C-441/93

2 — The legislative background briefly described here essentially comprises the following provisions, read in conjunction: Anieles 29 and 31 of Law N o 2190/1920, Article 8(1) and (3) * Original language: Italian. of Law No 1665/1951. and Article 1(1) and (3) of Presiden­ 1 — OJ 1977 L 26, p. 1. tial Decree No 861/1975, converted into Law No 236/1975.

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Commission; or where any direction issued procedure (91/711-A) against the Hellenic by the latter is not complied with. Republic for infringement of Article 25 of the Second Directive. In that release, the Commission states that it closed the file after taking note of the changes made to the Greek legislation and the specific undertak- ing given by the Greek authorities to comply In such cases, the Governor of the Bank of with Article 25 of the Second Directive in Greece may also, where he considers that relation to banks as well as other companies. such action is necessary and urgent in order to safeguard the interests of the State, the bank or third parties, or to forestall possible adverse repercussions on the financial market or the economy in general, appoint a tempo- rary administrator.

5. In 1984, under the legislation at issue here, the Governor of the Bank of Greece placed Trapeza Kentrikis Ellados (hereinafter 'TKE') under temporary administration. At As soon as he is appointed, and his appoint- that time, TKE's capital was DR ment is ratified by law, the temporary 670 000 000. administrator is vested ipso jure with all the powers and prerogatives of the organs responsible for the management of the com- pany by virtue of its statutes, including those of the general meeting.

However, that deadline passed without most of the existing shareholders having exercised 8. The plaintiffs in the main proceedings are their rights, 3 so that almost all the new shareholders in TKE and were shareholders shares were placed on the market and offered when the temporary administrator decided to new shareholders. upon the first increase of capital. Consider­ ing that that increase had taken place by arrogation of the powers of the general meeting, and therefore in breach of their rights guaranteed by the Second Directive, the shareholders brought proceedings before the national court for annulment of the 7. In November 1986, the Governor of the administrator's decision. Bank of Greece brought the temporary administration to an end and placed TKE under permanent administration. The general meeting of shareholders, constituted on the basis of the new shareholdings, passed three resolutions increasing the capital in 1987 (DR 1 500 000 000), 1988 (DR 125 000 000) and 1990 (DR 1 281 250 000). In the meantime, Law No 1682 of 16 Febru­ In particular, the plaintiffs alleged infringe­ ary 1987 had ratified the appointments of the ment of Article 25(1) of the Second Direc­ various temporary administrators who had tive, according to which 'any increase in cap­ successively managed the company, and the ital must be decided upon by the general first increase of capital. meeting', and infringement of Article 29(3) thereof, which provides that any offer of subscription on a pre-emptive basis and the period within which that right must be excised are to be published in the national gazette appointed in accordance with Direc­ tive 68/151/EEC, 4 or, where the shares are registered, and if the national legislation so At present, according to the information provides, by written notification to all the provided by the plaintiffs, which has not shareholders. been contested by the defendants, 53% of the voting shares in TKE belong to the

In its second question, the national court Under that provision, a right may not be seekS a ruling as to whether those provisions exercised where it manifestly exceeds the of the Second Directive 'run counter to ... bounds of good faith or good usage or the the provisions to the contrary' of the special economic and social purposes associated Greek legislation on the reorganization of with that right. If that objection were banking companies 'and thus preclude the upheld, it would follow that, even if the application' of the latter provisions. In other plaintiffs' right to invoke the illegality and words, the court, recognizing that, if the first seek the annulment of the decision to question is answered affirmatively, the Greek increase the capital taken in breach of Com- legislation will be shown to be incompatible munity law were recognized, the exercise of with the Second Directive, is asking whether that right would be prohibited, being the application of the national legislation regarded by the national court as abusive. It may nevertheless be upheld by virtue of its seems that the allegation of abuse is based special nature. essentially on the plaintiffs' lack of locus standi in that they are minority shareholders, and, what is more, shareholders of a com- pany that is subject to a special regime intended to ensure its recovery; and on the fact that they have suffered no damage, Finally, in its third question the national material or otherwise, from the reorganiza- court seeks a ruling as to whether the tion of the company but indeed have in fact requirement that the shareholders be benefited from it.

In other words, the Court made it clear that 12. In its three judgments in Karella and not even a special law designed to ensure Karellas, 5 Syndesmos Melon tis Eleftheras the recovery of a company can deprive the Evangelikis Ekklisias and Others, 6 and shareholders of a most 'intimate' and Kerafina — Keramische-und Finanz-Holding and Vioktimatiki 7 (hereinafter together referred to in some instances as 'the Karella 8 — Law N o 1386/1983 of 5 August 1983. Under that law, a pub­ lic limited company wholly owned by the State (the 'Busi­ ness Reconstruction Organization') was entitled to take over the running and day-to-day management of companies undergoing rationalization or nationalization and, in doing 5 — Joined Cases C-19/90 and C-20/90 [1991] ECR I-2691. so, could decide to increase the capital of such companies, by 6 — Case C-381/89 [1992] ECR I-2111. derogation from the provisions vesting exclusive powers in the general meeting of shareholders. 7 — Joined Cases C-134/91 and C-135/91 [1992] ECR I-5699.

