Areti Kolokotroni, M.Sc.
Abstract: It is a common phenomenon for legal entities to either lack the persons required for their management or for the interests of the managers to conflict with those of the legal entity. In such cases, it is possible for anyone with a legitimate interest to apply for and obtain the judicial appointment of an interim administration under Article 69 of the Civil Code. In our previous note, we highlighted some of the most important issues that arise in practice in the case of the appointment of a provisional administration of a joint-stock company, but also the more specific case of the judicial appointment of a provisional administration due to a conflict of interests between the interests of the persons of the administration and those of the legal person. In this article, we will focus on the scope of powers held by the persons appointed by court decision as provisional administrators of the legal person.
According to the provision of Article 69 CC, which, as is evident from its generality, applies to any legal person (commercial companies of any form, associations, etc.), if the persons required for the management of the legal person are absent or if their interests conflict with those of the legal person, at the request of anyone with a legitimate interest, a temporary administrator of the legal person may be appointed. An appeal to the competent court (i.e. the Single Judge Court of First Instance of the district where the legal person has its seat) by any interested party who claims and proves a legitimate interest in the appointment of a provisional administration is necessary to enable the legal person to continue its operation without interruption, provided that its members do not wish to see its activity discontinued. Such an interest is in the first instance the partners of the legal person, but may also be held by third parties having a legitimate interest, such as those who wish to exercise their legal rights against the legal person.
2. Appointment of an interim administration - Conditions
Provisional administration of a legal person may be appointed by the Court, on application by any person having a legitimate interest, only if:
1) The persons required for the administration are missing. The lack of administration of the legal person may be: (a) fictitious, when it is due to maladministration, malice, or disagreements of the members of the board of directors, their refusal or indifference to perform their duties and the necessary acts of administration; (b) real, in cases of death, serious illness, long-term absence; (c) legal, in case of resignation, even implicit, of a member of the board of directors, loss of legal capacity, annulment of a decision of a general meeting, expiry of the term of office without provision for its extension.
2) Their interests conflict with those of the legal person.
It should be noted that the above provision is of an exceptional nature and is interpreted strictly by the courts, given the need to minimise interference with the autonomy of legal persons. The court seized is not bound by the indicative proposals put forward by the parties, but has the discretion to select the most suitable of the members of the legal person, and even third parties, foreign to the legal person, and may limit the mandate to certain acts only (AP 1392/2014, Efath 1829/2012). The appointment may also be made by an interim order of a court, in very urgent cases where there is an urgent need to prevent the collapse of the legal person. In the latter case, the interim order shall remain in force subject to the hearing of the main application and until a final decision on that application has been given.
The functions of the members of the provisional administration shall also cease automatically if the reason for its appointment ceases to exist, for example, if the new elected administration, the lack of which caused the appointment of the provisional administration, is elected and takes up its duties, or if the reason for its appointment ceases to exist in the event of a conflict between the interests of a member of the administration and those of the legal person.
3. Powers of the interim administration
The persons appointed shall, as soon as the decision has been published, have the power to perform the acts of administration concerned within the limits of the powers conferred on them. In other words, the court decision defines the powers of the provisional administration, and does so on an ad hoc basis in each case, taking into account the needs of the legal person.
If the scope of the powers of the provisional administration is not specifically specified in the court decision, then in this case (which is probably rare in practice, for example the decision of the Thessaloniki Single Judge Court of First Instance No 507/2013: "legal case of appointment of a temporary administration of the above-mentioned public limited company, with a three-year term of office and without any restrictions imposed by this decision as to its powers")) the appointed temporary administration has the general power to manage and administer the affairs of the legal person, i.e. it may exercise all the powers necessary for the regular administration and deriving from the statutes, limited only in time, until the time specified by the decision itself, or, if not specified, until the election of the regular administration.
It should be noted that the appointment of the members of the provisional board of directors by the Court of Justice, in the context of the application of the provision of Article 69 CC, although it constitutes a complete and independent measure for the operation of the company until the election of the new board of directors by the general meeting, does not go as far as conferring powers such as those of chairman, managing director and vice-chairman on specific members of the board of directors, since it infringes the fundamental principles applicable to the provisional administration.
In the majority of cases, the court decision limits the powers of the interim management, taking into account the current circumstances and weighing only the interests of the company. The allocation of powers varies according to the reason which led to the need to appoint an interim administration. In particular:
a) in the absence of management:
Where the appointment is made in the absence of management, the interim management is entrusted with the main task of holding elections for the election of a new elected ordinary management within a reasonable period of time (which is not fixed) set by the Court. At the same time, at the request of the applicant for the appointment of the interim administration, the court may, at the same time, entrust it with the supervision and management of the urgent and non-deferred affairs of the legal person until the time of the election of a new elected administration.
Characteristic in this respect is the judgment of the decision of the Court of Justice of Vassiliki, No. 61/2013, which includes the following reasoning: "The content of the powers of the provisional administration is determined by the court decision. In the view of the present court, the duties of the provisional administration are limited to the convening of a general meeting for the election of the regular statutory body, as this entails the protection of the right of association, as guaranteed by Article 23 of the Constitution, Article 11 of the European Convention on Human Rights and Articles 11 et seq. of the Charter of 9 December 1989, but also by the International Labour Convention No 87/1948 on freedom of association, which our country has ratified. Otherwise a temporary situation would be perpetuated to the detriment of the democratic procedures established by law. However, the power of the interim administration extends, in addition to the main task that prompted its appointment, to the management of current and urgent matters, always with respect for trade union autonomy."
