Tag: Law 4548/2018

General Assembly of the SA: The Highest Corporate Body

The Board of Directors is in fact of fundamental importance for SAs (Read: The Board of Directors of the SA: Operation, Power, Members).

Introducing the chapter on General Assembly of SAs, (GA), we will be focusing in the particular importance and value of the highest body of the SA and of course the limitations of its power.

General Assembly of SAs: The scope of its decisions and powers

The General Assembly is established by law (: art. 116 law 4548/2018-as previously in force) art. 33 of Codified Law. 2190/1920) as the “highest body” of the SA (see Explanatory Report on art. 116, paragraph a, Law 4548/2018). The hierarchical organization of the SA is therefore demonstrated, at the highest level of which the General Assembly is located. It constitutes a collective body, the members of which are, exclusively, the shareholders of the company (in practice: owners of the SA and bearers of the financial risk of its activity).

The characterization of the General Assembly as the highest body of the SA derives from and is consistent with the nature of the responsibilities granted to it and recognized by the law: The General Assembly “…is entitled to decide on every corporate matter” (: art. 116).

The General Assembly of the SA has the power and authority, among other things, to elect (and freely recall) the Board of Directors (and the auditors) of the SA. To also exercise control and supervision over the activity of said bodies and persons – who are accountable for the actions of the respective management period. After the end of each corporate year, it approves (or not) their overall management. Therefore, the Board of Directors of the SA functions, in principle, as an executive body of the decisive will of the General Assembly (more precisely: of the majority of shareholders).

It would not be an exaggeration to note that the General Assembly is responsible for taking the most important (in terms of importance and gravity) decisions regarding the existence, activity and course of the company. Even regarding its dissolution. In fact, regarding certain decisions, its responsibility is exclusive (especially art. 117 – for which our next article).

Participants and decisions

The decisions of the General Assembly are, of course, made by the shareholders. Directly linked to the shareholder status is the right to appear (in person or by proxy) and actively participate in its meetings. Shareholders have the opportunity to request information – on the occasion of an upcoming meeting or during the work of the General Assembly. During its conduct, in fact, they have the right to take the floor and ask questions – in the framework predetermined by law. The ultimate purpose of all individual rights of this nature is, in principle, the creation of the necessary conditions for the documented exercise of the right to vote for each of the items on the agenda. It is assumed, of course, that they hold the right to vote either as full owners of their shares or, for example, as usufructuary or pledged creditors. During voting, it is not possible for them to participate, automatically, when they are deprived of the right to vote (e.g., holders of non-voting preference shares).

In order for the decisions of the General Assembly to produce legal results, the quorum and majority percentages must be met for the adoption of each decision, as provided for in the law and the articles of association. The voting of an individual shareholder (but not the sole or majority shareholder) has no consequences. It simply contributes to the formation of the corporate will, as expressed by the General Assembly. The decisions of the General Assembly, of course, are binding on all shareholders, regardless of whether they abstain, are absent or disagree (art. 116, sub. b).

The action of the General Assembly (in contrast to the permanent nature of the Board of Directors) is periodic. The body meets – but also exists to take decisions according to the law and its articles of association – only when convened for this purpose. Its convening is sometimes mandatory (:ordinary General Assembly) and sometimes when it is deemed necessary by the circumstances (:extraordinary General Assembly). It is important to provide the shareholders with the opportunity to participate in decision-making without necessarily holding a meeting or even by simply signing the relevant minutes (see art. 135 and art. 136 respectively).

Separation of Powers Board of Directors & General Assembly of SA

The management of the SA belongs, first of all, to the Board of Directors. The General Assembly, however, has the ability/power to intervene in the relevant competence of the Board of Directors. However, different views have been developed regarding the extent of this intervention. According to the prevailing (and correct) view, the General Assembly has broad and general competence. Furthermore, (art. 116 and 86) margins for (positive or negative) intervention by the General Assembly in the work of the Board of Directors are recognized.

It is important, however, to note that the GM’s power of intervention cannot lead to arbitrary usurpation of powers that have been assigned to other corporate bodies. In this context, the complete removal of the Board of Directors’ (legally derived) managerial power is excluded (after all, this would result in the Board of Directors being irresponsible ). But what is the point of such a choice by the GM? It would be simpler for it to choose (and elect) a new Board of Directors, which it would express and which would operate according to its directions (that and its substitute bodies)…

It is possible to limit the scope of the power of the Board of Directors on the basis of a statutory (and, therefore, general) provision. However, the limitation of the obligations of the members of the Board of Directors, as well as the alteration of their liability regime, are not issues that are amenable to statutory regulation. Any limitation of the duties of the Board of Directors is, however, tolerated by a specific-relevant decision of the General Assembly. Such a decision, usually, will concern a specific act (or unit of competences) of the Board of Directors. Regardless, however, of any theoretical concerns, the influence of the decisions of the Board of Directors should be considered, as a rule, a given, as the majority shareholders are the ones who elect – and maintain in power – the members of the Board of Directors. They, in turn (the members of the Board of Directors), express and defend the interests of the majority shareholders, which, as a rule, they promote. Sometimes even before the corporate equivalents.