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unrelinquishable right: that of making That view, it is said, is confirmed by the pro- changes to the capital structure of the com- posal for a directive put forward by the pany, that is to say to its assets, and thereby Council concerning the reorganization and the composition of its shareholding. winding up of credit institutions 9 which expressly authorized application of the national legislation at issue.

14. In these proceedings, the problems giv- ing rise to the judgments in the Karella cases 15. In response to those arguments, it need are encountered again. Logically, therefore, merely be stated, once again, that the Second the principles upheld by the Court in those Directive, adopted in order to ensure mini- cases can but be applied here. mum equivalence of the protection of share- holders and creditors of companies, 10 defines unequivocally the persons to whom it applies.

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PAFITIS AND OTHERS ν TKE A N D OTHERS

The only permissible exception appears in runs counter to its literal wording and the the directive itself, in Article 1(2), on the case-law of the Court of Justice. basis of which Member States may decide not to apply the directive to investment companies with variable capital or coopera­ tives. That exception, however, relates to two clearly defined cases and therefore no national legislature can be allowed to create others.

The special nature of the Greek legislation was argued unsuccessfully in the earlier cases. Suffice it to recall that, as I indicated in my Opinions in Karelia and Syndesmos Mel­ 16. Furthermore, the directive itself specifi­ on, 1 3 and as was clearly confirmed by the cally takes account of the special features of Court, to recognize the existence of a general banking, by providing that certain provisions reservation in the case of exceptional circum­ need not be applied to banks and other stances, beyond the express provisions of the financial institutions, even if they are in the Treaty and of the Second Directive, would form of public limited companies. 12 be to undermine the mandatory nature and uniform application of Community law. 14

21. The defendants in the main proceedings 19. As regards the Community legislation also argue that, even if the Court should find applicable to banking, it pursues objectives that the Second Directive is applicable to other than those of the Second Directive. For banks, the Karelia decisions cannot be appli- the most part it comprises directives which cable to this case owing to a fundamental seek to uphold and supplement the right of characteristic of the legislation at issue. By establishment and the freedom to provide contrast with the provisions at issue in services in the banking sector, by means of Karelia, the rules on the rationalization of specific provisions applicable to banks. banks provide that, when the temporary administrator is appointed, all the powers of the organs of the company cease to exist, which means, in the defendant's opinion,

I am not convinced by that argument either. I do not see how it can reasonably be con­ tended that a company placed under admin­ istration pursuant to the legislation at issue The third question has ceased to exist.

On the contrary, it seems to me that the aim 23. The conclusions reached on the first and pursued by the rules at issue is to ensure the second questions render the third question survival, after reorganization, of the com­ irrelevant, at least as far as the present case is pany under administration; and in any event concerned. However, merely for the sake of the organs of the company certainly con­ completeness, and in case the Court should tinue to exist while it is under administra­ decide to depart from the principles laid tion, even if they are deprived of any power down in its case-law, I shall consider, albeit to run the company. The general meeting of briefly, Article 29(3) of the Second Directive shareholders retains the right referred to in in relation to the question submitted by the Article 25 of the Second Directive; the oppo­ national court. site view is precisely the quid demonstran­ dum, and the point has not been proved.

22. The foregoing considerations prompt me As indicated earlier, that provision concerns to suggest that the Court answer the first the terms of the offer to subscribe for new shares made to the existing shareholders, the national legislature being entitled, in the case of registered shares, to require notification in 16 — Karella and Syndesmos Melon, paragraphs 30 and 28 respec­ writing to all the shareholders. tively.

25. The defendants also contend that Article 29(3) does not have direct effect, for the pur- poses of the present case. Whilst conceding that that provision is clear, precise and 26. As indicated earlier, it appears from the unconditional, they deny that it can be relied order for reference that an objection was on against TKE, which at the material time raised in the course of the main proceedings was a private bank. To admit the contrary, alleging the abusive exercise of rights by the they say, would be tantamount to giving the plaintiffs. Although that point is not the sub- Second Directive the horizontal direct effect ject of a specific question, it is clearly raised which the Court has so far never accepted. in the order for reference and is liable signif- icantly to influence the outcome of the case.

17 — It will be remembered that no such gazette had been offi- cially appointed in Greece at the material time since Direc- tive 68/15I/EEC had not yet been transposed into national 18 — See in particular Case 188/89 Foster and Others [1990] ECR law (sec footnote 4 above). I-3313, paragraph 20.

