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13 October 2003
Since 1989, the shares of private company A were owned by two groups of shareholders. The majority group held 52% of the shares, while the remaining shares were held, among others, by company B and company C. Companies B and C formed a minority group which was not represented on the board of directors of company A. Subsequent to a merger between companies B and C, company B adopted the shares in company A formerly owned by company C and duly requested the consent of the board of directors of company A to the transfer and registration of those shares. However, the board of directors refused its approval and informed company B that company A would exercise its option under Article 685b of the Swiss Code of Obligations to offer to acquire the shares in question at their real value.
According to Article 685b, a company may refuse its consent to a share transfer if (i) it gives a valid reason provided for in the articles of incorporation, or (ii) it makes an offer to the seller of the shares to acquire the shares at their real value, either for its own account or for that of other shareholders or third parties, at the time of the request.
Company A's articles of incorporation provided that the board of directors could refuse entry into the share register without giving any reason. The Supreme Court decided that this provision, which was drafted prior to the latest revision of corporate law, was not in line with Article 685b of the Swiss Code of Obligations. As no valid reason for such refusal was provided for in the articles of incorporation, company A was not entitled to refuse the share transfer by relying on a valid reason as stated in Article 685b of the Swiss Code of Obligations.
However, the Supreme Court decided that a company's right to acquire such shares has its basis in the Swiss Code of Obligations and need not be mentioned in the articles of incorporation.
The Supreme Court also had to consider whether the board of directors' refusal to approve the share transfer infringed the principle of equal treatment of shareholders. The court stated that, with respect to the equal treatment of shareholders, the board of directors must execute its discretionary powers in a way which does not favour single shareholders. The equal treatment of shareholders does not allow the personal interests of one shareholder to be considered as more important than the interests of other shareholders, as long there is no compelling need to do so in the interests of the company. In accordance with this principle, the Supreme Court stated that the board's execution of its right to acquire the shares represented a strong preference in favour of the majority shareholders which could not be justified by company interests.
In addition, the Supreme Court held that there are other restrictions on the execution of this power by majority shareholders as misuse of a right (Article 2(2) of the Swiss Civil Code). The execution of majority power is an evident abuse if it is not justified by reasonable economic considerations and if special interests of the majority are favoured without good reason.
Given that the merger between companies B and C was merely a restructuring, and therefore that both companies were already controlled by the same person prior to the merger, the share transfer would not have led to a shift in power; neither was there any need to prevent an undesirable person from becoming a shareholder. The Supreme Court thus decided that the board's exercise of the right to acquire the shares was not covered by the aims of the restrictions on the transferability of shares and was an evident abuse of a right.
For further information on this topic please contact Markus Doerig or Philipp Schaller at Badertscher Doerig Poledna by telephone (+41 1 266 20 66) or by fax (+41 1 266 60 70) or by email (firstname.lastname@example.org or email@example.com). The Badertscher Doerig Poledna website can be accessed at www.bdp.ch.
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