Tag: new law on societes anonymes

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
Presentation of the new Act on S.A.s to TELCO/WYLTOR
[vc_row][vc_column][vc_column_text]KOUMENTAKIS & ASSOCIATES presented the new Act on Societe Anonyme to TELCO/WYLTOR. Mr. Stavros Koumentakis, Senior Partner, highlighted the business opportunities emerging after the changes introduced by the new Act on Société Anonyms, presented the new framework and referred in detail to specific provisions, ways on how to protect the client from “internal and external dangers” and on how to utilize the options offered by Act 4548/2019 regarding:
- Minimizing expenses
- Attracting and maintaining capable executives
- Attracting investors
- Making good use of technology.
As Mr. Koumentakis put it: “The new Act on Société Anonyms is a great opportunity, one that businesses must take advantage of. Act 4548/2018 broadens the responsibilities and exposure of the Board of Directors to civil, penal and administrative sanctions, a fact that may end up being a serious problem if there are no relevant insurance provisions in place.” Mr. Koumentakis also highlighted that “introducing relevant statutory provisions is deemed necessary”.

The Administration and Executives of TELCO/WYLTOR partook in the presentation, which was an excellent opportunity to exchange views on extremely important aspects of the Act.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_text_separator title=”Gallery” border_width=”3″][/vc_column][/vc_row][vc_row][vc_column][vc_images_carousel images=”38080,38078″ img_size=”” speed=”6000″ slides_per_view=”6″ hide_pagination_control=”yes”][/vc_column][/vc_row]
November 15, 2019
Société Anonyme. The new act on SAs: “headache” or «business opportunity»?
New act on SA: a “headache” or a «business opportunity»?)

Ι. Preamble

Felix Hoffmann (1868–1946) was a famous German chemist.

His name went down in history as the creator of, among others, a preparation intended to cope with headaches (the “aspirin”).

The commercial success of the aspirin was, as we all know, huge. It was destined to be legendary -up to today. (As a result of its success, the aspirin is exhibited in the national Museum of American History of the Smithsonian Institute, in Washington.)

The fact that the aspirin successfully cures headaches is, to this day, a given. The only headache it cannot cure is that which comes with businesses. And it is a big one…

The new act on S.A.s has been in force, as it is well known, since 1.1.2019.

But is it just one more “headache” or a (once in a lifetime) business opportunity?

An act of a hundred and ninety (190) articles, a sixty-eight (68) page long act (pages in the Government Gazette) could not be analysed in just one article. This is not what we intend to do. But it is quite important to focus on the business aspect of it all. We will attempt to tackle the most important and most common practical issues that arise when dealing with an SA.

The approach taken in this article will help realize how an act can turn into a business opportunity….

(or not?)

ΙΙ. A little backstory

New act on SA – no. 4548/2018 (which replaced act 2190/1920) is very modern and up-to-date.

But what was act 2190/1920? The second half of its name confirms that it was passed in 1920.

Early 20^th century, this act was indeed ground-breaking in the field of company law. But with decades passing after it came into force, amendments were necessary in order for it to remain relevant. Some of them, major. And with the decades passing, the withdrawals, amendments, interventions and additions started piling on. Because going back to the provisions in place and “tweaking” them was not enough, we started adding new ones (e.g. articles 42, 42Α, 42Β, 42C, 42D, 42Ε). Those “adjustments” ended up being so many, that so few elements reminding of the initial act were left. Some provisions seemed to just be “thrown in there”, with no cohesion with the rest of the act. The act ended up being a true patchwork…

Its replacement was a necessity.

The hundred-year-old 2190/1920 already gave its place to the “young” 4548/2018. With the latter already in force for ten months now, we are in a place to come to some useful conclusions.

ΙΙΙ. “Ignorance of the law” and “one size fits all” articles of association

Since ignorance of the law is not forgiven, no one can claim they are above the law.

What was happening until 31.12.2018? And what is happening now?

Businessmen, with only a few exemptions, were completely ignorant when it came to their own company’s articles of association. Unfortunately, so did most of their advisors. Most articles of association were not “made” to serve the specific needs of each businessman. Minor amendments to the (statute) model-texts notaries had once drafted proved(?) enough. And the (new) SA was ready to go!

