In a previous article we referred to the right of the minority to request the redemption of its shares by the SA (art. 45 of Law 4548/2018). We will be concerned here with a corresponding claim: The one concerning the claim of redemption of the minority’s shares (this time not by the SA but) by the majority shareholder. This right of redemption is regulated in article 46 of Law 4548/2018, in a similar way to the previous article 49b of Law. 2190/1920.
Meaning
The redemption right that we are trying to approach here, constitutes an exit right of the minority shareholders (up to 5% of the share capital) against consideration (: “sell out”). The shares are mandatorily acquired by the majority shareholder (95%+ of the share capital) in case of success of the relevant court proceedings; the latter, in fact, will also owe the consideration/price that will be determined by the court.
Purpose
The specific redemption right is yet another arrow in the minority’s quiver to defend its interests. The “exit” of the minority shareholders does not require the presence of a specific reason or a finding that their stay in the SA is “particularly burdensome” (as, respectively, is required for the application of Article 45 – for the acquisition, i.e., of minority shares from the SA). The reason is completely irrelevant in this case. Specific minority/majority correlations and the judicial finding of the statutory conditions are sufficient.
The release of the minority from the SA takes place with a simultaneous-direct strengthening of the shareholding position of the majority shareholder. The minority shareholder is released from a share scheme in which the power balances have significantly changed, in relation to those that applied when the SA was established or when they joined it. At the same time, the majority shareholder is likely to be the sole shareholder of the SA. That is, to get rid of (even small percentages – often, however, annoying) minorities. The potentially formed, with the exercise of the specific redemption right, “one man principle” is likely to be problematic on a substantive and, in particular, legal level; however, it may also be, under conditions, beneficial. In any case: the sole or majority shareholder of the SA has the right to choose. However, they retain, in any case, the right to allow the entry of new shareholders they choose.
Public Offer(?)
The case of acquisition of minority shares by the SA cannot occur in the case of listed companies (art. 45 §7). This, however, is not the case here.
The redemption right explored here (for the purchase of the minority’s shares by the majority shareholder) also applies to listed companies. Subject, however (art. 46 §1, section a), to the provisions and procedure regarding the submission of a public offering for the purchase of securities (art. 28 Law 3461/2006). The latter, as more specialized, should be considered to have priority of application. Moreover, their parallel application is excluded as they require the fulfillment of different conditions. In the present, however, we will exclusively limit ourselves to the conditions of article 46 – to non-listed, that is, SAs.
Minority & Majority Percentages
The (up to) 5% percentage of the minority
The entity for the right of redemption should, of course, be a shareholder. It does not matter, however, the type or category of shares they own (e.g. if they are common or preferred).
The minority shareholder must own up to 5% of the total (submitted and not necessarily paid up) share capital. This means that the specific right can be born to more than one minority shareholder. It is then up to each of them to claim (or not) the redemption of their shares by the majority (with 95%+ percentage of the total share capital).
The 95%+ percentage of the majority
The configuration of the 95%+ rate
The majority shareholder should gather (in logical sequence with the previous condition) a percentage greater than 95% of the total (even if only taken up) share capital. The collection of said percentage should have taken place at a time subsequent to the establishment of the SA. The legislator’s specific choice seems reasonable: the rights of the minority are deemed worthy of protection precisely because of the change in the shareholding balances of the SA. On the contrary, during its establishment, the minority shareholder consciously chooses to participate – on the basis of any shareholding scheme. The right to regret is not recognized in this case.
It is accepted, however, that this right is also exercised in the event that the majority shareholder held a percentage greater than 95% at the time of establishment, then decreased below this by transferring their shares, and exceeded it again.
The calculation of 95%+
This percentage (in excess of 95%) is not required to be held exclusively by one shareholder. The percentages held by the following persons are also calculated (ar. 46§1 b’):
(a) businesses connected to it (within the meaning of article 32 of Law 4308/2014) and
(b) their close family members (: close family member – Par. A of Law 4308/2014). A close family member of a person is defined as that member of their family, who can be expected to influence or be influenced by that person during their dealings with the entity (meaning, in this case, with the SA). Close members are expressly defined as: “…The spouse or partner with whom the person lives together (meaning, in this case, the majority shareholder). …Dependents, including ascendant or descendent relatives, of the person or his/her spouse or partner, with whom the person cohabits.”. Necessary, however, is the narrowing of the interpretation of the specific provision when the majority shareholder does not exert influence on the specific persons and they do not, as a result, act as a group.
Getting & Keeping 95%
It is not necessary (according to article 46) for a specific, minimum, holding time of the specific, increased, percentage by the majority shareholder in order to birth the right under consideration here. However, it is not reasonable, on the other hand, to tolerate the (intentional or accidental) reduction of the majority’s shareholding in order to circumvent the above obligation. It is accepted, in this context, that if the majority shareholder (or persons connected or closely related to them) transfer the shares after the initiation of a relevant trial, the minority shareholder does not lose their claim. Nor does the trial become moot. Instead, the decision issued will bind the universal, quasi -universal or special successors of the aforementioned shareholders.
Exercise Deadline
The legitimized minority shareholder has the possibility to bring an action for the redemption of their shares within an exclusive/depreciation period of five years (art. 46 §1, section a’). The specific period starts with the acquisition by the majority shareholder of the ownership of shares with which it exceeds 95% of the SA’s share capital. With the lapse of the five-year period, the minority shareholder definitively loses the possibility to pursue, judicially, the acquisition of their shares by the majority.
The Exercise of the Redemption Right
The right of redemption (art. 46) is exercised by a lawsuit before the Single-Member Court of First Instance of the seat of the SA, which hears according to the regular procedure. The one who can submit such a lawsuit, as already mentioned, it the minority shareholder (or shareholders) with a percentage of 5% (or less).
The lawsuit can, of course, only be filed against the majority shareholder. However, in the event that percentages are combined, there is no agreement between theory and jurisprudence regarding the issue of who the lawsuit is against. It is argued in theory that, in this case, all the shareholders whose percentage of shares is included are passively legitimized. The jurisprudence, however, has judged that only the majority shareholder is passively legitimized in this case (1716/2016 Court of Appeal of Athens, QUALEX legal database). This position is evaluated as incorrect. On the one hand, because, after the acquisition, the percentages of participation of those shareholders included will change. On the other hand, because the majority shareholder may not be one (in the case of, e.g., spouses with 46% each).
The action that will be brought is declaratory in its part concerning the existence of the right of redemption and the calculation of the value of the shares; counter-voting, in its part and request for the conviction of the majority shareholder in the redemption of the minority’s shares at a specific price.
If the lawsuit is successful, the court order will determine the fair and reasonable consideration that the minority shareholder will receive. To determine the compensation, the court may order an expert opinion from two certified auditors or an auditing company.
The right of the minority shareholder SA for (forced) redemption of their shares by the majority (owner of shares of 95%+ of its share capital) is evidently serving the interests of the former. From another perspective, however, both the interests of the majority and the company itself are served and promoted: they are both relieved of a (usually) unfriendly minority shareholder. The like-minded support of the Remainers will undoubtedly contribute in a positive direction.
Would it be possible for the majority shareholder to recognize the initiative of the movements for a corresponding acquisition? The answer is found in our next article.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 7th, 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.