Opinion of the Advocate-General
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Mr President,
Members of the Court,
1. By order of 2 October 1989 the Court of First Instance, Athens, referred to the Court two questions on the interpretation of a number of provisions of 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 (1) (hereinafter referred to as "the Second Directive").
In order to give a better idea of the scope of the questions referred I shall give a brief resume of the national legislation at issue and of the background to the dispute pending before the national court.
Greek Law No 1386/1983 of 5 August 1983 (2) established the Organismos Ikonomikis Anasinkrotiseos Epikhiriseon (Organization for the Restructuring of Undertakings, hereinafter referred to as "the OAE"), which is a public limited liability company whose capital is entirely subscribed by the State and whose object is to assist the economic and social development of Greece.
In order to achieve that objective the OAE may in particular take over the day-to-day administration and management of undertakings that are being rationalized or are nationalized. Under Article 8(8) of the law, during the provisional administration the OAE may decide inter alia to increase the company capital of the undertaking in question, by way of derogation from the provisions applicable to public limited liability companies which provide that the general meeting of shareholders has exclusive competence in that regard. However, existing shareholders retain a pre-emptive right which must be exercised within a certain period.
Article 10 of the law likewise concerns increases in the company capital; however, unlike the provisions of Article 8(8), the measure provided for by Article 10 is not part of the temporary administration; it is a permanent rationalizing measure which does not confer on existing shareholders a genuine pre-emptive right over the new shares, although they are not entirely without protection.
Law No 1386/1983 was the subject of Commission Decision 86/167/EEC of 7 October 1987, (3) adopted as part of the procedure under Article 93 of the EEC Treaty. In that decision the Commission stated that it had no objection to the implementation of the law, provided inter alia that the Greek Government amended the provisions relating to increases in capital so as to bring them into conformity with Articles 25 and 26 and Article 29 and 30 of the Second Directive. In particular, Article 1 of the decision required the Greek Government to make the necessary amendments to the relevant provisions of Law 1386/1983 by 31 December 1987.
On 7 March 1989 the Commission then commenced the procedure pursuant to Article 169 of the EEC Treaty because of the Hellenic Republic' s failure to fulfil its obligations under the Second Directive. On 10 March 1990 the Greek Parliament adopted Law No 1882/1990, (4) amending the existing legislation with regard to the point at issue and in the way desired by the Commission.
2. The plaintiffs in the main proceedings are shareholders of the company "Elliniki Parketoviomikhania Adelfi Sotiropouli A.E." (hereinafter referred to as "EPAS"). They held 27 799 shares in EPAS, which amounted to DR 297 400 000 divided into 29 740 shares.
At the request of EPAS, the Minister for Economic Affairs, by decision of 26 November 1984, made that company subject to the scheme established by Law No 1386/1983. The OAE then took over the administration of EPAS and on 26 March 1986 decided to increase the capital of the company by DR 650 million
As the existing shareholders did not exercise their pre-emptive right within the time allowed, the OAE declared itself the purchase of the new shares with the result that it held approximately 68% of the company capital.
At the end of 1986 following negotiations between the creditors, the OAE and the other shareholders of EPAS, it was decided to keep the company in existence, and the provisional administration and the suspension of the payment of the debts of EPAS were brought to an end. Under that agreement, the company capital was to be reduced by DR 947 million to the statutory minimum of DR 5 million and subsequently increased to DR 6 062 660 000, which was imposed by the Minister pursuant to Article 10 of Law No 1386/1983 and was implemented by capitalization of a part of the liabilities of EPAS vis-à-vis a number of public creditors and by the contribution of new funds by the OAE.
The applicants in the main proceedings, who now have only a very small shareholding in EPAS, considered that the increases so implemented infringed Articles 25 et seq. of the Second Directive and brought an action before the Court of First Instance, Athens, against those increases and against the distribution of the shares among the public undertakings. The Court of First Instance, Athens decided to stay the proceedings in order to ask this Court whether Article 25 et seq. and Article 29 of the Second Directive have been directly applicable in Greece since 1 January 1981 in the sense that the Greek courts are required to apply those provisions in disputes before them, and whether the abovementioned provisions of Community law take precedence over conflicting provisions of Law No 1386/1983.
