Merger Involving a Civil Cooperative
Articles 47–52 of Law 4601/2019
Law 4601/2019 permits a civil cooperative to participate in a merger, including with a company of a different legal form. However, due to the particular characteristics of cooperative membership and the liability of cooperative members, Articles 47 to 52 of the Law provide special rules for mergers involving a civil cooperative. These rules concern, among other matters, the exchange ratio, approval of the merger, the right of withdrawal, completion of the merger and limitation periods for claims against cooperative members.
Scope of Application and Applicable Law (Article 47)
The special rules apply where a civil cooperative participates in a merger, either as the acquiring or the absorbed entity, as well as in a merger through the formation of a new company. For matters not specifically regulated, the provisions of Law 1667/1986 apply supplementarily to the cooperative (Article 47).
The Draft Merger Agreement and the Exchange Ratio (Article 48)
The draft merger agreement must specify the exchange ratio, taking into account the particular characteristics of cooperative membership. Mandatory and optional cooperative shares, as well as the liability of the members of the acquiring cooperative for its obligations, are taken into consideration (Article 48).
In determining the exchange ratio, the objective is for the participation acquired by a partner or cooperative member following the merger to correspond, in terms of economic value, to the participation held before it. For this reason, the particular characteristics of cooperative membership must be taken into account, rather than merely the nominal value of the cooperative shares.
Optional shares affect the economic position of the cooperative member and must be taken into account when valuing their participation. They do not generally confer additional voting rights, although, specifically in cooperative banks, they may affect the weight of voting rights. The exchange ratio must reflect the economic differences between participations before and after the merger.
Where the acquiring entity is a cooperative, the extent of its members’ personal liability constitutes a separate element in determining the exchange ratio. The cooperative’s statutes may provide for unlimited or limited joint and several liability of its members for the cooperative’s debts (Article 4(4) of Law 1667/1986). This examination is particularly important for partners or shareholders who, following the merger, acquire the status of cooperative members and the corresponding personal liability.
Where a cooperative is absorbed by a company of another legal form, optional shares must be included in the economic value of the participation being exchanged. However, no automatic rule determines a specific number of corporate participations without an overall valuation and application of the agreed exchange ratio. If the absorbed cooperative has optional shares while the acquiring cooperative does not, it may become necessary to introduce optional shares in the acquiring cooperative as well, in order to preserve the economic value of the participations held by the members of the absorbed cooperative.
Approval of the Merger by the General Meeting (Article 49)
The decision of the General Meeting to approve the merger is taken in accordance with the special quorum and majority requirements applicable to civil cooperatives (Article 49). Under the general rule, the initial meeting requires the presence of two-thirds of the members. At a reconvened meeting, at least half plus one of the members must be present (Article 5(4) of Law 1667/1986). The decision requires a majority of all members (Article 5(6) of Law 1667/1986).
For consumer and credit cooperatives, the initial quorum is half plus one of the members. At the reconvened meeting, one-third of the members is required, while cooperatives with more than one thousand members may hold a second reconvened meeting with at least four hundred members present. The decision is taken by a majority of at least four-fifths of the members constituting the quorum (Article 5(4) and (6) of Law 1667/1986).
The quorum and majority requirements must be examined before the meeting and documented in the minutes. A decision contrary to the law or the statutes is invalid. Its invalidity is declared by a court, provided that the relevant action is brought within one month of the decision (Article 5(8) of Law 1667/1986). A defect in the approval may prevent the preventive legality review or affect the validity of the merger after registration (Articles 17 and 20). The right to examine the documents may be exercised continuously from ten days before the meeting until its conclusion (Article 49). During this period, cooperative members must have effective access to the documents and copies provided for under the general rule (Article 11).
The Right of Withdrawal of Cooperative Members (Article 50)
A cooperative member who disagreed with the decision approving the merger has a special right to withdraw from the cooperative (Article 50(1)). This right applies whether the cooperative is the acquiring or the absorbed entity and cannot be restricted by its statutes. For evidentiary purposes, it is advisable for the disagreement to be clearly recorded in the minutes.
In particular, a provision of the statutes requiring a minimum compulsory period of membership does not apply. However, any specific statutory restrictions concerning payment of the value of the withdrawing member’s share remain applicable (Article 50(1)).
Where a company of another legal form is absorbed by a cooperative, special protection is afforded to a shareholder or partner who is not personally liable and who disagreed with the merger. Such a person may request the purchase of their participation or withdrawal, with the corresponding application of the rules governing their company’s legal form (Article 50(2)). They may also transfer their participations to third parties, notwithstanding any prohibitions or restrictions on transfers contained in the statutes.
This protection is particularly important where the acquisition results in a shareholder or partner without personal liability acquiring, as a cooperative member, personal liability for the cooperative’s debts.
Effects of the Merger (Article 51)
A merger involving a civil cooperative is completed solely upon the registration prescribed for the merger in the General Commercial Registry (G.E.MI.) (Article 51). Upon registration, the effects of the merger arise, including universal succession and the cessation of the absorbed company (Article 18).
The other publicity formalities under Law 1667/1986 remain applicable. Failure to comply with them does not alter the time of completion specified in Article 51, since such publicity is not constitutive in nature. However, it continues to have declaratory significance, so that a third party cannot claim to have been unaware of the merger.
Limitation Periods for Claims Against Cooperative Members (Article 52)
Where a cooperative is absorbed by a company whose shareholders or partners are not personally liable, a special limitation period applies to claims against cooperative members. Claims relating to debts of the absorbed cooperative that arose before completion of the merger become time-barred one year after completion of the merger, unless a shorter limitation period applies (Article 52(1)).
This provision places a time limit on the personal liability associated with cooperative membership before the merger. If a claim becomes due after completion of the merger, the one-year limitation period begins when the claim becomes due (Article 52(3)).
A cooperative member is not liable towards a creditor of the absorbed cooperative who consented to the merger in writing (Article 52(2)). For transactional certainty, the consent should clearly identify the particular merger and be retained in the transaction file.
The general rules on suspension and interruption apply to the one-year limitation period (Article 52(3)). The limitation period must be examined separately for each creditor and claim, particularly where the claim becomes due after completion of the merger.
In Summary: Practical Significance and Value
The participation of a civil cooperative requires an examination extending beyond that of an ordinary company merger. The exchange ratio must take account of cooperative shares and, where the acquiring entity is a cooperative, the personal liability of its members. Approval requires a special quorum and majority, while the opportunity to examine the relevant documents during the prescribed ten-day period before the meeting must be ensured. Disagreement with the merger may, subject to the conditions of Article 50, give rise to rights of withdrawal, purchase or transfer. The merger is completed upon the required registration in G.E.MI., while the other publicity obligations remain applicable. A culpable breach of duties during its preparation or implementation may give rise to liability on the part of members of the Board of Directors to compensate for any resulting damage (Article 19). Finally, the one-year limitation period restricts the duration of the former cooperative members’ personal liability for debts falling within Article 52. In our next article, we will examine the special framework governing mergers involving a European Cooperative Society.
Managing Partner
Koumentakis and Associates Law Firm
Note: This article forms part of a broader series of articles by our Law Firm on corporate transformations. In this series, we seek to analyse, article by article and always from a business perspective, the provisions of the principal law governing this field (Law 4601/2019).