Mergers & acquisitions in Greece – legal information regarding purchase, reorganization, consolidation, amalgamation and breaking up of companies.

Many entrepreneurial opportunities were created as a result of the boundless European internal market. It is not only “global players”, i.e. the major corporations, which are faced with the issue of expansion abroad, but also medium-sized businesses and companies which would like to have a share of the benefits of an enlarged internal market.

When planning to invest in Greece, German companies are faced with the choice of whether to establish a new company or to take over or invest in an existing company. In addition to the possibility of forming a new company in Greece, there are advantages to taking over or investing in an existing Greek company. Such corporate transactions, including mergers, taking over companies or investing in them, are referred to as “Mergers & Acquisitions”, or “M & A” for short.

• Mergers & Acquisitions in Greece
• Buying a company
• Sequence of events when buying a company
• Due diligence (business valuation)
• The contract of sale
• Antitrust law
• Tax breaks as a result of reorganization, merger and break-up
• Company reorganization by means of change of corporate structure
• Consolidation / amalgamation in the case of Greek joint-stock companies
• Break-up in the case of Greek companies limited by shares

1. Mergers & acquisitions in Greece

Since the second half of 2004, the global market for M & A transactions has become much livelier. This trend has not stopped at Greece either, as various recent takeovers has shown. Buying up or investing in other companies can help to improve the market position of and provide tax breaks for medium-sized companies too.

The German entrepreneur who is considering taking over a Greek company should consider that the actual benefits derived from the total of the individual companies following a purchase can be greater than the benefit derived from the individual company viewed separately. Keep these synergistic effects at the forefront of your considerations.

It is possible that until sales are established and generated, organic growth by setting up and developing a new company abroad under one’s own steam may be very costly in terms of time. Buying out an existing business that is well-established in the market can, on the other hand, lead to an immediate market presence and sales generation, and even to direct inorganic expansion of the existing corporate structure. Other decisive reasons in favor of taking over a Greek company include a specific company’s brand, its location, immediately available production capacity, etc.

An investor’s stake can bring new liquidity and thus help to improve an existing company’s market position or, in the case of a company sale, also settle the issue of succession.

Regardless of the alternative that the company chooses, it will have to become knowledgeable of the regulatory framework and also the social and economic conventions in Greece. Another important consideration will be the international interaction between the German (parent) company and the Greek (subsidiary) company.

Steady integration of the EU internal market is impeded, however, by a flood of national laws that have only been partly harmonized with the distinctive features of national law in the specific countries. Previously it might only have been major conglomerates and corporations that had to cope with the regional peculiarities in question, but now, as a result of creation of the EU internal market, small and medium-sized companies are increasingly faced with the differing legislation and national regulations.

The following will highlight some alternatives to setting up a new company.

2. Buying a company

Buying a company is a complex affair, with a wealth of detailed issues requiring clarification. A distinction must be made between the preparation, transaction and integration phases. The first requirement is therefore a project plan for the individual stages and planned sequence.

2.1 When buying a company the sequence will usually be as follows:

If a specific company has not already been chosen for the planned purchase, potential targets must first be screened according to the specifications.

The target company is contacted as soon as one has been found. At this point it may be helpful to bring in an M & A consultant, lawyer, tax consultant, etc.

If the target indicates a fundamental willingness to be taken over, a confidentiality agreement regarding further exchange of information should be signed for understandable reasons (convergence, determination of convergent interests, etc.).

Should both parties express an interest during the initial discussion in continuing the takeover negotiations, they generally sign an “LOI”, or Letter of Intent” and agree on negotiating tactics going forward, with the assistance of an adviser as applicable.

The next stage requires a careful valuation of the business. During what is known as “Due Diligence”, a further distinction is made between “Legal Due Diligence” and “Financial Due Diligence”, i.e. a legal and financial review of the target.

Final organization of the planned takeover is then drafted on the basis of the due diligence outcome.

Price negotiations are conducted subsequent to this (or in parallel).

Where bigger deals are concerned a contract is generally concluded once the planned takeover has been notified to the competent competition authority.

If the contract is signed, make arrangements for an optimum handover and continuation of operations.

