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IMPORTANT LEGAL NOTICE - The source of this judgment is the web site of the Court of Justice of the European Communities. The information in this database has been provided free of charge and is subject to a Court of Justice of the European Communities disclaimer and a copyright notice. This electronic version is not authentic and is subject to amendment.
JUDGMENT OF THE COURT
12 May 1998 (1)
(Company law - Public limited liability company in financial difficulties -
Increase in the capital of the company by administrative decision - Abusive
exercise of a right arising from a provision of Community law)
In Case C-367/96,
REFERENCE to the Court under Article 177 of the EC Treaty by the Efetio -
Athinon for a preliminary ruling in the proceedings pending before that court
between
Alexandros Kefalas and Others
and
Elliniko Dimosio (Greek State),
Organismos Ikonomikis Anasinkrotisis Epikhiriseon AE (OAE),
intervener: Athinaiki Khartopiia AE and Others,
on the interpretation of Article 25 of the Second Council Directive 77/91/EEC of
13 December 1976 on coordination of safeguards which, for the protection of the
interests of members and others, are required by Member States of companies
within the meaning of the second paragraph of Article 58 of the Treaty, in respect
of the formation of public limited liability companies and the maintenance and
alteration of their capital, with a view to making such safeguards equivalent (OJ
1977 L 26, p. 1), and on the abusive exercise of a right arising from a provision of
Community law,
THE COURT,
composed of: G.C. Rodríguez Iglesias, President, C. Gulmann, H. Ragnemalm and
M. Wathelet (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de Almeida,
P.J.G. Kapteyn (Rapporteur), J.L. Murray, D.A.O. Edward, J.-P. Puissochet,
G. Hirsch, P. Jann and L. Sevón, Judges,
Advocate General: G. Tesauro,
Registrar: H.A. Rühl, Principal Administrator,
after considering the written observations submitted on behalf of:
- Mr Kefalas and others, by A. Tegopoulos and D. Livieratos, of the Athens
Bar,
- the Greek Government, by M. Stathopoulos, of the Athens Bar, and
V. Kontolaimos, Deputy Legal Adviser in the State Legal Department,
acting as Agent,
- Organismos Ikonomikis Anasinkrotisis Epikhiriseon AE (OAE), by
K. Kerameos and I. Soufleros, of the Athens Bar,
- Athinaiki Khartopiia AE and others, by S. Felios and M. Manolas, of the
Athens Bar,
- the Commission of the European Communities, by D. Gouloussis, Legal
Adviser, acting as Agent,
having regard to the Report for the Hearing,
after hearing the oral observations of Mr Kefalas and others, represented by
A. Tegopoulos and D. Livieratos, of the Greek Government, represented by
M. Stathopoulos, V. Kontolaimos and P. Mylonopoulos, Legal Assistant in the
Department for Community Matters of the Ministry of Foreign Affairs, acting as
Agent, of Organismos Ikonomikis Anasinkrotisis Epikhiriseon AE (OAE),
represented by K. Kerameos and I. Soufleros, of Athinaiki Khartopiia AE and
others, represented by S. Felios and M. Manolas, and of the Commission,
represented by D. Gouloussis, at the hearing on 18 November 1997,
after hearing the Opinion of the Advocate General at the sitting on 4 February
1998,
gives the following
Judgment
- By judgment of 6 June 1996, received at the Court on 21 November 1996, the
Efetio - Athinon (Court of Appeal, Athens) referred to the Court for a preliminary
ruling under Article 177 of the EC Treaty two questions on the interpretation of
Article 25 of the Second Council Directive 77/91/EEC of 13 December 1976 on
coordination of safeguards which, for the protection of the interests of members
and others, are required by Member States of companies within the meaning of the
second paragraph of Article 58 of the Treaty, in respect of the formation of public
limited liability companies and the maintenance and alteration of their capital, with
a view to making such safeguards equivalent (OJ 1977 L 26, p. 1), and on the
abusive exercise of a right arising from a provision of Community law.
- Those questions were raised in proceedings between, on the one hand, Mr Kefalas
and others, shareholders in the public limited liability company Athinaiki Khartopiia
AE ('Khartopiia'), and, on the other hand, the Greek State and Organismos
Ikonomikis Anasinkrotisis Epikhiriseon AE (Organisation for the Restructuring of
Undertakings, hereinafter 'the OAE'), in which the plaintiffs are contesting the
validity of the increase in the capital of Khartopiia effected under the scheme
provided for by Greek Law No 1386/1983 of 5 August 1983 (Official Journal of the
Hellenic Republic, 107, of 8 August 1983, p. 14), which was applied to Khartopiia
by decision of the Minister for the National Economy of 30 March 1984.
