October 17 2011
In cases of capital increase through the issuance of new shares, the price of the new shares is often irrelevant to the shareholders because they participate in proportion to their existing shareholdings. This can be problematic if an existing shareholder is unable or unwilling to make a contribution in proportion to its shareholding.
In this context, preemption rights not only provide a way for minority shareholders to protect themselves against the threat of a decrease in share value due to a capital increase, but also give majority shareholders a procedural mechanism with which to deal with minority shareholders' refusal or failure to act in cases where a capital increase is necessary. Preemption rights give every individual shareholder the right to subscribe to new shares in proportion to their existing shareholding in the company.
The Company Law (9901/2008) sets out conditions for preemption rights only in case of capital increases for joint stock companies.
Article 169/1 of the law obliges the administrator of a joint stock company to notify the Commercial Register held by the National Registration Centre of the company's decision to increase the capital. The decision shall also be published on the company's website. Such notification constitutes the first step of a two-step process; to conclude the process, the administrator shall report to the National Registration Centre the list of subscribers and the amount paid by each shareholder. The new capital value and the assignment of share ownership titles pursuant to the capital increase shall be effective on the date of registration with the National Registration Centre.
According to Article 174 of the law, company shareholders shall have a preemption right in respect of the newly issued shares in proportion to the par value of their previous capital portion. This right must be exercised within 20 days of the publication required by Article 169. Such rights may be restricted or withdrawn by the decision of the general meeting on the increase of basic capital. The administrator must present to that meeting a written report indicating the reasons for restriction or withdrawal, and justifying the proposed issue price. The decision may be taken only if the restriction or withdrawal has been announced on the company's website and reported to the National Registration Centre.
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