2.2 Due diligence (business valuation)

Due diligence plays a significant part in a company takeover. Information relating to the business must be collected in order to value the business and to reduce the obvious and hidden risks associated with the transaction. This also ensures that the strengths and weaknesses inherent in the planned takeover and the opportunities and risks can be assessed. All information, facts and particular features are to be noted in the written due diligence (not the least for documentation and evidentiary purposes!). The due diligence should contain any information relevant to the business, i.e.:

• company data since its formation,
• information regarding the company’s strategic direction, its business policy, etc.,
• the company’s environment and the prevailing framework conditions,
• the financial situation and in particular the company’s assets, cash flow, liquidity and profitability,
• how the management is organized and the company’s technical standard,
• staffing levels,
• the legal and tax situation,
• Issues pertaining to the environment and residual pollution.

2.3 The contract of sale

If the due diligence has been carried out satisfactorily and the sale price established, it is necessary to lay out the contract for sale of the company. In Greece, contracts for sale of a company are covered by the respective general provisions of civil law in the Greek Civil Code (Greek: AK = Astikos Kodikas) ensuing from the fields of sales and warranty legislation and, depending on the contract’s regulations, other relevant Greek Civil Code provisions. The Greek Commercial Code contains other pertinent regulations (Greek: Emporikos Kodikas).

In addition to the “essentialia negotii”, i.e. details of the parties, the contract of sale contains an accurate description of the object of the sale and the sale price, as well as regulations pertaining to warranty, assurances and guarantees, which are integral parts of any contract for sale of a company. The contract also customarily contains matters relating to assumption of rights and obligations arising from the target’s existing contractual relationships, possible exclusions of liability and barred claims, contractual penalties, prohibitions of competition and arrangements for reversing the transaction in the event of failure to fulfil the primary obligations.

In the event of the vendor breaching the obligations under the contract of sale, the purchaser shall be due the opportunity to reduce the sale price and an entitlement to remedy or substitute delivery. If the contractual performance is delayed or not rendered at all, the purchaser can demand fulfilment and indemnification or rescind the contract of sale and assert claims for compensation due to non-fulfilment.

In the case of joint-stock companies, the purchase or investment is completed as part of what is known as a “share deal”, by transferring the shares to the company in question. In the case of a limited liability company this takes place by transfer of the equity whereas, in the case of the unlisted company limited by shares, the transfer is performed by acquiring shares. Although a notarized contract of sale is required to sell equity in a limited liability company, in the case of the company limited by shares, bearer shares can be transferred by a straightforward (holographic) sales agreement. Certain formalities must be observed, however, when transferring registered shares. Where listed companies limited by shares are concerned, on the other hand, the equity is purchased via the stock exchange.

The purchase of assets in a Greek company is called an “asset deal” and is considered if the emphasis is not on transfer of the company per se, but on transfer of its assets.

2.4 Antitrust law

If takeover of the company creates an especially big company, or if it occupies a high-profile market position, the purchase should also be reviewed from the point of view of Greek antitrust law. In this case, pursuant to Law 3959/2011 Greek antitrust law applies to takeover of companies at national level and European antitrust law applies to international company takeovers.

3. Tax breaks as a result of reorganization, consolidation/amalgamation and break-up

The Greek state grants generous tax breaks to company reorganizations, amalgamations and break-ups according to the Greek limited liability company’s act and the Greek Companies Act. Laws 2166/1993, 1297/1972 and 2386/1996 contain the pertinent statutory regulations. Pursuant to Art. 3, Law 2166/1993, no taxes and fees are thus levied on the transaction.

According to Article 7 of Law 2386/1996, up to 25% of the net profit is exempt from income tax for the first five financial years from transfer to strengthen medium-sized companies that have been created as a result of amalgamation of all forms of newly formed or absorbing company (partnerships, limited liability companies, companies limited by shares). (The company that has been taken over may not be a company limited by shares, though).

Because of these circumstances it can be wise to switch from forming a new company to acquiring an existing company (e.g. by consolidation/amalgamation or break-up), and thus enjoy the said tax breaks and have recourse to other advantages through a change of corporate structure.

4. Company reorganization by means of change of corporate structure

The previous legal structure of an existing company can be changed to a different legal structure by means of reorganization involving a change of form. This is called a company reorganization. Greece does not have a standard law pertaining to reorganization. Some of the pertinent regulations are contained in the Greek Companies Act 2190/1920 (Article 66 of the prevailing version of the Companies Act as amended by Law 2339/1995 and Article 67 of the prevailing version of the Companies Act as amended by Law 409/1986). The pertinent regulations are also found in the Greek limited liability companies act 3190/1955 (prevailing version of Article 51 of the Limited Liability Companies Act as amended by Law 2339/1995 and Article 53 Limited Liability Companies Act).