- The OAE is a public body set up by Law No 1386/1983. Its legal form is that of
a public limited liability company and it acts in the public interest under the control
of the State. According to Article 2(2) of that Law, the object of the OAE is to
contribute to the economic and social development of the country by means of the
financial reorganisation of undertakings, the importation and application of foreign
know-how, the development of national know-how and the formation and operation
of nationalised and mixed-investment undertakings.
- Article 2(3) of Law No 1386/1983 lists the powers conferred on the OAE for the
purposes of attaining those objectives. These include the power to assume the
administration and day-to-day management of undertakings undergoing
reorganisation or nationalised undertakings, participate in the capital of
undertakings, grant, issue or take out certain loans, acquire bonds and transfer
shares, particularly to workers or to organisations representing them, to local
authorities or to other legal persons constituted under public law, charitable
institutions, social organisations or individuals.
- According to Article 5(1) of Law No 1386/1983, the Minister for the National
Economy may decide to apply the scheme set up by that law to undertakings in
serious financial difficulties.
- Article 7 of Law No 1386/1983 provides that the competent Minister may decide
to transfer to the OAE the administration of an undertaking subject to the scheme
established by that law, to reschedule its debts in such a way as to ensure its
viability or to take steps to place it in liquidation.
- Article 8 of Law No 1386/1983 contains provisions relating to the transfer of the
administration of the undertaking to the OAE. Article 8(1), as amended by Law
No 1472/1984 (Official Journal of the Hellenic Republic A, 112, of 6 August 1984,
p. 1273), lays down the detailed rules governing such transfers and regulates the
relationship between the persons appointed by the OAE to administer the
undertaking and its organs. Thus it provides that the powers of the administrative
organs of the undertaking are to cease upon publication of the ministerial decision
placing the undertaking within the scheme established by that law, and that the
general meeting of the company is to subsist but that it may not remove members
of the board of directors who have been appointed by the OAE.
- Article 8(8) of Law No 1386/1983 provides that the OAE may decide, in the course
of its provisional administration of the company concerned, to increase the capital
of that company by way of derogation from the legislation in force relating to
public limited liability companies. The increase must be approved by the
competent minister. The former shareholders retain their preferential right and
may exercise it within a period prescribed in the ministerial decision approving the
increase.
- Following the application to Khartopiia of the scheme provided for by Law
No 1386/1983, the OAE took over the management of that company and decided
on 28 May 1986 to increase its capital by DR 940 million. That increase was
approved, in accordance with Article 8(8) of Law No 1386/1983, by Decision
No 153 of 6 June 1986 of the Minister for Industry, Research and Technology.
- That decision shows that the former shareholders retained an unlimited preferential
right to acquire the new shares which was to be exercised by them within one
month from publication of the decision in the Official Journal of the Hellenic
Republic. The plaintiffs in the main proceedings did not avail themselves of that
right.
- In the plaintiffs' view, the increase in capital decided upon by the OAE is contrary
to Article 25(1) of the Second Directive, which provides that 'Any increase in
capital must be decided upon by the general meeting'. Consequently, they brought
an action before the Polimeles Protodikio (Court of First Instance), Athens, which
dismissed their application.
- The plaintiffs in the main proceedings therefore appealed against that judgment to
the Efetio - Athinon. The Greek State considered that the plaintiffs' application
for a declaration of invalidity was abusive, and raised an objection of abuse of
rights based on Article 281 of the Civil Code, which provides that 'the exercise of
a right is prohibited where it manifestly exceeds the bounds of good faith, morality
or the economic or social purpose of that right'.
- In its judgment making the reference, the national court considers that Article 281
of the Civil Code may be applied in order to preclude the exercise of rights arising
from provisions of Community law where such exercise would be abusive. In the
present case, the national court considers that to allow the plaintiffs' claim under
Article 25(1) of the Second Directive for a declaration that the OAE's decision
authorising an increase in capital was invalid would manifestly exceed the bounds
of good faith, morality and the economic or social purpose of the right.
- The national court based its conclusion in that regard on various findings of fact.
