A shareholder who acquires a controlling stake in a listed company must make, under certain conditions, a mandatory offer to acquire all outstanding shares. But what happens if the shareholder does not comply with that obligation? In a decision published last week, the Federal Supreme Court (Bundesgerichtshof) ruled on the open issue whether in such a scenario, the other shareholders would be entitled to damages. The court held that no claim for damages exists.
Sec. 35 WpÜG requires the acquiror of a controlling stake to make a mandatory offer with four weeks. In that context, WpÜG provides for a claim for interest, if a mandatory offer is made too late, and it provides for powers of the Federal Financial Supervisory Authority, BaFin, to impose fines of up to EUR 1,000,000 on the controlling shareholder if the obligation is not complied with. Finally, the controlling shareholder’s voting rights are suspended during the period of breach. However, the law remains silent on the position of the other shareholders if the manadory offer is not only made late, but is not made at all. The legal commentaries were divided on the issue.
The judgment of the Federal Supreme Court itself is rather short on the facts, but read in conjunction with the first instance judgment of the District Court (Landgericht) Cologne, it appears that the set of circumstances behind this dispute was rather peculiar – indeed, it appears to have been the first time that a shareholder refused to make an offer. Amongst other things, the defendant controlling shareholders were alleging that the claimant had, in conjunction with their financial advisers, set up the transactions in such way as to trigger a mandatory offer, and that the financial adviser had acted fraudulently and without the defendants’ authoritizaton.
The Federal Supreme Court, however, did not have to go into any of this, since the Action was dismissed on legal grounds alone. The court reviewed the system of sanctions surrounding the duty to make a mandatory offer. It found that the decision of the lawmakers not to provide for a damages claim was not a mere oversight, and that there was no reason for the courts to intervene and create such a claim. The securities markets was protected by BaFins’s authority to intervene and impost monetary finds, and more importantly, by the fact that a controlling shareholder could not exercise its voting rights if a mandatory offer was not made.
The court then reviewed whether German law was compatible with the requirements of the underlying EU Directive on Takeover Bids and again found that the sanctions provided for under German law were sufficient to satisfy EU law requirements, in particular Art. 17 of the Directive, which requires member states to determine sanctions that are “effective, proportionate and dissuasive.” As these requirements were clear, the court also obviously found – without spelling it out in its judgment – that there was no reason to submit the issue for a preliminary ruling to the European Court of Justice.
Finally, the court reviewed the question whether the provisions in the securities laws qualified as a statute intended to protect others (Schutzgesetz) within the meaning of Sec. 823 German Civil Code (BGB), in which case a claim in tort would exist. The court held that the securities laws were protecting not the individual investors, but the securities markets at large, and hence, could not be interpreted as statutes that intended to protect individuals within the meaning of the tort law provisions.