary, therefore, to dispassionately assess the (legal) data, in order to make the best possible (and of course more ensuring-for everyone) decisions.-

     

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 23, 2021).

     

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

  • Family businesses …… the challenge of succession and transfer

    Family businesses …… the challenge of succession and transfer

    Family businesses make up the vast majority of businesses, globally, on a European and, of course, on a national level. In our country they constitute 80% of the total number of businesses and 44.3% of the listed companies. As a result, they prove to be extremely important for the economy of our country (and not only). They produce economic and social wealth, create and maintain jobs. They often offer innovation. Despite their multilevel contributions, however, they are not a stabilizing factor for individual economies. Their introversion, low productivity and, in particular, the challenge (and usually impossibility) of succession, make their future uncertain and their environment, therefore, insecure.

     

    The difficult (as proven) task of succession

    The task of succession in family businesses proves to be extremely difficult. Its difficulty is confirmed by the findings of the paper “Study on the Succession and Transfer of MM Commercial Enterprises”, prepared under the auspices of the Ministry of Labor and Social Security and the National Confederation of Greek Commerce. Among those findings: “… according to Ward 14 statistics, 30% of family businesses are estimated to pass successfully into the hands of the second generation, and about 15% have successfully passed to the third generation, while longer-lasting companies end up being only 3 out of 100”.

     

    The management of succession in family businesses

    In order for the succession by the next generations to be successful, considerable effort and preparation is required. It is not enough, of course, to choose the (in the opinion of the founder or major shareholder) best successor. It requires, before anything else, a sincere commitment from the same (: founder or major shareholder). It also requires the parallel involvement of consultants in various capacities and close cooperation with them. Significant, and coordinated, effort is required.

    The traditional approach to succession in family businesses seems very simple. It focuses exclusively on the delivery of the company’s reins to the successor. A tradition that has, basically, two stages (the order is random): One concerns the legal transfer of the ownership from the founder (or main owner) to the successor. The other is the transfer of management and the establishment of the successor in the position of the transferor.

    The modern approach (inter: “The process of succession in family businesses” – A. Kefala, C. Georgiou) treats succession as a long-term process that is analyzed in individual phases. In more detail:

    Phase A’: Diagnosis of the health (and possible pathogens) of the family.

    Phase B’: Diagnosis of the health (and possible pathogens) of the business.

    Phase C’: Adopting the model of the Modern Business and Strategically Aligning it with the Vision of the Founder.

    Phase D: Implementation of the Alignment Strategy.

    However, regardless of the methodology one would choose (also look at the aforementioned study as well as at practices and methods adopted by various counselors), one thing is certain: the process of succession in family businesses is not and should not be treated as a simple process.

     

    The transfer of the family business

    The (potential) legal actions and procedural steps of the succession vary, depending on the corporate type of the family business. Since it is impossible to record in one article what happens in all types of companies, we will limit ourselves in this case to the most important of them: the SA. Also, to the most common, at a legal level, possible options.

     

    “Inter vivos” or “mortis causa“?

    The time, the results and the terms of the transfer of the family business can be chosen (or not) by its owner. In the latter case (: when the owner does not choose) the owner lets “luck”, “old father time”, the provisions of the law and, possibly, the “battle” of any of their descendants choose for them.

    In other words: The transfer of the family business can take place, on the terms that the owner will choose during their lifetime (: transfer “inter vivos”). Otherwise, the transfer will happen when, inevitably, the owner’s lifespan comes to an end (at a when unknown to all of us) (: transfer “mortis causa”). In the latter case, the terms and effects of the transfer will be those provided for by inheritance law in general. Possibly by a will of the owner. Especially in SAs, the relevant provision will also apply (: article 42 of law 4548/2018).

    It is true, however, that the specific provisions of the law do not regulate the smooth succession and transition to the next generation. But neither do they guarantee it; and how could they…

     

    The subcategories of the “inter vivos” transfer option

    In a family SA, the subcategories of the “inter vivos” transfer of the shares of the main (or sole) shareholder in the succession are (basically) three: the sale, the parental benefit and the endowment. The path that will be chosen presupposes the identification of the best, tax-wise, solution. And, therefore, the optimal tax (and of course legal) planning.

