Koumentakis

Tag: societes anonymes

  • Minority and its rights in the Société Anonyme

    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

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (April 21st, 2019).

    dikaiomata-meiopsifias

  • Amortization of capital

    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

    Stavros Koumentakis
    Senior Partner

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

    aposbesh-kefalaiou

  • The new law on SAs: Preferred shares

    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

    Stavros Koumentakis
    Senior Partner

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

  • The new law on SAs: Redeemable shares

    The new law on SAs: Redeemable shares

    Redeemable shares as a business financing tool

    It is clear that companies lacking the necessary liquidity are looking for sources of external financing. The banking system has always chosen to attract (and lend) companies that have little or no funding needed – especially in times of recession.

    Alternatively, a solution for companies is their capital enhancement either by the shareholders or by third parties – non-shareholders. In this case, however, it is reasonable for the candidates to participate in to consider: (a) the return on their investment; (b) to ensure their ability to withdraw from the investment; and (c) to ensure that the benefit which, at least initially, they were looking forward to, can be reaped.

     

    The basic function of redeemable shares

    Businesses that face liquidity or solvency problems or that simply seek to finance the business plans they have drawn up may have recourse to the issue of redeemable shares. These shares may be issued by the company either as common or as privileged with (or without) voting rights. The important thing, in this case, is that these shares are required to be redeemed by the issuing company either through a statement from the latter or from the shareholder to participate. Regardless of the obligation, the redemption is likely to be the (appropriate) strategic choice of the majority shareholder.

     

    The treatment of redeemable shares by the new law

    The new law on Sociétés Anonymes includes a set of arrangements for redeemable shares. The most important of them is the requirement of the takeover statement: when the relevant terms of the statutes are met and, at the same time, there are amounts available for the redemption available for distribution. This latter condition proves to be very important, since otherwise (lack of available funds) the relevant statement of the shareholder’s acquisition does NOT take effect. The provision of guarantees or other collateral to the holder of redeemable shares is worthless: Collateral, as an ancillary contract, can only work when funds are available for redemption. Otherwise, it proves to be irrelevant.

    Another important provision is that the General Meeting with an increased quorum and majority may decide to convert some of the existing shares into redeemable-always respecting the principle of equal treatment (pari passu) of the shareholders.

     

    In conclusion

    The capitalization of redeemable shares is also an arrow in the quotient of the company so as to make it attractive to increase its share capital in the effort to implement its business goals (with the point of note, of course, that the acquisition of redeemable shares presupposes the existence of corresponding available funds to the company).

    Further, leveraging the ability of the law to convert shares into redeemable may also be a means of return to the shareholders of a part of their share in the share capital.

    The potential (optimal and/or multilevel) utilization of the particular institution is (and must be) related to the data and needs of the business. But, like any other business decision, it is (and indeed even more) dependent on the strategy and interests of majority shareholders.

    The latter and their consultants are responsible for optimal planning and its effective implementation.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 31st, 2019).

    εξαγοράσιμες μετοχές, σταύρος κουμεντάκης

  • Seminar At the Piraeus Chamber of Commerce and Industry On the New Law on the SAs

    Seminar At the Piraeus Chamber of Commerce and Industry On the New Law on the SAs

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

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

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

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

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

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

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  • The insurance of the liability of the Members of the BoD and of the Executives of the S.A.

    The insurance of the liability of the Members of the BoD and of the Executives of the S.A.

    1.Introductory

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

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

    (b) for the risks incurred by the insurer.

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

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

     

    2.The robust growth of this insurance product

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

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

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

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

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

     

    3.The economic and business benefits of the relevant insurance

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

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

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

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

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

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

     

    4.The nature of this insurance contract

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

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

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

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

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

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

     

    5.The insurance cover

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

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

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

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

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

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

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

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

     

    6.Insurance Clauses

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

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

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

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

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

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

     

    7.Epilogue

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

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

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

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

    It should be perfectly clear:

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

    Petros Tarnatoros
    Senior Associate

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

  • Other Liabilities of the Members of the Board of the Directors of a S.A.

