In a previous article we dealt with the election of the members of the Board of Directors: the rule (election by the General Assembly) and its exceptions. Can everyone be elected as a member? And if not, what are the conditions for electing (or appointing) Board members? The present article holds the answers.
Conditions for Board Eligibility
By the law
The law on SAs introduces a single limitation (art. 83 §1, law 4548/2018) to the discretion of the General Assembly and the shareholder making a direct appointment (art. 79): the existence of full legal capacity for natural persons who are elected/appointed (according to art. 127 of the Civil Code). Limited legal capacity is not enough (Memorandum to law 4548/2018 on art. 83).
However, additional special conditions, inabilities or incompatibilities are foreseen in individual provisions of the legislation. The specific provisions are not affected; they remain in force (art. 83 §3, section a’). Such arrangements are found in specific forms of companies, such as e.g. credit institutions. Incompatibilities mentioned in the position of the ordinary members of the Board of Directors, the managing director or the representative (according to article 87 §2) are also provided for certain professions (e.g. prosecutors, judges or secretaries of courts are not allowed to be members of the Board of Directors). Also, with regard to listed SAs, a series of irreconcilables for the independent non-executive parties is established by the special, relevant legislation (art. 9 Law 4706/2020).
It should be clarified here that the law does not impose restrictions on the election or appointment of a member of the Board of Directors, related to citizenship (: local or foreign natural or legal person), residence (: in Greece or abroad), existence (or non) shareholding.
By The Statute
Additional eligibility conditions may, by express legislative regulation (art. 83 § 3 sec. b’), be specified in the SA’s statutes-original or by amendment. Such a “qualitative” limitation of the candidate members of the Board of Directors, on the basis of statutory provisions, is basically dictated by the corporate interest. It seems reasonable to require, sometimes, special knowledge, skills, experience and qualifications that must be present in the person of the board members. The nature and corporate purpose may warrant it. And practical reasons may require the introduction of statutory provisions regarding conditions of eligibility related to the residence of the board members (e.g. in the country of the headquarters or in the place of exercise of the administration). And this, despite the use of technology and the expansion of teleconferences often makes physical presence at the meetings of the individual bodies – the Board of Directors included- unnecessary.
It should be noted, however, that relevant statutory restrictions cannot be tolerated if they lead to the circumvention of the compulsory legal provisions for SAs. To limit, e.g., the number of persons eligible for election to such an extent that the possibility of electing members of the Board of Directors from the General Assembly is practically abolished. Also, to result in discrimination due to gender, religion or other protected characteristics (see related, Memorandum to law 4548/2018 on art. 83).
Legal Consequences of Lack/Loss of Eligibility
Election or appointment of a member of the Board of Directors without the required legal capacity is invalid (art. 83§ 2).
But: since the loss of legal capacity is a consequence of the election/appointment of the member of the Board of Directors, the disqualification from the specific position of the member of the Board of Directors occurs automatically. This, of course, applies prospectively. The validity of the member’s actions, before they lose their status, is not affected: there are no retroactive consequences.
If a member of the Board of Directors is elected as such, in violation of an irreconcilable provision established by law, their election should not be considered invalid because of its opposition to a special provision of law. The members of the Board of Directors will, in this case, be subject to administrative or other sanctions in accordance with what, as the case may be, the specific legislation stipulates. Subsequent appearance of irreconcilable circumstances, however, is argued to result in automatic disqualification.
However, in the event of non-compliance with the statutory eligibility conditions at the time of obtaining the membership status, the relevant decision of the General Assembly will be invalid. The subsequent appearance of a statute incompatible with the person of a member of the Board of Directors should lead, here as well, to their automatic dismissal.
It should be noted, however, that the existence of reasons that make the election or appointment of the members of the Board of Directors-representatives of the company defective are not brought against bona fide third parties. It is sufficient that the publicity formalities prescribed by law have been observed. However, in addition, the (bona fide) third parties must be unaware of the relevant (internal) defect (art. 84 – more detail on those, however, will be found in our next article).
The only (general) eligibility condition for the position of a member of the Board of Directors (besides the special ones imposed by special provisions) is the existence of legal capacity in the person of the candidate. The Board of Directors, however, is not (should not be) a decorative body of the SA but an administrative and, above all, strategy-making body. If this specific admission coincides with the choices of the shareholders of the SA, it would be desirable to impose (by the articles of association and/or apart from them) the existence of minimum, specific qualifications for someone to occupy such a position. The utilization of the most useful persons for the SA in its Board of Directors can only work positively for the pursuit of the corporate objectives. If, however, the intention of the shareholders is to (according to the formalities-only) fill the positions of the specific body and the management of the SA on the basis of the “one man principle”, it is advisable to choose those who will adequately support it.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (December 24th, 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.