Legal insight
October 2023
George Kefalas, L.LM. mult., M.Sc.
Abstract: Often the relations between persons within a company do not develop smoothly, resulting in disputes and disputes between them. In a previous article we have already examined the case of the exclusion of a partner from a Private Company (IKE). In this article we examine the means of defence available to the partners of an IKE, in case the statutory manager commits acts of mismanagement, resulting in damage to the company. These actions move both in the direction of removing him from the position of manager and in the pursuit of any liability at the civil or even criminal level.
1. Introduction
In a Private Company (IKE), management is in principle carried out collectively by all the partners or, in the case of a one-person company, by the sole partner. However, the company’s articles of association may provide for a different way of managing the company, which is usually the case. Thus, the management of the company may be entrusted by decision of the partners to one or more persons, partners or not, for a fixed or indefinite period of time.
In many cases, however, the manager, whether a partner or not, may not manage the company in an optimal manner and in order to achieve the company’s purpose. In such cases, the question arises as to the actions that can be taken in the best interests of the company.
2. Actions of the partners vis-à-vis the manager
2.1 Removal of the administrator by decision of the partners
Pursuant to the provision of Article 59 of Law No. 4072/2012, the manager appointed under a provision of the articles of association may be revoked by a decision of the partners taken by an absolute majority of the total number of partnership units, irrespective of whether or not there is an important reason for the revocation. Only where management has been entrusted for a fixed period of time may the statutes provide for specific grounds for revocation.
It should be noted that, where the manager to be revoked is also a partner, his shares are not taken into account for the purpose of forming a majority. In other words, the decision will be taken by the other partners, without taking into account the shares of the revocable manager.
The company’s articles of association may provide for a larger majority for the decision on revocation, which may not, however, exceed the increased majority of 2/3 of the total number of partnership shares.
2.2 Removal of the administrator by court decision
In the case, however, where the trustee to be revoked has the support of the majority of the partners, it will not be possible to revoke the trustee by court decision. For the purpose of protecting the minority, the provision of Article 61 of L. 4072/2012 on the appointment of a majority shareholder will not be revoked. 4072/2012 provides for the possibility for partners holding 1/10 of the total number of partnership shares to request the court to recall the manager, if they invoke and prove good cause. The competent court to rule on the application for the revocation of the manager is the Magistrate Court of the place where the company’s registered office is located, which hears the case in the procedure of voluntary jurisdiction.
Therefore, while in the case of the revocation of the manager by a decision of the partners, no good cause is required for the revocation, in the case where a minority of 1/10 requests the court to revoke the manager, good cause must exist for the revocation of the manager.
The revocation takes effect from the finality of the decision, i.e. from the issuance of the decision of the court of appeal or from the expiry of the time limit for appealing against the decision of the court of first instance ordering the revocation.
A serious reason justifying the withdrawal of the administrator will normally be a serious breach of the administrator’s duties, such as, inter alia, competition to the detriment of the company, unwillingness and refusal to perform his duties, misappropriation of company assets and opportunities for his own benefit, breach of accounting rules, etc. Evidence that will usually indicate a breach of the manager’s duties will be the poor performance of the company, the creation of debts, the non-payment of debts, the lack of information to the partners, the breach of the obligation of accountability, etc. (see judgment no. 13091/2019 of the Single-Member Court of First Instance of Thessaloniki and 10390/2018 of the Multi-Member Court of First Instance of Thessaloniki). Judgment No 90/2018 of the Kropia Magistrate’s Court considered, for example, that the fact that the manager ‘never held himself accountable, did not keep books of partners and minutes of decisions, did not prepare a management report […], did not sign financial statements […] and did not convene regular general meetings’ as a good reason justifying the revocation and proceeded to revoke the statutes of the manager-partner in a two-partnership company and proceeded to revoke the statutes of the manager-partner in a two-partnership company.
In order to establish and prove before the court the existence of good cause, the minority rights granted to the partners by the legal framework of the IKE will play an important role. Thus, in accordance with the provision of Article 94 of L. 4072/2012, the important role of the shareholders’ equity in the case of a limited company will be to ensure that the shareholders’ interests are given due consideration. Each partner is entitled to be informed of the progress of the company’s affairs and to examine the company’s books and documents, as well as to request information necessary for the understanding and assessment of the items on the agenda of the meeting. At the same time, partners representing 1/10 of the total company shares may request the court to appoint an independent auditor-accountant to investigate serious suspected violations of the law or the articles of association. The auditor shall communicate the findings of the audit in a report to the company and the partners.
Through the exercise of the above rights, the minority may obtain the necessary information and obtain the necessary evidence to enable it to exercise effectively its right to remove the manager.
2.3 Exclusion of the managing partner from the company
Where the mismanaging manager is also a partner, it is very likely that his conduct will cause a rift in his relationship with the other partners, so that the latter will want to expel him not only from the management but also from the company itself.
The exclusion of a partner from the company can only be requested by the court following a decision of the partners’ meeting and if there is a good reason for the exclusion (for the conditions and procedure for the exclusion of a partner from the company).
2.4 Claim against the manager for the damage caused
At the same time, if the actions of the manager have caused damage to the company, the company, as well as any partner, may bring a claim against the manager, requesting compensation for the damage caused. The claim in the action is for compensation for the damage caused to the company and not for any indirect damage suffered by any of the partners. A special liquidator shall be appointed by resolution of the partners to represent the company in proceedings against the administrator.
2.5 Invalidity of acts of management outside the corporate purpose, if knowledge of the third party transaction arises.
If the manager, in collusion with third party traders, has performed on behalf of the company acts that are outside the corporate purpose and that damage the company for the benefit of third parties, such acts will not be binding on the company if it is proven that the third party knew or at least ought to have known that they are outside the corporate purpose (e.g. in the case of an obvious excess of the corporate purpose).
2.6 Criminal liability of a manager
In the event that the manager’s mismanagement acts also constitute a criminal offence (e.g. embezzlement, dishonesty, etc.), the company may file a complaint for the prosecution of the relevant criminal offence. In this case, a special representative should be appointed by a decision of the Shareholders’ Meeting in order to submit the complaint against the manager, as this competence belongs in principle to the manager.
Attention should be drawn to the short time limit (three months from the commission of the act) for filing a complaint in most cases of offences against the company’s property and assets (e.g. embezzlement, dishonesty).
3. Instead of epilogue
We have considered in the above article the possibilities for the partners of an IKE to take action against the manager in the event that the latter commits acts of mismanagement. The most basic of these is the possibility of requesting his exclusion from management or, even more importantly, his exclusion from the company (if he is also a partner). Indeed, the rights granted even to a minority of 1/10 of the shares are important, as this minority can, on the one hand, cause the company to be controlled and, on the other hand, cause the manager to be excluded, but always with the intervention of the court. Finally, in the case of the withdrawal of the manager by a decision of the partners’ meeting, it is usual that this will be followed by his or her exclusion from the company, provided that there is, of course, a good reason for this. In addition to the removal of the manager from the company, they may also seek before the competent courts any civil or criminal liability for any infringements committed by the manager.