It is possible that the articles of association require prior information and/or consent or (ex post) approval of the General Assembly for the performance of specific management actions by the Board of Directors or substitute bodies. Especially when decisions are to be taken that by their nature create risks for the company (such as the transfer/sale of significant assets). It is accepted, and rightly so, that the General Assembly is not only entitled but also obliged to intervene in defense of the interests of the shareholders (Greek Commercial Code 2263/2003).

The decision-making by the General Assembly beyond the limits of its authority does not create any obligation of compliance or commitment towards the Board of Directors. Of course, given the fluidity of the relevant limits, the scope for shareholder intervention must be assessed on a case-by-case basis and always in accordance with the prevailing circumstances. Greater freedom of intervention by the General Assembly in matters of corporate organization is recognized, provided that it is an unlisted company. On the contrary, in listed companies, given the asymmetry of interests between the General Assembly and the Board of Directors, the involvement of the General Assembly is understood in decisions that (in terms of subject matter and importance) escape the current management of the Board of Directors.

Binding Force of General Assembly Decisions – Conditions

The decisions of the General Assembly produce, according to the aforementioned, binding results and develop legal consequences for all shareholders of the SA. And this, regardless of whether the shareholders participated or not in the crucial meeting (and/or vote). Regardless, in fact, of whether they voted for or against.

Binding force, however, is produced by the legal decisions of the General Assembly. Legality is examined at two levels: (a) compliance with the legal decision-making process and (b) compliance of the content of the decision taken with the law and the statutes.

In particular, the General Assembly takes valid decisions if it has been convened, constituted and decided in accordance with the legal forms and the (possibly existing more specific) statutory provisions. In the event that a relevant defect is found, the decision will be voidable. This practically means that it will produce, normally, legal effects, until it is voided by a final court decision (: art. 137).

As for its content, in the event that the decision taken contradicts the law and/or the statutes, it will be invalid (art. 138 – however, the possibility of curing the invalidity is provided for under §4 of the same article).

Shareholders – as already mentioned – have the possibility to make a decision without a meeting. Either remotely at the General Assembly using electronic means (art. 135) or through the countersigning of minutes without a meeting (art. 136). Similarly, the decisions of the previous paragraph are also binding on dissenting shareholders. However, in the case of countersigning of minutes, for the decision to be valid, it is required that it bear the signatures of all shareholders.

Finally, in the event that more than one class of shares has been issued in the SA, for the legal adoption of certain decisions by the General Assembly (e.g. to increase or decrease the share capital), relevant approval is required from the special meeting of the class of shareholders affected by the specific decision. Similarly, a decision of the special meeting is required to be taken by the shareholders representing preferred shares upon a decision of the company to abolish or limit their privilege (art. 38 §7).

There is no doubt that the General Assembly of a company is the highest body of the company. However, this does not mean that it can abolish or replace its other bodies. It also does not mean that it can operate without rules. Moreover, its operation and decisions are subject to judicial review for their legality. We must be particularly careful in this regard at all stages: convening, conducting, decisions. However, for its exclusive competence, decisions, in our next article.

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 14th, 2024).

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.

January 14, 2024
The Articles of Association of the Société Anonyme…

The Articles of Association of the Société Anonyme…(…the scope, the content, the options of the new Act and the compulsory adjustments)

I. By way of introduction

The Articles of Association of the Société Anonyme are (known to be) its most important document. The Articles of Association record (and regulate) very important, identifying elements of its existence and operation. The name, the purpose, the duration, the capital, the shares, the company’s bodies, the rights of the shareholders, its financial statements, its dissolution and liquidation etc. are some of them.

Often, the founders of the Société Anonyme resorted to prefixed by the notaries texts, as it was always the privilege of those who had written them. As a rule, no lawyer expressed any view. Until the non-excellent relations between the shareholders occasionally emerged to the surface.

In the course of time, however, things began to change: Entrepreneurs were often faced with problems which they found that could have been avoided if they had made provisions in their Articles of Association. Further: Business managers understood, over time, the value of counseling. Thus, more and more people go to their legal advisors to draft (and / or reformate) their company’s Articles of Association.

II. The scope of the Articles of Association and of the statutory provisions

Since the fees of notaries depend (among others) on the extent of their contracts, we have been addicted to notarial acts – Articles of Association of Société Anonymes which are (to a large extent) a copy of the relevant law. However, the senior (former) Law 2190/1920 had dozens of interventions in his hundred-year history. What happened every time the law was changed? There was a need for a modification of the Articles of Association (in accordance with the law) and, of course, new fees for the professionals involved. There are, unfortunately, still Articles of Association that have nothing to do with the current institutional framework. Containing completely obsolete provisions.

