Koumentakis

Tag: remuneration of Board members

  • The Remuneration Policy of the members of the Board of Directors of the SA

    The Remuneration Policy of the members of the Board of Directors of the SA

    The remuneration of the members of the Board of Directors of an SA is a “hot” issue for everyone interested: the company, the shareholders and, of course, the beneficiary. But it also interests third parties: investors and banks. Our national legislator re-approached this issue with the law on SAs (Law 4548/2018). The procedure and conditions for granting remuneration to the members of the Board of Directors on the basis of their organic relationship were covered in our previous article (: Societe Anonyme: Remuneration of the Members of the BoD). At the present article, we will be concerned with the Remuneration Policy. A Mandatory Policy for companies with shares listed on regulated markets (Article 110 §1). A policy welcome, without a doubt, by the rest.

    Remuneration of board members and conflict of interest ˙ the (global) debate

    The remuneration received by the members of the Board of Directors may, under certain conditions, be detrimental to the SA. This is, moreover, a typical case of conflict of interests. It can be proven harmful when, for example, in some cases they are associated with the achievement of high goals (indicatively: the company’s turnover). It is then possible for the members of the Board of Directors to sacrifice the management of the SA by excessive risk-taking, on the altar of achievement of their, short-term, own benefit.

    The recent long-term financial crisis “brought” to our country the global debate over the exorbitant fees of the members of the Board. The basis of the relevant concerns is often the lack of sufficient transparency but also the substantial participation of the shareholders in their approval. Their goal is to defend, ultimately, the corporate interest.

    The achievement of this objective is pursued through the “say on pay” principle (inter: Articles 9a and 9b of Directive 2007/36/EC, as amended by Directive 2017/828/EU). Based on this principle, the remuneration of the members of the Board of Directors should be defined in such a way that the shareholders are able to express an opinion. The tool of its implementation is the Remuneration Policy (as is the Remuneration Report) which have already been transposed into national law.

     

    Legislative framework

    The national legislator regulated the matters related to the Remuneration Policy (and the Remuneration Report) in the provisions of articles 110-112 of law 4548/2018. In this way, it incorporated into Greek law the provisions of articles 9a and 9b of the aforementioned Directive-as in force.

    With the Remuneration Policy (article 110 and 111 of law 4548/2018), which will concern us in this article, the strategy of the SA regarding the granting of remuneration to the members of the Board of Directors is structured. The SA’s sustainability and long-term interests are also promoted. The content of the Remuneration Report (article 112 of law 4548/2018) regards the remuneration granted to the members of the Board of Directors (or that are still due) for the previous year. It is not permissible, of course, for the paid salaries to deviate from what the Remuneration Policy stipulates.

     

    Remuneration policy

    The obligation to establish it

    As we “hurried” to note in the introduction, not all SAs are obliged to adopt a Remuneration Policy. This obligation is typically borne only by companies with shares listed on a regulated market. Both for the members of the Board of Directors and for the general manager, if any, and their deputy (article 110 §1). However, with a relevant statutory regulation, it is possible to apply the provisions for the Policy and Remuneration Report in two more cases: (a) to the executives, as they are regulated by the International Accounting Standards (article 24 par. 9) and (b) to unlisted SAs. We aim, in these cases, for greater transparency towards the shareholders. For the benefit, in the end, of SA.

    The obligation to establish a Remuneration Policy covers the remuneration granted to the members of the Board of Directors in their organic capacity and position. It does not cover, in other words, other fees. Such as, for example, those that are due for a special relationship of employment, mandate, independent services or works [int .: Societe Anonyme: Contracts with Members of the BoD for the Provision of (Additional) Services].

     

    The responsibility of the General Assembly

    Competent body for the approval of the Remuneration Policy is defined by law (article 110 §2) to be the General Assembly. This is a transformation of the principle we have already mentioned: “say on pay” [principle, which, however, already existed in the pre-existing national law (art. 24 par. 2 law 2190/1920)]. The shareholders’ vote is binding. In other words: the SA has no right to deviate from the decision of its shareholders.

