News
Cease and desist claim arising from a shareholders’ agreement
may be secured by interim injunction
The applicant is a 9.99%, the respondent a 90.01% shareholder of an Austrian limited liability company (“GmbH”).
The articles of association of the GmbH stipulate that resolutions on certain structural changes – such as amendments to the articles of association, reorganizations (merger, demerger, sale of significant parts of the company, conversion pursuant to the Austrian Conversion Act, conversion into an Austrian stock company (“AG”) or capital measures which may lead to a dilution of the applicant’s shareholding) – require the consent of the applicant.
In addition, the parties agreed in a separate shareholders’ agreement (“SHA”) that structural changes or restructurings may only be carried out with the consent of the applicant. In a (demonstrative) list it was stated that these include, among others, mergers, demergers, disposals or pledges of material assets and the conversion into an AG.
In the recitals of an addendum to the SHA, the intention was stated that the applicant shall become a 50.01% shareholder in the future, and with regard to this, a 50:50 distribution of profits was agreed.
Two years later, a general meeting was scheduled in which the respondent requested the squeeze out of the applicant as a shareholder pursuant to sec. 1 of the Austrian Squeeze-out Act (“GesAusG”).
Thereupon, the applicant, in order to secure its cease and desist claim against actions which would lead to its exclusion as a shareholder, requested the respondent, inter alia, to refrain from voting on a squeeze out of the applicant at the scheduled general meeting.
Decision of the Supreme Court
After the court of first instance issued the interim injunction in accordance with the application and the appellate court dismissed the request for security, the Austrian Supreme Court (“OGH”) ruled that the requested interim injunction must be issued.
A threatening violation of the SHA (the provisions of the articles of association were not addressed by the OGH) can be countered with preventive injunctive relief and this injunctive relief can also be secured by an interim injunction (6 Ob 44/19t; RS0117682).
The cease and desist claim was sufficiently certified in the present case: Against the background that the applicant and respondent intended a future majority shareholding of the applicant, had agreed on a profit distribution in the ratio 50:50, the list of structural changes requiring consent was demonstrative, resolutions on the squeeze out of a shareholder under the GesAusG are generally regarded in legal practice as “changing the structure” and there were no indications that this should not also be the case in the SHA at issue, in the opinion of the OGH the provision on the structural changes requiring consent can only be understood in such a way that a shareholders’ resolution on the squeeze out of the shareholder also requires the consent of the applicant.
In addition, the applicant was able to demonstrate, in accordance with sec. 381 (2) of the Austrian Enforcement Act (“EO”), that it was threatened with irreversible damage as a result of the intended squeeze-out and was therefore entitled to file an application for security. Even the fact that, pursuant to sec. 5 (4) GesAusG, the transfer of shares only takes place upon registration of the resolution on the squeeze-out with the companies register and that the companies register could in any case proceed pursuant to sec. 19 Austrian commercial register act (“FBG”) and thus interrupt the registration procedure did not eliminate the existence of a threat of irreparable damage, especially since the decision of the companies register with regard to the interruption is within the court’s discretion and is also incontestable pursuant to sec. 19 (3) FBG.
Accordingly, the OGH restored the interim injunction of the court of first instance.
Conclusion
According to the case law of the OGH, votes cast in violation of a shareholders’ agreement (but which are at the same time not in violation of the company’s articles of association) are in principle valid and, due to this violation (merely) of the shareholders’ agreement, are also not contestable due to the fact that (corporate components of) articles of association must be interpreted objectively. In an older decision (2 Ob 46/97x) the OGH stated that, due to the particularly personalistic structure of the company, a shareholders’ resolution violating provisions of a shareholders’ agreement entered into by all shareholders was contestable although the violated provisions did not at the same time form part of the company’s articles of association. As a general rule, however, shareholders are limited to claims for damages in the event of the exercise of votes in breach of a shareholders’ agreement, but the shareholders’ resolution itself (which is covered by the articles of association) is not contestable. Only in case the violated provision substantiates the fiduciary duties amongst the shareholders (which apply in any event), such violation shall be contestable even if the relevant provision is only provided for in a shareholders’ agreement and not the articles of association.
Even if an interim injunction was issued in the present case due to a violation of the SHA, in light of the background of the above-mentioned case law, particular attention should be paid to the wording of those matters requiring the consent of a (minority) shareholder. From the point of view of a minority shareholder – with a view to safeguarding its own position in the event of a conflict – it should also be carefully considered which measures and actions requiring consent should be included in the articles of association and not just in a shareholders’ agreement or rules of procedure.