In a previous article we referred to the right of the minority to request the redemption of its shares by the SA (Article 45 of Law 4548/2018). We were also concerned with the corresponding right of the minority to redeem its shares from the majority shareholder (Article 46 of Law 4548/2018).
Here, we will be concerned with the right of the majority shareholder to claim the redemption of the minority shares. This right is regulated in Article 47 of Law 4548/2018, in a similar manner to the previous Article 49c of Law 2190/1920.
Meaning
The right of the majority shareholder (95%+ of the share capital) to redeem the shares of the minority shareholders (up to 5% of the share capital) constitutes a right to exclude the minority shareholders from the SA, against a consideration (: “squeeze out” or “freeze out”). This is the reverse case of the right of the minority to buy out its shares from the majority shareholder, which we have already analyzed.
The shares are compulsorily 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 right of redemption primarily protects the interests of the majority shareholder. It is not necessary to plead a specific reason on the part of the latter: they are completely irrelevant in the present case. Specific minority/majority correlations and the judicial diagnosis of the statutory conditions are sufficient.
By exercising this right, the majority shareholder acquires full control of the SA, eliminating the (micro) minority shareholders. Literally run by “one man”. Through the exercise of this particular right the majority succeeds in disengaging itself from insignificant percentages but, often, annoying minorities. On the other hand, minority shareholders, contrary to article 46, do not choose their exit: they are driven out in exchange of an, at least, reasonable consideration.
The concentration, however, of all the shares in one (natural or legal) person is likely to be problematic on a substantive and, in particular, legal level; however, it may also, under certain conditions, only be beneficial and/or redemptive. In any case: the sole or majority shareholder of the SA has the right to choose. They retain, in any case, the right to allow the entry of new shareholders of their choice.
Public Offer (?)
The right of the majority shareholder to claim the redemption of minority shares also applies to listed companies. Subject, however (art. 47 §1), to the provisions and procedure regarding the submission of a public proposal for the purchase of securities (art. 27 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 article, however, we will exclusively limit ourselves to the conditions of article 47 – to non-listed SAs.
Majority & Minority Percentages
The 95%+ percentage of the majority
The configuration of the 95%+ rate
The holder of the shareholder redemption right should collect, by ownership, a percentage of at least 95% of the total (taken up and not, necessarily, paid up) share capital of the SA. The type of shares owned is immaterial (e.g. common or preferred). The aforementioned percentage is required at the time of exercising the relevant right.
However, it should be noted that the collection of said, increased percentage by the majority should have taken place at a time subsequent to the founding of the SA. This particular legislative option seems reasonable. The shareholder who acquires the above increased percentage (95%+) at the time of establishment has, from the beginning, accepted the equity balances of the SA: their “coexistence”, i.e., with the minority. It is therefore not recognized as a right of redemption worthy of protection.
It is accepted, however, that this right is also exercised in the event that the majority shareholder held, at the time of establishment, a percentage greater than 95%, then it was reduced below this by transferring their shares and, again, exceeded it.
The calculation of 95%+
Contrary to the right of the minority to redeem its shares from the majority shareholder (art. 46), there is no possibility of including the shares of other shareholders in the case we are considering. Even if it is related businesses of the majority or close family members. This follows from the letter of the law and is more protective of the minority interpretation. The proportional application of the provision for inclusion of Article 46 is, however, supported by part of the legal theory.
Finally, voting rights based on extra-corporate agreements, under the control of the majority, are also evaluated as indifferent.
The (up to) 5% percentage of minorities
As regards the (up to) 5% percentage of the share capital that must be held by the minority, it is not required that it be exclusively owned by one shareholder. However, in the context of the specific regulation and procedure – as long as there are more minority shareholders, the majority is obliged to exercise the right of redemption against all of them. The possibility of buying specific, only and at their choice, minority shares must be excluded.
It is noted, however, that the (up to) 5% percentage of the minority, which can be acquired, also includes the shares of the affiliated companies and the relatives of the majority. (This, of course, is the case in the event that, according to a view that is correct in our opinion, the inclusion of the shares of the specific persons in those of the majority is not accepted).
Exercise Deadline
The legally legitimized majority shareholder has the right to legally pursue the redemption of the minority shares within an exclusive depreciation period of five years (article 47 § 1, sub. b’). The specific deadline begins with the acquisition by them of the ownership of shares that exceed 95% of the SA’s share capital. Any statutory provision to the contrary regarding the deadline is void, given the mandatory nature of the specific provision.
With the lapse of the specific five years, the majority shareholder permanently loses the possibility to request the redemption of the minority shares.
The Exercise of the Redemption Right
The specific redemption right is exercised upon application of the majority shareholder before the Single Member Court of First Instance of the seat of the SA. The latter is decided during the process of ‘ex parte’ proceedings (739 et sec. of the Civil Code).
