The Temporary Administration of the Public Limited Company in the Act

Legal Insight

December 2021

George Psarakis LL.M. (mult.), PgCert

(republished from taxheaven.gr)

Summary: An issue that arises not so rarely in practice is that of the judicial appointment of a temporary management of a Public Limited Company under Article 69 of the Civil Code. In this article, we will mention some of the most serious issues that arise in the application of these provisions.

Sometimes, and for various reasons, companies are not properly managed. E.g. board members resign or the term of office of the board has expired, etc. In this case there is no management, with the result that not only is the company unable to manage bank accounts, make sales and purchases, exercise legal remedies, etc., but it is also impossible for third party creditors to take aggressive actions against the company, etc. A classic example is the seizure by a credit institution of a company that is not under administration: in this case, the credit institution must be aware of the lack of administration (this is not self-evident) and, prior to the seizure, it must apply for the appointment of a temporary administrator to the competent Court of First Instance so that service of the seizure report can take place. Similarly, the AADE, if it wishes to carry out a tax audit, will have to request the appointment of an interim administration so that there is a board of directors to receive the audit order and any subsequent imputations. But what are the issues that usually arise in practice? 

1. Who are the members of the interim administration appointed?

The court is competent to appoint the members of the provisional administration on the basis of the provisions of the law and the statutes. E.g. if a statute of an SA provides for a 5-member board of directors, the Court should appoint five persons to the interim management. Also, the Court is free to choose the persons who will comprise the members of the board and is not bound by any proposals made by the applicant and the parties in general. It decides on the basis of the suitability of the persons and sometimes on the basis of their previous involvement in corporate matters. It is possible, for example, that in a going concern, it may be appropriate to select persons who have held administrative, managerial, etc. positions. in order to avoid a long period of adjustment. Usually when an application for the appointment of interim management is made by a partner/shareholder then it will be proposed to appoint members of his own accord. Similarly, when the appointment is requested by a third party lender (e.g. a bank), members of the management who are employees of or associated with the lender will be proposed. This is done in order to make it less likely that the member of the interim administration will refuse to accept the position. On the contrary, when the application is made by the CRA, it usually proposes the appointment of members from the previous management of the company. However, this has the consequence that the appointed members may simply refuse to accept the position and thus the company may again be left without management. 

Furthermore, the court is in any case not obliged to follow the proposals of the applicants but may appoint members from the relevant lists of experts. This is, of course, where even greater problems arise, since it is extremely difficult to identify an expert who wishes to be a member of the provisional administration. This is because, on the one hand, there are often issues of personal liability for any debts of the legal entity, etc., and on the other hand, the appointment that takes place in the context of inter-company conflicts often leads to the filing of lawsuits against the members of the interim administration (for various offences under the Criminal Code or Law 4548/2018). 

2. Are the members appointed by the court obliged to accept their position? 

According to the settled case law of our courts, the appointment of persons as interim administrators cannot take place unless the persons themselves accept the position. According to the opinion of a well-known author, "The court decision produces its effects from the appointment, but the appointed members must accept their appointment, since no one can assume obligations against his will. Without the unilateral legal act of acceptance the organic relationship linking the board members to the company is not possible" (Marinos). In other words, a compulsory appointment of a director of a legal person is not possible under the current law. Acceptance of the appointment by the member of the interim management can take place either expressly (by publication in the General Register of Companies) or implicitly, as a result of the circumstances. For example, attendance at a board meeting is an indication of acceptance of the position. Therefore, if an appointed member of the interim management does not wish to accept the position, he/she should, in order to avoid misinterpretations and disputes, expressly state this either to the shareholders of the company, or in the GEMI, or to the applicant for appointment, etc.

3. What are the powers of the members of the interim administration?

The powers of the interim administration are determined by the court decision appointing it. In the case where they are not specifically defined, the appointed interim management has all the powers of the regular board of directors. Usually, however, the powers are defined as follows: a) when the appointment takes place in the absence of an administration, its main task will be to convene a general meeting to elect a new board and to deal with any urgent matters that have arisen up to that point; b) when the appointment takes place in the absence of a conflict of interest, its main task will be to take the specific decision on which the conflict has arisen. It is important to note that in the latter case, the elected Board continues to exercise its duties in respect of the other affairs of the company that are not related to the matter in respect of which the conflict of interest has arisen (i.e. the exceptional situation where there are two directors of the SA at the same time, but with different matters being managed in parallel). 

