The Mergers & Acquisitions Litigation Review: Greece


Since 2017 the number of M&A transactions in Greece have increased in comparison to the protracted recession seen in the years from 2008 to 2016. This increase has naturally led to an increase in deal-related disputes, traditionally resolved by resorting to arbitration. The parties bring claims mainly post-closing, and when such is the case the disputes are more large-scale and complex; such claims typically relate either to a breach of a seller's or target's representations and warranties or to the fulfilment of conditions precedent or conditions subsequent that trigger adjustments to the deferred part of the purchase price. Controversies arising between signing and closing are typically easier to be resolved by expert determination mechanisms as such relate to pricing mechanisms as well as the completion accounts. Litigation against directors and officers for bad calls or an undue decision-making process within the framework of M&A deals is not as common in Greece as elsewhere, although there is relevant case law even at the Supreme Court level.

As mentioned above, the majority of M&A disputes in Greece are resolved through arbitration proceedings. While smaller deals (less than €5 million) and in particular those structured as statutory mergers are commonly left to be resolved by the state courts, mid-size and large deals, and in particular share purchase agreements, are agreed to be resolved in arbitration. The ICC rules are by far the most popular rules used, although arbitration rules commonly applied in the jurisdiction of the buyer (e.g., German Institute of Arbitration (DIS) rules when the buyer is German) are also observed in Greek deals from time to time. In terms of applicable laws, sellers have a strong preference for Greek law to apply, while buyers will usually push to have English law (and more rarely Swiss law) apply. Athens is the most common arbitral seat for dispute resolution, while London appears as the second-most preferred venue.

Legal and regulatory background

Law 4601/2019 on 'corporate transformations' introduced a unified framework for the merger, split and conversion of corporate entities in Greece. For the first time, a modern and more attractive framework has been formed for Greek companies. The Greek M&A legal framework is completed by law 4548/2018 on Societes Anonymes as well as law 4706/2020 on corporate governance rules for listed companies.

Although in Greece there is no responsible regulatory body for the supervision of M&A transactions, the Hellenic Competition Commission may monitor and provide its consent to prevent any market abuse that might be caused by a transaction, especially if such transaction involves publicly listed entities.

Shareholder claims

i Common claims and procedure

In Greece, the company's directors, or administrators or officers, participating in the transformation are vested with the task of preparing all forms of transformations. Even though the resolution for any structural change under an M&A transaction falls under the exclusive authority of the general meeting, the directors of the board may also be held liable due to breach of a duty within a transformation.

Under law 4601/2019, directors are liable for any damage inflicted on the company, the shareholders and the creditors due to any culpable act or omission within the M&A transaction. In particular, directors, administrators or officers of all the participating companies in a merger or split – that is, the directors of the acquiring company and the directors of the company being acquired – are liable to the shareholders of their company for any damage the latter may suffer due to culpable act or omission of the former. The act or omission constitutes a breach of duty by the above persons and it may be conducted any time as of the preparation phase through to post-closing.

The director's act or omission in question shall qualify as a breach of duty when it violates certain provisions of law or the company's articles of association or a general meeting's resolution regarding the process of the corporate transformation. For instance, directors shall be liable when they make false or misleading statements regarding the reasons justifying the merger or the proposed exchange ratio thereof. In any case, directors have a duty to make decisions free of conflicts of interest and based on sufficient information (business judgement rule). Under corporate law, any director's business decision should comply with the general meeting's resolution and should be undertaken bona fides pursuant to the company's interests. Hence, the fact that a director's act follows a general meeting's resolution does not necessarily qualify as a safe harbour for the director.

Moreover, in managing the affairs of the company, the directors should comply with their duty of care and their duty of loyalty, including the obligation to disclose to the company any relevant information and facts regarding a transaction. If a violation of disclosure of information can be established, a shareholder who purchased shares after the failure to disclose the information or a shareholder who is negatively affected by the merger shall raise claims against the company.