One would have expected that this would mean that the Articles of Association would end up being brief. That they would end up containing what was absolutely necessary and, as for the rest, they would refer to the law (there was also a legislative provision in law 2190/1920 which was applicable until 31.12.2018). On the contrary: The Articles of Association are, almost indefinitely, large, even when we proposed (sometimes with pressure) to the founders the short version: That text, which contains only the minimum of what the law requires without copying all of its provisions. The choice of founders was, basically, the full version: A text that copies the law’s regulations and does not “take up” only the essential ones. The causes are varied: Basically, however, the need to refer to the Articles of Association for the issues they were interested in, and not to the law or even to their legal advisor.

III. The new law (4548/2018) for société anonymes with reference to the Articles of Association: Notarial deed vs private document (agreement).

The new law on société anonymes is innovating on various issues. One of the most interesting (and business-friendly) options is that a private document, not a notarial act, is sufficient for the establishment of a société anonyme. It is sufficient provided, on the one hand, that there shall not be transferred to it assets any element for the transfer of which a notarial deed is required (e.g. immovable property) and, on the other hand, that standard Articles of Association be adapted. In the latter case, the establishment of the Société Anonymes is completed in a Single Entry Point services. (essentially the General Commercial Registry (GEMI) where its seat is located).

IV. The essential elements of the Articles of Association

The provision of art. 5 § 1 L. 4548/2018 provides for the minimum provisions that must be contained into the articles of association of the société anonyme. These must at least include: (a) the name and purpose; (b) the seat; (c) the duration, if not indefinite; (d) the amount and method of payment of the share capital; (e) the type of shares, the number, the nominal value and the issuance; (f) the number of shares in each class, if there are more classes of shares; (g) the conditions and procedure for converting shares to the bearer into registered; (h) the convocation, establishment, operation and responsibilities of the Board of Directors; (i) the convocation, establishment, operation and responsibilities of the General Assemblies; (i) the auditors; (k) shareholder rights; (l) the annual financial statements and the appropriation of profits; (m) the dissolution of the company and the liquidation of its assets; (n) the amount of subscribed capital that is payable at the time of incorporation.

Nevertheless: The Articles of Association of the company are not required (Article 5 § 1 of Law 4548/2018) to contain even those of the abovementioned provisions which merely repeat the provisions of the law (unless allowed derogations from its content are entered into force).

Under the above, the Articles of Association of a Société Anonyme could be limited to the following provisions:

(a) the company name and purpose;

(b) the seat;

(c) the amount and the method of payment of the share capital;

(d) the type of shares, the number, the nominal value and the issuance;

(e) the number (or minimum-maximum number) of the members of the Board of Directors;

(f) the amount of the share capital payable at the time of its incorporation.

In other words: Where the Articles of Association of the Société Anonyme contain the above six (6) provisions they are a complete Statute. But are we (lawyers and businessmen) ready to go through such Articles of Association, even when we are talking about a single-member Société Anonyme(where there are no conflicting interests)?

V. The options that the new law offers

The new law provides businesses with a variety of options to regulate critical issues relating to their operation as Société Anonymes.

It takes advantage of technology as well as modern, international, tools of the law of Société Anonymes.

Some of them:

The elements of the company name of Société Anonymes and their duration.

The way to cover their share capital, contributions in kind, the possibility of partial coverage and payment, the types of its share capital increase.

The options of reduction and amortization (!) of the share capital.

The types of titles and their sub-themes and attributes (shares, bonds, warrants, extraordinary and common founders’ shares). In particular: the types of shares [common and preference (with many kinds of utilizable and functional privileges), redeemable, reserved (with also interesting potential commitments – including drag and tag along right), the option right.

The minority’s right to request the redemption of its shares by the majority and the right of the majority to request the redemption of the minority shares.

The management of the issues of the acquisition of treasury shares. Issues related to the election, operation, composition of the Board of Directors (or even to the option of having a single Consultant-Manager!). Managing conflicts of interest.

The management of remuneration-relating issues of the Board of Directors and of the Managing Directors.

Issues relating to the invitation (even by email!) and convening the General Assembly’s meeting (even remotely!), voting (even by e-mail or postal vote!), taking decisions without a meeting.

Minority rights and how to manage them.

The right to audit.

The shareholders’ associations. The distribution of profits. The minimum dividend. The provisional dividend. The dissolution, liquidation and revival of the company.

The topics vary. The opportunities are many. The choices may be tedious but, in any case, critical for businesses and entrepreneurs.

VI. The need of adaptation of the Articles of Association of ALL Sociétés Anonymes

The provision of art. 183 § 1 L. 4548/2018 can not be challenged: The Articles of Association of the existing sociétés anonymes must be adapted to the provisions of the new law as soon as possible.