    Other Liabilities of the Members of the Board of the Directors of a S.A.

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

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

     

    A. Preamble

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

     

    B. General

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

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

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

     

    C. Liability towards the State and Public Insurance Organizations

    1.General

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

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

    Such are the cases that are dealt with later on…

     

    2.Liability arising from tax offenses

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

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

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

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

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

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

    General – Criminal liability

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

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

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

    Particularly:

    The crime of tax evasion

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

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

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

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

     

    3.Liability arising from customs offenses

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

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

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

     

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

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

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

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

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

     

    D. Liability under the Civil Code

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

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

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

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

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

     

    E. Liability under the provisions of the Bankruptcy Code

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

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

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

     

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

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

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

     

    In conclusion

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

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

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

    Or maybe not?

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

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

    Σταύρος Κουμεντάκης

  • New Law on SAs: the Liability of the Member of the Board of the Directors

    New Law on SAs: the Liability of the Member of the Board of the Directors

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

    Part 1: The Responsibilities arising from the new Law on Sociétés Anonymes

     

    Α. GENERAL 

    Preamble

    Power in Greece has always (with a special interest most people, if not everyone) attracted us. Whether to exercise it or to engage with those who have it. Hence, we seem to despise that power, at some point, is over. We also seem to forget (?) that its exercise poses risks. Sometimes serious ones.

    When Henry Kissinger concluded that “power is the supreme aphrodisiac”, we can be sure that he knew something more than we know. For the consequences of exercising power? Homer had already spoken: “He who is in power cannot sleep for a whole night”. And then, later, Charles Caleb Colton followed to clarify: “The sufferings of power are real, its joys fantastic”.

     

    The extent of the liability of the members of the Board of Directors

    The management of legal entities is related to the exercise of power. It is true, however, that if one goes back to the domestic (and of course, to the international) literature, it is unfortunately not possible to identify a study, a workbook, which will record all the risks involved in its exercise. Many individual risks, yes. An overall no. What does this mean at a practical level: that the extent of the liability of those exercising power and the risks they face are neither fully documented nor identifiable.

    In the operating environment of Sociétés Anonymes, as this is currently the case, the greatest concern of the directors is the extent of their liability: for acts or – more precisely – for their omissions.

    In this context (on the occasion of not only the new law on Sociétés Anonymes, but also of the timeless questions and concerns of interested parties involved), it is attempted to approach some basic areas of the liability of the members of the Board of Directors.

     

    Criminal liability – in general

    Criminalization of individual actions of entrepreneurship, business choices and management decisions of a Société Anonyme is a (not theoretical) possibility. The admission of public prosecutors to the day-to-day management of the business, as well as the attempt of (some of them) to be transformed into “Antonio Di Pietro” of the country’s economic and business life by adopting “Clean Hands” actions, sometimes works steadily and some other deterrent for beneficial business decisions.

    On the other hand, the involvement of the members of the Board of Directors (not necessarily the executive ones) in criminal (and not only) acts is quite common, due to omissions involving obligations towards the State (for example, non-payment of established debts, non-repayment of taxes levied-i.e. VAT, non-payment of insurance contributions). It is also not an uncommon thing, the involvement (not only criminal) of members of the Board of Directors in events related to (or attempted to relate to) entrepreneurship. We can also have in mind that a member of the Board of the Directors may be found “trapped”, whether responsible or not, for any matter.

    In what areas does the liability of the members of the Board of Directors of modern SAs extend? An initial record of the responsibilities/liability (civil and criminal) arising from the new Law on Sociétés Anonymes is being dealt with here.

     

    Intra-corporate liability under the new Law on Sociétés Anonymes

    The members of the Board of Directors of a Société Anonyme are liable for the remedy of any damage caused by their actions and omissions. All members can be liable either individually or jointly (and severally). The competent Court may share responsibilities between members according to the data and the attributes of each, individual.