Another shareholder's claim based on law 4601/2019 shall be his or her entitlement to request to the court the rescission of a merger or split. This may be requested in cases where the general meeting of any of the participating companies has not granted approval for the realisation of the merger or in such cases that the general meeting's resolution might be null or void. The claim shall be raised by any shareholder of the participating companies within three months from the publication of the transaction in the business registry. To be entitled to this request, the shareholder should have been absent during the resolution for the approval of the merger or, in cases where he or she participated in the process, he or she should have opposed the resolution. If the court finally rescinds the company's resolution, following the shareholder's claim, then the latter shall be entitled to compensation of damages.

In addition, shareholders may claim compensation for damage in cases where the shares' exchange ratio between the participating companies in a merger is not fair and reasonable (i.e., the ratio is really high or too low, and this occurs to the detriment of the shareholders). Therefore, the exchange ratio should be calculated based on the general social and economic factors in the market or the industry wherein the merged company has its main activity as well as based on its financial position and its solvency. In such cases, the shareholder is entitled to claim monetary compensation against the acquiring company. The claimant shall file a lawsuit within 12 months after the merger or acquisition becomes public through the business registry. That means that the claim shall only be raised post-closing, while pre-closing, the shareholder can only file a lawsuit claiming that the resolution regarding the approval of the merger is defective because of an unfair and unreasonable exchange ratio (substantive illegality), and thus, the resolution would be void.

ii Remedies

As a matter of principle, directors' liability exists only towards the company. Thus, the shareholders individually do not have standing to sue the directors for the damage inflicted on the company unless the directors' actions or omissions, considered on a stand-alone basis, constitute a direct and unlawful offence against shareholders' rights. In such event, under the Greek Civil Code, directors' actions constitute a tort also directly against the shareholders and can establish the directors' civil liability in relation to the shareholders other than their liability towards the company. Therefore, a shareholder could sue the directors of the company only if the former suffered direct damage. For instance, mismanagement is considered to cause direct damage to the company rather than its shareholders and derivative actions are not recognised in Greek law, so there are limited grounds for a shareholder to bring an action against the directors or the management. As a result, actions against members of the board are initiated primarily by the company.

Subsequently, any action for damages against the company's directors is filed in principle by the board of directors. The latter is obliged to file such action in cases where the damage suffered by the company has been caused by the malicious intent of the directors involved. Where the board dismisses the request or stays inert, then the shareholders are entitled to submit a court request for the appointment of a special representative who shall then file a liability lawsuit against the members of the board on behalf of the company.

As per other remedies available, any shareholder having a legitimate interest can file a lawsuit to the court to proclaim the invalidity of a decision that violates the law or the articles. Interim relief can be sought to suspend the enforceability of the company's resolution for the transaction until the court provides its judgment on the lawsuit. The court may grant such relief when recognising that the claimant's rights have been violated or they are about to be violated and this would cause harm to the claimant. If the request for relief is successful, then this event may also prevent the transaction.

Moreover, in cases wherein the shares' exchange ratio of a merger is not fair and reasonable, the shareholders of both merging companies should claim compensation of damages against the acquiring company; the damages are calculated on the amount they should have received in cases where the ratio was fair and reasonable. To be entitled to compensation, the shareholder should have opposed the resolution approving the exchange ratio in cases where the latter has unjustifiably been defined very high or too low and this is to the detriment of the shareholder. To obtain an award of damages, the shareholder should substantiate and specify the amount or loss he or she has suffered, but he or she will often face great difficulties when attempting to establish the occurrence of actual damage.

iii Defences

Directors have a duty of care and a duty of loyalty towards the company. According to general principles of Greek corporate law, the directors are liable for every damage or loss of profit suffered by the company as a result of their actions or omissions that do not comply with their duties as prescribed in the law, the articles and, most importantly, the best interests of the company. According to the business judgment rule, directors are released from their liability if they prove that their acts or omissions are based on a lawful resolution – wherein all the facts surrounding the transaction have been disclosed to the shareholders when adopting the resolution – or constitute a reasonable business decision taken in good faith on the basis of sufficient information and exclusively in the corporate interest. The directors have the burden to prove that they have acted in compliance with such standard.