Let me point out that very similar questions, referred by the Greek State Council have already been answered in the recent judgment in Karella, (5) where the Court, with reference to the same Greek legislation which is at issue in the present case, stated firstly that Article 25 of the Second Directive is formulated in clear and precise terms and establishes unconditionally the principle that it is the general meeting of shareholders that is competent to decide on increases in capital, so that the provision may be relied on by an individual against the public authorities before a national court. The Court held secondly that the combined provisions of Article 25 and Article 41(1) of the Second Directive (6) must be interpreted as meaning that they preclude the application of national legislation which, in order to ensure the survival and continued operation of undertakings which are of particular importance to society as a whole from an economic and social point of view and which, because of their liabilities, are in an exceptional situation, permits a decision to increase the company capital to be made by administrative act, while retaining a pre-emptive right for existing shareholders.
However, the defendants in the main proceedings maintain that Law No 1386/1983 does not apply in a field which falls within the scope of the Second Directive, since the national legislation in question does not form part of company law but of insolvency law; therefore, that legislation does not concern relations between shareholders but is designed to satisfy the claims of creditors by seizure of the property of the company by way of execution. In any event, the directive has not been infringed, since Article 25 does not specify how the general meeting is to adopt the decision to increase the capital; and in the present case the very request of the company to be made subject to the scheme established by Law No 1386/1983 and the inaction of the shareholders, allow a certain consent to be assumed on the part of the shareholders to the full application of the law in question and to the resulting increase in capital. Moreover, the Commission, by Decision 86/167/EEC of 7 October 1987, cited above, authorized the Greek authorities to apply the legislation at issue at least until 31 December 1987. Finally, the provision of Community law is not applicable in any case since the plaintiffs in the main proceedings are abusing any rights which the legislation may confer on them.
4. With regard to the first point, namely the field of application of the Second Directive in relation to the special procedures for seizure by way of execution or for the rationalization of large undertakings in difficulties, let me recall that that problem has already been expressly dealt with in the abovementioned judgment in Karella. In that judgment, the Court stated that the objective of ensuring a minimum level of protection for shareholders in all the Member States, pursued by the Second Directive, would be seriously compromised if the Member States were authorized to derogate from the provisions of the directive by maintaining in force provisions which, albeit described as special or exceptional, that permit the company capital to be increased by administrative decision, independently of a decision of the general meeting, in such a way that shareholders are forced to increase their contributions or to accept the admission of new members into the company.
That finding does not mean, according to the Court, that Community law prohibits the Member States from derogating from the provisions of the directive under any circumstances. In fact, the Community legislature has expressly provided both for specific derogations and for procedures which can permit derogations in exceptional circumstances (see Article 19(2) and (3), Article 40(2), Article 41(2), and Article 43(3) of the Second Directive). However, neither the EEC Treaty nor the directive itself makes provision for the possibility of derogating from Article 25(1) when undertakings are in difficulties. On the contrary, Article 17(1) expressly states that, in the case of a serious loss of the subscribed capital, a general meeting of shareholders must be called within the period laid down by the laws of the Member States, to consider whether the company should be wound up or any other measures taken; and that confirms that the principle laid down by Article 25(1) applies even when a company is in serious financial difficulties.
Moreover, in order to be effective, the guarantee contained in the legislation in question must be afforded to the members as long as the company continues to retain its own structures. Thus although the directive does not preclude the adoption of measures for seizure by way of execution and in particular winding-up procedures that place the company under compulsory administration in order to safeguard the claims of creditors, the directive nevertheless remains applicable as long as there is a general meeting of shareholders and therefore, in particular, in the event of a mere restructuring procedure which includes the intervention of public bodies or of companies constituted under private law.
The Court added, secondly, that to recognize the existence of a general reservation in the case of exceptional circumstances, beyond the express provisions of the Treaty and of the Second Directive, would be to undermine the mandatory nature and uniform application of Community law.