    The limitation of the company’s claims against the members of the Board of Directors is three years, but it is suspended for as long as they have that status. For a maximum of ten years. What does this mean at a practical level? If, for example, the CEO of a Société Anonyme “misconducted” seven years ago – in the course of his duties and he transfers the company today (possibly under his capacity as a major shareholder and owner), the company (under its new ownership regime) is entitled to exercise its claims against him within ten years starting from the illegal act or omission.

    The approval of the financial statements, the management of the members of the Board of Directors and their possible discharge from “any liability” by the ordinary General Assembly of the Shareholders is considered to as a waiver. This will be “taken into consideration”, among other things, by the competent Court.

    The prerequisites for the exercise of the action as well as the exercise thereof are clearly and sufficiently documented and detailed in the new law. The exercise of the corporate action may be entrusted by the competent court (if it is not a choice of the Board of Directors) to a Special Representative.

     

    The criminal liability of the members of the Board of Directors on the basis of the new Law on Sociétés Anonymes

    The new law devotes (and logically) a separate section on the criminal liability/ responsibilities of the members of the Board of Directors. The threat of imprisonment for offenders is not the cause of concern as it is not expected that none of them will be taken to prison – for that reason alone. Interestingly, however, are the imminent financial penalties (from € 5.000 to € 100,000): We can be certain that no such sums are in sort for anyone. Exercising the duties of a member of the Board of Directors is not a story without (and) memorable criminal dangers. It would be extremely useful for those members who either have a “lose consciousness” or are being asked to make decisions and provide assurances on specific issues (in a false, e.g. certification of the payment of share capital or in the approval of financial statements that are not “absolutely accurate”) to think twice. It is also assumed that they should exercise the utmost care when performing their duties and faithfully adhere to (with the assistance of appropriate advisers) the law.

     

    In conclusion

    The acceptance of an “honorary” proposal for entering a Board of Directors of a Société Anonyme, the service of a good friend for the same reason (“to reach the minimum number of three members”), but also the participation in the corresponding body of a family business- is not a decision that has to be “lightly set” to take. Not that every member of the Board of Directors is assumed that “will not avoid interference”, but it is good to know that the (co) exercise of power is not a simple aphrodisiac.

     

    Α. SPECIFICALLY (and in detail)

    1. The intra-corporate liability of the members of the Board of Directors on the basis of the new law on SAs

    The extent and the conditions of the liability of the members of the Board of Directors

    The members of the Board of Directors of the Société Anonyme are responsible for the reparation of damages caused by their actions and omissions (Article 102 par. 1 of Law 4548/2018).

    There is no responsibility when the members are able to prove that they have shown “the care and diligence of a prudent businessman” (Article 102 par.2 of Law 4548/2018).

    Additionally, when we have to do with a joint act of the members of the Board of Directors (e.g. BoD decision), the joint and several liability of all its members applies. The competent court reserves the right to share the responsibility of each of the parties involved, but also to regulate the right of recourse (subrogation) between them (Article 102 par. 3 of Law 4548/2018).

    It is assumed that there is no liability of the members of the Board of Directors when they basically manage to prove that their actions or omissions: (a) are based on a previous legitimate GA decision or (b) concern a reasonable business decision taken in good faith, based on sufficient information and solely on the basis of the corporate interest, as well as (c) are based on a suggestion by an independent body or committee (Article 102 par.4 of Law 4548/2018).

     

    The limitation of the SA’s claims and its resignation from them

    The limitation of the claims of the Société Anonyme against the members of the Board of Directors is three years and is suspended for as long as the capacity of a member remains. In any case it occurs after a decade (article 102 par. 6 of Law 4548/2018)

    It is possible for a Société Anonyme to resign from its claims against the members of its Board of Directors after two years and with the mandatory consent of the General Assembly, provided that there is no opposition of the 10% of the share capital (article 102 par. 7 of Law 4548/2018)

     

    The conditions and the procedure for the exercise of the Company’s claims against the members of its Board of Directors. The involvement of the shareholders

    The Board of Directors is obliged to exercise the company’s claims at the expense of the members liable for compensation, “balancing the corporate interest”. In any case, the members of the Board of Directors are obliged to provide sufficient explanations to the shareholders when they fail to fulfill their specific obligation (Article 103 of Law 4548/2018).

