In a previous article we referred to the rights and obligations arising from the shareholding relationship. Among the latter is the right of the minority to request the redemption of its shares by the SA. This right is regulated in Article 45 of Law 4548/2018, in a similar manner to the previous Article 49a of Law 2190/1920. We will be concerned with this right in the present article.
Meaning
The redemption right mentioned above constitutes an exit right (usually) of the minority shareholders in return for monetary compensation; however, a court decision is required. This specific right, as analyzed below, occurs in exceptional cases and under specific conditions. It cannot, however, be applied to companies whose shares are listed on a regulated market or on a stock exchange (art. 45 §7) .
However, it is important to note that the bearers of this right can claim with a lawsuit from the court the redemption of their shares by the SA in one case only: If, for reasons stated in the law, their stay in the SA becomes, in an obvious manner, particularly burdersome.
Purpose (:obvious and less obvious…)
The specific redemption right is an obvious compensation for the right of the majority shareholders to take binding, decisive decisions: for the SA itself and/or the minority shareholders. The recognition of a specific («sell out») right manifestly promotes the interests of the shareholder worthy of protection; the one who wishes to withdraw from an SA that no longer serves their interests and does not satisfy their expectations; the one who wants to be released from the SA, in which they have suffered fundamental changes, which did not occur at the time of their entry.
However, it should not be ignore that only the rights of the (affected) shareholder are served. Correspondingly, the reasonable/justified interests of the SA are also served: through the departure of the complaining /afflicted shareholder, it is freed from their (obviously, in this case, annoying) presence; from the (smaller or bigger) problems that they are causing or would be possible to cause the company; from a (potentially) “disturbing” minority shareholder.
Reasons for Exercising the Redemption Right
The enumeration of the reasons for which the shareholder can claim the redemption of their shares by the SA is restrictive (art. 45 §2).
This primarily regards the taking of particularly important decisions of the General Assembly; decisions that are recognized by law for shareholders as “particularly burdensome in the case of the preservation of their shares”. Specifically:
(a) The decision of the General Assembly to transfer the headquarters of the company to another state ( art . 45 §2 para. a) : The specific, exceptionally serious, decision creates, among other things, a financial burden on the shareholders; it also makes it difficult to exercise their shareholder rights.
(b) The introduction of restrictions on the transfer of shares (art. 45 §2 para. b) : Such a decision binds, often excessively, the freedom of the minority shareholder to transfer their shares; also their justified expectation of liquidation of their participation and of their immediate exit. With this specific provision, in the end, the legislator attempts to protect the shareholder from the adverse consequences of corporate decisions that, even if legal, are against the principle of the free transfer of shares (401/2019 Court of Appeal of Athens, 2038/2016 Multimember Court of First Instance of Athens, NOMOS legal database).
(c) The change of the company’s objectives (art . 45 §2 para. B.) A decision of this nature negates (or could be argued to negate) the minority shareholder’s expectations of maintaining a profitable (in their view) corporate activity. The statutory purpose of the SA is often one of the main criteria for participation in it. Therefore, the amendment, extension or abolition of the statutory purpose justifies the activation of the right of redemption (2760/2014 Court of Appeal of Athens, 3635/2012 Multimember Court of First Instance of Athens, 5723/2010 Multimember Court of First Instance of Athens, NOMOS legal database).
(d) Any other case which, according to the articles of association, activates the relative right of the shareholders to redeem their shares from the SA (art. 45 §2 para. c): The statutory, relevant reasons should correspond, in terms of importance and severity, to those provided for by law. It is therefore required that the statutory provisions consist of decisions that substantially change the corporate reality and, in addition, make it particularly burdensome for the minority shareholders to maintain their shares. It is necessary, for reasons of rapid clearing of corporate relations, to provide for a deadline for exercising the right of redemption (817/2018 Supreme Court, 1832/2019 Court of Appeal of Thessaloniki , 107/2014 Multimember Court of First Instance of Katerini, NOMOS legal database) .
The “Extremely Burdensome” Effect Of Maintaining The Shareholder Relationship
A condition for the exercise of the redemption right is also its “particularly burdensome” effect it has on the shareholder’s stay in the SA. And, in fact, in an obvious way. The legislator is not content, therefore, simply with the unpleasantness or non-beneficial of their stay.