    A simple quorum and majority is sufficient for the decision of the General Assembly (for the approval, ie, or not of the Remuneration Policy). In the initial wording of Law 4548/2018, it was provided that in the relevant voting the shareholders who happened to be, themselves, members of the Board of Directors did not have the right to vote. This prohibition is no longer in place (: abolished by law 4587/2018).

    In case of approval of the Remuneration Policy by the General Assembly, its duration extends, at a maximum, to four years from the relevant decision. It will, however, require further submission and approval by the General Assembly, when the conditions under which it was approved change substantially (even within four years) (Article 110 §2).

    When the General Assembly is called upon to approve a new Remuneration Policy after the expiration of the previous one, it is, of course, entitled to reject it. In this case the company is bound by the Policy previously approved. The duration of the latter is extended until the next General Assembly, when a new, revised Remuneration Policy is submitted (article 110 §4).

     

    The possibility of deviating from the Remuneration Policy

    The obligation to re-submit for approval the Remuneration Policy should be distinguished from the possibility of derogation from it (Article 110 §6). The specific / provided for derogation is, in exceptional circumstances, permissible. As long as three, basic, conditions are met. Specifically:

    (a) There is a relevant provision in the Remuneration Policy of the procedural conditions for the derogation.

    (b) There is a relevant provision in the Remuneration Policy of the items in respect of which the derogation may occur.

    (c) The need for the derogation serves the long-term interests of the company as a whole or ensures its viability.

     

    The body responsible for submission of the Policy to the General Assembly

    The Board of Directors is the competent body of the company for the submission of the Remuneration Policy to the General Assembly for approval. It is true that the specific competence of the Board of Directors does not explicitly arise from the wording of the law. On the contrary, it is derived, as a collective duty of the members of the Board of Directors, to ensure the preparation and publication, inter alia, of the Remuneration Report (article 96 §2 of law 4548/2018). However, we do not find a corresponding provision for the Remuneration Policy. This, however, does not mean that the members of the Board do not have the obligation to draft the Remuneration Policy and submit it to the General Assembly.

    An different interpretation would not be compatible with the recent law on corporate governance (Law 4706/2020). As we mentioned in a previous article [The (new) law on Corporate Governance (and a comparative overview with the preexisting one)], the relevant law introduces, in addition to the Audit Committee, two additional committees of the Board (Article 10): The Nominations Committee and the Remuneration Committee. The latter is responsible for: “formulating proposals to the Board of Directors regarding the remuneration policy submitted for approval to the General Assembly, in accordance with paragraph 2 of article 110 of law 4548/2018” (: article 11 a’). In addition, it examines the information included in the Remuneration Report, providing an opinion to the Board of Directors (art. 11 par. C).

     

    The content of the Remuneration Policy

    The provisions of the Remuneration Policy must be recorded in a clear and comprehensible manner. Its (minimum) content is determined, in sufficient detail, in the provision of article 111 §1 law 4548/2018 (which constitutes an exact transposition of the relevant provisions of article 9a of Directive 2007/36/EC).

    The minimum content, for example, should be the way in which this Remuneration Policy contributes to the business strategy, the long-term interests and the viability of the company. In addition, the different components for the granting of fixed and variable remuneration of all kinds as well as the criteria for their granting. The methods used to assess the degree of fulfillment of the specific criteria. The conditions for the postponement of the payment of the variable remuneration and its duration. The duration and content of the employment contracts of the members of the company’s Board of Directors – any existing retirement plans. Any share disposal rights and options. The decision-making process for the approval and determination of the content of the remuneration policy and so on.

     

    The disclosure formalities

    The central goal of the Remuneration Policy of the members of the Board of Directors is to enhance transparency. The justification is the possibility of constant information of all interested persons (especially shareholders and investors). It is therefore not paradoxical that the Remuneration Policy is made public (articles 110 §5 as well as 12 & 13). At the same time, however, it must remain available on the company’s website for as long as it is valid (art. 110 par. 5).

     

    The existence and, in particular, the proper implementation of the Remuneration Policy of the members of the Board of Directors, constitutes an important obligation of the companies that have shares listed on a regulated market. This obligation arises from the (recent) law on Société’ Anonymes. However, it also has strong foundations in the (absolutely recent) law on corporate governance.