- First, at the time when it was made subject to the scheme provided for by Law
No 1386/1983, Khartopiia was heavily indebted to banks and other creditors, it had
an acute liquidity problem and it no longer possessed its own capital resources, so
that its assets were no longer sufficient to cover its liabilities and its shares were
worthless.
- In addition, the increase in capital effected by the OAE and the subsequent
conversion of debt into equity led to the financial recovery of Khartopiia. The
economic value of the shareholders' equity was secured, the risk of job losses for
thousands of workers was averted and trading with numerous suppliers could
continue, all with beneficial effects on the national economy. If, by contrast, the
increase in capital had not been effected, Khartopiia would have been declared
insolvent and its assets would have been liquidated at the request of the creditors,
with the result that all the company's assets would have been lost to the detriment
of the shareholders, the workers would have been laid off and the national
economy would have been deprived of an important undertaking.
- Lastly, when the capital was increased, the shareholders were given a preferential
right to acquire shares, but declined to avail themselves of that right.
- The national court decided, with reference to the judgment in Case C-441/93 Pafitis
and Others v TKE and Others [1996] ECR I-1347, paragraphs 67 to 70, to stay
proceedings and to refer the following questions to the Court for a preliminary
ruling:
'1. Can the national court apply a provision of national law (in this case Article
281 of the Greek Civil Code) in order to assess whether a right granted by
the Community provisions at issue is being exercised abusively by the party
possessing it, or are there other Community law principles, and if so which,
to be found in legislation or settled case-law, on which the national court
may, if need be, base itself?
2. If the reply to Question 1 is in the negative, if, that is, the Court of Justice
reserves such competence for itself, for reasons relating, for instance, to the
uniform application of Community provisions, may the specific
circumstances as formulated by the defendant-respondent State as an
objection, which constituted the issue of proof in judgment No 5943/1994 of
this court, and which were set out succinctly in the previous paragraph of
this judgment, or certain of them and if so which, prevent an action founded
on infringement of Article 25(1) of the Second Council Directive 77/91/EEC
from succeeding?'
- By those questions, which it is appropriate to examine together, the referring court
essentially seeks to ascertain, first, whether a national court may apply a provision
of domestic law in order to assess whether the exercise of a right arising from a
provision of Community law is abusive, or alternatively whether that assessment
must be made on the basis of Community law and, second, whether, in the light of
the facts of the case as established in the main proceedings, the right arising from
Article 25(1) of the Second Directive must be regarded as having been exercised
in an abusive manner.
- According to the case-law of the Court, Community law cannot be relied on for
abusive or fraudulent ends (see, in particular, regarding freedom to supply services,
Case 33/74 Van Binsbergen v Bedrijfsvereniging Metaalnijverheid [1974] ECR 1299,
paragraph 13, and Case C-23/93 TV 10 v Commissariaat voor de Media [1994] ECR I-4795, paragraph 21; regarding the free movement of goods, Case 229/83
Leclerc and Others v 'Au Blé Vert' and Others [1985] ECR 1, paragraph 27;
regarding freedom of movement for workers, Case 39/86 Lair v Universität
Hannover [1988] ECR 3161, paragraph 43; regarding the common agricultural
policy, Case C-8/92 General Milk Products v Hauptzollamt Hamburg-Jonas [1993] ECR I-779, paragraph 21; and regarding social security, Case C-206/94 Brennet v
Paletta [1996] ECR I-2357, paragraph 24).
- Consequently, the application by national courts of domestic rules such as Article
281 of the Greek Civil Code for the purposes of assessing whether the exercise of
a right arising from a provision of Community law is abusive cannot be regarded
as contrary to the Community legal order.
- Although the Court cannot substitute its assessment for that of a national court,
which is the only forum competent to establish the facts of the case before it, it
must be pointed out that the application of such a national rule must not prejudice
the full effect and uniform application of Community law in the Member States
(Case C-441/93 Pafitis and Others, cited above, paragraph 68). In particular, it is
not open to national courts, when assessing the exercise of a right arising from a
provision of Community law, to alter the scope of that provision or to compromise
the objectives pursued by it.
- In the present case, the uniform application and full effect of Community law
would be prejudiced if a shareholder relying on Article 25(1) of the Second
Directive were deemed to be abusing his right on the ground that the increase in
capital contested by him resolved the financial difficulties threatening the existence
of the company concerned and clearly enured to his economic benefit.
