Simplified Forms of Merger and Corporate Acquisition
(Articles 35–38, Law 4601/2019)
Law 4601/2019 provides special rules for mergers in which the shareholding relationship permits a substantial simplification of the procedure. Where the absorbing S.A. holds all, or at least 90%, of the voting rights in the absorbed company, certain formalities are reduced. The two cases do not, however, provide the same extent of exemptions, because in the second case a minority continues to exist in the absorbed company. The law also regulates the acquisition of an S.A., which is treated as equivalent to a merger by absorption, although the shareholders receive consideration instead of participating interests. For management and advisers, the fundamental issue is the correct choice of the applicable regime and compliance with the formalities that remain mandatory.
Absorption of a company wholly owned by the absorbing S.A.
One of the simplified forms of merger provided for by law concerns the absorption of one or more capital companies by an S.A. holding all voting securities in the absorbed company (Article 35). The holding may be direct or through a person acting in his or her own name but on behalf of the absorbing company. The absorbed company is dissolved without liquidation and all its assets and liabilities are transferred by universal succession to the absorbing company. Because no minority exists in the absorbed company, formalities serving primarily to inform or protect its shareholders or partners may be omitted. The simplification, however, concerns specific requirements and does not eliminate the other obligations and formalities applicable to the merger procedure.
Conditions for application (Article 35)
For the provision to apply, the absorbing company must be an S.A. and the absorbed company must be a capital company. The absorbing company must hold 100% of the shares, quotas or other securities of the absorbed company carrying voting rights. The special regime applies only to a merger by absorption and not to a merger by formation of a new company.
The absorbing company is not required to hold the full 100% at the start of the merger process. This percentage may be acquired during the procedure, even after execution of the draft merger agreement, provided that it has been acquired by the time the merger takes effect, namely upon registration of the merger agreement with the General Commercial Registry (GEMI) under Article 18.
The exemption from corporate approval requires timely publication of the draft merger terms by every participating company at least one month before completion of the merger (Article 35). During the same period, shareholders of the absorbing company must be able to inspect at its registered office the documents that remain mandatorily available. These include the draft merger terms, the financial statements and management reports for the previous three financial years and, where required, an interim accounting statement.
A shareholder or shareholders of the absorbing company representing at least one twentieth of the paid-up share capital may request the convening of an extraordinary general meeting up until completion of the merger. The request must concern approval of the merger and is exercised in accordance with the minority right under Article 141(1) of Law 4548/2018. If the right is exercised, the exemption from a general meeting resolution no longer applies. Management must therefore allow in the timetable for the possibility that a meeting will need to be convened and a resolution adopted without jeopardising completion of the merger.
Departures from the ordinary procedure
Where a company wholly owned by the absorbing company is absorbed, neither the report of the management body nor examination of the draft merger terms by experts is required (Article 35). The draft is also not required to include information regarding the exchange ratio, the allotment of new participating interests or the date from which those interests entitle their holders to participate in profits. These exemptions are explained by the fact that, because the absorbing company wholly owns the absorbed company, no exchange of participating interests takes place. The special liability of management and experts in connection with the preparation and implementation of the merger under Article 19 is also excluded. This exemption does not remove potential liability of board members towards the company for breach of their duties under Article 102 of Law 4548/2018.
Provided that the statutory requirements relating to publication, information and minority protection are satisfied under Article 35, no resolution of the corporate bodies of the participating companies approving the merger is required. The exemption is not mandatory. The participating companies may follow the ordinary procedure and obtain approving resolutions. This may be useful where there is corporate complexity, a financing requirement or a need for enhanced internal corporate authorisation.
If the simplified procedure is applied without the statutory conditions being met and the required corporate approval is omitted, the merger may be annulled in accordance with Article 20.
Absorption of a company at least 90% owned by the absorbing S.A.
Where the absorbing S.A. holds at least 90%, but less than 100%, of the voting securities of the absorbed company, a narrower simplification applies under Article 36. The fundamental difference is that minority shareholders or partners continue to exist in the absorbed company and therefore require the general protective formalities.
