In our previous article, we were concerned with the intra-company (internal) responsibility of the managers of the SA. Is it possible to remove such responsibility with the approval by the General Assembly of the overall management of the administrators of the SA (art. 108 of law 4548/2018)? And, further, what is the possible or appropriate content of such an approval?
The regulation
According to the law (article 108 §1 paragraph a): “By decision of the general assembly, taken by open vote after the approval of the annual financial statements, the overall management that took place during the corresponding corporate year can be approved”.
This arrangement deviates significantly from the previous legislative regime. The General Assembly does not “absolve”, as in the past, the Board of Directors “from all responsibility” (a provision that had created intractable legal problems, especially regarding the position of this “exemption” in the system of responsibility of the Board). The GA approves, on the contrary, the “overall management”, the governance, that is, of the company in general. It does not approve individual acts or omissions that have, possibly, damaged the company. The responsibility of the Board of Directors remains intact, and is judged based on the relevant provisions (especially articles 102 et seq. – see also Memorandum to law 4548/2018 on article 108).
With such a decision, the General Assembly evaluates and (as a rule/custom), approves the way the company is managed by the Board during the monitored corporate year. It demonstrates, that is, with its approval, the satisfaction (or not) of the General Assembly with the way the SA was managed. It is, for this reason, also characterized as a “political decision” or a decision with “moral significance/value”).
As in all its decisions, the General Assembly is not obliged to make a reasoned decision on the approval (or not) of the overall management. And, as such a (positive) decision is not binding for the General Assembly, it is possible to freely recall, after the fact, the members of the Board of Directors (art. 77 §2 section b’).
Decision on Overall Management
Objective
The above decision of the General Assembly has as content the approval or not of the management of those who managed the SA during the past fiscal year. This evaluation can take the form of confirmation or, alternatively, of criticism of the business strategy and action of the Board. The negative decision of the General Assembly, in the last case, will demonstrate the unsuccessful, from a business perspective, management on the part of the administrators.
Time of the Decision
The GA decides on the issue of approval (or not) of the overall management after the approval of the annual financial statements. In this way, the shareholders have at their disposal a valid basis and sufficient, presumptively at least, information to make their decision in question.
The shareholders’ meeting can take the relevant decision either at the regular General Assembly regarding the approval of the financial statements or at a later point in time (: extraordinary General Assembly). In the first case (necessarily) the issue of financial statements precedes the agenda.
It is recalled that the latest point in time for the approval of the financial statements is, most commonly, September 10 of the year following the end of the corporate year – when the corporate year ends on December 31. Accordingly, March 10 when the corporate year ends on June 30 (art. 119 §1). However, there is no limitation in the law regarding the time of making the decision for the approval of the overall management.
Persons Affected by the Decision
The Board of Directors is responsible for the management of the company and, by extension, the management of the company’s assets. It is reasonable, therefore, for the decision of the General Assembly to concern the members of the Board. This does not mean that the decision names specific advisors but, on the contrary, it concerns the entire Board as a whole. It is not excluded, however, that the management of some members will be approved while the management of some others will not. The decision to approve the overall management also covers (art. 102 §5) any substitute bodies (art. 87).
The relevant decision, however, does not concern the auditors of the company for whom an independent decision is made.
Voting
Procedure
As the law expressly states, voting is public. This is justified by the nature of the relevant decision and the need for transparency.
Under the previous legislative regime, the corresponding provision (art. 35 n. 2190/1920) provided for voting by roll call. This did not necessarily mean, however, that the relevant vote was overt. It was argued, then, that after the roll call, the respective shareholder voted by ballot. However, the new provision dispelled earlier doubts in favor of open voting.
Finally, voting is special. The relevant provision already existed from the previous legislative regime and is still valid (although it is not explicitly provided for). This means that the management approval decision is discrete. It is, i.e., a separate agenda item from the approval of the financial statements, for which an independent decision is taken.
