Karella v. Organismos Anasygkrotiseos Epicheiriseon AE

The Organismos Anasygkrotiseos Epicheiriseon AE (OAE) (defendant) was established by Greek Law 1386/1983. The OAE was empowered to assume the administration and daily operations of troubled undertakings. Section 8(8) of the law allowed the OAE, with the approval of the government, to increase the capital of a company under the OAE’s provisional administration, notwithstanding the otherwise applicable requirements for increasing capital. In December 1983, the Greek government subjected Klostiria Velka AE (Klostiria) to the OAE’s administration. The OAE decided to increase Klostiria’s capital. Klostiria’s existing shareholders were given one month to exercise an unlimited preemptive right. Klostiria shareholders Marina Karella and Nikolaos Karellas (shareholders) (plaintiffs) sued the OAE, seeking annulment of the OAE’s capital-increase decree on the ground that the decree violated the Greek constitution and Article 25(1) of the European Council’s Second Directive 77/91 (directive), which required shareholder approval of corporate-capital increases. The Greek court rejected the shareholders’ constitutional challenge but referred their arguments regarding the directive to the European Court of Justice (ECJ) for a preliminary ruling. Specifically, the Greek court asked the ECJ whether (1) individuals could rely on Article 25(1) in national courts and (2) Article 25(1) prohibited European Economic Community (EEC) member states from permitting exceptions to the shareholder-approval requirement for capital increases for financially troubled undertakings of special economic and social importance. The OAE argued that the directive was inapplicable to companies in rejuvenation proceedings and that directive Article 41(1), which encouraged stock ownership by employees, permitted the OAE to require Klostiria to increase its capital. The advocate general opined that individuals could rely on Article 25(1) in national courts and that Article 25(1) barred the OAE from requiring Klostiria to increase its capital without shareholder approval.