In deal situations, directors and officers can make use of the business judgment rule when they have obtained a fairness opinion in relation to the purchase price agreed or when they have obtained a legal opinion in writing in relation to potentially controversial covenants agreed in the share purchase or merger agreement. With smaller deals, such instruments (fairness opinions, legal opinions) are less common, so there is in theory a greater scope for holding directors or officers liable in the aftermath of a bad deal, while with larger deals boards and executives make sure to be fully insulated against duty of care claims by having in place the said instruments before the transaction goes through.

iv Advisers and third parties

Claims against third parties and advisers are basically brought by a party in a contractual relationship with such third parties, namely the company. For instance, one or more independent advisers or consultants are required to examine the draft merger agreement and submit their written report to the general meeting prior to the resolution of the merger. However, the advisers involved in the process may become liable to the shareholders for damage caused by intentional or negligent breach of duty (i.e., an omission to state necessary details within the report regarding the transaction or the production of an opinion that is a result of false evaluations or insufficient calculations). In such events, the shareholders are entitled to raise direct claims against the advisers and ask for compensation of damages.

In addition, pursuant to specific law provisions of the Civil Code, ordinary and sworn auditors are liable to rectify any damage caused to the audited company by act or omission in the course of the audit's exercise. Auditor firms are jointly liable with their shareholders, partners and members of the supervisory or management boards. Hence, the shareholders shall raise tort claims against them and ask for monetary compensation.

v Class and collective actions

Class actions and collective proceedings are not generally provided under Greek law. A shareholder may thus only pursue claims on his or her own behalf. Actions brought by multiple claimants are, however, possible. An action for damages may be brought jointly by more than one party (joinder of claimants) if the claimants' right to damages arises from the same factual and legal basis or the object of the dispute consists of similar claims based on a similar factual and legal basis.

vi Insurance and indemnification

Directors' liability insurance plays an important role in liability actions brought by shareholders against directors. Under Greek law, there is civil liability insurance for the directors of boards, which covers financial loss caused by actions or omissions thereof to the detriment of the company.

In any case, the coverage of the relevant insurance contract does not extend to directors' acts that are contrary to moral conventions or have an unfair and immoral result and are contrary to provisions of the law. Therefore, criminal sanctions, and monetary and other fines imposed by the competent supervisory authorities, are excluded from the insurance. The insurance also does not cover intentional misconduct of directors when they have positive knowledge of the conduct's unlawfulness. Nevertheless, it may be agreed that the insurance shall cover court costs for directors' criminal prosecution. In fact, in some insurance contracts it is agreed that the reimbursement of the criminal proceedings' costs shall take place only if the director is finally innocent.

vii Settlement

In Greece, it is permissible to settle liability claims, but there are no particular procedural aspects to consider regarding the shareholder claims. Civil and commercial disputes may be subject to mediation. Prior to filing a lawsuit, the shareholder shall examine the possibility of recourse to mediation for those cases for which mediation is allowed.

In M&A arbitration in particular, parties often commence proceedings aggressively, but frequently find themselves unprepared to meet the associated costs, particularly when the law applicable or the venue, or both, are not Greek. This increases the appetite of the parties for settlement when M&A disputes are resolved in arbitration; in M&A litigation, parties settle more rarely.

viii Other issues

Other than the shareholders, the creditors of the company are entitled to protection when a transaction or merger is about to happen. According to law 4601/2019, this protection entails the application of any publication requirements regarding the purpose and the content of a transaction as well as the provision of remedies for the creditors. When the companies participating in the transaction seem to be in financial distress, then the creditors shall ask for appropriate warranties regarding their claims (even if they are not yet due). The creditors shall ask for such warranties until 30 days post-transaction's publicity; otherwise, and in cases where they have not secured such warranties, they may demand the outstanding claims against the companies within a period of five years.

Counterparty claims

i Common claims and procedure

The most common kinds of dispute that arise within the M&A context are claims between the buyer and the seller either pre-closing or post-closing. Counterparty claims are mainly contractual claims that often arise based on breach of representations and warranties, non-fulfilment of conditions precedent, purchase mechanism disputes or earn-out arrangements. Claims can also arise in misrepresentation when a party alleges that a counterparty's statement during negotiations induced the former to enter into the contract.