Since it is impossible to determine in advance, in a specific and exhaustive manner, the management and representation acts necessary for the continuation of the legal person's activity, which will subsequently arise, the court will in the majority of cases confine itself to granting a general authorisation to the designated members to deal with all urgent matters. However, which case is urgent is a question of fact and will be decided on a case-by-case basis. The criterion for this is whether the case can be postponed without prejudice in order to be conducted by the future elected administration. In any event, if, during the term of office of the interim administration, the need arises to extend its powers, this may be requested by a separate application to the competent court, which is the same as the court which made the appointment. Similarly, an application may be made for the extension of the term of office of the members or for their replacement on the grounds that they are unfit to exercise the powers conferred on them.
Accordingly, since the scope of the powers is limited by the court order to the custody and management of only urgent and indeferrable matters, it is accepted that the interim administration has the power to make indicative:
- the collection of the claims of the legal person.
- Payment of outstanding debts (utilities, rent, etc.)
- Disposal of the company's goods, in the same way as before the appointment of the interim administration.
Instead, it will not be able to proceed to:
- Sale or lease of the legal entity's assets.
- or the acquisition of the assets of the company or of the assets of the legal entity.
- Establishment of branches of the company.
- Recruitment of new staff.
- Strengthening the employees by distributing to them a part of the company's profits.
- Settlement of claims of the legal person.
b) On conflict of interest:
When, respectively, the appointment takes place due to a conflict of interests (indicatively, a conflict exists in the case of the members of the board of directors performing acts competing with the company, such as establishing and participating in another company competing with the one they manage, pursuing the interests of third parties to the detriment of the interests of the company and, in general, when the obligation of special dedication and loyalty they owe to the company is violated - Efthessal 919/2004), the main task of the interim administration will be to take the necessary measures to ensure that the company is not in conflict with the interests of the company.
In this case, the paradox of having two administrative bodies within the legal person occurs. More specifically, the regular elected administration continues to exercise its duties with regard to the other ordinary affairs of the legal person within the limits provided by law and the statutes, except only the issue on which the conflict of interest has arisen (Efthessal 2056/2019). Once it has completed its duties, e.g. by taking the decision or undertaking the required legal act for which it has been appointed by the court, it fulfils its purpose and ceases to exist as of right, with the result that the only remaining administrative body of the legal person is the regular elected administration that existed before.
4. Case law - Indicative case law
- In case law, it has been ruled by the decision of the Council of State No. 1356/2019 that an urgent case included in the powers of the interim administration is the filing of an action for the interruption of the limitation period of the claim to which it relates, when there is a risk of the limitation period being completed during the term of office of the interim administration. Otherwise, where there is a reasonable time for the future elected administration to bring the action, the provisional administration is not permitted to bring the action. The same judgment also held that a legal person's case is urgent in relation to a third party where the third party intends to take legal action against the legal person, the postponement of which would jeopardise the legal person's right (such as bringing an action, filing a bankruptcy petition or enforcing a judgment).
- The decision No. 658/2016 of the Athens Court of First Instance, finding a lack of management in a public limited company, appointed a temporary administration, providing the latter, in addition to the authority to convene a General Meeting for the election of an elected administration, with the authority to deal with the urgent affairs of the company, namely: a) taking measures for the protection and safeguarding of the movable and immovable property and the equipment of the company from damage, theft, etc., (b) representing the company in and out of court; and (c) taking decisions relating to the defence of the company's interests in its subsidiaries or in companies in which the company has an increased shareholding.
- By decision No. 234/2022 of the Single Judge of the Court of First Instance of Thebes, it was held that a conflict of interests also exists when a partner requests the dissolution of the company for good cause due to the fault of the manager. In the present case, an interim administrator of the limited liability company was appointed to receive the action on behalf of the company and to represent it in court, whereas his powers are limited to the conduct of the proceedings for the dissolution of the company and the powers of the regular administrator, appointed by the articles of association or by a decision of the general meeting of the partners, remain otherwise intact.
- According to Supreme Court decision No. 227/2022 (in Criminal Court), appointment of an interim administrator or special representative may be requested when the crime against the legal entity (in the case at issue, dishonesty) has been committed by a member of the Board of Directors due to an obvious conflict of interest. The power of the interim management is limited solely to filing a complaint against the guilty members of the board of directors of the joint stock company, while the regular management continues its duties.
5. In lieu of an epilogue
In conclusion, in the case of the appointment of an interim management to legal persons (CC 69), the court is called upon to weigh the corporate interest first and foremost and to delimit the powers to be conferred on the temporarily appointed management body of the legal person, taking into account the particular circumstances of each case. However, it is often a matter of specificity as to whether the action taken by the interim management can be included in the scope of the powers conferred by the court decision and, by extension, whether there was the relevant legal basis for taking that action.