Unlike Article 35, Article 36 does not provide the same exemptions from the individual procedural requirements. The simplification concerns the possibility of dispensing with a resolution of the general meeting of the absorbing company, provided that the specific conditions of Article 36 are satisfied. The management report, expert examination, exchange ratio and approval by the absorbed company remain, in principle, subject to the general regime. Accordingly, the exemptions available for a wholly owned subsidiary should not be mechanically transferred to the 90% case. For management, the 90% threshold operates as the basis for a specific exemption rather than as a general shortening of the merger procedure.
For a general meeting resolution of the absorbing company not to be required, the draft must have been published for that company at least one month before the general meeting of the absorbed company. During the same period, shareholders of the absorbing company must have access to the merger documents at the company’s registered office (Article 36). In addition, shareholders of the absorbing company representing at least one twentieth of the paid-up capital may request the convening of an extraordinary general meeting up until completion of the merger. If such a request is submitted, the exemption from the general meeting resolution ceases to apply (Article 36; Article 141(1), Law 4548/2018).
The simplification under Article 36 therefore concerns only approval by the general meeting of the absorbing company. The absorbed company continues to approve the merger, and the other general and special provisions remain applicable. Incorrect omission of the absorbing company’s resolution, because the conditions were not met or the minority right was exercised, may trigger the annulment mechanism under Article 20.
Acquisition (Article 37)
An acquisition is a particular form of corporate transformation which the law treats as equivalent to a merger by absorption (Article 37). One or more S.A.s are dissolved without liquidation and transfer all their assets and liabilities to another S.A. The former are regarded as the companies being acquired and the latter as the acquiring company. The shareholders of the acquired companies do not receive participating interests in the acquiring company. Instead, they receive consideration for their rights. The consideration may be monetary or non-monetary, but it may not consist of participating interests in the acquiring company.
The essential difference from a merger by absorption lies in the consideration. The shareholders receive consideration for their rights rather than equity interests in the acquiring company. If the consideration consisted of shares in the acquiring company, the fundamental distinction between acquisition and merger by absorption would disappear.
The special rules governing mergers involving an S.A. apply mutatis mutandis to an acquisition, with the necessary adjustments (Article 37). In practice, the draft terms, required reports, publicity, corporate approval, creditor protection and legality review remain critical. The special simplifications applicable to the 100% or 90% cases apply only where the corresponding ownership conditions are satisfied.
Unfair acquisition consideration
An unjustifiably low or high consideration does not constitute an independent ground for annulment of the acquisition (Article 38). Where the consideration is unjustifiably low, each shareholder of the acquired company may claim monetary compensation from the acquiring company. The amount of compensation is determined by the court and the claim becomes time-barred twelve months after registration of the resolution approving the acquisition with GEMI. The acquisition remains valid, while the shareholder retains a monetary claim against the acquiring company. An unjustifiably high consideration likewise does not invalidate the transaction. Depending on the circumstances, however, it may raise issues concerning management liability towards the acquiring company under Article 102 of Law 4548/2018. For management and advisers, documenting the valuation and the consideration is essential in order to prevent subsequent claims.
In summary
Simplified forms do not permit a general relaxation of the applicable rules. In the 100% case, specific reports, elements of the draft and, subject to conditions, corporate approvals are removed. In the 90% case, the simplification is essentially limited to the resolution of the general meeting of the absorbing company, because the minority of the absorbed company continues to require protection. Incorrect classification of the transaction or omission of a mandatory approval may turn a procedural shortcut into a material completion risk. In an acquisition, the focus shifts from the exchange ratio to the consideration and its substantiation. A low consideration does not invalidate the transaction but may give rise to a compensation claim. In the next article, we examine mergers involving a limited liability company (E.P.E.).
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 provide an article-by-article analysis of the principal relevant legislation (Law 4601/2019), consistently adopting a business-oriented perspective.