    The value of the Remuneration Policy lies in the strengthening of corporate governance. And where the latter is strengthened, the companies that invest in it end up benefiting. After all, what investor will not see positively a company that has invested in corporate governance? Which bank will not, at least, increase the creditworthiness of a company with a strong relevant performance? Any relative costs for adopting a Remuneration Policy and complying with its content seem small compared to the reasonably expected benefits.

    Obviously for unlisted companies as well.

    Especially, perhaps, for them.-

     

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (April 4, 2021).

     

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

  • Societe Anonyme: Remuneration of the Members of the BoD

    Societe Anonyme: Remuneration of the Members of the BoD

    The Board of Directors of the Société Anonyme acts, in principle, collectively. However, it is possible (: a rule without exceptions) to delegate the powers to bind and represent to a specific member. It is also common for board members to associate with the SA through special relationships. Indicatively, with contracts of employment, works, independent services or mandate. These contracts (also) provide for the fees that the SA (must) pay them for their specific, additional, services. These issues have already occupied us in our previous article [: Contracts of Board Members for the Provision of (Additional) Services]. In this article we will deal with the issues of remuneration of the members of the Board of Directors that the SA (sometimes) pays them in the context of their internal relationship. In the latter case, the legal basis for the payment of remuneration must be sought in the articles of association, in a decision of the General Assembly or in the remuneration policy that may be adopted by the SA (: obligatory if it is listed).

     

    Establishment of a control mechanism in the remuneration of the members of the Board of Directors

    As already announced by the explanatory memorandum of law 4548/2018, the remuneration regime of the members of the Board of Directors is reformed (with articles 109 et seq.). A specific framework is chosen for the protection of the SA and the minority shareholders. The justifying reason? The risk of impairment of the corporate assets of the SA due to exorbitant fees and other, disproportionate benefits.

    It is noteworthy, however, that the specific provisions (Articles 109 et seq.) “… do not apply in the case of compensations and expenses paid under an approved by law, where required, legal relationship (eg expenses in the context of work or mandate) and / or provided by law (eg CC 723), as after all, it is still valid today, in accordance with the position of the case law”. In other words, what is regulated in independent contracts between the Company and the members of its Board of Directors: (a) is valid independently (we also addressed the specific issues in our aforementioned article) and (b) is not occupied by the regulatory scope of the provisions that we attempt to approach here.

    Therefore, based on the type of remuneration that the members of the Board of Directors may receive in the context of their organic relationship, the terms, the procedure of their granting (but also the relevant restrictions in place) are analyzed as follows:

    Fees and benefits that do not consist of participation in the profits of the year

    Types of fees and other benefits

    The remuneration of salaried consultants consists of a fixed, as a rule, “remuneration”. This, however, is not a rule without exception. The type of pay varies depending on the case. It may take, as an indication, the form of compensation per session or the award of a bonus. Other benefits may include housing, security and / or a car.

    The determination of fees in the articles of association or in the remuneration policy of the company

    Remuneration or other benefits are legally paid to the members of the Board of Directors – provided that there is a relevant provision in the articles of association or in the remuneration policy of the company (article 109 §1 law 4548/18). In more detail:

    (a) Regarding the (possible) provision in the articles of association

    The articles of association may provide for the granting of remuneration to specific (or all) members of the Board. This possibility seems more theoretical as we will rarely and in very special cases encounter it. These are fees, the granting of which concerns (obviously) the future. Retrospective forecasting is excluded. In addition: a mere reference to the articles of association regarding the right to receive remuneration is not enough. The fee must be specified (in the amount and the conditions of its payment) in the articles of association.

    In case it is required to mediate a decision of the General Assembly for its determination, it is considered (and it is) a fee which is granted after the approval of the General Assembly (see below) and not on the basis of the statutory provision.

    We should consider that the regulation of the remuneration determined by the statute also includes the provision for the maximum, the final amount of which is determined by a decision of the General Assembly. However, the same does not apply in those cases where the statute stipulates its minimum amount and it is left to the General Assembly to determine the amount to be finally paid. We must consider, in the latter case, that this is a fee determined by the General Assembly.