5. That interpretation, with which I entirely agree, as, moreover, can be seen from my Opinion in the abovementioned case, is in my view entirely consistent with the previous case-law of the Court of Justice which, in the judgment in Abels, (7) with reference to Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses, (8) held that that directive applied to a procedure such as that of "surséance van betaling" (suspension of payments) in the Netherlands even though it has certain features in common with liquidation proceedings. The Court held that the reasons for not applying the directive in the event of liquidation proceedings were not applicable when the proceedings in question comprised judicial supervision which was more limited than in liquidation proceedings and sought primarily to safeguard the assets of the insolvent undertaking and, where possible, to continue the business of the undertaking by means of a collective suspension of the payment of debts with a view to reaching a settlement which would ensure that the undertaking was able to continue operating in the future.
Similarly, in the recent judgment in d' Urso case, (9) the Court held that Directive 77/187/EEC applied when, in accordance with a body of legislation such as that governing, in Italy, special administration for large undertakings in difficulties, it had been decided that the undertaking was to continue trading and as for as long as that decision remained in effect. In the Court' s view, when the decree confirming the application of the special administration procedure provided at the same time that the undertaking was to continue trading under administration by a commissioner, the objective of that procedure was above all to restore to the undertaking an equilibrium which would enable its future trading to be guaranteed; therefore the economic and social objective so pursued could not explain or justify the fact that, when all or part of the undertaking concerned was transferred, its workers lost rights which the directive conferred upon them under the conditions which it laid down.
It should be added that it appears at least contradictory to maintain that it was decided to increase the capital of the undertaking in order to then wind it up. Increases in capital are usually made not in order to wind up an undertaking but to restructure it and to allow it to continue trading.
6. As for the argument that in the present case Article 25 of the Second Directive was not infringed since that provision does not specify how the general meeting is to decide on the increase in capital, and the shareholders, by requesting that the company be made subject to Law No 1386/1983, expressed their tacit consent to the full application of the legislation in question and to the consequent increase in capital provided for by administrative measure, in my view it is only too evident that that interpretation of the legislation at issue is not borne out by its wording and would be likely to compromise seriously the achievement of its objective, which is to guarantee a minimum level of protection for shareholders.
Article 25 lays down a general principle applicable to public companies limited by shares, providing in Article 25(1) that any increase in capital must be decided upon by the general meeting and in Article 25(2) that the statutes or instrument of incorporation or the general meeting may authorize another company body to decide on the increase in the subscribed capital, but only up to a pre-determined maximum amount and having regard to any limit provided for by law.
To accept that the general assembly may delegate to a body outside the company the power to increase the capital, without any limit having been fixed and without, moreover, any express deliberations having taken place, merely inferring such a desire from the request to be made subject to a procedure in which recourse to increases in capital is only a possibility, means not only reconstructing a desire which in fact probably never existed, but also accepting that the general assembly has the power to withdraw the company completely from the scope of the beneficial provision of the directive.
7. There also appears to be no basis to the argument that by Decision 88/167/EEC, which required the Greek Government to amend Law No 1386/1983 by 31 December 1987 so as to bring it into conformity with Articles 25, 26, 29 and 30 of the Second Directive, the Commission authorized the Greek authorities not to apply the provisions at issue until the aforementioned date.
It is clear that the Commission, far from endorsing, even for a transitional period, an infringement of Community law, simply intended to set a final time-limit for the competent authorities to adopt the necessary measures to bring the infringement to an end and, secondly, the Commission itself had no power to suspend temporarily the applicability of provisions which are contained in a Council Directive and which are directly effective.
8. With regard to the argument that the reliance on the provisions at issue by the plaintiff in the main proceedings is an abusive exercise of a right and that, consequently, Article 25(1) is not applicable in the present case, I would merely point out that at first sight the applicants, far from attempting to use the legislation abusively, have merely sought to enforce those rights that constitute the principal objective of the legislation, which is precisely to prevent increases in the capital without the express agreement of the general meeting. Secondly, the national court itself, which is exclusively competent to appraise the facts which gave rise to the dispute, did not consider it necessary to submit to the Court a question on that point.
