The importance of share capital in the life and operation of the SA is a given. It concerned us, for this reason, in our previous article. In this context, we referred, among other things, to the purpose of the share capital, its coverage and payment. Especially, however, with regard to the actual (and timely) payment of the share capital, we concluded that “it is extremely important for the SA. Precisely for this reason, its verification takes place through the (strictly defined) process of certification…” The will of the legislator to exclude past practices of false certifications is clear from this provision. We hereby undertake to make a more thorough reference to the procedural but extremely important issues of the certification of the payment of the share capital. Besides, the faithful implementation of what the law demands prevents the creation of (civil and criminal) responsibilities for the liable persons-members of the Board of Directors and chartered accountants.
Discretionary Option or Legal Obligation?
The certification of the payment of the SA’s share capital is not at the discretion of the company; it constitutes an obligation arising from the law (Article 20 §5 section a’ Law 4548/2018).
This obligation concerns both the initial capital of the SA (when it was established) and the capital of any subsequent increase. In the latter case, it does not matter if it is a common or extraordinary increase in share capital. Also, it does not matter what type of shares are issued.
In the event, however, that “the capital increase is not made with new contributions”: “certification of payment is not required” (article 20 §5 section b of Law 4548/2018). This exception seems reasonable as, in this case, there is no actual payment. On the contrary, a nominal increase of the share capital takes place, after capitalization of assets of the SA’s net position (e.g. reserves).
Certification of Partial Coverage & Payment
However, the coverage of the share capital increase (by decision of the competent body) may not be complete. In this case, the increase is carried out up to the point of actual coverage. It is sufficient that the relevant possibility has been provided for in the decision of the increase. The certification of the increase, when only partial coverage has taken place, will refer to the amount of the increase that was actually paid. [In addition, it should be reminded that if only partial coverage takes place, the Board of Directors is obliged to adapt accordingly the article of the SA’s articles of association concerning its capital (article 28 of Law 4548/2018)].
Likewise, certification of payment must also take place in case of partial payment. Specifically, every time an installment is payable (Article 21 of Law 4548/2018).
Certification Time And Publicity In the Business Registry
The time period within which payment certification should take place is strictly limited. Specifically: the certification of the payment of the initial capital should take place within the first two months of the establishment of the company. Accordingly, in cases of capital increase, the certification of its payment should take place within one month of the expiry of the deadline for payment of the amount of the increase.
The certification of the payment, in any case, is published by the Business Registry (articles 12 §1 f. e) and 20 §7 in fine Law 4548/2018). However, the law does not provide for a specific deadline for the publication. However, we should take into account that copies of minutes of meetings of the Board of Directors, for which there is an obligation to register them in the Business Registry (according to article 12), are submitted to the competent Business Registry service within twenty (20) days of the meeting of the Board of Directors. This deadline also applies to the submission to the public of the certification of payment. Either it is carried out by the Board of Directors or by a chartered accountant or audit firm, as analyzed below. Therefore: The relevant document should be submitted to the Business Registry within 20 days from the certification of payment.
The Competent Body
In derogation of what was in force under the existing law (:law 2190/1920) “…the certification of the payment of the capital is done by a chartered accountant or auditing firm, except for small or very small ones in which the competence of the Board of Directors is retained. » [: specifically, also see the Memorandum to the Law 4548/2018 on Article 20]. The Board of Directors, however, has the possibility to certify each payment in more additional cases. Particularly:
The Competence of a Chartered Accountant or Audit Firm
An innovation of Law 4548/2018 is the transfer, in principle, of the authority to certify the payment of the initial capital or the capital of the increase to a chartered accountant or audit firm (retaining, in special cases, the exclusive authority of the Board of Directors).
The specific deviation from the previous regime is clearly aimed at the legislator’s effort to ensure the credible and fair nature of each certification.
In fact, in order to ensure credible and fair judgment during the certification, the legislator provides that: “the chartered accountant or the auditing firm that certifies the payment of the capital…cannot also carry out the regular audit of the company. Also, the chartered accountant cannot be in an auditing company that carries out this audit.” (Article 20 §10 Law 4548/2018).
The Authority of the Board of Directors
The highest organ of the SA is, as is well known, the General Assembly. It is the General Assembly that retains particularly important authority, decisive and exclusive powers (:117 §1 Law 4548/2018). The Board of Directors retains, however, in some cases, authority to take decisions concerning the SA.
Such a case constitutes the certification of the payment of the share capital, carried out by the Board of Directors, in the cases mentioned below. In accordance with this competence, the Board of Directors acts collectively. It is not entitled to further delegate this authority and competence. In particular, the Board of Directors can itself certify the payment of the share capital:
(a) Upon the formation of the SA (: the initial capital) for all the types of SAs (Article 20 §6 in fine Law 4548/2018).