The redemption request concerns, as already pointed out, all the minority shares. However, given the ‘ex parte’ proceedings, the trial is not against the minorities. The latter become part of the trial only if they intervene.
The majority shareholder is obliged to submit a (non-binding for the court) expert report. The report is drawn up by two certified auditors or an audit firm. The purpose of this report is to create an image of the company’s assets and value based on data that the SA’s Board of Directors must provide (article 47 § 2).
If the application is granted, the court determines the consideration of the redemption. The consideration must be fair and reasonable.
The judicial decision that is issued is diagnostic in terms of the part that concerns the diagnosis of the relevant right. It applies to all (erga omnes). It therefore also binds the minorities who did not choose to participate in the trial by intervening. The binding force of the court decision that will be issued extends until the right of redemption and the amount of the consideration are established.
The Payment of Compensation
If the application of the majority shareholder is accepted, the mandatory deposit of the consideration in a credit institution follows (art. 47 §3). The deposit is made exclusively in cash, so that the consideration is fixed and unchanging. With this regulation, the legislator aims to prevent any phenomenon of insolvency of the majority. The legal nature of the deposit agreement in question is, in the holding’s view, that of irregular deposit. The majority submits, with the mandatory filing, the court decision and a copy of the expert report.
By depositing the cash, a genuine contract is created in favor of a third party; in favor of the minority, i.e., shareholders. The latter acquire, thus, a direct claim against the credit institution for payment of the amount of the price attributable to them. Their claim is time-barred after twenty years (articles 249 and 268 of the Civil Code). The credit institution, before making a payment, is obliged to verify the legalization of the minority.
The deposit of the consideration by the majority cannot be revoked. Necessary, therefore, is for the sum to be deposited after the finality of the court decision.
Any refusal to accept the consideration by the minority shareholders does not prevent the acquisition. Their only right is the judicial challenge of the decision regarding the amount of the consideration.
The credit institution may deposit to the Deposit and Loan Fund the part of the consideration not sought within six months from the date of deposit.
The Public Declaration
A constitutive condition for the exercise of the majority shareholder’s right to redeem the minority shares is the public declaration of their will to do so. This is, in particular, a unilateral exercise of their right. The content of this declaration is explicitly defined in the law and must include (article 47§4):
(a) the name of the SA, the details of the majority and its percentage in the SA,
(b) the elements and content of the court decision to establish the conditions for exercising the right of redemption and determining the consideration,
(c) the details of the credit institution, where the consideration was deposited. Also, any conditions for its collection. Finally, it should clearly mention the possibility of the credit institution to deposit the consideration to the Deposit and Loan Fund.
The legal results of the declaration come with its publication to the Business Registry (article 47 §5). This publication is essentially a notification of the addressable statement.
With this publication, the transfer of the minority shares to the majority shareholder takes place automatically. A prerequisite is the registration of the registered shares in the shareholders’ book (40 §2). However, with regard to intangible shares, their transfer takes place through securities accounts (41 §3).
The physical act of delivery of any existing equity securities nor the conclusion of any contract between the parties involved is therefore not required.
The right to collect the pre-deposited consideration from the minority shareholders depends on the publication of the above statement. In any case, delivery of their shares, if any, precedes collection. The transfer of the shares, however, occurs independently of collection.
Individual Notification
In the event that the details of the minority shareholders are known to the majority, it is possible to bypass the public declaration process. The majority reserves the right, in this case, to make personal and separate notifications through a bailiff or by sending a registered letter (article 47 § 6).
Contrary to the public declaration, the publication of the notices in the Business Registry is not, in the case of individual notices, mandatory. The transfer of the shares takes place after the last notification, which must not be more than fifteen days after the first notification. In the case of sending a registered letter, the time of transmission is considered the time of sending and not the time of receipt.
Execution of the Decision
The execution of the decision and, as a consequence, the transfer of the shares is not hindered by any exercise of remedies, a request for revocation or reform or a third-party appeal against the former. However, in this case, any compensation claim is not excluded (art. 47 §7).
The right of the majority shareholder of an SA (owner of shares of 95%+ of its share capital) for forced acquisition of the shares of the minorities, it is obvious that the interests of the former are served. The interests of the company itself are served and promoted as well: it is freed from internal quarrels and is led to the achievement of the corporate goal “in one spirit”. And finally, the minority’s own interests are served; by owning such a minimal percentage in the SA’s share capital (<5%), they enjoy absolutely limited rights and protection from the law. Their departure from the SA, therefore, for a worthy consideration, could not (as a rule) be considered detrimental to them.
However, it is not only the shareholders who acquire shares of the SA; the SA itself is also entitled to acquire its own. About them, however, see our article to follow.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (August 21st, 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.