But when a problem “knocked” on the SA’s door, the businessman would “knock” on a lawyer’s door. And the latter would turn, for the first time, to the articles of association.

In most cases, that was TOO LATE…

That is when the businessman would realize that they should carefully and properly amend their articles of association (and often this realization would come with a painful and unnecessary cost).

IV. Business view of Societes Anonymes

We have already seen in the introduction that such a long act (as is act 4548/2018) could not be analyzed (or even presented) in one article. But we sure can attempt to approach the most common and practical aspects of the act, at least from the business point of view. A decalogue would come in handy for businessmen and their advisors.

Let’s take it one step at a time:
1. A fast and, foremost, cheap start
An SA can now be established in minimum time and with an close-to-zero expense.

Since 2016 (article 9 act 4441/2016) the participation of a notary and a lawyer often proved redundant.

The SA can now, in some cases, even be established with a private document (article 4 § 2 act 4548/2018). A necessary requirement is to be using the official model articles of association and submit it to the relevant “one stop shop” of the Business Registry. An important prerequisite: to not diverge from the official model. Small (?) detail: the “one stop shops” still only have available models drafted according to the (abolished since 1.1.2019) act 2190/1920…

In more complex cases (as well as in cases where the founders wish to divert from the provisions of the official model) the SA can only be established with a notarized document. A notarized document is also required when a legal provision specifically calls for it, or if contributions in kind are made to the company, contributions that in order to be transferred a notarized document is required (article 4 §2 act 4548/20190).

But still in cases where the articles of association can only be valid if they come in a notarized document, there is a way to minimize costs. Choosing small (size-wise) articles of association – by avoiding unnecessary repetitions of the law, is the best practice. The cost (at least of the official copies) will be significantly smaller. And even more so: possible amendments of the law will not create a need to amend the articles of association accordingly.
1. Attracting and keeping capable executives
It is extremely important for all businesses to achieve, among others, a triple goal:
- Attract capable executives,
- Keep them for a long time,
- Minimize their cost.
Businesses and their executives have, in most cases, contradicting interests -and both sides want to mainly serve their own.

Executives want to receive, in most cases, bigger salaries and other benefits.

Businesses want to give out lower salaries and minimize other relevant expenses. They also have medium- and long-term targets.

When the conflict of interests between management and ownership minimizes, at least by a little, everything becomes simpler. But what is the way to do so in an SA?

New Act on SA – 4548/2018 offers multiple opportunities to SAs, in order for them to successfully tackle the (given) conflict of interests between them and their executives. Some of them are the Stock Options (article 113 act 4548/2018), Bonus Shares (article 114 act 4548/2018) and/or Ordinary Founders’ Shares (article 75 act 4548/2018).

In cases of Stock Options and Bonus Shares, the executive is offered a chance to become a shareholder (with or without monetary consideration). This new role (that of a shareholder) is offered either at the time the executives are hired or after they have already established a long-term relationship with the SA. This way the interests of the SA and an executive align.

It is a bit different with Ordinary Founders’ Shares. Those shares are offered, among others, to executives at the time the SA is established. The owner of an Ordinary Founders’ Share will be hoping for the improvement of the company’s economic outturn. This (improved) economic outturn is what it will bring for them the agreed upon profit. But the shareholders do not carry any risks regarding the shareholding balances: Ordinary Founders’ Shares do not carry rights equal to those typical company shares do (e.g. voting rights or participation in the management). At the same time, the dividend their owners can receive is maximum ¼ of the amount exceeding the minimum distributable dividend. In any case, Ordinary Founders’ Shares do manage to align the interests of executives and the business.
1. Minimizing company expenses and shareholder disbursements
Any business’s goal is, among others, the improvement of its cost-benefit ratio. This goal can (also) be achieved by minimizing costs. The shareholders aim to improve the company’s economic result. At the same time, to have to withdraw as less money as possible. The interests of a company and its shareholders are often perfectly aligned, sometimes identical.

The recent act on Société Anonyme offers tools to achieve the abovementioned goals.