    The statutory provision for the payment of remuneration to the members of the Board of Directors may exist in the initial statute of the SA- the one drafted for its establishment. It is, however, possible that the relevant provision will be introduced later – after an amendment, ie, of the statute by a decision of the General Assembly. Unless otherwise provided by the Articles of Association, the relevant decision shall be taken by the usual quorum and majority.

    (b) Remuneration policy

    The determination of fees in the company policy is regulated, specifically, by articles 110-111 of law 4548 / 2018. Remuneration policy arrangements are mandatory for companies with shares listed on a regulated market. Of course, this does not rule out the possibility that other companies will adopt a similar remuneration policy. For these latter companies, the relevant statutory provision is necessary in any case. The further analysis, however, of the remuneration policy will be the subject of a different article of ours.

     

    The granting of fees after a special decision of the General Assembly

    In the event that there is no provision in the law or the articles of association of the SA (and without prejudice to the provisions of the remuneration policy): “… remuneration or benefit granted to a member of the board of directors… shall be borne by the company only if approved by a special decision of the General Assembly…” (article 109 §1 law 4548/18).

    In contrast to the pre-existing law (article 24 §2 b’ of law 2190/1920), article 109 refers to a decision of the General Assembly and not of an ordinary General Assembly. This does not mean, however, that the relevant responsibility is now assigned to the extraordinary General Assembly. The argument in favor of the exclusive competence of the ordinary General Assembly is not without value.

    The above, approving, decision of the General Assembly should be specific. Therefore, the approval of remuneration or other benefits to the members of the Board of Directors should be an independent item on its agenda. The decision for the approval is taken with the usual quorum and majority. However, it is possible for the articles of association to introduce increased, respectively, percentages. It follows from the wording of the provision that the approval of the General Assembly for the granting of remuneration or other benefits can only concern the previous corporate year. A corresponding approval for future payments cannot take place – but it is possible to pay sums in advance for future fees (as we will see later on).

     

    Fees from the participation in the profits of the year

    For the granting of remuneration consisting of corporate profits, a prerequisite is the relevant provision in the articles of association of the SA. However, the general, relevant, provision is sufficient. The determination of the amount of these fees may take place following a decision of the General Assembly. The decision shall be taken, as defined in paragraph 2 of Article 109, by a simple quorum. A GA, in this case, is considered the ordinary one.

    The fees in this case are taken from the balance of net profits that may remain after deducting the amounts corresponding to the formation of the regular reserve and the distribution of the minimum dividend (: articles 160 §2 and 161 Law 4548/2018). It is possible, however, in any case, for the articles os association to impose further restrictions.

    The specific fees, therefore, are directly dependent on the existence of profits: It is not possible to approve (and, much more, pay) such fees when there are no profits. This works in favor of the company in two ways: (a) It is not possible for the company to be burdened when it has no profits and (b) It provides (indirect) incentive to the members of the Board of Directors to maximize the profitability of the SA.

     

    The advance payment of fees

    As already mentioned above, it is possible to pay an advance to members of the Board of Directors: “The General Assembly may allow an advance payment for the period up to the next ordinary General Assembly. The advance payment of the fee is subject to its approval by the next regular General Assembly” (article 109 §4 law 4548/18). The law does not specify the fees that may be paid in advance. However, it is not considered possible to pay a fee in the case of:

    (a) Profit sharing

    It is not considered possible to deposit fees that will eventually consist of a participation in the company’s profits. This is because, at the time of the down payment, it is not possible to make a secure prediction of the existence of net profits; much less to determine the net profits available to board members for remuneration.

    (b) Fees provided by the articles of association

    Advance payment of fees, the granting of which is provided for in the articles of association of the SA, is also not considered possible. The reason is that these fees are paid under the terms, conditions, time and procedure provided therein.

     

    Judicial review of the amount of fees

    The grid of regulations set by article 109 of law 4548/2018 does not let the decisions concerning the payment of remuneration to the members of the BoD go virtually unchecked even when the set conditions are met. In fact, the relevant choice of the legislator seems reasonable as it is not uncommon for the majority of the shareholders to decide to grant unjustifiably high salaries to members of the Board. Such decisions are usually taken in those cases where the majority of the shareholders (or persons related to them) happen to be members of the Board, without the latter really being entitled to the fees decided to be paid to them.