It is clear that detailed information is required from (the proper) legal advisors, jointly assessing the data and the possibilities of the new law and (in particular) adapting to the needs of each business entity and activity.

Therefore, be alert!

Stavros Koumentakis
Senior Partner

Υ.Γ. Part of this article has been published in MAKEDONIA Newspaper (January 6th, 2019)

January 3, 2020
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 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
Seminar At the Piraeus Chamber of Commerce and Industry On the New Law on the SAs

[vc_row][vc_column][vc_column_text] Within the framework of the presentations and informative meetings organized by KOUMENTAKIS & ASSOCIATES LAW FIRM, a seminar was held at the Piraeus Chamber of Commerce & Industry on the needs as well as on the opportunities created for the entrepreneur regarding the regulations of the new Law on Sociétés Anonymes.

With the participation of representatives from the PCCI and the co-organizers associations and federations (Association of Industries of Attica and Piraeus, Piraeus Trade Association, Pan-Hellenic Association of ship and exporter suppliers and Association of Piraeus Commercial Representatives and Distributors) Stavros Koumentakis, Senior Partner of the firm, enlightened the multiple business opportunities that constitute the changes brought by the new law on the SAs.

As Mr. Koumentakis characteristically mentioned: “The new law is an important opportunity to become better aware of the operation of our Société Anonyme, to ensure the better protection for founders, shareholders and for the investment, to redesign on the right bases and to limit the operating costs, to attract new and to retain the most capable executives, to create the conditions for access to cheap capital, to make use of modern technology, and finally to prepare the next day of our business”.

In the informative video presented as an introduction to the Seminar (you can see it below) the most important of the changes were briefly outlined, while the in the presentation that followed there were analyzed in depth the most important axes of Law 4548/2018. Particular emphasis was given on the need to inform entrepreneurs who need to understand the new law and ensure that this knowledge is available to their executives and to their close associates. Lastly, the urgent need for immediate adaptation of the articles of Association has been highlighted not only in compliance with the new law but, in particular, to meet the needs of each entrepreneur and each undertaking to adequately meet present and future requirements – particularly those relating to their safe growth course.

At the event, besides Mr. Koumentakis, also participated with a presentation on the economic and tax issues of the new law, Mr. Panayiotis Papaspyrou, economist, Chairman of the Board of Directors. & Managing Director of “Financial Management Consultants S.A.”

Mr. Koumentakis and the team of the Legal Advisors of KOUMENTAKIS & ASSOCIATES Law Firm continues to respond, as far as possible, to requests for relevant workshops and seminars throughout Greece. Next stop: The Money Show in Thessaloniki.

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March 21, 2019
The insurance of the liability of the Members of the BoD and of the Executives of the S.A.

1.Introductory

The liability insurance of the members of the board of directors of the Société Anonyme and of its executives is referred to in the international practice as “Directors’ and Officers’ liability insurance” or “D & Os liability insurance”. This insurance covers the damages of such persons:

(a) arising from claims against them raised by third parties (lenders, employees, shareholders) or by the company itself for injurious and negligent acts or omissions in the performance of their duties,

(b) for the risks incurred by the insurer.

In Greek legal terminology, as well as in the context of private insurance law, it is commonly referred to as insurance of the civil liability of members of the board of directors of Société Anonyme. However, the scope of the relevant insurance contract goes beyond civil liability, since its coverage extends to both the criminal and the pecuniary costs incurred in administrative courts or authorities, as will be set out below. Moreover, the relevant insurance cover is not limited to the persons who form the board of directors of the Société Anonyme but also extends to the members of the executive committee, to the substitute members as well as to the executives who carry out management duties. In fact, it is often agreed also the insurance cover of the external directors, even of the spouses, heirs or administrators of inheritance, in respect of the claims against them concerning breaches of the duties of the insured persons.

Consequently, legally more correct and more compatible with the content of the relevant insurance contract is to refer to liability insurance of the members of the management of the Sociétés Anonymes.

2.The robust growth of this insurance product

The cover of the liability of the members of the management of the Société Anonyme is a relatively new insurance product, which has strong growth in the international business community. This growth is, among other things, due to:

(a) the judicial and legislative strengthening of the liability of the members of the management over the company itself but also vis-à-vis third parties,

(b) the adoption of international corporate governance rules and the gradual imposition of a single corporate regulatory framework through Union law of the European Union,

(c) the increase in corporate insolvency as caused by the international financial crisis of 2007-2008, which has grown into an international corporate financial crisis as well as,

(d) the tendency of corporate creditors to turn against either the managers of the corporate entity or solely against them.