We have already referred (above under 1) to the deduction of cost at the stage of a company’s establishment. Adopting the formal model articles of association and not involving a notary or a lawyer is a step to that direction. But what happens if a notarized document is required? Short articles of association with no repetitions of the law.

But how can one minimize expenses when a company operates?

We have already mentioned the tools the law provides for the minimization of salary expenses (above under 2).

A relevant tool (for minimizing expenses) is the utilization of technology. The recent act offers significant opportunities for the utilization of technological tools. Opportunities not at all insignificant, that will not only boost effectiveness, but also minimize operating costs.

And as far as shareholders are concerned, is it possible that they will have to suffer fewer financial burdens and make less withdrawals?

The partial payment of the SA’s capital (article 21 § 1 act 4548/2018) is the tool to do exactly that. The partial payment of the capital can take place, under certain conditions, not only at the stage of an SA’s establishment, but also in cases of capital increases. By taking advantage of this opportunity, the shareholders can deposit in the company only a fraction of the capital they have taken on to cover. They can postpone the obligation to pay off the rest of it, thus facilitating the management of their finances.
1. Attracting investment capital
The expectations businesses once had, that banks would provide financial support, is well in the past.

Attracting investment capital is now a pressing need.

The act offers significant options and tools that will accommodate such needs.

The tools offered are (among others):
- Warrants (article 56 act 4548/2018), which offer the right to those who hold them to acquire, sometime in the future, shares of the company which issued them, in a pre-determined, low price.
- Preference Shares (article 38 act 4548/2018) can offer a wide range of privileges. Receiving dividends before ordinary shares, receiving interest and having a priority when it comes to participating in a company’s profits that derive from a specific business activity are only some of them. Preference Shares can either incorporate or not voting rights.
- Redeemable Shares (article 39 act 4548/2018) offer the right to their owners to request to have them, sometime in the future, bought by the company which issued them, in a beforehand agreed upon price.
- Bonds (article 59 et seq. act 4548/2018).
- A combination of the above “tools”.
1. Drawing liquidity from the Société Anonyme
Part of the (Greek) reality is the “utilization” of company cash, for covering needs of its shareholders. But a Company’s Cash and the Businessman’s “Pocket” are two different things. A possible blurring of the boundaries between the two will create multiple and extremely severe risks. For the business, as well as for the businessman. This is why “informally” obtaining liquidity from a company should be avoided. There are several tools, though, to help make it “formal”. A necessary prerequisite is the support of the majority of the shareholders and the ability of the company to respond.

The most common tools are: (a) for the members of the Board to participate in the company’s profits, and (b) the conclusion of contracts between the SA and its major shareholders, BoD members and related parties (even more so since the previous provisions of the act have been abolished).

As significant (if sometimes not more significant) as the above tools are, among others, the following:
- The distribution of dividend (final or interim),
- The Deduction of the Capital (articles 29 et seq. act 4548/2018),
- The Amortization of Capital (article 32 act 4548/2018),
- The issuance of Ordinary Founders’ Shares (article 75 act 4548/2018) and
- The issuance of Extraordinary Founders’ Shares (article 76 act 4548/2018).
1. “Managing” small shareholders
New Act on SA – 4548/2018 strengthens, as it seems, the rights of the minority, especially through the right given to them for exceptional auditing. Nonetheless, the existence and the implementation of the minority’s rights are not always enough to achieve the necessary balance in the relations between the minority and the company. Often, the exit of the minority shareholders from the company is in the best interest of both them and the company.

The minority shareholders can reach the exit by taking five, among others, ways:

(a) By the option given, under conditions, to the minority shareholders (holding ≤5% of the share capital) to request before a court:

(aa) the redemption of their shares by the SA (Act 4548/2019, article 45) and

(ab) to be bought-out by the majority shareholder (holding ≥ 95% of the share capital) -(Act 4548/2019, article 46)

(b) By the option given, under conditions, to the majority shareholder (≥95%) to buy-out the minority shareholders (Act 4548/2019, article 47)