    Also: the shares to be transferred in the succession can be transferred in full or only in partial ownership – ie by transferring the bare ownership and withholding the usufruct.

    Let’s look at the individual options in more detail.

     

    The transfer of full ownership of the shares

    In SAs, the principle of free transfer of shares applies (article 41 §1, law 4548/18). The shares can be issued pledged, only as an exception (article 43, law 4548/18). Also: it is possible to issue (or not) physical shares. In the event that physical shares have been issued, in addition to the transfer of ownership of the share, the title itself must also be transferred. That is, the physical delivery of the share titles must take place, in addition to the agreement for the transfer of the ownership of shares from the shareholder to the successor.

    The transfer of the shares must be registered in the shareholders’ book (article 41 par. 2 of law 4548/2018).

    It should be noted that in the light of succession, when full ownership of the shares are transferred, this signals something perhaps even more important. Specifically, the final, complete, and irreversible departure of the transferor from the capital (and not only) of the family business. And finally, their complete replacement by the successor.

    Needless to say, the choice of the right successor has, especially in this case, an even greater value.

     

    The transfer of only the bare ownership of the shares

    The shares of the SA may be subject to usufruct (article 54 par. 1 law 4548/2018). The usufruct can be established by agreement (articles 1143 of the Civil Code) between the transferring shareholder-usufructuary and the owner of the bare ownership-successor. Also: for a definite or indefinite period of time. In any case, and for as long as the aforementioned right lasts, the usufructuary has the power of use and benefit from the shares (1142 Civil Code). This, in practice, means that (although there may be different agreements in place) the usufructuary of the shares has the right to receive the distributed dividends; also to vote at the General Assemblies of the company (article 1177 Civil Code & 54 §2, law 4548/2018).

    More specifically, in the event that the transferor transfers only the bare ownership of their shares, retaining the usufruct for themselves, they:

    (a) Ensure their livelihood for the time after the transfer.

    In more detail:

    It is possible for the transferor to look forward to dividends corresponding to the transferred shares for their livelihood. Or, more broadly, they may look forward to managing said dividends themselves. In some cases, the (sufficient) protection of the transferor becomes more or less imperative. After all, there are many examples of (subsequent) ingratitude on the part of the successor. The retention of usufruct by the transferor is a sufficient compensation for the theoretical (and / or practical, sometimes visible) risks.

    It should be noted, however, that, despite the retention of usufruct by the transferor, it is possible to agree on the transfer of the dividend to a third party, other than the usufructuary (Article 33 §5 of Law 4548/18).

    (b) Ensure the maintenance of their position and power in the supreme body of the SA.

    In more detail:

    It is also possible that the transferor wishes (for some time and to some extent) to maintain their involvement in the management and operation of the SA. Retaining for themselves the usufruct, they retain, at the same time, the right to participate in the General Assembly. Also (and most importantly) the right to vote – in the name and on their behalf. In other words, they do not operate as a proxy of the owner of the bare ownership and successor shareholder (articles 1177 of the Civil Code and 54 § 2, law 4548/2018).

    It is possible, however, to agree between the transferring shareholder-usufructuary and the acquiring shareholder of the bare ownership – successor that the latter will exercise the voting rights deriving from the shares. This agreement, in order to be valid before the company, must be registered in the shareholders’ book. However, this agreement may take place at any time after the usufruct has been established.

    In the event that the shareholder holding the usufruct assigns the right to vote deriving from the transferred shares, they demonstrate the maximum possible trust in their successors. The succession will have, at least in this case, occurred. The successor will be the one who will formally be entitled to make the most important decisions for the management and operation of the family business. On a practical level: The right to elect the Board of Directors and, in general, the management of the family business.

