The rising stock of Greek shipping

DEVELOPMENTS in Greek shipping law in the past year have been mostly legislative in nature.

The single most important piece of legislation concerns the listing of shipping stock with the Athens Stock Exchange (ASE). The law is now a reality, but delays in issuing certain implementation decisions of the Capital Market Committee (CMC) and the ASE, as well as the decline in the Greek stock market as a whole, have prevented shipping companies from taking advantage of it until now.

A second long-awaited change is a presidential decree allowing Greek-flag vessels to be more than fifty per cent-owned by EU nationals (whether individuals or corporate entities) and nationals of member states of the European Economic Area (EEA). This gives effect to European legislation previously resisted by Greece.

It is now possible to register under the Greek flag a ship majority-owned not only by Greek nationals or Greek companies but also by nationals or companies of member states of the EU and EEA

On the other hand, an official opinion­ of the Legal Council of the State (official legal advisors to the government) concerning the interpretation of tax law, has increased uncertainty and confusion with regard to taxation of the sale of shipping company shares.

Meanwhile, the tragic sinking of the passenger ferry Express Samina off the coast of Paros, with the loss of the lives of 84 passengers, has put in motion legislative and judicial powers which may change the coastal passenger environment. It could also change the level of damages payable to passengers.

2000 as a whole might be seen as a year of preparation. Those legislative changes which have been introduced, and those that are about to be implemented, have not yet produced tangible results. Their effect will doubtless manifest itself in the next few years.

Shipping stock in the ASE

Shipping has always been viewed by the capital markets - and by the relevant Greek authorities - as a high-risk business. Historically, the ASE elected not to list shipping shares, arguing that this would protect the interests of investors. Some years ago, however, shares in passengership operations were accepted, while only last year shares in oceangoing shipping businesses were cleared for ASE listing, albeit under a strictly regulated regime.

The company to be listed should be a so-called Greek Societe Anonyme, holding the shares of subsidiary shipowning companies. Its initial capital has to be much higher than the capital of other Greek companies (about $25 million) and all its funds should be invested exclusively in shares of shipowning companies, cash and some other assets specified in the law. The company to be listed should engage in no business other than shipping. It should be the 100 per cent owner of at least six single-vessel shipowning companies. Two-thirds of the ships should fly the Greek or other European flag.

There are provisions covering the valuation of assets, in particular the ships owned by the company. The ships should be insured to the requirements of banks for hull and machinery, protection and indemnity, war and other recognised risks.

Within two years of its incorporation, the company should be listed with the ASE, failing which it has to be liquidated.

There is a peculiar provision restricting the borrowing of listed companies to 25 per cent of their investment in ships. It has yet to be decided whether this restriction covers only the holding (listed) company or also the shipowning subsidiaries. Unless this provision is clarified, these companies will experience difficulties when trying to borrow from banks.

The management of the ship must be handled by an ISM-certified management company with an office in Greece. The quality of the manager is subject to approval by the ASE.

The original major shareholders of the listed company are not allowed to sell substantial parts of their shares. This should be done gradually over a period of years.

Beneficial ownership of Greek flag ships

It is now possible to register under the Greek flag a ship majority-owned not only by Greek nationals or Greek companies but also by nationals or companies of member states of the EU and EEA.

A condition for the application of this provision is that the individuals or the companies must have an office in Greece, the management of the ship must be carried out from Greece, and a representative of the ship and of the company, resident in Greece, should be appointed.

The Ministry of Merchant Marine has set out details covering the application of the new provisions. Oceangoing Greek-flag ships owned by non-European companies do not fall under this provision and should be beneficially owned by Greek nationals. This means, for example, that a Liberian company beneficially owned by European nationals cannot register a ship under the Greek flag. This interpretation is clearly contrary to European legislation.

Tax on transfer of shipping shares

In accordance with Greek tax law, the transfer of shares in companies not listed with the ASE or other foreign capital market is subject to a tax of five per cent on the purchase price.

There was some doubt about whether this tax applied to the sale of shares in shipping companies, and whether it constituted a lump-sum income tax liability on the profit of the seller from the sale, or a transaction tax. The ministry of finance took the view that this was an income tax, but the matter was referred to the legal council of the state, which in a recent decision held that it was a transaction tax. As a result, shipping companies were subject to the tax.

Because the opinions of the legal council are consultative in nature, it is now up to the government to decide whether it will follow this opinion or not. It seems clear that the uncertainty created by this provision requires a legislative resolution in order to clarify the issue once and for all.

Marine accidents and the law

Major marine accidents always attract a lot of publicity and invariably lead to changes in the law governing safety and pollution. The Express Samina looks set to continue this tradition. Although no changes in respect of safety standards are expected - since Greek ferries follow international standards of safety - stricter control is expected, along with a reduction in the maximum age of passenger ferries used in the coastal trade. More importantly, changes in Greek cabotage law may be brought in by as much as two years ahead of the time limits set by the European Union. The ministry of merchant marine is already preparing the appropriate legislation.

Interesting developments are also expected in the level of compensation to be fixed by the courts, both for those who lost their lives and those who survived the accident but went through the ordeal of the sinking. The Athens Convention does not apply to internal coastal voyages in Greece, and consequently the level of compensation will be determined by the courts.

The responsibility of the classification societies has also come under scrutiny as a result of recent marine casualties. The Greek criminal authorities and the Piraeus prosecutors have started focusing on the potential responsibilities of classification society surveyors in issuing certificates which do not reflect the true condition of ships. As is so often the case in the wake of a major accident, the eagerness of the prosecutors tends to exceed the measures demanded by the situation.

Recent court decisions

• Greek law has traditionally provided that shipowners’ limitation of liability is governed by the law of the flag of the ship . But the Supreme Court, in a 1999 decision reported in 2000 (Arios Pagos), held that the 1976 London International Convention on Limitation of Liability for Maritime Claims, ratified by Greece,­ prevails over this provision. As a result, limitation of liability in Greece is now governed by the provisions of the London International Convention.
• It is a criminal offence under Greek law to intentionally cause serious pollution which may give rise to risk of damage or harm to persons or other matters. In a recent decision, the supreme court held that, in order to impose criminal sanctions, there must be clear evidence and detailed reasons in the court decision showing that the pollution was intentional, serious and created risk of damage or harm to persons or objects.
• In the event that a ship is the sole asset of a company, and is transferred to another company, the buyer under Greek law is also responsible for the debts of the seller, as in the case of transfer of the whole property or a going concern­. In the case of one particular ship, where both the seller and the buyer were based in Piraeus and were controlled by the same shareholder, the sale of that ship was agreed to be subject to English law. The Court of Appeal of Piraeus held­ that the agreement about English law was intended to defraud creditors and, for this reason, was not valid. Consequently, Greek law was held to apply to the transaction in accordance with the provisions of the International Convention of Rome on the applicable law in contractual relations, which has been ratified by Greece
• In a recent decision, the Court of Appeal of Piraeus held­ that the sole shareholder in a shipping company was not responsible for the debts of the company by the mere fact that he was the holder of all its shares. In this respect, the Court of Appeal followed an earlier decision of the supreme court