Disputes arising pre-closing shall be based on:

  1. a letter of intent;
  2. a confidentiality agreement ensuring the secrecy of commercially or otherwise sensitive information;
  3. a non-binding memorandum of understanding with binding confidentiality clauses; or
  4. an exclusivity agreement under which the target has committed to the potential buyer not to deal with competing buyers for a period during which only the potential buyer can conduct due diligence and decide on the transaction.

In addition, a party may decide to rescind the contract in cases where there are grounds of deceit or duress during negotiations in order to seek claims under tort law. The parties may also arrange break-up fees in the event that they abort negotiations.

Moreover, disputes may arise due to a material change in circumstances when counterparties have agreed contractual clauses concerning material adverse change (MAC). MAC clauses should be carefully drafted by the buyer taking into consideration that it may not be enforced if the counterparty proves that the buyer knew or could easily foresee the material change based on the given circumstances. MACs shall arise not only pre-closing but also post-closing since it is usually agreed upon as a closing condition to ensure the buyer's protection from any significant deterioration of the target. Should such material change occur, the buyer is entitled to exit or reform the purchase agreement or, otherwise, to provide to the seller a time frame in which to remedy such changes.

The most commonly used protection clauses to mitigate diligence gaps are the representations and warranties mainly on behalf of the seller as well as indemnities for breach of such clauses. Warranties typically cover share capital; tax liabilities; accuracy of financial statements; environmental matters; employment issues; doubtful debts; and other significant diligence matters. In general, warranty claims following an M&A transaction include claims related to the seller's warranties regarding the financial position of the target or compliance with the law and licensing requirements. Protection for breach of the above clauses is achieved through indemnities that are designed within the share purchase agreement with clarity on how a particular liability shall be apportioned to each party. Especially in high-value transactions, based on the warranties and the allocation of risk, warranty and indemnity insurance may be incorporated to mitigate any unexpected loss.

As per the pricing mechanism or earn-out arrangements, disputes often arise when the parties have agreed to a specific post-closing price adjustment mechanism. The counterparties typically agree the reference accounts of the closing (i.e., the financial statements based on which the closing shall be concluded) in cases where the day of signing and the day of closing differ. There are transactions in which the above pricing mechanism contains errors or the drafting of the agreement's wording is ambiguous and, as a result, disputes arise between the parties. On such occasions, the parties seek to get a determination from an expert, usually an auditor or accountant, who shall determine whether the accounting figures in the closing statements are correct and such that the parties had agreed.

The burden of proof for any claim generally lies on the party that seeks to mitigate any loss due to breach of contractual clauses. According to the statutory default rules under the Civil Code, the statute of limitation for buyers' rights, or as they may be further circumscribed by warranties given in the context of the share purchase agreement, is two years. In addition, the statute of limitation in cases of the sale of a business as a whole should follow the statute of limitation applied to movable assets (i.e., two years) or, in the case of defects on any transferred real estate assets of the business under sale, the statute of limitation applicable to immovable assets will apply (i.e., five years). The statute of limitation will start at the time of the delivery of the business – namely, from the time that the buyer acquires full control over the transferred assets. Under certain conditions, the parties may contractually agree a longer limitation period, during which time the seller will be liable against the buyer. Further, an independent indemnity obligation may be undertaken by the parties the statute of limitation of which is 20 years. Merger and acquisition agreements often provide for shorter periods in order for the buyer to initiate arbitral proceedings.

ii Remedies

Typically, the counterparties incorporate remedies in the contract for any possible breach of the above clauses. Once a breach is committed, then the contract provides for a deadline for specific performance of the party in breach.

According to the statutory provisions of Civil Code –to the extent that the parties have agreed that Greek law will govern the relevant agreement and that they have not otherwise agreed to limit or waive the protection under these provisions – the buyer will have the right (which may be exercised alternatively) to:

  1. seek to repair or replace the purchased assets;
  2. seek to reduce the purchase price;
  3. rescind from the purchase agreement; or
  4. seek all damages suffered due to the non-performance of its counterparty under their agreement, in which case it must also return any assets received by the seller.