(c) By the increase (ordinary or extraordinary) of the share capital, as well as

(d) By a (combined) decrease and increase of the capital.
1. Utilizing technology
The Act on SAs facilitates, by providing plenty of relevant provisions, the utilization of technology. The use of technology, without it being obligatory, has proven beneficial on many levels. For example, technology can be used in an SA:

(a) for issuing intangible shares and digitally keeping the Shareholder Book (Act 4548/2019, articles 34, 40 par. 2 & 5),

(b) for the board of directors to conduct its business and take decisions (Act 4548/2019, articles 90 & 94),

(c) for shareholders to exercise their rights through emails (Act 4548/2019, articles 122 & 123),

(d) for General Assembly Meetings and forming of the relevant decisions (remotely and by electronic means – Act 4548/2019, articles 125 to 128, 131,135 and 136),

(e) for shareholder unions (Act 4548/2019, article 144).
1. Succession
The SA is “the ultimate” capital company. In Greece, though, the majority of SAs are family businesses – heavily resembling partnerships, as per the way they are run.

Almost every family business-SA at some point will have to deal with the issue of succession – the transition to the “next generation”. This issue is often “taboo”.

Succession issues cannot be solved with “absolute truths”. But they can be solved if they are approached by mature businessmen and proper advisors.

A great help towards solving succession issues can be drafting “tailor made” articles of association. Those that will:

(a) Set, in advance, reasonable rules for restricting the free transferability of shares. Introduce a procedure that can take place through issuing restricted shares (Act 4548/2019, article 43). The restrictions apply on all transfers, including the ones owing to the death of a shareholder.

(b) Regulate (in the most appropriate way and reasonably) the exercising of the rights of the minority. Also, the rights of minority shareholders concerning auditing.
1. Protecting the investment
Attracting investment capital is not enough.

The shareholders and administrators of an SA have the obligation to protect it.

As already mentioned, carefully worded, “tailor made”, articles of association will play a significant part. Those articles must carefully set the proper boundaries in the relationships between shareholders, in order to avoid internal disputes.

The rights of the minority shareholders and how they are exercised must, in this case as well, be carefully defined. Even more so when it comes to the rights of the minority shareholders concerning auditing.

Another important issue for most SAs is securing the “next day” and the business venture, meaning securing the company’s and the existing shareholders’ interests. A possible transfer, i.e. of company shares to a competitor would, most likely, not be at the interest of the company. A provision for restricted shares appears to be necessary here as well.

Establishing the reasonable (and probably necessary) restrictions that are the Tag Along Right and the Drag Along Right seems, in most cases, necessary.

But necessary in all cases are:

(a) The provisions in the articles of association regarding the protection from possible competitive and unfair actions taken by the BoD members, the executives and the shareholders.

(b) The careful selection of the SA’s representatives.

(γ) The careful definition of boundaries of the responsibilities of each one of its representatives.
1. Protecting the owners, directors and executives
The range of the responsibilities of the members of the board of directors is very wide. Civil, criminal, administrative liabilities before the company, before third parties, etc. These liabilities can be put in two large categories:

(a) The responsibilities of the members of the board of directors, according to the Act on SAs

(b) The other responsibilities of the members of the board of directors

The responsibilities of the members of the board of directors cannot be set to zero. But they can be limited. Solutions towards that direction (among others) are:

(a) The reduction of number of the persons involved (i.e. through the provision of a Single-Membere Administrative Body / Consultant-Manager)

(b) The Insurance Of The Liability Of The Members Of The BoD And Of The Executives Of The S.A.

V. The new act on SA as a “headache”

The new Act on SA is, indeed, one more problem for businesses. And even more so, one more “headache” for businessmen. Businessmen have to (if they haven’t already):
- Manage the (smaller or bigger) confusion created in their business.
- Spend money on informing their
- Spend money (i.e. on new articles of association) in order to align the operation of their company with the requirements of the new Act.
- Get informed themselves (in general) and make sure that their advisors (legal, financial, tax) are also informed in detail and familiar with every aspect of the new Act.
VI. The new act as a business opportunity

