Introduction
Facts
Decision
Comment
After a first ruling rendered earlier in 2011, the Supreme Court has again dealt with the interpretation of the articles of association of Austrian limited liability companies in a recent case.(1)
The court held that provisions which govern "necessarily corporate organisational rules" must be interpreted "objectively". This means that - in contrast to the rules of interpretation applied under Austrian general civil law - the pure wording of the articles is relevant, irrespective of the intent of the parties or an ancillary agreement concluded outside the articles.
The case concerned the allocation of voting rights between a founding shareholder and an investor.
The founder and the investor had entered into a number of agreements, which involved implementing a three-stage investment concept. A key element of this three-stage concept was that the investor be entitled to control 51% of the votes in the company from a certain date onwards (subject to reaching Phase 2 of the three-stage investment). In a shareholders' agreement entered into between the founder and the investor, a number of criteria and thresholds were set forth that determined when and how Phase 2 would be reached.
Some time after the conclusion of the shareholders' agreement, the articles of association were amended. The amended articles stated only that from a specific date onwards (as given in the articles), the investor would hold 51% of the voting rights. The articles contained a general reference to the shareholders' agreement, but did not incorporate any of its contents; most importantly, the articles did not differentiate between the three phases.
At the end of Phase 1, the founder terminated the relationship with the investor. However, at a meeting of the company's shareholders held shortly thereafter, the investor claimed to hold 51% of the votes, took the chair, changed the order of the agenda and (given his voting power) implemented a number of resolutions against the votes of the founder and the other shareholders. The founder filed a claim for nullification of these resolutions.
The investor prevailed before the court, which held that:
- the provision stating that the investor would hold 51% of the votes from a specific date was clear and unambiguous;
- it was to be interpreted on the basis of its wording, irrespective of any ancillary agreements between the founder and the investor; and
- if the goal had been to make this change in voting power subject to additional conditions (as contained in the shareholders' agreement), these conditions would have had to be included in the articles.
The court's decision raises a number of issues. In particular, it establishes that whether a provision governs "necessarily corporate organisational rules" or deals with other matters has a significant impact on its interpretation. Thus, it must be established with more certainty what constitutes 'necessarily corporate organisational rules'.
Given the court's clarity in affirming the objective interpretation for such provisions, the practice of regulating a number of important subjects - including share transfer restrictions, non-compete clauses, management nomination rights and profit distribution - only (or at least in much greater detail) in shareholders' agreements must be carefully reconsidered.
For further information on this topic please contact Florian Kusznier at Schoenherr by telephone (+43 1 534 37 0), fax (+43 1 53 43 76100) or email ([email protected]).
Endnotes