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03 July 2002
According to the Greek General Corporate Law mergers between limited liability companies can take place either by the absorption of one limited liability company or more by another (merger by absorption) or by the incorporation of a new limited liability company (merger by incorporation). In the former case, the company or companies to be absorbed are dissolved and all assets and liabilities are transferred to the absorbing company. In the latter case all the companies to be merged are dissolved and their assets and liabilities are transferred to a newly incorporated limited liability company. In both cases any formalities laid down by Greek law in relation to the transfer of assets (eg, transfer of real estate by notarial deed) must be met. Both methods of merger are governed by the same provisions of the General Corporate Law.
Further to the General Corporate Law, two other laws apply to mergers: Laws 2166/93 and 1297/72. These provide for tax (and other) incentives for the reformation of business. They are usually applied alongside the General Corporate Law.
Consideration for the merger
Merger by absorption is effected through the issuance of shares in the absorbed company or companies corresponding to the value of the share capital that the absorbed company or companies contribute to the (new or existing) absorbing company. Under Law 2166/93 the ratio for the exchange of the shares is determined by the boards of directors of all the companies involved in the merger and approved by the general shareholders meeting.
The General Corporate Law provides for payments in cash instead of shares under specific conditions and limitations.
The value of the limited liability companies is estimated by an experts' committee, made up of one or two duly qualified employees of the regulatory authorities which regulate limited liability companies (ie, the Ministry of Development or the Prefecture Authority), or by one or two chartered auditors or valuators, as well as by one representative of the competent Chambers of Commerce or Industry.
However, the committee is usually slow in being formed and in reaching decisions and its evaluations are unpredictable and not always consistent with market practice. Law 2166/93 provides an alternative; the assessment of the book value of the assets of the merged companies by chartered auditors.
Effect of mergers
After the decision approving the merger is registered in the Register of Limited Liability Companies the following changes take effect:
Other acts treated as mergers
According to the General Corporate Law all transfers by one or more limited liability companies of all their assets and liabilities post-dissolution for valuable consideration must be treated as mergers and all the relevant provisions of the General Corporate Law apply. Laws 2166/93 and 1297/72 do not apply to these transactions.
The Greek General Corporate Law and Laws 2166/93 and 1297/72 sets out various proceedings and formalities.
The boards of directors of the limited liability companies under merger must draw up a draft merger agreement including the exchange ratio of the shares and the date of the reformation financial statements (ie, the date after which the absorbed company is deemed to be operating for the account of the absorbing company).
In addition, the board of directors of each of the merging companies must draft a detailed report, the purpose of which is to explain and justify from a legal and financial standpoint the draft merger agreement and more specifically the exchange ratio between existing and newly-issued shares. This report must be registered in the Registry of Limited Liability Companies and submitted to the general shareholders meeting.
The report of the experts' committee (when Law 2166/93 is not applied) must also be submitted to the general meeting. This report, the purpose of which is to evaluate the property (assets and liabilities) of the limited liability companies to be merged, must state whether, in the experts' view, the exchange ratio between existing and newly-issued shares is fair and reasonable.
Then the general shareholders meeting of each limited liability company under merger may resolve to approve the draft merger agreement and any necessary amendments to the articles of association. This resolution must be adopted with a two-thirds majority and quorum. If the two-thirds quorum is not realized in the first meeting (ie, if two-thirds of the paid-up share capital is not represented in the first meeting) a second meeting is held where the quorum falls to one-half. If this quorum is not met a third meeting is held where the quorum falls to one-third.
The resolution, the merger agreement entered into by means of a notarial deed, and a statutory declaration to the effect that no creditors object to the merger or that any objections have been resolved are submitted for approval to the minister of development. The merger is considered complete and valid when the minister's approval is registered in the Registry of Limited Liability Companies.
This procedure is simplified when the absorbed company is a 100% subsidiary of the absorbing one. The most important simplification is that the merger decision and the approval of the draft merger agreement are made by the board of directors and not by the general meeting of the shareholders of the merging companies.
Annulment of the merger
The merger may be declared void by the Single-Member First Instance Court if the resolution by the general meeting of each of the relevant limited liability companies approving the merger is not duly approved, published and registered or if any of the resolutions are found to be void or voidable, because:
The competent court is obliged to allow the limited liability companies involved to remove the grounds making the merger void, if this is feasible.
The General Corporate Law provides a certain degree of protection for the shareholders, in practice those belonging to the minority of the limited liability companies to be merged. The shareholders may inspect the following documents at the premises of the limited liability company or may ask for them to be sent to them:
In addition, shareholders of classes of shares whose rights are restricted due to the merger are entitled to hold a separate meeting to resolve on the approval or otherwise of the merger, with quorum and majority of two-thirds as set out above.
Creditors who have claims against any of the limited liability companies to be merged that were generated before the publication of the draft merger agreement in a financial newspaper may request guarantees in regard to their claims if the financial condition of the limited liability companies to be merged makes this form of security necessary. This request must be made within one month of the draft merger agreement's publication in a financial newspaper. If no or inadequate guarantees are provided, the creditors may submit their objections in writing.
In this situation the merger may only proceed pursuant to a judgment by the Single-Member First Instance Court stating that the merger may proceed despite the creditors' objections, either because the objections are unjustifiable in view of the financial condition of the companies to be merged or because the creditors have been granted adequate guarantees.
Holders of bonds issued by any of the limited liability companies to be merged must also approve the merger. For this purpose a meeting is held, the quorum for which is one-fifth of the total amount of the bond loans of each limited liability company, the necessary majority being more than one-half.
Every member of the board of directors of any of the limited liability companies to be merged is liable to the shareholders of the relevant limited liability company and also to third parties, for any fault of his/hers in the preparation and execution of the merger.
The members of the experts' committee are also liable to shareholders and third parties for any faults in the carrying out of their duties.
Law 1297/72 states that any capital gains realized as a result of the merger are not taxed at the time of the merger.
Law 2166/93 provides that merging companies are exempted from all land transfer taxes or other transfer taxes, stamp duties, notarial duties and other taxes and expenses arising from actions for the fulfilment of the merger. Additionally, the absorption is effected through a book-entry unification of the assets and liabilities of the merging companies - therefore no capital gain or other gain (and taxation obligation) will arise.
For further information on this topic please contact Alexandros Metallinos, Christina Papanikolopoulou or George Minoudis at Karatzas & Partners by telephone (+30 1 371 3600) or by fax (+30 1 323 43 63) or by email (email@example.com or firstname.lastname@example.org or email@example.com).
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