In Aras v National Bank of Greece, the court looked at three incentive fee agreements and determined the date of the exit event triggering the payment and the appropriate currency exchange rate.
Set against the backdrop of the Greek economic crisis and a restructuring plan for the National Bank of Greece, the agreements were to incentivise executives to enable the bank to sell its shares in Finansbank and increase liquidity. The fees were calculated by reference to an exit event as per a formula which allowed a fee if the amount received for the shares was more than the book value of those shares. The parties disagreed on the date of the exit event, relevant for determining the book value of the shares.
The National Bank of Greece tried arguing that the exit event required actual disposal of its shares and actual receipt of payment rather than mere execution of the agreement to dispose. This meant it would not take place until completion. The court disagreed. The exit event was the execution of the share sale and purchase agreement, not the completion of the sale. It didn’t matter that the completion was subject to various contingencies. Nor did it matter that the fee was payable on completion. In the present context, disposal meant a binding agreement to sell the shares, not their actual transfer. Given the whole point of the agreements was to incentivise the executives to secure a sale of the shares, it didn’t make sense for the focus to be on anything other than a binding agreement.
While Finansbank’s equity book value was denominated in Turkish lira, the National Bank of Greece was to be paid in euros. The agreements were silent on when the currency conversion to calculate the fee was to take place. The court said it had to ask what a reasonable person with the parties’ background knowledge would have understood the parties to have intended. The answer, in the court’s mind, was clear. To allow a valid comparison, the conversion must occur on the date of the last equity book value before the exit event and not the date of the exit event itself.
By way of back up, the executives argued that the National Bank of Greece was estopped by convention from withholding payment of the fees. This was held to be unsustainable. There was no common assumption that, as the executives claimed, Finansbank would not be sold for less than its equity book value (so that the executives must be entitled to a fee). Indeed, this was a possibility expressly contemplated in the agreements. Even if there was a common assumption, there was no reliance and no detriment: the executives entered into employment extension agreements much before the fee was payable and the extensions gave them substantial advantages.