In our previous article we dealt with the important role of the Board of Directors. We examined, among other things, his powers and powers; additionally: the scope of his powers. We referred to the principle of the collective action of the Board (art. 77 §2 ed. 2 of law 4548/2018) but also to its deviations; for the possibility, e.g. of delegation of powers of the Board of Directors, to individual members or third parties. In the present article we will examine the specific deviations from the rule.
Appointment of Substitute Bodies
In General
In general, the principle (under domestic law) that the Board of Directors acts collectively applies. This particular principle, however, is not without exception. It is possible, e.g., for the Board of Directors to delegate the powers of management and representation of the SA to one or more persons (natural or legal). Members or not. The specific persons are referred to, collectively, as “substitutes” or “subordinates”.
The delegation of powers of the Board of Directors to substitute bodies constitutes, in practice, the rule under which it operates: the Board of Directors operates through its substitute bodies. This seems reasonable. In this way, the everyday operations of the SA is simplified. The speed of its transactions is ensured. The exercise of the tasks and work of the Board of Directors becomes more efficient. Complex issues are easier to manage.
Conditions
The delegation of (organizational) powers to substitute bodies requires compliance with the publicity formalities provided for (not, however, necessary for its validity). Presupposed, however, are cumulatively: the existence of a special statutory provision (art. 87 §1 ed. a΄-1096/1976 plenary session of the Supreme Court) and a relevant decision of the Board of Directors. In more detail:
(a) Statutory Provision: The requirement for the existence of a special statutory provision as a condition for the delegation of organizational powers to substitute bodies does not derive only from the law on SAs (: art. 87 §1 ed. a’). Corresponding provisions are also found in other laws (: art. 65, 67 and 68 CC-1085/2019 QUALEX Legal Database). The provisions, however, of the law on SAs prevail over those, as they are more specific (1510/2006 Supreme Court, NOMOS Legal Database).
In the absence of a special statutory provision, any delegation of power of representation to a member of the Board of Directors or a third party is equated with the granting of a power of attorney (art. 211 et seq. CC -1252/2016 Supreme Court, NOMOS Legal Database).
The articles of association may define the areas for which the Board of Directors will be entitled to delegate management and representation powers. It is also possible to set additional conditions. To limit, e.g., the pool of possible substitute persons by excluding, for example, third parties. Adherence to such terms will constitute an additional condition for the legality of any assignment. The articles of association can, at the same time, define the way of action of the substitute bodies (e.g. with the cooperation of several persons or for specific transactions only).
It is not excluded that the appointment of substitute bodies by the Board of Directors is defined by the statute as mandatory/obligatory. However, there is a difference of opinion as to the binding nature of such an appointment. According to the jurisprudence (and the correct) opinion, it is accepted that the Board must comply with the statutory “order” (ind. 7119/2004 Court of Appeal of Athens, NOMOS Legal Database). In theory, on the other hand, it seems to hold the position that the Board of Directors retains the discretion to choose whether to make a substitution and, if so, which individual persons to appoint.
However, the condition of the special statutory provision is open to deviations. Among other things: (i) the judicial appointment of a special representative of the company to conduct judicial proceedings to annul a decision of the Board of Directors (art. 137 §3) and (ii) the judicial appointment of a special representative of the company to bring a lawsuit against members of the Board of Directors (art. 105).
(b) Decision of the Board of Directors: As long as the required statutory provision/possibility exists, the relevant decision of the Board of Directors for the transfer of its powers can take place.
It is noted, however, that any delegation by the Board of Directors to another body (e.g. the General Assembly or a third party) of its authority to be substituted (the Board of Directors) in the exercise of its powers is invalid. This prohibition, in fact, seems reasonable as it goes against the principle of its autonomy. Besides, the Board of Directors is the most suitable body, not only to assign and identify its substitute persons, but also to distribute – at its discretion – the responsibilities between them.
Also, for the same reasons, the direct delegation of responsibilities to members of the Board of Directors or third parties is excluded by the statute. And even more so on the basis of an extra-company agreement (68/2014 Supreme Court, NOMOS Legal Database). However, it is permissible, exceptionally, to appoint the first Board of Directors upon the establishment of the SA. Also, the performance of individual offices (incl.: president, vice-president, managing director or authorized advisor). And the same goes for the delegation of responsibilities to its members or third parties. The Board of Directors, of course, can (also in the latter case) proceed, at any time, to redistribute and/or revoke the specific offices and responsibilities (art. 87 §3). Any limitation of its specific right will be null and void.
(c) Publicity: The validity of the appointment of a substitute body does not require the observance of specific formalities. The special provision of the articles of association and the relevant decision of the Board of Directors recorded in the minutes are sufficient. The latter is not required to be formally stated (1085/2019 QUALEX Legal Database). It is sufficient that such a will clearly emerges from the delegation decision (:in this context it is argued, rather extremely, that even the implied delegation of powers is valid).