    In these cases, the right of minority shareholders to oppose to the decision for the payment of remuneration or benefit, of any kind, to a specific member of the Board is recognized. A necessary (formal) condition is that the minority shareholders represent 1/10 of the paid up (according to the most correct point of view) capital of the SA. If the specific formal condition is met, the court may (at the request of shareholders, by those who objected, representing 1/20 of the paid up capital -article 109 §5 law 4548/2018) evaluate, based on the data which will be taken into account, that the remuneration decided to be paid to a member of the Board is excessive and should be reduced.

    The application to the court must be submitted within an exclusive period of two months from the relevant approval of the General Assembly. It is noted, however, that the fees paid to the members of the Board on the basis of a special relationship / contract are outside the framework of this judicial review.

     

    We should consider it reasonable and, at the same time, imperative to have a clear separation (first of all in our minds) of the qualities of the shareholder, the member of the Board of Directors but also of the employee / provider of services to the SA. In this context, we must accept that the specific persons (must) have a different benefit from their participation in the SA. The shareholder from the dividends due to them; the employee / service provider from the fees provided by the relevant contracts; the member of the Board of Directors from the fees provided (or not) by the statutory regulations and possible decisions of the General Assembly.

    It is true that (especially) in the context of family SAs the aforementioned qualities are “blurred”. It is in these cases that, above all, there should be a separation of the company’s finances from the pocket of the entrepreneur, the establishment of (not mandatory but necessary-essentially) rules of corporate governance.

    In fact, this is not only for the benefit of minority shareholders. It is mainly for the benefit of the company but also of its development.

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 21, 2021).

     

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

  • Societe Anonyme: Contracts with Members of the Board for the Provision of (Additional) Services

    Societe Anonyme: Contracts with Members of the Board for the Provision of (Additional) Services

    The Board of Directors of the Société Anonyme is its body, which is responsible for its management and representation. Its existence is provided and its operation is governed by law (basically: articles 77-115 law 4548/18). It acts, in principle, collectively. The principle of collective action, however, is not without its exceptions; it is therefore subject to divergence. The Board of Directors is, by its nature – as already mentioned, an instrument of the SA. Its members, as members of a collective body, are considered to be linked, respectively, with an organic relationship with the SA. The relationship of the Board member with the SA is twofold. It is distinguished (: “theory of separation”) into external-organic and internal-subjective. We will be concerned at this time with the provision of additional services to the SA by the member of the Board of Directors, regardless of their organic position and relationship: on the basis of a “special relationship”. By contracts, indicatively, of employment, works, independent services or mandate.

     

    The special relationship between board member and SA

    We often find, in practice, that the members of the Board of Directors provide additional services to the SA – especially in the context of the family SA. These are services that go beyond the narrow confines of its administration – as defined by law. They are, in other words, outside the framework of the narrowly defined duties of the members of the Board of Directors (as members, ie, of the specific body of the SA). These services are provided in the context of a “special relationship” (: article 109 par. 3 law 4548/2018). This specific relationship may include, for example, the type of contracts of employment, works, independent services or mandate. In any case, the correct legal characterization of this special relationship is (also) left, as we have already analyzed, to the judgement of the courts.

    With special reference to the specific (“special”) relationship, the legislator explicitly confirms the possibility of concluding such contracts, in order to remove any (possibly existing) relevant doubts. And even more: it demonstrates their difference (of these contracts and relationships) from the relationship that connects the members of the Board of Directors with the company due to their election or appointment. It confirms, in other words, that these are parallel relationships. Also: completely distinct relationships-based on their content.

     

    The content of the special relationship

    The content of the parallel (and special) contractual relationship that can be concluded by the member of the Board is, as already mentioned, the provision of (any) additional services. Its content is contrasted, in this way, with the content of the organic relationship that connects the SA with the member of its Board of Directors. The (organic) relationship that is determined by the law or the articles of association of the SA.

    The content of the specific, additional, services (and the related special relationship and contract) may be, inter alia, that of the legal, financial or technical consultant. The most common: the provision of services of an executive that usually results from a contract of employment concluded by the member of the Board of Directors with the SA.