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The national court expressly declares that it effectiveness of the preliminary rulings given will reserve judgment on the merits of that by the Court. objection, which is based on Article 281 of 19 the Greek Civil Code. It states that that provision, on the basis of which the exercise of a right may be prohibited if it is held to be abusive, may also be invoked to prevent the exercise of a right conferred by Community There is a risk that an interpretative ruling, law; and it claims exclusive jurisdiction to in which the Court had defined the scope of adjudicate on that point. the rights conferred on individuals by a Community provision having direct effect, would be negated by the very court that sought the ruling by virtue of a principle of substantive national law conflicting with it.

21 — Sec judgment N o 9337/1992 of the Athens Court of Appeal; but see also, to the same effect and based on almost 19 — Tile underlying basic provision being Article 25 of the identical grounds, judgments of the same court Nos Greek Constitution. 9102/1992 of 19 November 1992 and 46-1/1993 of -I March 20 — It also seems that the plaintiffs could be regarded as 1993. It is noteworthy that the three judgments of the Ath­ improperly exercising the right conferred on them by the ens Court of Appeal all expressly refer to Karelia. Community provision because of their failure to exercise For the sake of completeness, it should also be pointed out the pre-emptive right to subscribe for new shares issued in that the Karelia and Svndesmos Melon judgments have not connection with the increase of capital. In view of my sug­ yet been given effect by the courts which sought the rul­ gested answers to the preliminary questions, and m the ings; in the former case, it appears that the parties aban­ event of the Court adopting my suggestions, I lake it for doned their action after the Court of Justice gave judgment; granted that an argument to that effect would fail entirely, but in the latter case u seems that, so far, no decision has in the main proceedings as well. been given.

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in order to declare that a right conferred by consider to what extent the judicial protec­ Community law has been exercised abu­ tion available under national law is ade­ sively. quate.

30. In the present case it seems at first sight from the documents before the Court that the plaintiffs, far from seeking to abuse the In that connection, it must first be observed provision, merely wish to secure observance that a person's abusive exercise of a right can of the right which is at the heart of that pro­ be censured, albeit by procedures and in cir­ vision, namely the exercise of exclusive pow­ cumstances which differ in some cases, in ers regarding alteration of the capital of the nearly all the Member States. In the absence company. of Community rules on the matter the national court must decide on the basis of its own national law whether or not the right in question has been exercised abusively. 2 2

22 — See to that effect the Opinion of Advocate General Darmon in Case 81/87 Daily Mail [1988] ECR 5483, in which he suggested that the Court declare that the transfer to another 23 — Most important among the examples of the application of Member State of the central management of a company that principle is the San Giorgio case, in which the Court may constitute a form of exercise of the right of establish­ made it clear that 'any requirement of proof which has the ment, subject to an assessment by the national court as to effect of making it virtually impossible or excessively diffi­ 'whether, in a specific case and having regard to the circum­ cult to secure the repayment of charges levied contrary to stances, there is a suggestion of abuse of a right or circum­ Community law would be incompatible with Community vention of the law and whether it should decide not to law' (Case 199/82 [1983] ECR 3595, paragraph 14); the apply Community law' (paragraph 9). The Court, adopting Court has since then given several judgments to the same a different interpretation of the right of establishment, did effect: in relation to penalties under national law for breach not rule on the point. of a principle laid down by a directive (Case See also, to the same effect, Case C-8/92 Generai Milk C-177/88 Dekker [1990] ECR 3941; in relation to limita­ Product; [1993] ECR 779, iti which the Court held that, in tion periods for actions under national law (Case order to withhold monetary compensatory amounts in C-208/90 Emmott [1991] ECR I-4269); and in relation to respect of certain goods imported into Germany, it would difficulties affecting the recovery of Community aid unduly be necessary to prove that the importers intended to abuse paid as a result of the principle of the protection of legiti­ the Community system for their benefit, and ruled that the mate expectations (Case C-5/89 Commission ν Germany national court had jurisdiction to verify that point. [1990] ECR I-3437).

34. In the light of the foregoing considerations, I therefore p r o p o s e the C o u r t give the following answers t o t h e Athens C o u r t of First Instance:

Articles 25(1) and 29(3) of the Second Council Directive (77/91/EEC) of 13 D e c e m b e r 1976 on c o o r d i n a t i o n of safeguards which, t o r t h e p r o t e c t i o n of the interests of members and others, are required by M e m b e r States of companies within the meaning of t h e second paragraph of Article 58 of t h e Treaty, in respect

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of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent, must be interpreted as meaning that:

— the application is precluded of national legislation which, in order to ensure the recovery and continuing trading of banks constituted in the form of public limited companies which, as a result of their indebtedness, find themselves in exceptional circumstances, allows their capital to be increased by administra- tive measure and without a resolution of the general meeting; and the mere exercise by shareholders of the right granted to them by the Community directive cannot, without those provisions being rendered nugatory, be declared by the national court to be abusive;