However, the observance of publicity formalities is deemed necessary for opposing the assignment against bona fide third parties. The relevant publication is for informational purposes only.
Appointment Of Substitute Bodies
The Nature of Powers
The decision of the Board of Directors to appoint substitute bodies entails the assumption by them of individual powers (: organizational) of management and representation of the SA. The specific substitute bodies have authority through the law and the statute and their link with the SA is the same as that of the Board of Directors (1086/2019 Supreme Court, QUALEX Legal Database).
Substitute bodies become, in other words, bodies of the company. Equal, in fact, to each other, as all substitute bodies are assimilated in terms of powers (and therefore responsibility), regardless of their status as members of the Board of Directors or not. An organic relationship is created between them and the SA. Hence the name “substitutes” or otherwise “subordinates”.
In a logical sequence, therefore, the bodies in question do not act as trustees/representatives of the SA; a special power of attorney is not required for the exercise of management acts.
The Responsibilities
The transfer of powers can, in principle, concern all or part of the powers of the Board of Directors. The responsibility of the substitute may include the business of one or more category of acts (conclusion of contracts with customers, banking transactions) or specific, only, acts (e.g. conclusion of a specific, only, contract). In the latter case, however, there is no need to comply with publicity formalities.
Substitution, however, is excluded for those powers of the Board of Directors that are assigned by law and concern, exclusively, its action as a collective body. Indicative: (a) the authority to approve the transfer of restricted shares (art. 43) and (b) the certification of payment of the capital (art. 20).
From the articles of association or, more commonly, from the decision of the Board of Directors, it is expected to become clear whether the substitute bodies will act individually or collectively. Otherwise, the collective representation rule will apply.
The Relationship of Actions of Substitutes & the Board
The substitute bodies have parallel authority with the Board of Directors to exercise the powers assigned to them (330/2006 Supreme Court, NOMOS Legal Database). Hierarchically higher and, at the same time, the main body of management and representation of the SA remains, in any case, the Board of Directors. The substitutes, therefore, act independently, but must not ignore the Board. Thus, the autonomy they have in the context of their organic relationship with the company is limited.
The Board of Directors is entitled and obliged to supervise the substitute bodies. At the same time, it is entitled to be informed about the progress of the corporate affairs it has assigned to them. It is also entitled, of course, to modify (even revoke) their powers.
The Duration of Powers
The term of office of the substitute bodies (it is assumed that) follows the term of the Board by which they were appointed. Therefore, in the prevailing opinion, the power given will be shorter or equal in duration to the term of the said Board. Reasonably so, as the delegation of their responsibilities takes place within the framework of a decision of a specific Board of Directors. The opposite point of view is also supported – not correctly in our opinion: of absolute independence and lack of connection between the bodies in question and the Board of Directors, in terms of the temporal scope of their powers.
Therefore, the termination of the term of the Board of Directors (or any recall of its members) will automatically bring about corresponding consequences for the substitute bodies.
The Board of Directors has, as already mentioned, absolute power to revoke the substitute bodies. If the revoked person is a member of the Board of Directors, the powers assigned to them will cease, but the status of the member will remain.
In principle, the General Assembly does not have the power to revoke the substitute bodies. If the General Assembly revokes, however, members of the Board (as always, only it has the right to act) any parallel status as substitute bodies will be automatically revoked. It is noted, however, that if it is a third (non-member of the Board of Directors) substitute body, appointed with the establishment of the SA (art. 87 §3), the General Assembly has the power to revoke it by simply amending the relevant statutory regulation.
Ability to Further assign powers
The substitute body may further delegate all or part of the responsibilities assigned to it to other members of the Board of Directors or third parties. As long as there is (art. 87 §2): (a) Absence of a relevant statutory prohibition (: negative prerequisite) and (b) Provision in the decision of the Board of the possibility of further assignment (: positive prerequisite).
The further assignment takes place under the same conditions as those required for the assignment. At the same time, the further delegation of powers from substitute bodies to other “sub-substitutes” implies, for them, the acquisition of organizational powers of the company. They clearly exercise their powers alongside the substitute bodies and are subject to the supervision of the latter.
The operation of the SA would prove, practically, unfeasible in the event that collective, exclusive action of the members of the Board of Directors would be required to take any decision related to its daily operations. Therefore, the assignment of responsibilities (by the Board of Directors) to substitute bodies is absolutely necessary. Correspondingly, however, of significant importance is the design of the company’s engagement and representation system. Not (only) for the alignment with corporate governance rules (and the always valuable ESG criteria) but also, in particular, for the safety of the company and those involved. In the context, however, of this and also of the possibility of establishing an Internal Audit and an Executive Committee, about which, however, see our next article.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 15th, 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.