On the other hand, the new act on SA is a significant business opportunity. With reference to the (necessary) alignment with its provisions, the businessman has the opportunity to reaproach important data. Among others, to search for the best solutions regarding:
1. The drastic (and efficient) reduction of cost when attempting new business endeavours,
2. The attraction and maintenance of capable executives, while simultaneously minimizing the cost of their salaries,
3. The minimization of operational costs and of the shareholders’ withdrawals,
4. The (always) wanted and necessary attraction of investment capital,
5. The (best suited) solutions in obtaining liquidity from one’s business,
6. The managing of small shareholders, something which, in some cases, proves crucial,
7. The (multiple) utilization of technology, aiming to the business functioning more efficiently, as well as to saving money.
8. The tackling of issues relating to succession.
9. The protection of the business and the investment and, mainly,
10. The protection of shareholders, BoD members and executives.
VII. Utilizing the business opportunities

There is no question that the new act on SA is a significant opportunity. An opportunity which, if approached in the right way, will create multiple business opportunities.

But how should it be approached?

It is necessary for the businessman to get informed on all the tools provided by law (it goes without saying, no great detail is needed).

It is also necessary for them to confirm that their advisors and associates are in a place to support this endeavour. But the most important thing of all:

It is imperative that they reaproach their SA’s articles of association and have them “tailor made” to their needs. The purpose and end goal should not be to just adjust it to the provisions of the recent act. The purpose should be to utilize the (very significant) opportunities it offers. Few of them mentioned above.

VIII. In conclusion

The recent (implemented since 1.1.2019) new act on SA has been the operative event for many headaches. Businessmen, accountants, lawyers, tax consultants, business advisors, we did not avoid them. (at least not all of us…)

No aspirin could treat, not even partially, a businessman’s “headaches”. The headaches created by the implementation of a new act included.

If the “father” of aspirin (Felix Hoffmann) was alive, he would come to the same conclusion.

With certainty.

It is well-established that the “business opportunities” this act brought with it are more than significant. And multiple, compared to the “headaches”.

All that is left is for us to utilize them.

As soon as possible.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (November 3rd, 2019).
November 3, 2019
Board of Directors or a Consultant-Manager?

Board of Directors or a Consultant-Manager?

1. Preamble

His unique personality and work are why the Austrian – American university professor, writer and advisor Peter Ferdinand Drucker, received, during his life of almost a hundred years (:1909-2005), the highest honors and titles. Some people gave him the title of the “Founder of modern management”. Although, since his time, his views have been challenged, his quotes still are of value. Among his others quotes: “The leader of a team must be able to say: “This has to be done. You will do it. In that way.” The survival of the team is depending on this unquestionable power. Without it, no one feels safe”.

2. Facts change

The multimembered/multi-shareholder and financially stronger business schemes are, in most cases, S.A.s. An essential part of an S.A.’s function: its Board of Directors. This collective body is the one that is, by law, exclusively given the power of the S.A.’s management.

Until 31.12.2018.

The management of an S.A., usually and essentially, is at the hands of the (capable or less capable) “leader of the team”, as Peter Drucker found, and that is such a person in every company.

Facts have already changed (since 1.1.2019) for the Small and Very Small Businesses (as those are defined in Act 45488/2018) and for the unlisted companies.

3. “Single-Member Administrative Body” or “a Consultant-Manager”

According to Article 115 of Act 4548/2018, the Board of Directors of an S.A. can be replaced by one only manager – until now, that was the case only for Partnerships and other limited companies.

This specific provision, since it constitutes a very important diversion from the pre-existing legal framework, seems to be the most “famous” among the one hundred and ninety (190) provisions in total of the new Act.

The title meant to be given to this one person (which can now officially operate on its own, substituting the Board of Directors) is: “Single Administrative Body” or “Consultant-Manager” (from this point forward “Consultant-Manager”).

Since 1.1.2019 (and as long as there is the relevant provision in the company’s statute) the Small and Very Small Businesses as well as the unlisted companies, can (now formally) trust their management to a single person.