Therefore, if the scope of powers is limited to urgent and irreversible matters, the Provisional Board will not be able to proceed with the drawing up of long-term contracts, productive investments, sales of assets, recruitment of employees, etc.

The court's decision does not go as far as granting powers to the members of the Board of Directors such as those of the managing director and the vice-chairman. However, the appointed interim Board may delegate powers of a substitute body to a specific member of the Board - who therefore acquires the status of Managing Director - and necessarily delegates the powers of Chairman of the Board to a specific member of the Board in order to enable it to function (to enable the Board to convene a meeting, etc.).  

4. When does the term of office of the interim administration expire?

The answer to this question depends on the operative part of the relevant court decision. The latter usually sets a time limit of a few months within which the interim administration must convene a general meeting, in cases of appointment for lack of administration. It may, however, be possible, if the interim management was appointed because of a challenge to an earlier decision to elect an elected Board, to set the term of office until the finality of the dispute there (which may take several years!). The expiry of the period for which the provisional BoD was appointed automatically results in the expiry of its term of office, with the result that a new application for appointment must be submitted if a regular BoD cannot be elected. Of course, there is also the possibility for the General Assembly to elect a regular BoD, which automatically results in the expiry of the term of office of the provisional BoD even if the period of appointment has not expired (def.  Asprogerakas, Lack of Administration of a N.P., p. 179: "I note that the function of the provisional administration ends automatically, irrespective of any other reference in the decision of appointment, as soon as the legal person acquires regular administration". Similarly Markou, The Board of Directors of the SA, 2014, p. 140: "The authority of the interim Board of Directors ceases automatically when the AGM elects a Board of Directors, even if the appointing resolution does not provide for this"). Indeed, the latter possibility may also render inactive decisions to appoint an interim management by creditors, since the appointed interim Board of Directors is automatically replaced by the elected regular Board of Directors, information that may not have come to the knowledge of the creditor, resulting in the invalidity of any performance, etc.

5. How are members of the interim administration paid?

The members of the interim board are remunerated in the same way as the members of the regular elected board. That is, based on a decision of the company's General Meeting. Obviously, for the initial period of their appointment, it is possible to receive an advance payment but the final approval will take place by decision of the General Meeting of the Company (see Articles 117 and 109 of Law 4548/2018). Therefore, neither the applicant for their appointment is liable to pay their remuneration nor the public authorities. Of course, a practical issue often arises here, linked to the fact that in many cases the companies whose management is appointed on an interim basis do not have the financial capacity to meet the financial claims of the appointees, with the result that the latter do not accept their appointment (in practice, the applicants for appointment will have to bear the burden of satisfying the financial claims of the appointees, acquiring a claim against the company thereafter under the provisions on Negotiorum gestio etc.).

6. What is the responsibility of the members of the interim administration?

One of the most critical issues is that of the liability of the members of the interim administration towards the State - EFKA and third parties. As a basic principle, the liability of the appointed members of the provisional administration is of course limited to their acts or omissions during their term of office (cf. Article 786(3) of the CCP). The main issue, however, is the liability of the members with regard to the company's tax and insurance debts on the one hand, and the possible criminal liability of the members for the crimes of tax evasion, tax evasion and contribution evasion on the other. Following regressions in Greek case law, it can now be argued that the liability of the members of the interim management is quite limited. Of course, the scope of the management tasks assigned to it by the competent court is also relevant. 

In particular:

Α. In relation to debts to the State, the decision No. 2030/2004 of the Council of State held that the provisions on the liability of legal representatives in solidarity with the legal person, as strictly construed, do not apply in the case of a temporary administration appointed by court decision under Article 69 of the CC. Similarly, recently, in the decision No. 163/2021 of the Administrative Court of First Instance of Rhodes it was held that: "Furthermore, these provisions on the liability of legal representatives, which by their nature are narrowly construed (cf. CoE 2816/2020 7m., 498/2020 7m., 1213/2019 7m., 2030/2004 7m.), are not applicable with regard to a temporary administration appointed by a court decision pursuant to Article 69 of the CC (cf. CoE 2030/2004 7m., 1183-1187/2018 7m., 1180/2018)". Furthermore, the Athens Administrative Court of Appeal in its decision No. 1026/2021 held that the members appointed to the temporary management of a public limited company, on the basis of a court decision, are not liable for the payment of the insurance contributions owed by the public limited company to I.K.A.-E.T.A.M. 

