Delisting, squeeze-out, own shares and abuse of rights

6 Ob 56/20h

In 2017, BWT AG – a water technology company with its headquarters in Upper Austria that until then had been listed on the stock exchange – was delisted (its stock exchange listing was terminated). In what is now its third decision on this delisting, the Austrian Supreme Court (OGH) recently provided important clarifications on questions relating to the holding of own shares and the squeeze-out of shareholders.

The delisting of BWT AG was ultimately achieved by performing a squeeze-out in accordance with the Shareholder Squeeze-out Act (GesAusG), according to which a majority shareholder holding at least 90% of the share capital of a stock corporation can bring about the exclusion of all minority shareholders (squeeze-out) from the corporation. The minority shares are automatically transferred to the majority shareholder. The stock exchange listing ceases to exist as a result of the consolidation of all of these shares in the hands of just one person; this results in what is called a "cold delisting". The squeezed-out minority shareholders receive appropriate cash compensation in exchange for their shares.

In its decision of 23 April 2020 in case 6 Ob 56/20h, the Supreme Court used the squeeze-out and delisting of BWT AG to make the following statements:

- When calculating the 90% threshold for the squeeze-out, the Squeeze-out Act requires own shares held by the stock corporation itself to be excluded from the calculation. Therefore, it is easier for a majority shareholder to reach the 90% threshold if the stock corporation acquires and retains own shares. However, the Supreme Court emphasises that in principle it is permissible for a stock corporation to prepare for delisting by repurchasing shares held in free float (and possibly by subsequently cancelling these shares). The fact that the stock corporation retains acquired shares for a longer period of time does not constitute an unlawful act either. Since the Stock Corporation Act precisely defines the circumstances under which the stock corporation must sell the own shares it holds, it follows a contrario sensu that there is no obligation on the stock corporation to sell the shares if the legal requirements for such an obligation are not met. An abusive arrangement can only be assumed if the majority shareholder induces the company to acquire own shares unlawfully – in particular in violation of the principle of equal treatment – or if the established conditions for the squeeze-out are to be reversed immediately after the resolution on the squeeze-out is adopted.

- On the question of whether the exclusion of own shares required under the Squeeze-out Act is constitutional, the Supreme Court refers to the decision of the Constitutional Court of 1 October 2019 in case G-104-105/2019. In this ruling, the Constitutional Court states: "The [...] neutralisation of own shares when calculating the participation threshold of 90% of the nominal capital of the target company is consistent with the general assessment under company law that own shares [...] should not play a role in the decision-making process regarding restructuring measures [...]."

- The Supreme Court also clarifies the allocation of roles for the preparation of a squeeze-out: A valuation report must be made available to shareholders prior to the general meeting if such report has been prepared for the purpose of determining the appropriate cash compensation. However, this statutory provision does not actually oblige either the main shareholder or the company to obtain such an expert opinion; it is also permissible to determine the appropriate cash compensation on the basis of internal company calculations. For this reason alone, the impartiality of the valuation expert in question, as claimed by individual minority shareholders, proved to be in vain: Since the calculation of the appropriate cash compensation may also be carried out internally within the company and without the involvement of an external expert, there can be no requirement regarding the independence and impartiality of any expert employed. A distinction must be made between the function of a possible valuation expert and that of a court-appointed auditor, whereby only the latter is in any case necessary: This expert auditor must declare whether he considers the cash compensation determined to be appropriate. For this purpose, however, the auditor does not in principle have to carry out his own company valuation – except where deficiencies are identified by him. It is sufficient for the auditor to check the plausibility of the submitted valuation – in particular with regard to the substantive premises and the methods selected and applied for conducting the valuation.