    The shareholders of the company who have acquired more than 5% of the share capital during a six-month period are entitled to submit a request to the Board of Directors for the exercise of claims against its members (article 104 par. 1 of Law 4548/2018). They shall provide the necessary information and data to substantiate the damage and provide one month, at a minimum, for evaluation and for reaching the respective decision (Article 104 par.2 of Law 4548/2018).

    The Board of Directors shall take such a decision after a hearing of nominated members, but without the voting rights of the parties concerned. If the other members do not form a quorum, it is considered that no decision is taken (Article 104 par.3 of Law 4548/2018).

    When the request for the exercise of the corporate action is submitted by the majority of the shareholders, the exercise of same is obligatory for the Board of Directors (article 104 par. 4 of Law 4548/2018).

    The majority of the shareholders who have submitted a request to the Board of the Directors for a corporate action are entitled to appeal to the competent court when: (a) their request is rejected; (b) the period prescribed for assessment expires; (c) a period of four months following the decision for the corporate action expires; (d) the Board of Directors has not been able to reach a decision, or (e) a period of two months without bringing any action if the request is made by a majority of the shareholders has expired (Article 105 par.1 of Law 4548/2018).

    The competent court accepts the shareholder’s request when there is no overriding interest in not exercising the claim. In this case, it appoints a Special (and possibly also a Deputy) Representative for the exercise of corporate action (Article 105 par.2 of Law 4548/2018).

     

    The Special Representative for raising the corporate claim

    The Special Representative: (a) has the special and sole power to bring the action, but also to carry out the proceedings promptly and diligently, (b) has access to evidence, documents and information, (c) is bound by the historical the legal basis of the judgment. The Court may award him reasonable remuneration (Article 105 par.4 and 5 of Law 4548/2018).

    The Special Representative, after his appointment, may reach a negative decision with regard to the liability of the designated members of the Board of Directors. In this case, he informs the Board of Directors and the shareholders who have requested the relevant action. These shareholders may, however, be reinstated with a new application (Article 105 par.6 of Law 4548/2018).

    In the event that the application is dismissed at first instance, the Board of Directors may, on the recommendation of the Special Representative, waive the right of appeal (Article 105 par.7 of Law 4548/2018).

     

    The suspension of the limitations and the costs related to the respective trials

    The submission of a request by the shareholders to the Board of Directors for the enforcement of corporate claims suspends, in general, the limitations (article 106 par. 1 of Law 4548/2018).

    The costs of the trial for the appointment of the Special Representative, the trial against the members of the Board of Directors, as well as any remuneration are borne by the company (article 106 par. 3 Law 4548/2018).

     

    Direct damage of third parties from actions or omissions by members of the Board of Directors

    The provisions of Law 4548/2018 on the liability of the members of the Board of Directors do not affect or limit their liability in respect of claims arising out of direct damage to shareholders or third parties suffered as a result of their (of the members of the Board) actions or omissions. They also do not affect the liability of the members of the Board of Directors vis-à-vis corporate creditors under the provision of Article 98 of the Bankruptcy Code (: failure to file an application for bankruptcy of the société anonyme, as well as causing the suspension of payments by willfulness or gross negligence of the members of the Board of Directors) – (article 107 par. 3 of Law 4548/2018).

     

    The discharge of the members of the Board of Directors from the ordinary General Meeting

    It is possible for the General Assembly to approve the overall management by the members of the Board of Directors when approving its annual financial statements and exempting them from “any liability”. However, this approval – when and if provided – is NOT considered to as a waiver of claims by the company (for the proper waiver, Article 102 par.7 applies). Such an approval is estimated “accordingly” (whatever that means) by the Court that may be seised in the future against the members of the Board of Directors (article 108 par.1 of Law 4548/2018).

    The members of the Board of Directors take part in the vote for the approval of the overall management as well as employees of the Société Anonyme with their own shares, and with the shares they represent, provided that they have been given express and specific voting instructions (article 108 par. 2 of Law 4548/2018).