3.The economic and business benefits of the relevant insurance

Insuring the liability of management members of the Société Anonyme has a number of advantages that make it an attractive insurance product. It would not be an exaggeration if we described it as a necessary action and expense for individual legal entities. Indicatively, some of the reasons for confirming the need to conclude the relevant insurance contract are mentioned:

(a) such insurance cover constitutes an alternative form of financing both of the company and of the third parties in respect of the damages they have suffered under the liability of those who manage the entity,

(b) the terms and sizes of the relevant insurance contract make it easier for third parties and, in particular, for the shareholders of the recipient company to assess the risk profile of the latter,

(c) the conclusion of this insurance contract ensures control and oversight (monitoring) of the company and contributes to prudent risk management,

(d) offering this insurance cover is a fairly important reason to attract competent management executives, while

(e) the conclusion of the specific insurance contract protects the company’s reputation and credibility.

4.The nature of this insurance contract

4.1. In the context of private insurance law, liability insurance for members of the Société Anonyme is part of third party liability insurance, although, as mentioned above, it has a broader scope. This insurance is in principle general in character and is not legally required. It is included in the non-life insurance and not in the insurance of persons, as the particular damage caused to the insured’s property is restored from the realization of the insured risk. In addition, it is classified as liability insurance, as it safeguards the risk of the creation or increase of liabilities in the assets of the insured.

4.2. The liability insurance of the members of the management of the Société Anonyme usually takes the form of a genuine third-party contract, as three (3) different persons are involved:

(a) the Société Anonyme in its capacity as recipient, which concludes the relevant contract as the policyholder of the insurer and, at the same time, on behalf of third parties (that is to say, members of its management),

(b) an insurance company in its capacity as an insurer, which assumes the above-mentioned obligation to recover the damage to property not from the policyholder company but from third parties (ie members of its management) from the realization of the insured risk; and

(c) the members of the company’s management in their capacity as insured persons as well as the beneficiaries of the insurance, as their right to expect the insurance indemnity is born directly and directly incurred .

4.3. The aforementioned legal construction has the legal consequence that the Société Anonyme becomes liable for the fulfillment of the obligations arising from the relevant insurance contract due to its bearing capacity as a recipient of the insurance. In addition, the Société Anonyme is also the entity in which the rights to terminate and amend the insurance contract, as well as the right to withdraw or oppose it, are granted. On the contrary, the main obligation of the members of the management of the Société Anonyme is the non-infringement of the insurance obligations, i.e. compliance with the rules of conduct laid down by the law or the relevant insurance contract, in order to fulfill the insurer’s performance and, in particular, the payment of the insurance by the latter.

5.The insurance cover

5.1. In accordance with the aforementioned, the scope of the relevant insurance contract exceeds the civil liability of the members of the management of the Société Anonyme. However, as the basic scope of the relevant insurance cover refers to civil claims, its main basis is the damaging act which includes any actual or presumed breach of the duties of the members of the management over the company. Also, this insurance cover includes any unjust and injurious third party act or omission, error or negligence in the performance of the duties of the members of the management of the entity. That is, any individual responsibility of a director of a corporate body is enforced, whether he issued severally or jointly or independently. In this context, it is clear that the relevant insurance cover extends to the breach of substantive rules of private law which entail liability for the directors of the company. However, damages claims based on special agreements or conditions introduced by provisions of a subordinate law that exacerbate the liability of the legal entity beyond the legal provision are not covered.

5.2. In any case, however, the cover of the relevant insurance contract does not extend to activities which are contrary to public policy, which is unfair and immoral and directly oppose prohibitive legislation. For this reason, criminal penalties, fines, and other financial penalties are also excluded from cover. The fines include those imposed by the competent supervisory authorities. Nevertheless, the legal costs of prosecuting the insured person are valid. In some insurance policies, it is agreed that the costs of the criminal proceedings should be covered only if the managing director is found innocent.

5.3. Furthermore, apart from breaches of private law rules, the relevant insurance cover may extend to infringements of public law rules. Criterion for the relevant insurance cover is the nature of the compensation resulting from compensation under public law provisions. That is, if the indemnity is reparable, it falls within the liability of the members of the management of the Société Anonyme. On the other hand, if the nature of the compensation is valid, it is not covered by the relevant insurance contract. Consequently, subject to compliance with the relevant criterion, it is possible to cover pecuniary claims filed before administrative courts or administrative supervisors and the costs of the investigation by any competent authority.

5.4. Finally, the exemptions introduced in the relevant insurance contracts fall into multiple categories, depending on the practice of the insurance companies and the criteria adopted by them. In order to avoid long and unnecessary developments in the present analysis, the following clarifications are considered appropriate:

(a) the relevant insurance cover excludes claims covered by other policies, including but not limited to claims covered by professional liability insurance policies,

(b) in addition, such acts are excluded from such cover, which involve a high risk for the insurer, which usually includes the liability of the members of the management of a Société Anonyme for defamation and personal injury, the claims related to the bankruptcy of the company and damages associated with transformations of companies,

(c) furthermore, claims arising out of the liability insurance of members of the management of a Société Anonyme are excluded from claims arising in courts outside the European Union or from breach of legislation of States outside the European Union,

(d) finally, the cases of fraudulent provocation of the insurance case are reasonably excluded from this insurance cover. In particular, the claims for third-party claims or the insurance of a Société Anonyme arising out of a fraudulent breach of the management duties or the provisions of the law by the management of the corporate entity are excluded.

