The company’s cash (… and its owner’s pocket)
I. Preamble
Alexandros Papadiamantis writes, in his novella “The Murderess”, that when the main character, Ms. Haidoula (Fragkogiannou) realized that the police was about to arrest her, she run to the aid of Marouso: That night she tried to avoid the consequences of the multiple crimes she had committed, the justice of men and the wrath of the, closed at that time, society of the island of Skiathos.
Papadiamantis writes, as if he was present, his character’s electrified, on many levels, conversation. One specific extract applies to the present article:
“-Oh! Every sin is sweet.”
“-That is true! … and how bitter is it at the end! Added Marouso in melancholy”.
The undersigned is not known for his knowledge in psychology or criminology or for having relevant experiences. We can, probably safely, assume that when committing any (more or less serious) illegal act, the perpetrator seems to satisfy an inner impulse and/or think that their act is righteous and that in the end the consequences of the illegal acts will somehow be avoided. Obviously, there is no intent to relate the perpetrator of any illegal act with any well-respected entrepreneur. We do, however, assume that the later must feel similarly when blurring the boundaries between their business’s and their own finances– between the cash of their business and their pocket.
To be fair, the boundaries are, very often, not clear…
II. Embezzling from a legal entity
The provision of Article 375 (§§ 1 & 2) of the recently passed Penal Code (Act 4619/19), in force since 1.7.2019, (containing minor modifications from its previous form) does not leave any margin for doubts when it comes to committing the crime of embezzlement from a legal entity. There is no margin as for the severity of this crime’s consequences, either:
“1. Anyone illegally appropriating a foreign (wholly or partially) movable property that came in their possession by any means, is punished with incarceration for up to two years or a fine and if the object is of an especially high value, with incarceration and a fine. If the object has been entrusted to the person liable …due to their capacity as trustee …or manager of foreign property, the person responsible is punished with at least one year on incarceration and a fine.”
- If the value of the object of paragraph 1 is more than 120.000 euros in total, the person liable in punished by incarceration up to ten years and a fine.” It must be noted that the amount of the fine imposed to the perpetrators, according to article 57 of the new Penal Code, can be up to 18.000 euros, for cases where a fine is provided by law as an alternative penalty and up to 36.000 euros for cases where a fine is provided by law as a cumulative penalty.
III. The perpetrators, relative precedents
It is accepted (especially when it comes to SAs) that even a company’s legal representatives (the President and the members of the BoD, among others) can commit embezzlement. Embezzlement can also be committed in many ways and not only in the most common way (the direct taking of money from the physical cash kept in the company’s headquarters or from the company’s bank accounts). To mention a few: by registering in the company’s ledgers and paying off false (fictitious) invoices (invoices that do not relate to the company’s practice and the achievement of the company’s objects), by appropriating company’s movable property, by paying off personal (or third party) obligations, by using corporate credit cards for personal (not corporate) expenses, by paying overpriced goods acquired by the company and ending up in the perpetrators pockets, by partial or total discharge of debt of third party-debtors to the company (see Arios Pagos 883/2004 -6th criminal division Council).
In cases like these there will, οf course, be more people criminally involved (e.g. those who assist the perpetrators before or after the embezzlement, i.e. financial managers, accounting supervisors etc.).
IV. The rest, non–penal, consequences
Besides the certain criminal liabilities, a possible embezzlement committed by the company’s representatives/managers (usually the majority shareholder or from the latte’s associates) causes a number of problems in many levels:
In case of a clear embezzlement of cash from the company’s physical “cash drawer” (cash physically kept by the company), we may be facing a notional fund (a fund that will appear in the company’s financial statements but will not truly exist) or a “problematic” account (i.e. “claims from shareholders”, which remains “outstanding” for years).
If we come across fictitious invoices, notional contracts or expenses that only appear to be liabilities of the legal entity but in reality have to do with physical persons or a third, unrelated, legal entity, we will, probably, be facing serious tax offences, but also the liability of the parties involved before the injured legal entity (for SAs see about the liability of the members of the Bod).
Problematic activities (and/or accounting documents) may be detected by tax authorities, by a minority shareholder practicing their rights, or, maybe, by the next manager or owner of the company.
It is common for the minority shareholders (and/or the next owners or managers) to act (either fairly or unfairly) as the pursuers of Fragkogiannou, who “while running she had climbed up, higher to the shore, exhausted, breathing heavily in and out. As she was going, she stood for a brief moment, trying really hard to listen. She wanted to know for sure whether her two pursuers were behind her… But she did not feel safe, the poor woman…”
V. Existing Solutions
Law, in general, provides a wide range of secure options that facilitate the transfer of liquidity from the company to the businessman / majority shareholder: Concluding an employment agreement, works or service contract, paying (or prepaying) dividends, capital decrease (or return) and, alternatively, the amortization of capital are only some of the options of the businessman -especially when dealing with SAs. Given the range of legal options given, it is not logical of someone to expose themselves to (potentially very severe) civil, criminal, administrative and tax penalties.
VI. In Conclusion
The owners of the (mainly family-owned) businesses often confuse their own financial means and pocket with those of their business. How easy is it for a businessman (majority shareholder, partner of owner) to understand that it is illegal and a “sin” to blur that boundary? Exactly this inability to understand is what often leads to wrong moves and wrong decisions. It is true that sometimes this tactic is followed because there are important needs of the businessman or because the businessman simply feels a lot of joy by satisfying their desires or material needs with “THEIR” company’s cash, but the question remains: is it worth it?
The consequences on a civil, criminal, tax and administrative level are nothing but minor. The path that this will lead to, comes with great dangers. As Papadiamantis put it: “Every sin is sweet.”… and how bitter is it at the end!”- let’s not forget that the relevant liabilities, at least the civil ones, have a statute of limitations of three years and, under circumstances, ten years (article 102 par. 6 Act 4548/2018)
On the other hand: (Most) options offered by law are sufficiently accommodating the transferring of liquidity from the company to its owner or to the majority shareholder/partner. As a result, it does not seem that there is any point in (the logical and well-respected) businessman taking on all that risk by making the wrong choices – the paths of anguish taken by Fragkogiannou…
Stavros Koumentakis
Senior Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 28th, 2019).