     

    2. The criminal liability of the members of the Board of Directors under the Law on Sociétés Anonymes

    False or misleading statements to the public (Article 176 of Law 4548/2018)

    There is a threat of imprisonment and a fine of € 10.000 to € 100.000 when a knowingly false or misleading statement is made to the joint founder, by a member of the Board of Directors or by the director of the company regarding (a) the cover or payment of the capital; (b) data of the company with substantial influence over corporate affairs – for the purpose of subscribing to securities issued by the company.

     

    Infringements made by the members of the Board of Directors (Article 177 of Law 4548/2018)

    There is a threat of imprisonment and a fine of € 10.000 to € 100.000 for a member of the Board of the Directors who:

    (a) Drafts or approves (knowingly) inaccurate or misleading financial statements or draws them up in violation of the law as to their content.

    (b) Distributes profits or other benefits to shareholders or third parties that do not arise from the Company’s financial statements or without the preparation of financial statements or based on (knowingly) inaccurate, misleading or financial statements drafted in breach of the law.

    (c) Acquires redemptive shares in breach of the relevant provision (Article 39).

    (d) Causes the acquisition by the company of its own shares (or its parent’s shares) or warrants (of its own or its parent’s company) in violation of the relevant provisions (Article 48, 49, 52 or 57).

    (e) Provides an advance, loan or guarantee (in violation of Article 51) either by charging the company with a view to a third party to acquire shares of the company or by charging its subsidiary with the purpose for a third party to acquire shares of its parent company.

    (f) Drafts (knowingly) an inaccurate or incomplete management report or other statutory annual reports.

     

    Infringements relating to the orderly operation of the company (Article 179 of Law 4548/2018)

    Threatened imprisonment of up to three years or a fine of 5.000 € to 50.000 €:

    (a) To whoever concludes a contract on behalf of the company without the prior authorization required under Article 100. (The offense shall be terminated if the necessary authorization is subsequently granted)

    (b) To the member of the Board of Directors who violates the obligation to certify the payment of capital within the time limit provided for in Article 20 or makes a false certification.

    (c) To the member of the Board of Directors who fails to draft or drafts after the expiry of the time limit: the company’s annual financial statements, the consolidated financial statements, the annual management report, the consolidated annual management report or the remuneration policy, the salary report or other annual report provided by law.

    (d) To the member of the Board of Directors who violates the obligation to re-adjust the share capital

    (e) To whoever hinders the auditing of the company by the statutory auditors or auditors designated to perform an extraordinary audit or does not provide the auditors with the information, he is required to provide.

     

    Infringements concerning the General Meeting of shareholders and bondholders (Article 180 of Law 4548/2018)

    A fine of 5.000 € to 15.000 € is threatened:

    (a) For any person who fails to convene the General Meeting of Shareholders or Bondholders or to include a specific item on the Agenda in contravention of the law or bond issuance program.

    (b) For any person knowingly taking part in or voting, without right, at a General Meeting of Shareholders or bondholders.

    (c) For the member of the Board of Directors who violates the obligation to provide information to shareholders.

     

    Penal and administrative penalties (Article 181 of Law 4548/2018)

    The imposition of penal penalties does NOT preclude, under this provision, the imposition of administrative sanctions. This simply means that, in the course of some criminal proceedings, it is possible to impose penalties on a member of the Board of Directors, but any administrative sanctions may follow …

     

    C. Epilogue

    The extent of the liability of the members of the Board of Directors is unfortunately not exhausted in the above sections and provisions (much more so in their “business view”). However, in subsequent articles, it will be sought to record the other sections of their liability and, of course, how to mitigate it. Above all, however, the way to remove the (potentially) adverse consequences and the relative risks that these members face.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 3rd, 2019).

