In September 1991 a large Austrian joint stock company issued a 4% convertible bond with a term of five years and an option of a conversion into common stock or preferred stock in the nominal amount of Sch 660 million. In 1996 the company ran into economic difficulties. For the purposes of representing the holders of the convertible bonds in bankruptcy proceedings a trustee was appointed according to section 1 of a law from April 24 1874 (RGBl 1874/49). In an effort to regain at least part of the bondholders' assets the trustee applied for court approval of the following acts:
a) acceptance of the company's offer to pay a quota of 10% to the holders of convertible bonds as a settlement of all claims of the bondholders against the company;
b) a shorter term for exercising the conversion option; and
c) acceptance of the company's reorganization plan.
In his application the trustee explained that an endorsement of the reorganization plan would be more beneficial for the bondholders than a bankruptcy resulting in the complete liquidation of the company. The court followed the trustee's opinion and approved the acts requested. Some bondholders filed an appeal to the Supreme Court against this decision, which was upheld on appeal.
The Supreme Court held that the appeal was admissible, but it upheld the lower court's decision on the merits. In its reasoning the Supreme Court found that the bondholders had misinterpreted the decision of the Appellate Court because that court had on no account denied their standing to file an appeal. The Appellate Court had only pointed out that the appeal must be founded on the common interests of all bondholders. In case of the appointment of a trustee he had the exclusive right to represent the common interests of the bondholders in those matters he was entrusted with. Common interests are not pursued in the name of individual bondholders - accordingly the dissent of some bondholders would be irrelevant. However, decisions approving the application of the trustee may be contested by any bondholder represented by such trustee, if they claim a violation of common interests. If bondholders could base their appeal on their individual interests, the appointment of a trustee would be rendered futile. For the protection of individual bondholders' rights the law (RGBl 1877/111) contains detailed provisions which call for a creditors' meeting in all those cases in which the trustee has to take actions requiring court approval. This meeting may be attended by all persons who have claims based on the securities in question. The meeting adopts decisions and elects representatives who have to support the trustee. Since the appealing parties have not claimed a violation of common interests the appeal had to be dismissed on the merits.
Supreme Court September 5 1996, 2 Ob 2243/96h (reported in Ris database).
For further information on this topic please contact Peter Pöch or Heinz Rindler at Ortner Pöch Foramitti Rechtsanwälte OEG by telephone (+431 535 37 21) or by fax (+43 1 533 15 55) or by e-mail ([email protected]).
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