6.Insurance Clauses

Apart from the above-mentioned exceptions, the relevant insurance contract applies special clauses, which refer only to the specific insurance contract or have been formulated on the basis of the development of the relevant insurance and which substantially restrict the liability of the insurer. In particular, the insurance policy may include:

(a) the group clause, which allows for the uniform identification and treatment of the insurance risk and, moreover, charges the group with less expense by covering, with a group insurance policy, all the corporate entities of a group,

(b) the own contribution clause of the insured, which entails the taking over by the insured member of the management of the Société Anonyme of a part of it and, in particular, of a certain amount or percentage of the indemnity in general or per insurance case,

(c) the clause of the serial damage (otherwise chain damage) which limits more claims arising from the same unlawful act to the same amount of insurance and the same insurance period as they are treated as a single claim,

(d) the dismissal clause of the particular member of the management of the Société Anonyme, which requires the entity to have previously denounced the relationship with that person as a necessary condition for the activation of the insurance cover,

(e) the policyholder’s insured clause, which does not allow the claims of an insured member of the management of the entity to be covered by another insured person either directly or by way of redemption. This clause appears in a variant of the clause as a non-coverage clause, which limits or prevents the relevant insurance cover. This limitation takes place according to the degree and extent of the involvement of the insured persons involved in the management of the recipient’s insurance and includes claims by persons directly or indirectly linked to one of the insured persons. Because of its introduction, it is recommended not to create situations of conflict of interest, collusion and abusive behavior, but also to avoid enrichment.

7.Epilogue

7.1. The adoption of Law 4548/2018 on the reform of the law of Sociétés Anonymes has brought about a number of changes, sometimes sweeping, in the operation of corporate entities. Regarding the responsibility of the members of their management, a previous article from the blog of this web site has provided a detailed explanation of their intra-company and criminal liabilities, as they are now formed under the new legislative status (read the first part of the article for the liability of the Members of the Board). It is easy to see the intensification of the criminalization of entrepreneurship and it is equally easy to distinguish the discretion of the corporate managers in achieving the corporate purpose.

7.2. Furthermore, in another article of the same blog, the administrative and criminal responsibilities of corporate managers vis-à-vis the State and the Insurance Organizations, as derived from the tax, insurance and customs legislation, as well as the liabilities attributed to them by specific provisions of the Civil, the Bankruptcy and Penal Code (read the second part of the article for the liability of the Members of the Board). It is clear that the exposure of the members of the Société Anonyme’s management to extremely serious risks.

7.3. It is obvious, therefore, that the liability insurance of corporate managing directors is an effective means of defending and safeguarding them against the risks stemming from corporate governance and the tightening of the legislative environment. The conclusion of the relevant insurance contract, according to the above mentioned, is characterized by strong economic and business advantages: better corporate organization, higher status and corporate solvency, clearer business image and the ability to attract competent executives. Let us not close our eyes on international business practices and international corporate governance rules: the dissemination and establishment of these policies also into the Greek business community is the only appropriate choice.

7.4. Finally, the role of the legal counsel of the company proves to be decisive in the management of the issues related to the liability insurance of the members of the management of the Société Anonyme. In this context, the legal adviser is responsible for working closely with the insurance broker, with whom the corporate entity works, to evaluate the (more) insurance options and products offered and to assist in choosing the best solution. Additionally, the duty of the legal counsel is to ensure maximum insurance of the insurance of a Société Anonyme and the insured corporate managing directors by checking the legality of the conclusion and the valid content of the relevant insurance contract. Finally, in the event of the insured risk occurring, the legal counsel must make a substantiated claim for the fulfillment of the insurer’s obligations and, in particular, for the payment of the insurance.

It should be perfectly clear:

At any stage (out of the above mentioned) the appropriate legal advice is not received, it is highly probable that the potential cost of the business will prove to be infrequently high.

Petros Tarnatoros
Senior Associate

P.S.: The article has been published in Greek in MAKEDONIA Newspaper (March 17, 2019).

March 17, 2019
Other Liabilities of the Members of the Board of the Directors of a S.A.

The Liability of the Member of the Board of the Directors of a Societe Anonyme

Part 2: Other liabilities (others than those resulting from the law on the SAs)

A. Preamble

It is important, I appreciate, for both the members and the candidate members of boards of directors, to have a better understanding of the responsibilities they undertake. Equally important, of course, is not to “lose their sleep” to those who like to read articles like the present. However, in the event that I am the cause of such an event, I declare publicly that I am ready to take on the responsibilities and to bear the consequences (despite what Homer had already said in the Iliad (Rhapsody B ): “He who is in power, can not sleep quietly for a whole night”) ..