4. The legal framework around the “Consultant–Manager”

The provision of article 115, par.2 of the new Act of S.A.s regulates the issues concerning the Consultant-Manager, by referring to the “rules in place for the Board of Directors, to the point they are compatible to the nature of the single-membered body”. A special (although indicative, par.5 of the same article) reference is made in this specific provision to the issues of appointment, conditions of electing, term of office, responsibilities, duties, powers of the Consultant-Manager, the appointment of its alternate, the Consultant-Manager’s civil and criminal liabilities, its payment and other relevant subjects to these, by referring to the relevant provisions in the Act set for the Board of Directors.

5. The obligation of informing the “Consultant-Manager”, keeping Minutes and conclusion of agreements in which the “Consultant-Manager” has any interest.

Among the obligations each member of the Board of Directors has, is the obligation to inform the other members of the Board (e.g. the obligation to reveal to them about any self-interests or conflicts of interest with the corresponding interests of the company – article 97 par.1). Given the lack of “other members”, the obligation of informing the rest of the BoD members is in this case an obligation to inform (article 115, par. 3) the company’s shareholders in a general assembly or each one individually.

Furthermore: the decisions of the Consultant-Manager (the ones that are outside the sphere of the decisions taken regarding the “every day running of the business”) are recorded (article 115 par. 4) in the relevant book of Minutes (article 93), which can be kept digitally, as happens with the Board of Directors.

Finally: for the conclusion of agreements between the Consultant-Manager and the S.A., the decisions (according to article 99) are taken and approved by the General Assembly (article 115 par.3) – instead of the, non-existing in this case, Board of Directors.

6. Electing a Consultant–manager instead a Board of Directors can be useful

The explanatory report of the new act of S.A.s mentions, among others, regarding this specific, new, article: “this is hoped to reduce the functional cost of the unlisted companies that wish to adopt this system, if they don’t have the size to justify a bigger number of people in administrative positions. Experience has shown that in many small S.A.s, there essentially is only one administrator, while the other members simply have a decorative function.”

This specific assumption, although not expected in the context of an explanatory report, reflects the reality. And that is because it verifies, very vividly, the (true) observation that there is a “leader” in every team and also that in small (and not only) businesses in our country, the role of the Board of Directors is decorative.

By selecting a Consultant-Manager instead of a Board of Directors, the management of the S.A., responds better to current conditions, because it is appointed to the only person that truly exercises this authority anyway. Additionally, it costs less and is more flexible. Afterall, the same explanatory report mentions: “Additionally, the ability to elect a “Consultant-Manager” simplifies the obligations in which the limited company has.”

These reasons are not the only ones that point towards an S.A. electing a Consultant-Manager instead of the, until recently necessary, Board of Directors.

We have already mentioned in previous articles (New Law on SAs: the Liability of the Member of the Board of the Directors and Other Liabilities of the Members of the Board of the Directors of a S.A.) the kinds and the extend of the liabilities of the members of the Board of Directors. Not rarely, the primary (usually one) businessman was in search, “using the lamp of Diogenes the Cynic”, of members to fill the empty seats of the (at least three-membered) Board of Directors. It is not uncommon either for people who accepted the, out of necessity (or out of wickedness, it doesn’t really matter) invitation from the businessman to «grace with their presence” this specific body and ended up being dragged to courts trying to prove their innocence or that “they don’t have blood in their hands”… In other words: when we limit the number of people involved, we automatically limit the range of people that could possibly be implicated in legal disputes or/and be exposed, in any way, to legal risks.

7. Risks that come with this choice

This choice (the election of a Consultant-Manager instead of a Board of Directors) is not without risks: The shareholders should consciously and in a formal manner accept the “ruling of one man” and everything good (and of course everything dangerous) that comes with it.

What about the public image of the business? Will the potential future shareholders, investors or financiers accept the, at least in a first place, uncontrolled management of the Consultant-Manager?

It does not seem very likely…

Do the risks for the Consultant-Manager and/or the only (or primary) member of the shareholding scheme of the company increase?

