## Facts

- Greek Law 1386/1983 created Organismos Anasygkrotiseos Epicheiriseon AE (OAE), a public body empowered to place “troubled undertakings” under provisional administration and, with governmental approval, increase their share capital by administrative act.
- Klostiria Velka AE, a Greek public limited company, was placed under OAE administration in December 1983.
- OAE adopted an administrative measure increasing Klostiria’s share capital under the statute, granting existing shareholders a one-month period to exercise an unlimited pre-emptive right to subscribe for new shares.
- Shareholders Marina Karella and Nicolas Karellas sought annulment of the administrative measure before the Greek Council of State, arguing it conflicted with EU company law requiring shareholder approval for capital increases.
- The Greek Council of State rejected the constitutional challenge but referred questions on the interpretation of Directive 77/91/EEC (Second Company Law Directive) to the Court of Justice.

## Issues

1. Whether Article 25(1) of Directive 77/91/EEC (requiring capital increases to be decided by the general meeting) is unconditional and sufficiently precise so that shareholders may invoke it against the State and public bodies in national court.
2. Whether Article 25(1), read with Article 41(1), permits national rules allowing a public authority to increase a public limited company’s capital by administrative act, without a general meeting decision, even for financially distressed and socially important undertakings and even where shareholders retain pre-emptive rights.

## Decision

- The Court held that Article 25(1) is unconditional and sufficiently precise as to its subject matter and may be relied upon by individuals against public authorities before national courts.
- The Court held that Article 25, read together with Article 41(1), precludes national rules authorizing an increase in a public limited company’s capital by administrative act rather than by a decision of the general meeting.
- The Court ruled that the company’s serious financial difficulty and asserted economic and social importance do not justify bypassing the general meeting requirement.
- The Court ruled that preservation of pre-emptive subscription rights does not cure the incompatibility created by replacing a shareholder-meeting decision with an administrative act.
- The Court rejected reliance on Article 41(1) (measures encouraging wider share ownership) as a basis for derogating from Article 25(1)’s mandatory rule.

## Legal Principles

- A directive provision requiring that “any increase in capital must be decided upon by the general meeting” is directly effective where it is unconditional and sufficiently precise, permitting shareholders to invoke it against the State (vertical direct effect).
- The Second Company Law Directive’s shareholder-protection rule on capital increases is mandatory and cannot be displaced by national restructuring schemes that substitute administrative decisions for shareholder approval.
- Article 41(1) (encouraging certain shareholding measures) does not authorize derogations from Article 25(1)’s requirement of a general meeting decision on capital increases.
- The existence of shareholder pre-emptive rights does not allow a Member State to bypass the general meeting when increasing capital in a public limited company.
- In national litigation, directly effective EU rules must be applied notwithstanding conflicting domestic provisions.

## Conclusion

The Court of Justice held that shareholders may directly invoke Directive 77/91 Article 25(1) against State entities and that Member States may not authorize capital increases in public limited companies by administrative act in lieu of a general meeting decision, even in emergency restructuring contexts and even where pre-emptive rights are preserved.


Karella v. Organismos Anasygkrotiseos Epicheiriseon AE (OAE), Joined Cases C-19/90 & C-20/90, [1993] 2 C.M.L.R. 865 (ECJ 1991)