B. General

As already mentioned in the first part of this article, “the extent of the liability of those exercising authority over a Société Anonyme and the risks they face are not, in their entirety, recorded”. Any attempt to record can only be relevant in terms of its completeness. Most importantly, however, it is filled with awe in the range, depth (and weight) of the potential liabilities of the members of the Board of Directors.

Here is an approach that is necessarily limited to the risks to which the members of the Board of Directors of the Société Anonyme are exposed – in addition to those resulting from the recent Law on Sociétés Anonymes (Part 1: The Responsibilities Arising From The New Law On Sociétés Anonymes). The plurality and the ingenuity of the individual (allegedly) injured, extend, in a great way, the extent and size of the potential risks faced by these individuals.

However, it is important to recall, in this case, that “the status of a non-executive member of the Board of Directors does not automatically mean no liability”.

C. Liability towards the State and Public Insurance Organizations

1.General

On the basis of the principle of the autonomy of legal entities (principle of separate personhood), the members of the Board of Directors are not liable for the debts of the Société Anonyme.

One of the particularly important exceptions to this rule is when the Société Anonyme has debts to the State and, of course, to the Public Insurance Organizations. In this case, we are witnessing a breakthrough in the rule (the so-called “piercing the corporate vale”).

Such are the cases that are dealt with later on…

2.Liability arising from tax offenses

2.1. Personal and joint accountability of the persons involved in the Management

The Directors, Presidents, Managers, Managing Directors, and authorized to manage Legal Entities are personally and jointly and severally liable with the Company, both at the time of their operation and their merger and (together with the liquidators) at the time of their dissolution (Article 50 of Law 4174/2013- “Code of Tax Procedure”):

(a) for the payment of taxes due, interest, fines and withholding taxes,

(b) for non-retention of deductions and improper taxes and for non-reimbursement of VAT.

(c) for the payment of ENFIA, in the event of interest and fines due to their own actions or omissions

2.2. Criminal liability of those involved (and not) in Management

General – Criminal liability

In order to enforce the tax obligations of individual legal entities (of course also od Sociétés Anonymes) and to prevent tax and customs offenses, the criminal liability of those involved in the management of the legal entities is chosen in a series of legal acts.

In this context (as well as in the case of domestic Sociétés Anonymes), as criminally liable persons, are identified (with almost identical formulas in the individual articles mentioned below) the chairpersons of the Boards of Directors, the directors, the authorized or co-directors, the managers or the general managers; directors and any person authorized either directly by law or by private will or by a court order to administer or manage them. Where all the above persons are absent, the penalties shall be imposed against the members of the boards of such companies if they are in fact temporarily or permanently engaged in one of the above-mentioned tasks.

However, the fact of doing or not doing so is ultimately a matter of substance, which explains the (often unjustified) choice of the competent prosecutors to bring all the members of the boards of directors concerned to before the “procedure of the hearing”. (This is irrespective of the existence or not of executive and non-executive members of the boards of directors). The rationale “let them get their own back before a court” is, in this case, unjustifiably aggravating for the administration of justice. Most importantly, however, it creates extremely high costs at the financial, personal, social, family and professional levels of individuals who can not, in any way, be held accountable.

Particularly:

The crime of tax evasion

The violation of provisions of the Code of Tax Procedure is rigorously dealt with by the provisions of articles 66 et seq. of this law (Law 4174/2013, as they apply after their re-approach by Article 8 of Law 4337/2015 – “Implementing Measures of the Memorandum”). The provision of article 66 of law 4174/2013 defines and deals with the offense of tax evasion with threatened imprisonment or, in the most important cases, with incarceration.

As the perpetrators of an offense of tax evasion committed by a domestic Société Anonyme are also considered to be the persons in any way involved in the management of domestic Sociétés Anonymes and, in the aforementioned circumstances, all the members of their boards of directors (Article 67 of Law 4174 / 2013)

The offense of non-payment of established debts to the State etc.