     

    stavros-koumentakis-article-ευθύνη-μελών-δσ

  • Day meeting for the New Law on SAs to Foroepilysis

    Day meeting for the New Law on SAs to Foroepilysis

    [vc_row][vc_column][vc_column_text] One more presentation, within the framework of the day meetings which are organized by KOUMENTAKIS & ASSOCIATES on the New Law on on Sociétés Anonymes, was successfully held in Heraklion, Crete. Specifically, a presentation was recently held at Foroepilysis, a rapidly growing company of Mr. Vassilakis that provides accounting, financial and tax services.

    Stavros Koumentakis, Senior Partner, has highlighted the business opportunity that is emerged by the changes brought by the new Law on on Sociétés Anonymes. He presented the general framework of the New Law and made an extensive reference on individual regulations of the new law and the use of the law’s options for businesses on aspects, such as:

    • reducing their operating costs
    • attracting investors and investment funds
    • exploiting technology
    • attracting and retaining competent, senior-level, executives
    • protecting the clients of the Law Firm against their “internal and external enemies”.

    Mr. Stavros Koumentakis mentioned in particular that “the New Law on Sociétés Anonymes is an important opportunity for enterprises which cannot be missed. Law 4548/2018 extends the responsibility and report of the members of the Board of Directors in terms of civil, criminal and administrative sanctions. This may be a potentially serious problem if there are no corresponding provisions and insurance coverage”. He has also mentioned that “there is a immediate need for the necessary and beneficial regulations to be adapted in the SAs’ articles of association”.

    The presentation of Mr. Koumentakis at Foroepilysis, was attended by the top management, executives and employees and it was an opportunity for a broad exchange of views on the specific, extremely important (for enterprises, businessmen and board members) aspects.

    [/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=”36883,36885,36887,36889,36891,36893,36895″ img_size=”” speed=”6000″ slides_per_view=”6″ hide_pagination_control=”yes”][/vc_column][/vc_row]

  • Stock Option

    Stock Option

    Stock Option Plan for the distribution of shares to members of the Board of the Directors, employees and permanent associates

     

    A. Generally

    What are Stock Options?

    Stock Options are an institution for which there is no long experience in our country. At an international level, however, there is not only a long experience, but also a number of categories of same.

    Those that are most well known in Greece (and will be of interest to us here) are the ones that are intended to act as an incentive for senior and supreme executive staff. And in addition: the close-permanent associates of a business. Then, for reasons of brevity, all potential beneficiaries will be referred to as a whole as “executives”. The internationally accepted relevant terminology for stock options of this category is “Employee Stock Option” and abbreviated “ESO”.

    These Stock Options, in practical terms, are only the option that an executive (or a group of executives) of an enterprise acquires (at one or more subsequent times) the company’s shares in a predetermined, attractive, price. At a price that the executive himself/ herself is called to pay.

    Under the American model (:american options), this right is exercised at any time by the beneficiary, from the time of the issue of the Stock Option Plan up to its maturity. Under the European model (: european options or share options in the UK) this right is exercised by the beneficiary at the time of expiration and / or at predetermined, interim times.

    Any withdrawal /removal of an executive before the time at which the right may be exercised shall, as a rule, result in its loss.

    How do Stock Options work?

    First of all, let’s note that the Stock Options do not (and must not) concern all executives.

    But even with this constraint, we have to accept that the categories of executives to which they are addressed are two: To those which the company seeks to attract and those with whom it is already associated under some form of contractual relationship, more usually, labor.

    On the other hand, companies that decide to issue ESO can be of all kinds: Start-ups, businesses with a history (with liquidity problems or limited financial capabilities), businesses that are developing (and promising) or even developed companies (with significant financial capacity). A common feature of all: An attempt to motivate executives to either start or continue working with them.

    Both the core proposal of the company that decides to issue them and the specific parameters are known: “Come (or stay) with us and you will have serious expectations to derive significant benefits from the increase in the value of the business (in proportion to its part that corresponds to the stock option you receive)”.

    Internationally, it is adopted (at least in terms of listed companies) also one more alternative to (direct) ESO provision. The business undertakes instead of delivering the Stock Options to the executive to pay him money at predetermined times in the future. In particular, the difference in the present value of an agreed number of shares relative to the price they will have at those predetermined future dates.

