(Replacement) Acquisition of Restricted Shares – which Corporate Body is responsible for the Company's decisions?

Austrian Supreme Court, Decision 6 Ob 108/21g

In case the general meeting is, according to the articles of association, responsible for the approval of the sale of shares with restricted transferability, the nomination of a replacement acquirer also requires the approval of the general meeting.

In case the transfer of shares in a corporation (GmbH, AG, SE) is subject to the consent of the company, the respective shares are referred to as restricted shares (shares). In the case of an AG, the consent is given by the management board, unless otherwise stipulated in the articles of association.

If consent is refused, it may be substituted by the court at the request of the shareholder wishing to sell. Even if the court replaces the consent, the desired transfer can still not effectively take place if the company notifies the shareholder within one month that it permits the transfer of the share on the same terms to another (substitute) purchaser designated by it.

In the decision 6 Ob 108/21g, the Supreme Court clarified which corporate body of an AG (stock corporation) has the right to designate such a substitute acquirer when selling shares with restricted transferability.

The decision was based on the following facts and circumstances:

- A share purchase agreement had been concluded between 2 shareholders willing to sell their shares and a potential buyer. The transfer of the shares was – according to the company's articles of association – subject to the approval of the company's general meeting of shareholders and was therefore made conditional in the share purchase agreement on a corresponding approval resolution – or a substitute approval by the court without a timely nomination of a substitute purchaser by the company.

- No resolution of approval could be obtained at the company's general meeting. Therefore, the sellers applied for court approval of the transfer, which was ultimately granted.

- The company took the view that the management board, not the general meeting, was responsible for naming the replacement purchaser and informed the sellers of the replacement purchaser elected by the management board.

- The purchaser from the original share purchase agreement sued for the determination of its shareholder status and corresponding entry in the company's share register.

The Supreme Court upheld the action and reasoned as follows:

If the articles of association assign the competence to approve the transfer of restricted shares to the general meeting, then the general meeting also has the competence to nominate a substitute acquirer. The nomination by the management board of the company was therefore legally not effective in the given case. Due to the expiry of the one-month period, it is no longer legally possible to have the nomination made subsequently.

As a result, the buyer designated by the sellers effectively acquired the shares in question.