    The difficulty of distinguishing the two relationships and qualities (member of the Board of Directors vs employee / provider of services in the SA) depends on their scope and content. This distinction turns out to be easier when the member simply participates in the Board of Directors, without being individually in charge of exercising (organic) power of administration, management and / or representation. On the contrary, when the member of the Board acts as a substitute body, that is, when the powers of the Board have been transferred in whole or in part, the distinction does not seem easy. In fact, in cases where the content of the special legal relationship concerns the management of the company and not just a field of action, the difficulties of discrimination are multiplied.

    The distinction, however, of the individual, aforementioned, relations seems absolutely necessary. This is because the regulations reserved by Law 4548/2018 on the conclusion and operation of the special relationship that connects the SA with the member of its Board of Directors, are different from those that govern their organic position (as a member of the Board).

     

    The special relationship as a transaction of the SA with a related party

    The members of the Board of Directors are included in those that the law identifies as parties related to the SA (:”parties”). The SA’s transactions with related parties are now regulated in articles 99-101 of law 4548/2018 (as they replaced the well-known article 23a of law 2190/1920). These are transactions with those parties who, due to their position, are likely to influence the content of these transactions based on their own interest. It was therefore deemed necessary to provide a regulatory framework aimed at protecting the SA. The above transactions reasonably include the conclusion of any special relationship (indicatively: employment, works, independent services or mandate contract) of the SA with a member of its Board.

     

    The conditions for concluding a special contract with related parties

    For the valid conclusion of a contract of the SA with related parties (and in this case, a special employment, works, independent services or mandate contract with members of the Board) the observance of a series of procedural rules and publicity rules is necessary (articles 100 and 101 of Law 4548/2018 ). These rules, in the light of the conclusion of a special contract of a member of the Board of Directors with a non-listed SA, are analyzed below:

    (a) The granting of a license

    In General

    According to paragraph 1 of article 100 of law 4548/2018: “the license to establish a transaction of the company with a related party or to provide collateral and guarantees to third parties in favor of the related party … is provided by a decision of the Board of Directors…”. The license granted is valid for a period of six months.

    The license must be special (article 99 of law 4548/2018). This means that the conclusion of the special contract should be included in the agenda of the meeting of the Board. In addition: its content (especially its financial object and its duration) must be submitted to the decision of the body responsible for granting the license (indicatively: 1990/2018 Court of Appeal of Thessaloniki).

    The Board of Directors is the competent body for issuing the license. In fact, the possibility of further assignment of the specific competence is explicitly excluded (article 100 par. 2 law 4548/2018). This provision of the legislator introduces an innovation in relation to the previous regime, which granted competence to the General Assembly (article 23a of law 2120/1920). In the justifications of the specific choice of the legislator, the fastest and simplest control procedure by the BoD is considered. In addition, the Board, due to its managerial powers, is considered the most appropriate body of the SA to recognize the benefit or not of the conclusion of contracts (as such: the contract of employment, works, independent services or mandate).

    The competence of the General Assembly at the request of shareholders

    In the event that the Board of Directors grants permission for the conclusion of a special relationship between the SA and a member of its BoD, it is obliged to announce its decision to the General Commercial Registry. Within ten (10) days from this announcement, shareholders of the SA representing 1/20 of the capital are entitled to request the convening of a General Assembly, in order for the latter to make a decision on the issue of granting a license. In fact, it is possible to (statutorily) reduce this percentage.

    Any transaction with an affiliated person, for which permission has been granted by the Board of Directors, is considered valid from the beginning, but it is subject to suspensory condition. In other words, either the aforementioned ten-day deadline must pass without any actions taken or the decisive responsibility is assumed by the General Assembly due to a request of 1/20 of the shareholders of the SA. In the latter case, the license for the transaction must ultimately be granted by the General Assembly. This license is not granted if shareholders representing 1/3 of the share capital object (article 100 §5 of law 4548/18-as in force, after modification of the initial wording of the provision, which provided for non-participation of related parties in the formation of a quorum and majority, after our own public intervention).

