Ι. Introduction

Law 4601/2019 reformed the legislation on corporate transformations by systematizing it for the first time in a single legislative text, which, in combination with the current tax provisions, provides useful tools for restructuring companies, generally without tax costs. The main categories of transformations provided for by Law 4601/2019 are three, namely merger, demerger and conversion.

The recent Law 4935/2022 entitled “Incentives for business development through partnerships and corporate transformations and other provisions” (Official Government Gazette No. A 103/26.5.2022), applicable to all forms of transformations under Law 4601/2019, provides for the first time the possibility of carrying out the so-called “asymmetric demerger” with the parallel use of tax incentives. In particular:

ΙΙ. Types of demerger

     A demerger is a transfer act, by universal succession (i.e. automatically as a total of assets and liabilities), of a company’s assets to at least two existing or newly established companies. More specifically:

  1. a) Joint demerger is an act whereby a company (the demerged company) is wound up without going into liquidation and transfers to other existing companies or companies established simultaneously or partly to one or more existing companies and partly to one or more companies established simultaneously (the beneficiaries) all its assets and liabilities in exchange for granting to its shareholders or partners of partnership interests in the beneficiaries.
  2. b) Partial demerger is the act whereby a company (the demerged company), without being dissolved, transfers to one or more existing companies or companies established simultaneously or partly to one or more existing companies and partly to one or more companies established simultaneously (the beneficiaries), the business unit(s) indicated in the draft plan of the demerger in exchange for granting to the demerged company’s shareholders or partners of partnership interests in the beneficiaries.
  3. c) Hive-off is the act whereby a company (the demerged company), without being dissolved, transfers to one or more existing companies or companies established simultaneously or partly to one or more existing companies and partly to one or more companies established simultaneously (the beneficiaries), the business unit(s) indicated in the draft plan of the demerger in exchange for granting to the demerged company (not to its shareholders/partners) of partnership interests in the beneficiaries.

III. Asymmetric demerger

Joint and partial demerger may be either symmetrical or asymmetric. In a symmetrical demerger, the partnership interests of the beneficiaries are distributed between the shareholders or the partners of the demerged company in proportion (pro rata) to their shares in the demerged company or in its capital. On the contrary, in the asymmetric demerger, the partnership interests of the beneficiaries are distributed between the shareholders or the partners disproportionately to their shares in the demerged company. In other words, in the event of an asymmetric joint or partial demerger, the shareholders or partners of the demerged company receive more or less of the interests that would have been allocated to them if the allocation was proportionate to their participation in the demerged company. In addition, the special rights granted to the shareholders or partners of the demerged company by the law or the statute of the company are not taken into consideration (e.g. the right to directly appoint a member or members of the board of directors of the demerged S.A. pursuant to Article 79 of Law 4548/2018).

Moreover, in the case of an asymmetric joint or partial demerger, it is not excluded that one or more shareholders or partners of the demerged company may not receive any shares in one or more of the beneficiary companies. The legality of the latter situation is clear pursuant to article 70 par.2(b)(1) of Law 4601/2019, according to which in the event of an asymmetric joint or partial demerger the shareholders or partners of the demerged company do not necessarily become shareholders or partners of the beneficiaries (Article 70 par.2 (b)(1) of Law 4601/2019 ‘in the event of a joint or partial demerger, the shareholders or partners of the company being demerged shall become shareholders or partners in one or more of the beneficiaries in accordance with the allocation provided for in the plan for the demerger’). This can be a valuable tool for shareholders or partners in family businesses who wish to cease their cooperation within the same company and continue their activities in companies that are independent with each other.

At this point, the following is worth noting: for both joint and partial demerger, the minimum requirement of the law is that each shareholder or partner of the demerged company must participate in at least one of the beneficiaries. However, in the case of a partial demerger with a single beneficiary (existing or newly established), the question arises whether it is conceivable that one or more shareholders/partners of the demerged company do not participate in the beneficiary (e.g. the demerged company X with partners A and B and business units A and B transfers unit B to a beneficiary, allocating participation rights only to partner B). In the case of a joint demerger, this would not be acceptable since the demerged company would be wound up and the transformation would lead to a complete exclusion of a partner. In the case of a partial demerger, though, the survival of the demerged company is crucial enough to justify the exception to the rule of mandatory distribution of the shareholdings of the beneficiaries to all the shareholders/partners of the demerged company, provided of course that the purpose of the corporate transformation is served and the interests of the shareholders/partners are protected.

IV. Connection with tax provisions

The invocation of tax provisions for an asymmetric (joint or partial) demerger was not possible under the tax legislation as it was until Law 4172/2013 (Income Tax Code – ITC). In particular, article 54 par. 3 of ITC provides the following “3. For the purposes of this article, “demerger” means any act by which:

  1. a company (transferring company), during its winding-up without going into liquidation, transfers its assets and liabilities to two or more existing or newly established companies (receiving companies) in exchange for issuing or transferring pro rata equity share of the receiving companies to its shareholders or partners,
  2. a company (transferring company), without being dissolved, transfers one or more business units, retaining at least one of them, to one or more existing or newly established companies (receiving companies) in exchange for issuing or transferring pro rata equity share of the receiving companies to its shareholders or partners. A business unit is defined as all the assets and liabilities of a part of a company which, from an organizational point of view, constitutes an autonomous undertaking, i.e. a unit capable of operating autonomously. ”

The above definition indicates that the ITC can only apply in the event of a symmetrical demerger, where the allocation of the shareholdings of the beneficiaries (receiving companies) to the shareholders or partners of the demerged (transferring) company is in proportion to their partnership interests (pro rata).

However, the aforementioned situation changed with Law 4935/2022, which explicitly applies to any form of corporate transformation provided for in article 1 par. 1 of Law 4601/2019 (merger, demerger, conversion), including asymmetric demerger (joint or partial). As a result, it is now possible from both a corporate and a tax law perspective to achieve the separation of a company’s shareholders through an asymmetric demerger.

V. Conclusion

Law 4601/2019 introduces and regulates for the first time the concept of “partial demerger” which can be either symmetrical or asymmetric. In the latter case, the partnership interests of the beneficiary companies are distributed between the shareholders or the partners of the demerged company disproportionately to their rights in the demerged company. This possibility, combined with the tax incentives of the new Law 4935/2022, can be a useful tool for the separation of property and decoupling between shareholders or partners of family businesses.