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Fluctuating Shareholdings Win Supreme Court Approval - International Law Office

International Law Office

Litigation - Czech Republic

Fluctuating Shareholdings Win Supreme Court Approval

May 06 2003

Under the Commercial Code, a shareholder of a joint stock company who owns shares equal to or exceeding a certain threshold may request that the board of directors convene a general meeting and include certain items on the agenda. If the board of directors fails to comply with the request, the shareholder may petition the court to appoint him or her to convene the meeting. The threshold in question amounts to 3% or 5% of the company's registered capital.

By law, if during the proceedings the amount of the shareholder's shares falls below the necessary threshold (eg, by virtue of transfer of shares or an increase in the registered capital of the company), then the petition must be dismissed.

In a recent case a shareholder consequently acquired additional shares, again raising his number of shares above the necessary threshold. However, his petition was dismissed by the court, which claimed that a new petition must be filed. The court held that once the number of shares in the shareholder's ownership fell below the necessary threshold, the shareholder lost his right of petition and the subsequent increase was irrelevant.

The Supreme Court concluded that this reasoning was incorrect. It ruled that if a petitioning shareholder's stake falls below the necessary threshold but then increases to equal or exceed the threshold, then his petition should be approved (provided that all other conditions for approval are met). According to the Supreme Court, the courts should examine the shareholder's stake twice – once at the date of filing of the petition and again at the time of ruling.

For further information on this topic please contact Jan Sysel at Altheimer & Gray by telephone (+420 224 81 27 82) or by fax (+420 224 81 01 25) or by email (SyselJ@altheimer.cz).

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