- It is settled case-law that the decision-making power of the general meeting
provided for in Article 25(1) applies even where the company in question is
experiencing serious financial difficulties (see, in particular, Joined Cases C-19/90
and C-20/90Karella and Karellas [1991] ECR I-2691, paragraph 28, and
Case C-381/89 Sindesmos Melon tis Eleftheras Evangelikis Ekklisias and Others
[1992] ECR I-2111, paragraph 35). Since an increase in capital is, by its very
nature, designed to improve the economic situation of the company, to characterise
an action based on Article 25(1) as abusive on the ground mentioned in paragraph
23 of this judgment would be tantamount to a declaration that the mere exercise
of the right arising from that provision is improper.
- It would mean that, in the event that the company found itself in a financial crisis,
a shareholder could never rely on Article 25(1) of the Second Directive.
Consequently, the scope of that provision would be altered, whereas, according to
the case-law cited above, the provision must remain applicable in such a situation.
- Similarly, the uniform application and full effect of Community law would be
prejudiced if a shareholder relying on Article 25(1) of the Second Directive were
deemed to be abusing the right conferred on him by that provision because he did
not exercise his preferential right under Article 29(1) of the Second Directive to
acquire new shares issued on the increase of capital at issue.
- By exercising his preferential right, the shareholder would have shown his
willingness to assist in the implementation of the decision to increase the capital
without the approval of the general meeting, whereas he is in fact contesting that
very decision on the basis of Article 25(1) of the Second Directive. Consequently,
to require a shareholder, as a condition of his being able to rely on that provision,
to participate in an increase in capital adopted without the approval of the general
meeting would be to alter the scope of Article 25(1).
- However, Community law does not preclude a national court, on the basis of
sufficient telling evidence, from examining whether, by bringing an action under
Article 25(1) of the Second Directive for a declaration that an increase in capital
is invalid, a shareholder is seeking to derive, to the detriment of the company, an
improper advantage, manifestly contrary to the objective of that provision, which
is to ensure, for the benefit of shareholders, that a decision increasing the capital
of the company and, consequently, affecting the share of equity held by them, is not
taken without their participation in the exercise of the decision-making powers of
the company.
- In the light of the foregoing, the reply to the questions referred must be that
Community law does not preclude national courts from applying a provision of
national law in order to assess whether a right arising from a provision of
Community law is being exercised abusively. However, where such an assessment
is made, a shareholder relying on Article 25(1) of the Second Directive cannot be
deemed to be abusing the right arising from that provision merely because the
increase in capital contested by him has resolved the financial difficulties
threatening the existence of the company concerned and has clearly enured to his
economic benefit, or because he has not exercised his preferential right under
Article 29(1) of the Second Directive to acquire new shares issued on the increase
in capital at issue.
Costs
30. The costs incurred by the Greek Government and by the Commission, which have
submitted observations to the Court, are not recoverable. Since these proceedings
are, for the parties to the main proceedings, a step in the action pending before the
national court, the decision on costs is a matter for that court.
On those grounds,
THE COURT,
in answer to the questions referred to it by the Efetio - Athinon by judgment of
6 June 1996, hereby rules:
Community law does not preclude national courts from applying a provision of
national law in order to assess whether a right arising from a provision of
Community law is being exercised abusively. However, where such an assessment
is made, a shareholder relying on Article 25(1) of the Second Council Directive
77/91/EEC of 13 December 1976 on coordination of safeguards which, for the
protection of the interests of members and others, are required by Member States
of companies within the meaning of the second paragraph of Article 58 of the
Treaty, in respect of the formation of public limited liability companies and the
maintenance and alteration of their capital, with a view to making such safeguards
equivalent, cannot be deemed to be abusing the right arising from that provision
merely because the increase in capital contested by him has resolved the financial
difficulties threatening the existence of the company concerned and has clearly
enured to his economic benefit, or because he has not exercised his preferential
right under Article 29(1) of that directive to acquire new shares issued on the
increase in capital at issue.
|
Rodríguez Iglesias Gulmann RagnemalmWathelet
Mancini Moitinho de Almeida KapteynMurray
Edward Puissochet Hirsch JannSevón
|
Delivered in open court in Luxembourg on 12 May 1998.
R. Grass
G.C. Rodríguez Iglesias
Registrar
President
1: Language of the case: Greek.
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