Minority Shareholders
Part C: The right of the majority shareholder to buy-out the minority shareholder
1. Preamble
I have always been a strong believer that “Justice is nothing but the advantage of the stronger”. I could easily claim this quote’s paternity if not: (a) Plato had not beaten me to it (just twenty-four centuries ago) in his work Republic (:“Listen—I say that justice is nothing but the advantage of the stronger”) and (b) if that quote was not all over the internet.
Plato, as proven through the course of history, wasn’t wrong. This specific position Plato took has proven to be true in general – in inter-state relations, in exercising public authority, in family and personal relations… the list goes on! Especially when it comes to intra-company relations, this general principal has even been endorsed by legislators. An example could be the power given to the majority over the minority. Notwithstanding the many restrictions of that authority introduced in the Greek S.A. law, the great power held by the majority is without question.
The opinions of the minority and the positions it takes are not always attractive. Sometimes, not even tolerated. Especially when a company is (or appears to or is anticipated to be) flourishing or when the minority is trying to force its rights (or the rights it thinks it has).
The shareholders holding, on their own or with others, between 50% and 95% of an S.A.’s shares cannot simply decide that “it’s high time we rid of the minority shareholders”. There are of course ways to act -within or outside the law- in such a manner that could push to that direction. But if a shareholder is holding a percentage of 95% or higher over a company’s shares, they do have the right to directly exercise all the rights the Greek law gives them, in article 47 of law 4548/2019.
We have already referred to the (legal) request a minority shareholder can make to be bought-out of a company by either the company itself or by the majority shareholder, as well as the relevant requirements and procedure (read related articles “Minority shareholders. Part A: The claim of redemption of their shares by the S.A.” and “Minority shareholders. Part B: Claim for buy-out by the majority shareholders“). In this article, we will study the obligation imposed on the minority shareholder to be bought-out by the majority shareholder (to be squeezed out). This provision seems and is directly opposing to the principle of freedom of contract (article 361 of the Greek Civil Code) and the right to economic freedom, as stated article 5 paragraph 1 of the Greek Constitution.
2. The right of the majority shareholder to buy-out the minority shareholder
2.1 The requirement for the majority shareholder to be holding at least 95% of the company’s shares
In the case of a private S.A., (as far as public S.A.s are concerned, the rules of public offerings apply, supplemented by the Greek law of S.A.s), the first and most crucial requirement refers to the percentage over the company’s shares held by the majority shareholder. The relevant provision of the Greek law of S.A.s (article 47 of law 4548/2018) strictly refers to the shareholder holding at least 95% of the company’s shares. Needless to say, this percentage of 95% is calculated as a percentage of the nominal value of shares held over the overall nominal value of all the company’s shares. It is irrelevant whether a shareholder is holding 95% or more of the ordinary or of the preferred shares of the company. What is only important is the percentage of the company’s shares held.
2.2 Requirement for at least 95% of the company’s shares to be held by one shareholder
The right to force a buy-out on a minority shareholder lies only with the shareholder holding at least 95% over an S.A.’s shares who accumulated that percentage after the company was established. In case a majority shareholder covered from day one (at the stage of the establishment of the S.A.) at least 95% of the company’s share capital is not entitled to force a buy-out. In other words: the majority shareholder who set up the company and at that time was holding at least 95% of the company’s shares is not entitled to force a buy-out over the minority shareholder at any time.
It is important to stress that this specific provision provides only one shareholder with the right to force a buy-out. So we have to rule out the possibility of a cooperation-occasional or not- amongst two or more shareholders in order to gather up amongst all of them the percentage of 95% of a company’s shares in order to force a buy-out on the minority shareholders.
Let’s remember what happens when you take a look from the “other side”, where non-such restriction applies: the minority shareholder holding 5% or less of the company’s shares has the right (article 46 paragraph 1) to request to be bought out by the shareholder holding at least 95% of the company’s shares. As we already examined (see related article), when calculating the percentage held by the majority shareholder, we count in the shares held by their related parties (ascendants, descendants, spouses, live-in partners and related legal entities). But in the case we are examining in this article, the law requires for only one shareholder to be holding at least 95% of the company’s shares.
We of course have to note that when the majority shareholder is a legal entity (e.g. a holding company or any other kind of company with more than one shareholders) holding at least 95% of the company’s shares, this legal entity will be considered as one shareholder, no matter how many persons are holding said shareholders shares. In that same spirit, when calculating the percentage held by the majority shareholder, we have to count in the shares that they are holding as a security for their claims, but whose ownership they have.
2.3 Time Limit
The right given to the majority shareholder (holding at least 95% of the company’s shares) to force a buy-out is subject to a five-year limitation period. This five-year period starts the moment the majority shareholder accumulates at least 95% of the company’s shares. After the lapse of this five-year period, the aforementioned majority shareholder no more has the right to force a buy-out on the minority shareholder.