In fact, the relevant article 50 of the Code of Tax Procedure has already been amended in 2019 as follows:  "The provisions of Article 50 of the Act on the Taxation of Taxpayers shall apply to the provisions of Article 50 of the Act on the Taxation of Taxpayers. Article 50 of Article 50 of Law 4174/2013 (A' 170) shall also apply in the case of appointment or election of a provisional administration pursuant to par. 2, provided that the debts referred to in par.  4174/2013 were incurred and became due during the term of office of the above persons and were not paid or not paid to the State by fraud or gross negligence". Therefore, we see that now, and unlike members of the regular administration, members of the interim administration are only liable if a) the debts were incurred and b) became due during their term of office. 

This limited liability of the members of the interim administration relieves the latter of any possible burdens that would ultimately prevent them from accepting their appointment, thus creating particular problems and entanglements. This limited liability of the members of the interim administration relieves the latter of any possible burdens that would ultimately prevent them from accepting their appointment, thus creating particular problems and entanglements. Naturally, the members of the interim management will, before accepting their appointment, carry out an audit of the financial situation of the company, so that they do not find themselves in the uncomfortable position of being unable to pay their tax and insurance obligations and then be required to prove their the absence of fraud or gross negligence on their part. 

Β. In accordance with Article 67 par. 1 of the Code of Tax Procedure: "In legal persons, the perpetrators of the crimes of this law shall be considered as perpetrators, if by any act or omission they contributed to their commission: a) In domestic limited companies, the chairmen of the Boards of Directors, the managing, appointed or co-directing directors, the administrators, the general managers or directors, as well as in general any person appointed either directly by law or by private will or by court decision in the administration or management or representation of such companies. In the absence of all the above persons, the members of the boards of directors of such companies shall be deemed to be perpetrators, provided that they actually perform, temporarily or permanently, one of the functions referred to above".

Therefore, unless a court decision or the members themselves appoint a Chairman of the Board or a CEO, all members may be held criminally liable for the offence of tax evasion (similarly for the offence of tax evasion under Art. 86/1967 as it has been accepted that if no Chairman or Managing Director has been appointed, the subsidiary liability of all members of the Board of Directors is established - see e.g. SC 360/2013). However, it will be difficult to meet the subjective element of the offence due to the limited nature of the duties under the appointment decision. 

The conclusion to be drawn from the above is therefore that the more limited the formulation of the provisional administration's tasks by the court decision, the more protected the latter are as regards their possible responsibilities. The same applies, of course, to the length of time they have been managing the company: the scope of the liability of an interim management which has been in office for only a few months is different from that of a management which has been at the 'helm' of the company for two or three years (a fact which is likely to be the case in particular where the appointment takes place until the final judgment in an action for annulment of a decision of the General Meeting of Shareholders appointing an elected director).

7. What happens if the members of the interim administration refuse to call a General Assembly for the election of an elected administration when this is possible?

In this case, a General Meeting should be necessarily requested by the shareholders based on the minority right under Article 141 of Law 4548/2018. If the members of the Board of Directors insist on not convening the General Meeting, then the corresponding application for injunctive relief should be filed in order to order the convening of the meeting by the competent court. It is also important to note that the failure of the members of the interim management to convene a General Meeting at the request of a shareholder is a criminal offence (under Article 180 para. 1 ν. 4548/2018 with a fine from 5,000 to 15,000 euros). 4548/2018, Professor E. Perakis. ... Furthermore, although Article 39 regulates 'minority' rights, it is not impossible for the majority to exercise these rights if, for example, the board of directors is autonomous and does not consent to its requests, or if the board of directors has been appointed under Article 69 of the CC'. Moreover, it could not be otherwise, because then we would have to accept that the shareholders are deprived of their rights simply because an interim management has been appointed instead of the regular management.