Clause holds small shareholders liable for entire company debts

Just as cash flow in the Greek economy has all but dried up, a recent law is seen as erecting obstacles to new investment.

The contentious clause was voted into law in March as part of legislation that is ostensibly meant to help restart the economy, though experts are concerned that it may have the exact opposite effect.

In broad terms, what the clause stipulates is that any investor who finances a business idea and acquires a small stake in a new enterprise will be liable in the case that the business fails.

Minority stakeholders in a company have to put their own assets up as a guarantee for any expired debts toward social security funds in the event that the business plan fails and the company has to shut down.

Investors who have acquired a minority stake of 10 to 20 percent – who may not even have a seat on the governing board of the company or a position in any other decision-making body – will be responsible for covering, through their personal assets, not only the expired debts that correspond to their holding in the company but even the entire debt to social security funds.

In practical terms this means that the risk an investors takes in doing business in Greece is not just limited to the funds he or she will invest but also extends to the entirety of their fortune, which could be in jeopardy in the event that the clause of the Public Revenue Collection Code is activated, as the clause provides for the confiscation of bank deposits, real estate assets, etc.

In the law’s defense, the clause is intended to reduce the phenomenon of shell companies being opened to serve a particular purpose and then being shut down without settling their debts to pension funds. What happens in practice, however, is that aside from such shell companies, the measure also hurts investors who want to try their luck in the business arena, not just as main stakeholders but as minority shareholders.

This clause, which could potentially dump the entire burden of business failure onto the shoulders of small investors, has already generated a strong reactions in the Greek business community as well as in social security funds.

Speaking to Kathimerini, Rovertos Spyropoulos, who resigned as head of the Social Security Foundation (IKA) last week, said that the country’s biggest social security provider has already asked for the clause to be amended so that the liability of minority stakeholders corresponds only to their share of the company. They should not under any circumstances, said Spyropoulos, be held liable for the entirety of the debt.