According to this, legal entities domiciled in Greece can be reorganized by means of consolidation/amalgamation, break-up (splitting up, spinning off, divestment), and transfer of assets or change of structure.

Pursuant to Article 51 Greek Limited Liability Companies Act and Article 66 S.A. Companies Act, reorganization of a Greek company limited by shares (Anonymi Eteria = AE) into a limited liability company (Eteria Periorismenis Efthinis = EPE) through a change of structure takes place by means of notarized resolution approving reorganization by the general meeting of the legal entity wishing to change structure, following prior valuation of the assets and liabilities. The resolution approving reorganization and the requisite declarations of consent from individual shareholders must be recorded by a notary. The provisions on formation pertaining to the new legal structure must be applied to the change of structure.

Pursuant to Article 67 Greek Companies Act, reorganization of a Greek limited liability company into a company limited by shares requires a resolution passed by a three-quarters majority of the general meeting, following prior valuation of the assets and liabilities. The notarized reorganization resolution must contain the Articles of Association of the company limited by shares, details of composition of the first Board of Directors and the following information and be submitted to the Ministry of Trade or its branch office at the local Prefecture for approval.

The notarized resolution on reorganization contains:

• The legal structure which the legal entity is to assume as a result of the change of structure
• The legal entity’s name or style in its new legal structure
• An investment in the legal entity by the previous shareholder according to the provisions applying to the new legal structure, if its investment does not lapse according to this register
• Number, type and extent of shares or memberships which the shareholders are supposed to acquire as a result of the change of structure, or which are to be granted an acceding personally liable partner
• The rights of individual shareholders and holders of special rights
• Other regulations as the case arises
• The limited liability company’s codified Articles of Association (minimum information pursuant to Article 6, name, seat, object and duration of the company, particulars of the partners, share capital and partners’ shares).
• The company’s assets and liabilities must be evaluated beforehand. The reorganization is subject to the provisions on disclosure in the Limited Liability Companies Act.

Reorganization of a general partnership (Omorhythmi Eteria / O.E.) or limited partnership (Eterorhythmi Eteria/E.E.) into a limited liability company by means of a change of structure takes place pursuant to Article 53 Greek Limited Liability Companies Act, through a notarized reorganization agreement. The notarized agreement contains the information given above for the company limited by shares.

Unless its deed of partnership provides otherwise, pursuant to Article 67, §2 S.A. Companies Act, reorganization of a general partnership or limited partnership into a company limited by shares occurs as the result of a unanimous resolution by all the partners and following prior evaluation of the assets and liabilities.

The name of the legal entity changing structure may be retained as part of the limited liability company’s name. Following formation the general and limited partnerships’ personally liable partners will be liable for the old liabilities of the company changing structure until the disclosure requirements have been fulfilled.

5. Consolidation/amalgamation in the case of Greek joint-stock companies

Pursuant to Article 68 et seq of the S.A. Companies Act and Article 54 of the Greek Limited Liability Companies Act amalgamation of limited liability companies or companies limited by shares is possible either by forming a new company as a result of transferring the assets, in each case in their entirety, of two or more companies (transferring companies) to a new company (limited liability company or company limited by shares) formed by them, or by means of absorption as a result of transfer of the assets, in their entirety, of a legal entity or several legal entities (transferring legal entity) to another existing legal entity (receiving legal entity).

In the case of amalgamation a company transfers all its assets to one or more existing or newly formed companies.

Pursuant to Article 54 Greek Limited Liability Companies Act, for a limited liability company the merger must be approved by a three-quarters majority of votes by the participating companies. The merger may only be completed two months after the disclosure requirements have been fulfilled if no creditors of the company have objected. Furthermore, pursuant to Article 55 of the Limited Liability Companies Act, the parties must conclude a notarized contract of consolidation/amalgamation contract, which contains the information according to the material provisions of the Limited Liability Companies Act.

Where a company limited by shares is concerned, merger is governed by Articles 68-80 of the S.A. Companies Act (Law 2190/1920, respective prevailing version of Articles 68-80 as amended by Presidential Decree 497/87). Pursuant to Article 72 S.A. Companies Act, merger requires a resolution at the general meeting of all the shareholders involved in the amalgamation. According to Article 69 Companies Act, a draft consolidation contract/amalgamation contract is required first.