Needless to say, the law does not force the majority shareholder to notify (when the five-year time starts counting, that is when:) the moment the percentage they hold over the company’s shares reaches or exceeds that of 95%.
2.4 The procedure leading to the buy-out
The majority shareholder that wishes to buy-out one or more minority shareholders has to submit the relevant request to the competent court (article 47 par. 2 of law 4548/2018). The latter will rule whether the requirements set by law are met. If the majority shareholder’s action is upheld, the court will rule on a just and equitable price per share, as well as on the specific terms the buy-out will be implemented. In order to determine the price per share, the court will take into consideration the value of the company. The majority shareholder will provide the court with an independent expert report (article 47 par. 2 and article 17 par. 3 of law 4548/2018) which in most cases is conducted by either two chartered accountants or an audit firm. When conducting the report, said experts are given access to all the company’s financial data by the company’s B.O.D.. This expert report, although required by law, does not bind the court.
2.5 The obligation to deposit the financial compensation in a Credit Institution
Following the publication of the ruling of the court and in case the request filed by the majority shareholder is allowed, the latter has to deposit the financial compensation owed, as determined by the court, to a Credit Institution in the name of the shareholder being bought out. Said deposit will take place only after their identities of the beneficiaries are confirmed. In case six months after said deposit go by without them (the shareholders being bought out) withdrawing their compensation, the Credit Institution reserves the right to “transfer” the sum to the Deposits and Loans Fund.
2.6 Public Declaration
In order to exercise their right to buy-out the minority shareholders, the majority shareholders have to make a public declaration (published on the HELLENIC BUSINESS REGISTRY). This declaration will have to include (article 47 paragraph 4):
- The company’s and majority shareholder’s information, as well as the percentage of the company’s shares the latter is holding.
- Information regarding the court’s decision -its data and ruling
- Information regarding the Credit Institution in which the financial compensation set by court will be deposited and
- Any requirements set in order for the minority shareholders to withdraw their compensation.
2.7 The Obligation of the majority shareholder for a public declaration or personal notification of the minority shareholders.
The transfer of shares from the minority shareholders does not require, in this case, any written agreement. This specific transfer can be completed in two, possible, ways. The choice is left to the discretion of the majority shareholder. Specifically:
- The abovementioned (under 2.6) announcement of the majority shareholder is subjected to publicity (article 47 paragraph 4). Starting from the day of the announcement (in the G.E.MI. (GENERAL COMMERCIAL REGISTRY), the ownership of the shares is automatically transferred to the majority shareholder. The only right the minority shareholder maintains from the shares, following said announcement, is to obtain the compensation for their buy-out, as determined by court.
- The publicity of the discussed (under a) announcement, can be substituted by personal notifications of the majority shareholder to each one for the minority shareholders being bought-out (preferably served to the latter by a bailiff). The automated passing of ownership of the shares takes place after the second personal notification to the minority shareholder (which is done in no more than fifteen days after the first one). A third personal notification of the minority shareholder is also required, referring to the first to.
2.8 Is it possible to delay the enforcement of the judgement for the buy-out of the minority shareholder’s shares?
The law explicitly states (Article 47 par. 7), that it is not possible to delay the enforcement of the ruling allowing the application of the majority shareholder. Any appeals before the court, request of cancellation, reform or application initiating third-party proceedings, will not result in any legal obstacle or delay to the transferring of the ownership of the shares to the majority shareholder, in exchange for the compensation set for the buy-out.
3. In Conclusion
Plato has already spoken, as mentioned in the introduction, for the advantage of the stronger and the protection provided to them by law. No need to repeat his opinion on the subject.
It is true that the power given to the majority shareholder (who holds at least 95% of the S.A.’s shares) to buy-out the shares of the remaining minority, is primarily intended to serve their (the majority’s) interests.
It is most likely, though, that this provision serves the minority’s rights and claims as well. And that is because it provides the shareholders with a (objectively fair) price for shares that in reality (a) provide them with limited rights, (b) could, most likely, only be sold to the majority shareholder and after having a court force the latter to buy them, with the minority shareholders paying for the judicial cost this time.
We should accept that this specific procedure will, most likely, have positive results on the S.A. as well. Restoring the, possibly, severed unity and peace amongst the shareholders cannot have negative results in perusing the corporate goals.
But let’s not be delusional: our experience has shown that the minority is treated, in most cases, as annoying. It doesn’t even have to act in an annoying manner -even stating an opposing to that of the majority opinion will do. A century ago, in “The Trial” by Kafka, it was stated the rather roughly put but otherwise very real statement that “everyone has the right to their own opinion, as long as they agree with me”: more or less, this regards all of us.
We can safely assume that this provision is one of the safest (legal) ways for the majority shareholder to rid of those opinionated minority shareholders and establish their monarchy!
Stavros Koumentakis
Senior Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (May 19th, 2019).