The Court has consistently held that, in view of the division of jurisdiction under Article 177 of the EEC Treaty in proceedings for a preliminary ruling, it is solely for the national court to determine the content of the questions that it intends to refer to the Court of Justice and the latter may not, at the request of one of the parties in the main proceedings, consider questions which have not been referred by the national court. (10)
Otherwise, the Court could in fact be persuaded to consider questions whose answers are entirely irrelevant as far as the national court is concerned, with the further disadvantage that the Member States, which base their decision to submit observations during the procedure for a preliminary ruling solely on the order making the reference, would be deprived of precise points of reference.
Should the national court, having regard to developments in the case pending before it, consider that it is necessary to obtain a further ruling on the interpretation of Community law, it may in any case make a fresh reference to the Court for that purpose.
9. In the present case the national court also submitted a question to the Court of Justice on the scope of Article 29 of the Second Directive, a problem which was not discussed in the earlier judgment in Karella. Consequently, before a conclusion is reached, it is necessary to establish in particular whether, as was held by the Court in relation to Article 25 of the Second Directive, Article 29 is likewise free of conditions left to the discretion of the Member States and is sufficiently precise, so that it may be relied on by an individual against the administration before a national court to argue that provisions of a national law are incompatible with it.
In that regard it should be pointed out that Article 29(1) is formulated in clear and precise terms and provides unconditionally that, whenever the subscribed capital is increased by consideration in cash, the shares must be offered on a pre-emptive basis to shareholders in proportion to the capital represented by their shares.
Such a rule does not seem to be qualified by the provisions of Article 29(4), which provides that the restriction or withdrawal of the right of pre-emption may be decided upon, under certain conditions, by the general meeting. That is a specific and clearly defined derogation from the principle set out above and it therefore precludes the possibility of the national legislature derogating from such a principle except in that specific case.
The same observations also apply to Article 29(5) under which the laws of a Member State may provide that the statutes, the instrument of incorporation or the general meeting, acting in accordance with the rules for a quorum, a majority and publication, may give the power to restrict or withdraw the right of pre-emption to the company body which is empowered to decide on an increase in subscribed capital within the limits of the authorized capital.
The content of that paragraph, in so far as it provides for a precise and clearly defined possibility of derogation, is likewise not such as to preclude the direct effect of Article 29(1) of the Second Directive.
10. In the light of the foregoing observations I therefore propose that the Court should reply to the questions referred by the Court of First Instance, Athens, as follows:
1. Article 25(1) and Article 29(1) of Council Directive 77/81/EEC may be relied upon by an individual before a national court against the public authorities.
2. Article 25(1) and Article 29(1) of Council Directive 77/91/EEC must be interpreted as meaning that they preclude the application of legislation which, designed to ensure the rationalization and continued trading of undertakings which are particularly important from an economic and social point of view and are in an exceptional situation because of their liabilities allow,
(a) an administrative decision to be made to increase the company capital without consideration by the general meeting;
(b) an administrative decision to be made to allocate the new shares without taking account of the proportions of the capital held by the existing shareholders.
(*) Original language: Italian.
(1) OJ 1991 L 26, p. 1.
(2) Greek Official Journal No 107 of 8 August 1983, p. 1926.
(3) OJ 1987 L 76, p. 18.
(4) Greek Official Journal No A 43 of 23 March 1990.
(5) Judgment in Joined Cases C-19 and 20/90 Karella and Karellas [1991] ECR I 2691).
(6) Under those provisions, which have not been referred to by the national court in the present case, the Member States may derogate in particular from Articles 25 and 29 to the extent that such derogations are necessary for the adoption or application of provisions designed to encourage the participation of employees, or other groups of persons defined by national law, in the capital of undertakings.
(7) Case 135/83 Abels v Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie [1985] ECR 469, paragraph 28.
(8) OJ 1977 L 61, p. 26.
(9) Judgment in Case C-362/89 d' Urso and Others v Ercole Marelli Elettromeccanica Generale SA and Others [1991] ECR I-4105, paragraphs 32 and 34.
(10) Judgment in Case 299/84 Neumann v Balm [1985] ECR 3663, paragraph 12; judgment in Case 311/84 CBEM v CLT and IPB [1985] ECR 3261, paragraph 10.
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