The concept of the shares is very important. It reflects, according to case law: (a) “…the share of the corporate capital”. Also, (b) “…the right to participate in the company”. Finally, (c) “…the title in which this right is incorporated” (ind. 1227/2011 Multimember Court of First Instance of Athens, 4968/1993 Court of Appeal of Athens, Nomos Legal Database). Regarding the title that the share indicates, we pointed out – among other things – that its issue is not mandatory for the SA. Therefore, if it takes place, it is merely declarative and not constitutive in nature (1227/2011 Multimember Court of First Instance of Athens). But once such a (share) title is issued, what happens in the event of its theft, loss or destruction? What are the provisions of the legislator and what are the possibilities and protection of the shareholder?
Regulation
The issue of theft, loss or destruction of the share certificate of the SA is regulated in article 55 of Law 4548/2018. This article corresponds to article 12a of the previous law 2190/1920 (see Explanatory Report of law 4548/2018 on art. 55).
The provision in question refers, specifically, to provisions 843 et seq. Code of Civil Procedure. These are the ones that apply in case of alienation of the shareholder from the share title and the dividend receipts that may not have been separated from it. The stages that must be followed are two: (a) The preparatory document for the invitation to announce share rights (843-849 of the Code of Civil Procedure). (b) That of the main procedure of declaring the share title invalid (850-860 Code of Civil Procedure).
Purpose
The purpose of the regulation of the law on SAs (Art. 55 Law 4548/2018) is the security of transactions. It seeks, through this, to remove any doubt regarding the identity of the true beneficiary of the share, in case of alienation from them. Also, the prevention of usurpation of the shareholder rights embodied in the share by a non-beneficiary third party.
Conditions of Application
In order to start the process of declaring the share title invalid, certain conditions must be met:
(a) Issuance of Securities
In general
A necessary (and reasonable) prerequisite is the (non-mandatory) issuance of equity titles (: registered or anonymous shares – with or without dividend receipts or coupons) by the SA. However, intangible shares are not covered by the specific regulations. The latter are kept in accounting form and do not have the characteristics of securities. Therefore, they cannot be stolen, lost or destroyed. Nor, much more, to be subject to the regulation of 850 Code of Civil Procedure. It is noted, in fact, that the certificate for the intangible shares issued by the central securities depository is only of evidentiary value (18 Law 4569/2018).
Anonymous and Nominal Shares
We cannot overlook the fact that the law on SAs prohibited the issuance of anonymous shares from 01.01.2020. Therefore, this provision applies to registered shares or to previously issued anonymous shares that were stolen, lost, or destroyed – without being replaced by registered shares in the meantime.
There has been a problem, in the past, regarding the (non) inclusion of registered shares in the preparatory stage of the invitation to announce rights (art. 843 et seq. of the Code of Civil Procedure). An argument in favor of not subjecting the registered shares to the said procedure is the explicit mention of the true beneficiary in the shareholders book of the SA.
The relevant concern was reinforced with the enactment of Law 4548/2018. In particular, in the Explanatory Report on article 55 of this law it is stated that “if the company is certain of the identity of the shareholder (which will happen as long as the shares are – indeed registered, as is mandatory from 1.1.2020) it can issue a new title without due process”.
At the same time, there is also a dispute as to the application of the stage of the main procedure of declaring the title of registered shares as invalid.
However, it is argued that the procedure of articles 843 et seq. Code of Civil Procedure has, in the end, a practical significance on registered shares. (a) First of all, because the deed of sale of the transfer of these shares is completed – between the old and new shareholder – with their delivery. (b) Also, its importance is established in case of theft, loss or destruction of the spun-off title, as long as this event takes place before the relevant entry in the shareholders’ book. (c) Or if, it is a defective registration.
(b) Theft, loss or destruction of stock
Theft: Theft is recognized as per the strict sense of the criminal code (art. 372 of the Criminal Code). Therefore, it does not fall under this misappropriation, which can come under the concept of loss.
Loss: Loss means any involuntary escape of the share title from the power and jurisdiction of the owner without his direct or indirect will (1625/2013 Single Membered Court of First Instance of Thessaloniki, 3905/1998 Single Membered Court of First Instance of Athens, NOMOS Legal Database).
Destruction: Destruction means the physical disappearance of the title as well as any alteration of it (e.g. its content or form).
Procedure for Declaring the Share Title Invalid
Procedure & Jurisdiction
If the above conditions are met, it is possible to start the two-stage process: (a) invitation to declare a right on the share title and (b) declaring it invalid.
This is a genuine case of non-contentious procedure. Through this, when the court decision becomes irrevocable, the shareholding relationship will be separated from the title in which it was previously incorporated.
Competent, in matter and in place, for adjudicating the application of the above two-stage procedure is the District Court of the registered office of the SA, which issued the share certificates (art. 851 § 2 sub. b Code of Civil Procedure).
Persons With a Justifiable Cause to Initiate the Procedure
Standing to Bring an Action
Those who stand to bring an action to initiate the relevant procedure are:
For registered shares: The person who can exercise a right, deriving from the security/share title (3905/1998 Single Membered Court of First Instance of Athens): the principal, the beneficiary of a usufruct or the secured creditor).