Further to the above rights, the buyer may cumulatively seek additional consequential damages if these are causally linked to the warranties. Rescission of a transaction is generally considered an inappropriate remedy where a company is sold. In most modern contracts the parties limit the remedies for breach of representations and warranties to monetary compensation of damage.

iii Defences

Sellers are usually on the defendant side when there is a breach of warranty claim. Any disputes raised by the buyer shall frequently depend on the knowledge that the parties have by the time of closing. To defend any breach of warranty, the sellers often argue that there has been no breach at all or such breach, if it occurred, was not material, and that thus no liability shall arise. In addition, the sellers may argue that the particular facts or circumstances giving rise to breach of representations and warranties were known to the buyer, and therefore the latter cannot raise any claims. This defence often depends on the due diligence performed by the buyer in a way that the latter acquired knowledge of all relevant information prior to closing. In general, the success of any claim may even be limited due to the fact that the buyer shall bear the burden of the proof to show the seller's knowledge and this depends on the evidence available to the buyer.

iv Arbitration

Share purchase agreements typically incorporate mediation and arbitration clauses for disputes arising out of or associated with a transaction. Arbitration seems to be the most preferrable dispute mechanism by M&A practitioners to resolve commercial contractual disputes related to transactions. Such preferability over the court proceedings derives from the parties' ability to appoint arbitrators with regard to their experience, their qualifications and their suitability for the particular dispute. Moreover, the arbitrators may ensure greater confidentiality regarding the dispute and the award while they can also tailor the proceedings to the parties' needs as per the preferred language.

Cross-border issues

Law 4601/2019 on corporate transformations regulates only mergers and splits that take place domestically in Greece while no foreign entities participate in such transactions. However, cross-border transactions between companies that have their registered seat or administration in different countries, including Greece, are regulated by law 3777/2009.2 Typically, the transaction agreement includes the application of the law of every participating company's jurisdiction, and in cases where such legal provisions contradict each other, then the stricter provisions shall apply.

As per shareholders' and creditors' claims that may arise due to a cross-border transaction, such claimants usually bring their claims against their company before the national courts. In most cases, though, the parties include choice of law clauses within the M&A agreements for any claims that may arise within the context of the transaction and arbitration clauses providing for the preferred jurisdiction of arbitral tribunals with regard to dispute settlement.

Year in review

It is evident that global M&A activity has faced a slowdown due to the covid-19 pandemic and its implications. In Greece, although the amount of the transactions that took place during 2020 decreased, such transactions were noted as high-value transactions. It is also expected that the ongoing transactions in Greece, as well as those that shall take place by the end of 2021 onwards, will mainly involve privatisations. The frequency of such transactions is expected to help the M&A market to return to a growth path.

Due the coronavirus crisis, another tendency has been revealed: parties in a transaction have concluded that there are many events (such as covid-19) that may have not been foreseen when drafting the respective transactional documentation; thus, protection against such events seems necessary. Following that, counterparties now often desire the inclusion of force majeure clauses in the transaction contract that specify the obligations of the parties in such unexpected circumstances.

Outlook and conclusions

The financial and banking industry, technology, hotels, energy and healthcare industries are experiencing significant M&A activity. Further, a considerable number of Greek privatisation projects are either underway or have been recently completed. Such transactions are expected to boost the economy but, at the same time, litigation proceedings are likely to be raised by the affected shareholders or creditors whose interests may be in danger.

Therefore, the negotiation and incorporation of prevention clauses (representations, warranties and indemnities), dispute resolution mechanisms as well as arbitration clauses in the transaction documents of either acquisitions or mergers and splits seem to be necessary. Stress-testing the provisions of an agreement with risk advisers and the involvement of expert witnesses should be preferred, while special attention should be paid to the drafting of such clauses. Moreover, parties should consider that, in cases where they decide to raise any claims against the company or its directors (in mergers or splits) or against their counterparties (in acquisitions), they shall first seek settlement under mediation and arbitration rather than turning to court hearings.


1 Pavlos Masouros is a partner and Antonis Nikolaidis is an associate at Masouros & Partners Attorneys at Law.

2 Law 3777/2009 incorporated European Directive 2005/56/EC.

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