    The competence of the General Assembly in the absence of a quorum of the General Assembly

    As we have analyzed in our previous articles, the law deprives a member of the Board of Directors of the right to vote on issues in which a conflict of interests arises between them (or the related parties) and the SA. Such a case is the conclusion of a special relationship between the member of the Board of Directors and the SA. Therefore, the other members of the Board of Directors make the necessary relevant decision. However, the exclusion from the voting may concern so many members that the remaining ones do not form a quorum. In this case, the remaining members (regardless of their number) are responsible for convening the General Assembly (to make a decision on granting permission to enter into a special relationship).

     

    (b) Adherence to the publicity process

    In order to complete the process of granting a license for the conclusion of a special contract of the SA with a member of the Board of Directors, it is required to observe the publicity provided by law. In particular, according to article 101 of law 4548/2018: “The Board of Directors announces the issuance of a license for the preparation of a transaction either by itself or by the General Assembly, as well as the expiration of the deadline of paragraph 3 of Article 100 (ie the above mentioned ten-day deadline) …”. This announcement is submitted to publicity (: posting in the General Commercial Registry) before the completion of the transaction. At the same time, paragraph 2 of the same article sets out the minimum content that the above announcement must have.

     

    Exceptions to the obligation to issue a license

    The case of current transactions

    The obligation to grant a license is redundant in the event that the transaction (in this case the contract of the SA with the member of its Board of Directors) falls under the current transactions. Current transactions are defined, in article 99 §3 a’ of law 4548/2018, as “… those that are normal in relation to the operations and the object of the business activity of the company, in terms of their type and size and are concluded under market conditions”. In addition, according to the case law formulated under the pre-existing legal regime, a current transaction means “… that which, by its object, falls under the contracts drawn up in the context of the company’s day-to-day operations, ie whose terms are the usual terms of the contracts the company enters into with other traders. ” (1245/2018 Supreme Court).

     

    The case of the pre-existing contract

    A different case of exclusion from the licensing process is that in which a member of the Board of Directors is associated with the SA with a contract of employment, works, independent services or mandate, concluded before their election (or appointment) (1364/1990 Supreme Court, 21/2019 Single Member Court of First Instance of Volos). An issue, however, arises when the pre-existing contract is amended, after the election / appointment of the member of the Board of Directors (: eg. increase of the agreed fees). Depending on the content of the amended terms of these contracts (of employment, works, independent services or mandate), their prior approval by the competent body may be necessary.

     

    The remuneration of the members of the BoD on the basis of their special relationship / contract

    The members of the Board of Directors who have concluded an employment, works, independent services or mandate contract with the SA are, reasonably, entitled to receive remuneration – precisely on the basis of that contract. The specific remuneration is granted cumulatively with the (possible) remuneration received by the member of the BoD due to his / her organic position (ie, as a member of the BoD). These are fees which, although coming from the same SA and going to the same person, have different legal treatment. Thus, the fee from the special relationship / contract does not require prior regulation by law or the articles of association. It does not require its approval by the General Assembly (109 §1, Law 4548/2018) – in contrast to the remuneration that may be granted under the organic position. In fact, the law (article 109 §3, law 4548/2018) explicitly excludes the remuneration agreed on the basis of the special contract from the procedure and the conditions for granting remuneration to the members of the Board of directors of article 109 of law 4548/2018.

     

    Each member of the Board may, therefore, have a second capacity within the SA: the one that connects them with an additional relationship (employment, works, independent services or mandate) with the company. The two properties / legal relations (organic and special) are (and must remain) completely distinct. The first (organic) is governed, exclusively, by the mandatory provisions of the Law of Société Anonymes. On the contrary, the regulatory framework of the second (special) relationship is additionally governed by Civil (or Labor) Law regulations-depending on the contractual type which is chosen each time (mainly on the basis of tax and insurance advantages) and to which, in the end, it falls under.

    However, the separation of the qualities of the shareholder, the member of the Board of Directors and the employee / provider of services in the SA is important for a number of other reasons. Some of them have already occupied us in our articles (including: the need to separate the fees and finances of the entrepreneur / board member from the company’s fund, the use of the facilities provided by the law on SAs in terms of liquidity from businessmen / members of the Board).

    However, the separation of the above-mentioned qualities seems necessary on the basis of alignment with the (not typically necessary for non-listed companies, but substantially absolutely necessary) corporate governance rules.

    Rules necessary for the transition to the new era ˙ to the next day.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 14, 2021).

     

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

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