The concept of “burdensome” stay is a vague legal concept. The concretization, evaluation and application of it (or not), in each case, is done by the court based on the objective judgment of the average, prudent, person. Also taken into account are the facts that pushed the minority shareholder to the buyout mechanism (817/2018 Supreme Court, 401/2019 Court of Appeal of Athens, 2760/2014 Court of Appeal of Athens, 5723/2010 Multimember Court of First Instance of Athens, NOMOS legal database).
The burden of staying is found on two levels: moral and material. Regarding the first (:moral), “burdensome” is determined by personal reasons (ind.: the tarnishing of the shareholder’s reputation). On the material level, on the contrary, it is determined by the financial disadvantage of the shareholder staying in the SA.
Therefore, based on the reason the shareholder invokes, the law mandates the externalization/invocation, but of course also proof of the unfavorable situation in which they find themselves. Probability is not enough; full proof is required.
Participation & Objection to the Decision of the General Assembly
A necessary formal condition for the exercise of the redemption right is the express opposition (and not only the participation) of the shareholder in the General Assembly that took any of the restrictive decisions referred to in the law or the articles of association. Therefore, it is necessary to vote against the relevant decision in an explicit and solemn manner and also to record it (also for evidentiary reasons) in the minutes of the relevant meeting of the General Assembly.
The specific condition is not claimed to be met, if the summons of the (damaged) shareholder did not take place legally. Furthermore, it is not required to occur when the reason for redemption is provided as such by the articles of association and is not related to a decision of the General Assembly (art. 45 §1 in fine , §2 c. c) .
Exercise Deadline
The action by which the shareholder claims the redemption of their shares is subject to a three-month exclusive amortization period (art. 45 §3 paragraph a’).
The specific deadline typically starts from the completion of the amendment of the articles of association (observance, i.e., of the publicity formalities). The shareholder, however, as long as they are aware of the relevant decision of the General Assembly, can exercise their right even before the completion of the publicity formalities. However, after the expiry of the above three-month period, the specific right expires; in fact, it is not presented even by way of objection (3635/2012 Multimember Court of First Instance of Athens, NOMOS legal database).
As pointed out above, the law provides that the reason for redemption may be defined in the articles of association; therefore, it should not be linked to a decision of the General Assembly. In this case, the action is brought within the period provided for there. It is argued, however, that when the reason for the acquisition concerns an amendment to the articles of association, the above-mentioned three-month deadline must be observed.
The Exercise of the Redemption Right
The aforementioned right of redemption (art. 45) 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 relevant action of the shareholder is diagnostic regarding the existence of the redemption right and the calculation of the value of the shares. It is opposed in terms of its request for the condemnation of the company to buy back its shares at a specific price.
The court is, of course, competent to judge with regard to the presence (or not) of the necessary, by law, conditions. Also, to determine a fair and reasonable consideration for the shares, if the lawsuit is accepted (3635/2012 Multimember Court of First Instance of Athens, NOMOS legal database).
The price the shareholder leaving will receive is determined based on the company’s assets and valuation. The court, in order to determine them, can order an expert opinion from certified auditors-accountants (art. 45 §4, sec. b’ 2038/2016 Multimember Court of First Instance of Athens, NOMOS legal database).
There is always the possibility that the redemption will not be completed within the specified period, due to the fault (or choice) of the debtor. In order to prevent this uncertainty, the court reserves the right to decide (for this case) the dissolution of the company – then its liquidation will follow (art. 45 §5, 107/2014 Multimember Court of First Instance of Katerini, 3635/2012 Multimember Court of First Instance of Athens, 5723/2010 Multimember Court of First Instance of Athens, NOMOS legal database) .
Given the acquisition by the SA of its (own) shares, the relevant provisions apply (art. 45 §6, 49 §§4-7 and 50) and regulations that will concern us, however, see our article to follow.
Minority shareholders retain, in specific, serious, cases (and under specific, but strict, conditions), the right to impose on the SA the redemption of their shares. They are thus freed from their stay in an SA that (they consider) no longer satisfies their interests and expectations. And as for the SA: in this way, it is unhooked from potentially annoying shareholders; it is freed from potential (present or future) problems; it focuses on the development and achievement of its business goals. Although, therefore, the specific regulations are included in the category of minority shareholder protection, beneficial for the SA, nevertheless, it could be considered that they end. Possibly, therefore, from the latter it would be advisable to choose their activation; and not unfairly – as experience has shown (and proved).
The majority shareholder’s right to redeem the minority’s shares is of particular as is, respectively, the claim of the latter to redeem their shares from the majority. 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 14th, 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.