     

    The choice (?) of the transfer “mortis causa”

    The “headaches” of the “inter vivos” transfer can be completely avoided by the main (or sole) shareholder of the SA. In what way? By them avoiding, during their lifetime, to make any choice or preparation. This choice (more precisely: denial of choice) certainly seems convenient. It is a given, however, that they will not ensure in this way, not in the slightest, the succession of their business. Moreover, the major (or sole) shareholder may assess that the issue of succession is not sufficiently important or, at least, a major priority for them.

    However, the options they have, relating to the transfer of the shares of their company “mortis causa” are two. The first is to leave things in the “hands of the law” by adopting the option of unallocated succession: just whatever the law provides for their heirs. The second is to adopt the best solutions for them by drafting the appropriate, according to them, will, in order to transfer their shares and company to specific persons, in the way and in a manner that they will choose.

     

    Successful succession in family businesses is a complex process. It requires the commitment of all persons involved. It requires effort, patience, perseverance and, of course, time.

     

    But the latter (: time) is not always ” kind old father time” nor does it “cure all”.

    Therefore: Careful planning of the succession and its completion during the lifespan of the main or sole owner is desirable.

    Most importantly: the willingness and commitment to devote the necessary time and as much energy as each individual case requires.

    Under the specific conditions: the result is going to reward us.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (November 15, 2020).

     

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

  • Transfer of business: The critical issues

    Transfer of business: The critical issues

    Transfer of business: The critical issues behind the apparent business opportunity

    The economic crisis that continues (despite the claims of the opposite) to plague our country, highlights business opportunities. Acquisition of businesses at low prices, due to the accumulated economic problems, is one of them. However, the acquisition of a business other than a business opportunity can at the same time constitute a serious risk to the interests of the acquirer.

    This risk arises from the provision of Article 479 of the Civil Code. Under this provision, the acquirer of the undertaking is responsible also for the undertaking’s debts at the time of the transfer, up to the value of the transferred assets. Particular attention should be paid to the fact that the same liability lies for the acquirer in the event of the transfer of an individual asset of the undertaking when this asset is the sole or the most valuable (significant) asset of the undertaking. Thus, for example, the transfer of a significant value property or the clientele of an undertaking, which is it’s sole or the most important asset, entails the liability of the acquirer for the debts of the undertaking, provided that the acquirer knows that acquires the sole or the most important asset of the undertaking.

    What is crucial is that for this liability to incur, the acquirer is not required to be aware of the existence of the debts at the time of the transfer.

    The acquirer is, by the letter of the law, liable “up to the value of the transferred assets”. Under what seems to be prevailing view, for these debts, there are liable towards the creditors of the undertaking not only the assets transferred but also the other assets of the acquirer. The position of the acquirer becomes (financially) more difficult when he has paid in exchange for the acquisition of the undertaking: his liability is born regardless of whether the transfer was made under an acquisition or due to a gratuitous cause.

    From the above, what becomes evident is the necessity of the conduct of “due diligence” before acquiring an undertaking/ a business. The pre-contractual, i.e., auditing process from a legal, financial, etc., view of the business to be sold. In particular, with the assistance of its legal and financial adviser, the interested acquirer is informed on the liquidity, debts, assets and legal relationships of the undertaking to be sold. This audit significantly restricts – if not completely – the risk of finding the buyer obliged to pay debts of the transferred business, which he was unaware of.

    Finally, a potential acquirer of a business should be aware that, as a result of the transfer, it automatically enters the employer’s position vis-à-vis the employees of the transferred business and is liable to them, provided that the undertaking continues to operate by maintaining its economic unity. In case a part of a business is transferred, the buyer automatically substitutes the transferor only for the employment relationship with the employees of that specific part.

    In conclusion, each potential acquirer of business, before starting negotiations for its acquisition, is required, in order to avoid problems, to keep in mind all the above factors and to receive appropriate guidance from its legal and financial advisors.

    Evdokia Kornilaki
    Senior Associate

    Υ.Γ. This article has been published in MAKEDONIA Newspaper, on the 23rd of March 2019.

     

     

     

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