Participation right
The shareholders of the company participate, of course, in the voting of the General Assembly on the approval (or not) of the overall management. The participation of advisors as shareholders or shareholder representatives in said voting is not prohibited. They can, in principle, directly exercise their (potential) right to vote.
However, according to a special regulation (art. 108 §2) the members of the Board of Directors are entitled to participate in this vote: (a) only with shares of which they are owners or (b) as representatives of shareholders, provided that they have received the relevant authorization with express and specific voting instructions.
Therefore, advisors can be authorized to vote on behalf of (other) shareholders. The relevant authorization requires explicit and specific instructions. The purpose is to avoid serving the same interests of the members of the Board of Directors and securing a vote in favor of the overall management. Therefore, it is necessary not to leave room for the authorized-consultant to decide on the approval of the management.
The same applies to the authorization (and participation in the relevant vote of the General Assembly) of the company’s employees. And this is because the latter could be influenced by the management due to the dependent nature of their work and their eventual participation in the management under evaluation. These persons can be either ordinary employees of the company or substitute bodies (therefore what was pointed out above applies to the members of the Board of Directors), who are called upon to exercise the right to vote of third-party shareholders.
Legal Consequences
The law distinguishes the decision to approve the overall management from the company’s waiver of its claims due to the responsibility of a member of the Board of Directors or its compromise . These actions of the company can take place “…only under the conditions of paragraph 7 of article 102”. As already, above, we established, regardless of the content of the decision of the General Assembly, the responsibility of the Board remains intact. It is judged according to the provisions on the responsibility of the members of the Board of Directors .
In the above context, the only legal (but also practical) consequence of the approval of the overall management is its consideration in any lawsuit aimed at the restoration of the company’s damage caused by acts or omissions of members of the Board of Directors. The eventual approval of the overall management will be taken into account – if it was provided – when the issue of liability will be decided in court (see Memorandum to law 4548/2018 on article 108). In essence, the defendant member of the Board of Directors can invoke, in the relevant trial, prior approval of the overall management by the General Assembly. Although, of course, this is not, by itself, a reason for exonerating them from any responsibility. Similarly, any non-approval is not proof of any liability, nor is it a prerequisite for a relevant decision on the matter.
In any case, it is possible that the General Assembly, despite the approval of the overall management, may later initiate claims against members of the Board. Although such an attitude may seem (and under certain conditions may be) abusive, the raising of claims by the company after a positive decision to approve the overall management may be justified. For the following, in particular, reasons: On the one hand, the shareholders may have become aware, at a time subsequent to the approval of the management, of the real facts that establish the responsibility of members of the Board of Directors. On the other hand, it is not excluded that the minority, representing 1/20 of the paid-up capital, seeks, as it has the right to, to establish liability against the members of the Board of Directors (art. 104 §1). A minority that, even if it had been formed at the time of approval of the management, could not have influenced the relevant voting and decision.
Therefore, in order to take into account the approval of the overall management (and to consider the raising of claims against the members of the Board of Directors abusive), the General Assembly should receive sufficient, relevant, information and decide based on them.
Finally, it should be pointed out that there is an open debate as to the time when the approval of the overall management can be taken into account. Part of the legal theory holds that consideration is possible only at the stage of the main trial for the compensation of the company by members of its Board of Directors – as, after all, the law provides. However, it seems more correct that such an approval can also be taken into account during the stages of investigating the feasibility of filing a corporate lawsuit (art. 105 §2 section c and 105 §6).
Based on the previous law, the General Assemblies of the SA took decisions “on the exemption of the Board of Directors from all responsibility”. Such decisions and formalities no longer have any legal basis or legal value. The possibility provided by the law to approve the management of the members of the Board of Directors can, apart from its moral value, acquire particular importance in a trial for the restoration of the damage of the SA at the expense of a member/members of the Board. We should, therefore, be absolutely careful either as the providers of approval and/or as the applicants for its receipt.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 16th, 2023).
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.