(b) When increasing the capital of the SA, as long as it concerns very small or small companies, the shares of which are not listed on a regulated market (article 20 §6, section c of Law 4548/2018). We note that very small or small companies are those (: article 2 k’ of Law 4548/2018) entities that on the date of their balance sheet do not exceed the limits of at least two of the following three criteria: (i) total assets, 350.000 euros, (ii) net turnover, 700.000 euros, (iii) average number of employees during the period, 10 people.
(c) Both during the formation of the SA and during the increase of its capital, when it comes to a contribution in kind (: article 17 of law 4548/2018). Indeed, the authority of the Board of Directors applies regardless of the size of the SA and after the transfer process has been completed (Article 20 §8 Law 4548/2018).
The Content Of The Report or The Minutes
The law provides (among others) the content that, depending on the body that carries out the certification, either the report of the chartered auditor or the auditing firm or the minutes of the Board of Directors must have.
The report or minutes must certify, as already pointed out, the timely (or not) payment of the contributions. That is, it must certify the exact time each contribution was paid, regardless of its type, under the statute or decision for the increase.
However, depending on the type of contribution, the content of the report or minutes differs (Article 20 §7 Law 4548/2018).
Regarding cash contributions:
(a) When paid into a special bank account of the SA: both the report and the minutes must be based on an account statement provided by the bank where the specific account is kept. In fact, the relevant excerpt must be attached to the above report or minutes.
(b) When the financial contributions are considered to have been made using the corresponding amount for the purposes of the company, as long as this is specifically provided for in the articles of association or in the decision on the capital increase (according to article 20 §3 section b’ of Law 4548/2018 ): both the report and the minutes must state the special circumstances of non-payment in cash due to expenses incurred for corporate purposes.
(c) When the payment takes place by offsetting debt, as long as this is provided for in the decision to increase the capital (according to Article 20 §4 Law 4548/2018): both the report and the minutes must be mentioned in the chartered accountant’s or audit firm’s certification, accompanying the settlement. The latter certifies that the debt being set off is existing and overdue and does not depend on any conditions. In case of a debt that is not due, a valuation takes place (according to Article 17 of Law 4548/2018).
Furthermore, the report or minutes certify that the netting has taken place and indicate the number of shares undertaken as a result from it.
In the Memorandum of the Law 4548/2018 on Article 20, it is pointed out that with the provision of contractual set-off, “…the Greek law is in line with the trend of relaxing the provisions that have to do with the contribution of capital, mainly it does not recognize the positive contribution of compensation (debt-equity swap) in the consolidation of the company, in the context of which, of course, “fresh money” does not flow into the company (in other words, its assets are not increased), but it is freed from obligations.”
In addition, we do stress the fact that for a debt offset to take place, it is assumed that: “…if the payer is not a shareholder…the pre-emptive right of the existing shareholders has been abolished (or has not been exercised).”.
Regarding contributions in kind
In the case of contributions in kind, the report or minutes must refer to the relevant provision of the original statute or decision on the increase. Furthermore, it must contain a description of the contribution and the liable person, as well as the valuation of this contribution (according to article 17 of Law 4548/2018-subject to article 18). Lastly, the completion of the transfer process must be certified, as required by law, depending on the object being contributed.
Criminal And Civil Liability
The confirmation of the payment of the share capital (and accordingly the process of its certification) is of particular value. It is also assessed as particularly important by the legislator.
This is also confirmed by the criminal liability that has been established for the case where: “…the member of the board of directors … violates the obligation to certify the payment of the capital within the period defined in article 20 or falsely certifies the payment in question” (article 179 §2 of Law 4548/2018). In this case, the member of the Board of Directors is punished with imprisonment of up to three years or with a fine from €5,000 to €50,000. The penalty for the chartered accountant who makes a false certification of payment is the same. Especially, however, with regard to the member of the Board of Directors who violates their specific obligations, the objective and subjective condition of article 176 of Law 4548/2018, which concerns false or misleading statements to the public, may additionally be met.
However, civil liability of the specific persons (: members of the Board of Directors and chartered accountant) against the SA and/or against third parties is not excluded.
As regards, finally, the shareholders to whom the false certification concerns, it is obvious that they are not fulfilling their assumed obligations for the payment of the SA’s capital. In this case, the provisions for late payment will be applied (Article 20 §9 with further reference to the proportional application of Article 21 §§5 & 6 of Law 4548/2018).
The share capital of the SA constitutes an important parameter of its existence, operation and development. An important parameter, also, for its liability, in the eyes of third parties, who transact with it. The required-increased formality and excessive seriousness with which the process of certifying its payment is treated (by the legislator as well) seems natural. In this regard, the need for reverent compliance with what the law demands appears as absolutely obvious. Past practices, which resulted in false certification of the payment of the initial capital (or subsequent increases), have no place anymore.
Heavy, moreover, is the ax of justice on the head of the lawless.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 27th, 2022).
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.