For anonymous shares: the last bearer of the shares (see presumption of article 1110 section a’ of the Civil Code).
In case of co-ownership: Each of the co-owners.
Defendant to the Proceedings
The relevant application is not required to be directed against a specific person. Besides, the status of a party is acquired after a summons from the court (art. 748 §3 Code of Civil Procedure) or summons (art. 753 Code of Civil Procedure).
Third Party Proceedings
Since this is a case of non-contentious procedure it is possible to exercise third party proceedings.
In support of the claim: The usufructuary or the mortgagee can intervene in favor of the shareholder making the claim and vice versa.
Against the claim: The actual owner can intervene against the one making the claim. And so can the one who pleads a stronger right to the title than the applicant.
Preparatory phase
Invitation for Declaration
As noted above, the first and preparatory stage is that of submitting an application for an invitation to declare a right (843-849 Code of Civil Procedure). During this stage, it is sought to find the real beneficiary or the one who has a stronger right to the title than that of the applicant.
For the certain part of the call request, it is necessary to mention the main details of the share certificate (:852 Code of Civil Procedure – e.g. serial number, series, date of issue, type of share, etc.). Any objective inability of the beneficiary to invoke them should be assessed and treated accordingly by the court on the basis of the available data.
The invitation stage does not apply in case of theft, when the perpetrator is known. In this case, a vindictive action is brought against the latter, which is heard in accordance with the disputed jurisdiction procedure (3905/1998 Single Membered Court of First Instance of Athens).
However, the main procedure of declaring the title invalid can be developed simultaneously with a claim action (1094 Civil Code) or the action for the seizure of the exercise of possessory rights (987 Civil Code) due to their different objectives.
Suspensory Effect
With the submission of the invitation, the declaration process begins. This submission, however, does not suspend the circulation of the title.
However, while the invitation process continues, the court – ex officio or upon request – “…has the right to prohibit the bearer of the security from any provision, which includes the delivery to them of vouchers and dividend receipts issued after the prohibition.” (859 §1 Code of Civil Procedure). Dividend receipts that have not been separated from the title at the time of alienation are also covered by the prohibition.
The specific prohibition may also cover any right that each derives from the title (incl.: right of preference, right to vote in a General Assembly).
The ban can be lifted (also ex officio) by the court (859 §2 Code of Civil Procedure). Both the decision to ban and the decision to withdraw must be published (845 of the Code of Civil Procedure).
Issue of Decision
The competent court for adjudicating the summons application is entitled to issue a (non-final) decision to publish the summons announcing any rights on the title. For its publication, the probability is sufficient (853 Code of Civil Procedure).
This decision sets a deadline for announcing the rights and filing the title with the court registry. This starts from the publication of the invitation and cannot be less than sixty (60) days (845 § 2 Code of Civil Procedure). Exceptionally, the court may specify a shorter deadline for the provision of annuity payments. Also, the decision must specify as a consequence of the omission of the declaration, the loss of validity of the title (854 § 1 Code of Civil Procedure).
Legal Consequences of Declaration
As long as notice is given in time (and the title is filed with the court registry), the court informs the applicant without delay (856 Code of Civil Procedure).
However, the declaration does not make the title holder a party of the court proceedings. In order to become a party, the latter must intervene against the claimant and request the revocation of the non-final decision. Also, to make an appeal.
On the contrary, if no declaration takes place, the applicant can proceed to submit an application to declare the title invalid. The relevant application must be submitted within thirty (30) days from the expiry of the notice period (847 §1 Code of Civil Procedure).
Of course, submitting an application to declare the title invalid is also possible if a timely notification has been made. In this case the court may: (a) Suspend the proceedings until the completion of the diagnostic trial regarding the beneficial owner. Or (b) to proceed with the issuance of a final decision declaring the title to be invalid “…subject to the rights of the person who has been declared.” (848 §1 Code of Civil Procedure).
Main Procedure: Declaring the title invalid
The second stage of the procedure of articles 843 et seq. Code of Civil Procedure – as already noted – is that of declaring the title invalid (art. 850-860 Code of Civil Procedure). The validity of the application requires proof of theft, loss or destruction of the title. In addition: the existence of a share right in the person of the applicant.
In order for the Court to issue a decision, certainty (: full judicial conviction) for the existence of the specific conditions is required.
Issuance of Decision and Legal Consequences
The judicial decision to declare the title invalid has a transformative effect. It entails, in particular, the separation of the respective shareholding relationship and the accompanying shareholding rights from the title in which they are incorporated. The latter, of course, still exist. However, the share, as a security, is useless.
After the (irrevocable-858 Code of Civil Procedure) declaration of the title as invalid, the applicant shareholder is entitled to ask the SA for the issuance of a new title (40 §1 Law 4548/2018). Also to exercise their (arising from the title in question) share rights. The same applies to the rights of the usufructuary and the secured creditor.
The issuance of a share title is no longer necessary in order to exercise the rights deriving from it. The relevant statutory provision is sufficient. In the event, however, that a share title is stolen, lost or destroyed, things get complicated. Time and significant costs are required to restore the equity rights associated with the particular title.
Perhaps, in this context, it is appropriate to ask ourselves (again) the question: is it really necessary to issue share titles?
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 16th, 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.