There is a long, ongoing, discussion regarding the issue of the requirements for “lifting the corporate veil” (of formally “seeing” in the legal world the owner of the company as the person behind it, and thus being able to claim from the owner what was initially due by the company). This can more easily be implemented where there are only a few shareholders or just one shareholder holding a company. In any case, one thing must be clear: Choosing a Consultant-Manager instead of a Board of Directors, is not by itself going to make the S.A.’s only representative liable for everything the company does. The lifting of the corporate veil, under the terms and requirements (mainly) set by precedents, cannot be referred in this case. The lifting of the corporate veil foremost refers to the cases where only one shareholder or partner take over (or tend to take over – directly or indirectly) the capital and the function of the legal person – hiding behind its legal form. But taking over the management of the S.A. by its Consultant/Manager who also happens to be the sole shareholder will, undoubtfully, push a court towards lifting the corporate veil.

8. In Conclusion

Thucydides, in his work “Stories”, outlines the personality of Pericles and while assessing its way of practicing politics mentions [2.65.10]: “It was in name a democratic state, but in fact a government of the principal man”. The distance between democracy and monarchy, in this case, is significantly smaller.

The operation of an S.A. has, for the last one hundred years, gone hand in hand with its Board of Directors. This specific collegiate body functioned/functions, in most cases, only typically – as the explanatory report of the recent Act of S.A.s, bravely, admits. The BoD actual meetings have been replaced by the written BoD Minutes, that rarely need to be signed by the BoD members. In many cases those Minutes were/are only signed after they are published on the HELLENIC BUSINESS REGISTRY (in the past on the Government Gazzette) and after exact copies and excerpts of them have been issued by Drucker’s “leader” and Pericles’ “principal man”.

This newly introduced provision of a Single-member Administrative body / Consultant-Manager is here to shift the legal frameworks and at the same time align it with everything reality and experience are demanding. It is here to make life and S.A.s’ function a lot easier. It is here to minimize the number of persons liable before the Government, Social Insurance Institutions and others that are possibly able to impose an indefinite number of administrative, criminal and civil liabilities on them.

A careful application of this provision and a conservative use of it can, no doubt, make it successful.

Stavros Koumentakis
Senior Partner

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

June 16, 2019
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
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
Amortization of capital

The first reference to the issue of the amortization of capital dates, back, to 1920 – in the original text of the previous Law on Sociétés Anonymes (: Law 2190/1920). The Patriarch of the Law of Sociétés Anonymes I. Passias in the first volume of his monumental work (“The Law of the Société Anonyme”) referred to it giving its historical dimension.

The legislative regulation of this issue, after more systematically dealing with it (in the second phase of its “life”), dates thirty-five years. Yet, despite its centuries-old life, this institution is, however, the least well-known and well-established institutions in the law of sociétés anonymes. And as little is known, so profitable it could prove to be for the shareholders. This is because in our country we “confuse” (often – without really needing) our pocket with the fund of our company, although there are other legitimate (and not just legitimate) ways of transferring liquidity from that fund (: of the société anonyme) in the pocket of his (the shareholders). In the broader known legal ways, one could include profit distribution and share capital amortization.

So, what is the amortization of capital? Could it constitute a decrease?

One of the legitimate ways of transferring liquidity from the company’s fund is also the amortization of the share capital. The legislator “felt” the need (albeit, as it is known, an insoluble one) to note, in one – separate paragraph of the relevant provision, that “amortization does not constitute a decrease of the capital”. But why did he need to make this specific clarification? Reasonable, as the question of “decrease?” was created in each of us when we first came into contact with this particular institution.

Therefore, the amortization of the share capital does NOT constitute a decrease. The decrease of the share capital results in its reorganization – its dilution, i.e. by the amount decided by the General Meeting and its determination at a new, lower level.

It is important to repeat that the amortization does NOT affect the share capital, which remains stable even after amortization.

The conditions for the amortization

The conditions for the amortization (partial or total of the share capital) are, just, two:

(a) For the commencement of the relevant procedure: Decision of the General Meeting either with increased quorum and majority or (if there is a statutory provision) with a simple quorum and majority and

(b) For the implementation of the relevant decision: Use of reserves or amounts of profits for the current year (see immediately below).