The draft or the amalgamation contract must contain the following information:

• The special company structure, the names or the business names, the seats of the companies involved in the consolidation / amalgamation, and their registration numbers.
• The ratio at which the shares are to be converted and the value of the additional cash contribution pursuant to Art. 68 Companies Act.
• The details of transfer of the new shares issued by the company taking over the target.
• The juncture at which the shares grant the transferring company(ies) an entitlement to a share of the balance sheet profit, and all other particulars regarding this entitlement.
• The juncture at which the actions of the transferring company(ies) are deemed to be for the account of the company taking over the target (merger date) and utilization of the profits ensuing from this point until completion of the merger according to Articles 74 and 75 S.A. Companies Act.
• The rights that the acquiring company grants individual shareholders and the holders of special rights (such as shares without voting rights, preference shares, multiple voting shares, bonds and participating rights), or the measures intended for these persons.
• Any special benefit granted a member of an executive body of directors from the companies involved in the merger and an auditor • Agreement on transfer of assets in their entirety from each transferring company in return for grant of shares in the acquiring company.
• Sundry other regulations, depending on their particular features, as applicable
• Pursuant to Article 69 §4 S.A. Companies Act, the board of directors of any company involved in the merger must prepare a detailed audit report, which explains the merger agreement from a financial and legal viewpoint. In particular the audit report shall contain details of the ratio at which the shares are converted and, pursuant to Article 71 S.A. Companies Act, must conclude with a statement as to whether the proposed share conversion rate (the value of the additional cash contribution or the partnership in the case of the acquiring legal entity, as applicable) is an appropriate consideration. It must state the methods used to determine the proposed conversion rate, the reasons why use of these methods is appropriate and the conversion rate or consideration respectively which would result using different methods. At the same time it must set out the importance that has been attributed to the various methods when determining the proposed conversion rate or consideration and their underlying values and the particular problems that arose when evaluating the legal entities.

Pursuant to Article 74 S.A. Companies Act, the merger agreement must be approved by the Greek Ministry of Trade (> local prefecture). The general meeting’s merger resolutions are submitted for this purpose, together with the notarized merger agreement, plus a declaration according to Law 1599/1986. The pertinent disclosure obligations must be adhered to at every stage.

Merger by means of forming a new company takes place according to Article 80 S.A. Companies Act, with corresponding application of the provisions on mergers contained in Articles 68 to S.A. 77 of the Companies Act. A new company emerges from merging of the previous companies.

6. Break-up in the case of Greek companies limited by shares

Break-up of Greek companies limited by shares is regulated in Articles 81-89 of the S.A. Companies Act and possible either as a result of merger, formation of a new company, or formation of a new company by merger.

• Break-up by merger/amalgamation is understood to be transfer of all the assets in a company limited by shares (with dissolution, but not winding up) for adoption as a result of simultaneous transfer of the assets to another existing company limited by shares (acquiring legal entity).
• Break-up by formation of a new company is understood to be transfer of all the assets in a company limited by shares (with dissolution, but not winding up) to other companies limited by shares formed at the same time in return for grant of equity in or membership of these companies limited by shares to the shareholders in the transferring company limited by shares (splitting up).
• Break-up by merger/amalgamation and formation of a new company is understood to be transfer of all the assets in a company limited by shares (with dissolution, but not winding up), partly to other existing companies limited by shares and partly to other companies limited by shares formed at the same time in return for grant of equity in or membership of these companies limited by shares to the shareholders in the transferring company limited by shares (splitting up).

Pursuant to Article 84 Companies Act, general meeting resolutions by all the companies involved in the break-up are required for break-up. Pursuant to Article 82 S.A. Companies Act, the boards of directors of the companies involved in splitting up the business must compose a written break-up agreement. By analogy this contains the information specified above under merger/amalgamation. The statements on merger and Articles 71-74 S.A. Companies Act accordingly apply to the audit report, the disclosure obligations, etc.

According to Article 88 S.A. S.A. Companies Act the provisions on break-up in Arts 82-86 S.A. Companies Act accordingly apply to break-up by formation of a new company.

Break-up by merger and forming a new company takes place according to Article 89 Companies Act, with corresponding application of Article 81 §4, 82-87, or of Article 88 S.A. Companies Act as applicable.