The non-payment of established debts to the State, to legal entities governed by public law, corporations and public-sector bodies is also a criminal offense for those who are in any way involved in the management of Sociétés Anonymes and, under the aforementioned conditions, all members of their boards of directors (Article 25 Law 1882/1990 – “Tax Evasion, Taxation and Other Provisions)

3.Liability arising from customs offenses

On the basis of the Customs Code (Law 2960/2001), a customs debt is a liability of any natural person or legal entity against a Customs Authority for the payment of all duties, taxes, including value-added tax (VAT). ), and other governmental rights, which are commodity-related and charged in accordance with the relevant provisions. For the payment of the customs debt, the representatives of the legal entities as well as the liquidators of Sociétés Anonymes are also personally and jointly liable (Article 29 of Law 2960/2001)

As regards, in particular, domestic companies, jointly and in the specific case (and with their personal property), are jointly liable those who are in any way involved in the management of Sociétés Anonymes and, in the above-mentioned circumstances, all the members of their boards of directors (Article 153 of Law 2960/2001):

The above-mentioned persons are perpetrators or, as the case may be, collaborators of smuggling offenses and are consequently exposed to relevant (not minor) criminal sanctions (Article 153 of Law 2960/2001)

4.Liability arising from the non-payment of Insurance Contributions

In the provision of article 26 of law 1846/1951 (“Institutional law for IKA”) reference is made to the persons responsible for the social security contributions and the way of their payment. This obligation also covers the additional fees, surcharges and other charges payable to the Social Security Institutions – regardless of the time of their assertion.

Both legal representatives, presidents, administrators, managing directors, administrators and liquidators of legal persons are jointly and severally liable to the employer (both during its operation and at the time of its dissolution or merger) (Article 31 v. 4321/2015).

The obligation of these persons does not (automatically) take time after their removal or resignation.

By the provision of article 1 of Law 86/1967, the persons liable for payment are criminalized both for the non-payment of employer’s contributions and for the deduction and non-reimbursement of employees’ contributions.

D. Liability under the Civil Code

Under the provision of Article 71 of the Civil Code: The legal entity (in this case the Société Anonyme) is liable (Article 71) for both acts and omissions of (the natural persons) who represent it, if liability for compensation is incurred and occurred at the time of the performance of their duties. The liability (if any) of the responsible representative, representative/member of the Board of Directors is joint and several.

Under the provisions of Articles 71, 197 & 198 of the Civil Code: This liability refers to the damage caused to the other contracting party in the course of negotiations, regardless of whether or not the contract was concluded. This liability can also be imputed to the member of the Board who acted guiltily in the context of these negotiations.

Under the provision, among others, of Article 914 of the Civil Code: The liability of the members of the Board of Directors may also be substantiated in the general provisions for compensation of the Civil Code. Two are the most interesting cases in this particular section:

(a) The liability of the members of the Board of Directors vis-à-vis the shareholders when related to their actions and omissions and, as such, is affected by the “core of their shareholder rights as they go beyond the limits of normal management and as such should be taken (following an approval) or at least be made aware of the shareholders” (Athens Court of First Instance 12468/2012)

(b) The liability of the members of the Board of Directors vis-à-vis third parties (generally more interesting in the case of an accident at work). Interestingly, based on existing case law (indicatively: Supreme Court 472/2018), the capacity of a member as a non-executive member is NOT sufficient to exempt him from any such liability. What is being investigated, in any case, is the existence of a fault in the face of a member, not his or her status as an executive or not.

E. Liability under the provisions of the Bankruptcy Code

The liability of the members of the Board of Directors arising from the provisions of the Bankruptcy Code is of both civil and criminal nature.

(a) Their civil liability refers to the obligation to restore the damage to creditors (Article 98 of the Bankruptcy Code) in the event that either a bankruptcy petition is not filed in time, or the bankruptcy of the company has been caused by deception or gross negligence.

(b) Their criminal liability (as well as the liability of managers, members of the management and directors of companies in general) is linked to actions that either cause the bankruptcy of the company or make it difficult for creditors to be satisfied or are linked to an omission of their legitimate obligations (Article 171 et seq. of the Bankruptcy Code)

F. Liability under the provisions of the Penal Code – especially the offense of infidelity

The provisions of the Penal Code in the legal form of which it is possible to include acts and omissions of the members of the Board of Directors of the Société Anonyme are scattered.

One of the most commonly threatened is the offense of infidelity under Article 390 of the Penal Code. Based on this provision, the offense of infidelity is omitted by anyone who knowingly damages the property of another, which, by law or legal action, has custody or management. In the case of administrative offenses against the property of a legal person, those who are violating the rules of diligent management – and of course the members of the Board of Directors of the Société Anonyme – are also responsible (and exposed to the corresponding criminal sanctions).

In conclusion

The liability of the members of the Board of Directors (in particular executive directors) is in some cases objective and given. This, of course, automatically implies situations that create such liabilities. It is also assumed that in the context of entrepreneurship, especially in our country, the potential exposure of the legal entity (and the members of the Board of the Directors) to risks seems rather normal and reasonably expected.

In the first part of this article, I concluded: “Not that every member of the Board of Directors is assumed to “get in trouble” yet, it is good to remember that the (exercise) of power is not a simple aphrodisiac”.

But I wonder at the end: Would it be possible for the knowledge (or reminder) of the responsibilities of exercising power and the associated risks faced by those who exercise it, to repress the hormones involved?

Or maybe not?

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 10th, 2019).

March 10, 2019

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