The implementation of the amortization

In accordance with the law, the amortization is implemented, by paying to the shareholders all or part of the nominal value of their shares. However, the specific payment is made (not with capital dilution but) by using special reserves that can be distributed. For the sake of completeness, this payment could of course also take place from the remaining profits of the year after the distribution of the first dividend, the formation of the statutory reserve and (of course) the payment of the due tax. Due to the fact that the money paid to the shareholder in the context of amortization is not taken from the share capital, its naming (“capital amortization”) is rather unfortunate. Rather right as it is the one that creates the above-mentioned reflection (: “i.e. decrease?”).

Beneficiaries and the “price”

Amortization does not (necessarily) benefit all shareholders. With amortization, it is possible to transfer liquidity from the company to either all or only certain shareholder / shareholders.

It is said that “everything in life comes with a price”. Regardless of whether a person adopts this position in general, the “price” in this case is clear: Shareholders whose shares have been amortized retain their rights from the equity relationship but not those relating to their participation in the distribution of the first dividend and their right to reimbursement for their contribution if the company is liquidated.

Therefore: The right to the first dividend is limited to those only from shares for which no amortization of their nominal value has taken place. The excess of the minimum dividend is allocated to all the shares, including those whose nominal value is written off. As regards the right to the distribution of the proceeds of the liquidation, the other shares (except for those for which the amortization) are preceded and then the excess is distributed in the totality of the shares (thus, the shares whose nominal value has been written off).

The distinction of shares

After the amortization of the nominal value of some shares, their share options are differentiated (better: diluted) in relation to the others. The protection of the rights of the remaining shares and of the bona fide third parties imposes (albeit not foreseen in the law) two alternative options: (a) the cancellation of the old (full rights) shares in combination with the issuance of new – with a respective note to their bodies or, more simply, (b) the note on the body of the specific shares of the amortization of their nominal value.

In any case, the new shares (diluted by the aforementioned rights) are in practice and theoretically also called (incomprehensible to why so) “jouissance shares” – in addition to identifying them as common or privileged (i.e: “common jouissance shares” or where appropriate, “privileged jouissance shares”).

The participation of “jouissance shares” in a possible decrease of the share capital

The relevant question was put to the writer, in more than one case, by entrepreneurs who, with much interest, listened to the description of the particular institution. It is true that this particular issue does not seem to have been particularly dealt with in theory and by case law. On the occasion of the repetition of the relevant institution in the new Law on Sociétés Anonymes, as well as the discussions in the previous paragraph, diametrically opposed views were heard. I have no doubt that the better one is the one that recognizes the right of participation of jouissance shares in a consequential decrease of the share capital, which may take place with the return of part of the capital to shareholders. Argumentation in this direction has two very important axes:

(a) The (non-disputable) wording of the law, which restrictively refers to the rights that the jouissance shares are deprived of (among which the right to participate in a decrease through the payment of a part of the capital to the shareholders, is not included) and

(b) The fact that the return to the shareholders of the amortization product takes place either through the use of special reserves that are permitted to be distributed or by using profits for the current year after the first dividend and the formation of the statutory reserve – therefore the “share capital” account, which (in any case) remains unchanged after the amortization, is not used.

The “restoration” of jouissance shares to the status before the amortization

One more, extremely interesting, question the writer has accepted in one of the presentations of this particular institution is the possibility that jouissance shares returned to their pre-existing status. This question (due to the limited application of the institution) does not seem to have been dealt with by case law – nor in theory. But for the answer with (relative) ease, we could positively (that is, in favor of the validity) accept the assumption that such a possibility is not forbidden by law. However, reservations are made as regards the accounting management of the whole matter as the return (permanently) of distributed reserves does not appear to be an acceptable solution.

In conclusion

The institution of the amortization of the share capital is an old institution of the law of sociétés anonymes. However, since it has not become widely known, it has not received the adequate attention at the scientific and, most importantly, business level. As a result, it has not been sufficiently exploited. However, from the above, I do not think there is any doubt about its usefulness or the possibility of multi-level exploitation for the shareholders of the société anonyme.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (April 14th, 2019).

April 14, 2019
The new law on SAs: Preferred shares

Preferred shares (as a means of attracting investment funds)

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

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

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

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

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

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

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

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

In conclusion

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

Stavros Koumentakis
Senior Partner

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

April 7, 2019

This site is registered on wpml.org as a development site. Switch to a production site key to remove this banner.