    Stock Options on the side of the business and the executive

    With the adoption of Stock Options, the company creates significant incentives to attract an “expensive” executive, as it no longer faces him as a mere employee. The executive is upgraded from the level of the simple (and least important) employee to the potential tomorrow’s shareholder, a participant in the vision, development and, as a result, profitable course of the business.

    The enterprise (start-up, in difficulty, developing or developed) thus achieves a threefold goal: (a) to reduce the financial requirements of the executive in terms of his/her expected fixed earnings, (b) to increase his/her commitment to the firm (c) to raise (logically) his/her qualitative and quantitative performance.

    The executive, on the other hand, “attaches” stronger ties to the company’s chariot as is no longer a simple worker but upgraded to a potential (or tomorrow) shareholder. And even more: Looking forward to the profits he/she could make from his/her stay in the business, he/ she would hardly think of not paying off his/her full potential or leaving before the “full limit of the time”.

    By realizing the institution of Stock Options, the target of shareholders, management and executives becomes common: developing the value of the business and, consequently, the value of its stocks.

    Especially: The worries of the entrepreneur and the way they can be dispelled.

    However, there is also a serious (and quite reasonable) argument on the basis of which an entrepreneur (especially in companies with few shareholders) would not choose to make Stock Option available to his/her executives. Let’s note, among other things, the most common: What will happen if, once the relevant rights have been exercised, the executive (as a shareholder) leaves (resigns or be dismissed), bankrupts, dies or faces a mental health problem? Will then be as a partner an old friend and tomorrow’s enemy? Or will there be the widow and his orphans? Or maybe an insolvency administrator, someone irrelevant or even worse, the most important competitor of the business?

    In these critical questions can be given not only satisfactory answers but also absolutely adequate safeguards. The combination of individual legal options can safely succeed in achieving this.

    For example, the combination of stock options with the provisions on the issue of restricted stocks may create feelings of security for such concerns (For matters relating to the issue of restricted stocks, you may refer to our related article).

     

    B. The regulations of the new Law on Sociétés Anonymes

    On a procedural level, the issuance of Stock Options presupposes (Article 113 par.1) a General Assembly resolution on the beneficiaries of the plan (members of the Board of Directors, executives and / or persons providing their services on a stable basis) as well as on the details of such issuance. In this context, the decision of the General Assembly specifies (Article 113 par. 2) whether the Stock Options will be issued using the Company’s own shares or an increase in its share capital, the maximum number of shares to be issued, the subscription price or the method for its determination, the terms of sale of the shares, the duration and the beneficiaries of the plan, the manner in which the rights be exercised. However, especially with regard to the beneficiaries, the Board of Directors may be entrusted with the designation (by the Board of Directors) of either the beneficiaries, namely, or of the groups of beneficiaries

    The Stock Οptions issued may not exceed a maximum of 10% of the share capital (Article 113 par.2), although in practice it would hardly exceed even 1% or 2%.

    It is also noteworthy that the General Assembly may delegate (Article 113 par.4) for a period of five years its relevant power to the Board of Directors although such an assignment must be given sparingly as it could possibly lead to unpleasant reversals of sensitive balances between shareholders.

    In any event, the Board of the Directors is that body (Article 113 par.3) to:

    (a) issue the certificates of exercise of the relevant rights but also

    (b) (per calendar quarter) to either deliver the shares involved in the exercise of the Stock Options or to increase the share capital and amend the Articles of Association (by issuing and delivering the newly issued shares and certifying the relative increase).

     

    C. Epilogue

    Making use by an enterprise of a modern tool, such as Stock Options, can be beneficial at various levels. Although this approach is simplified, the potential risks to the entrepreneur can be reduced to a significant level (using safe legal tools) – if not eliminated. At the same time, the design of the relevant product can greatly safeguard the central focus of the business: whether it is to attract skilled executives or to maintain the most competent ones and / or to maximize what the benefiting executives are able to offer.

    stavros-koumentakis

    Stavros Koumentakis
    Senior Partner

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 3rd, 2019).

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