The Supreme Court recently considered(1) how a minority shareholder should react if the majority shareholder overrules it on a capital increase resolution that subsequently leads to the dilution of its holding.
One majority shareholder held approximately 80% in the company, alongside three minority shareholders. Arguing that a mid-term financing was needed with respect to certain projects of the company and a foreign subsidiary, amounting to approximately €6.2 million, the majority shareholder voted to increase the share capital of the company from €2.65 million to €6.65 million.
Two of the minority shareholders voted against this resolution, claiming that, among other things, the financing requirements could have been met by bank financing and that the real intention behind the resolution to increase the nominal capital of the company was to dilute the shareholdings of the minority shareholders to below 10% (the squeeze-out threshold under Austrian law), with a view to ultimately expelling them from the company. The minority shareholders would have been able to finance their share of the capital increase.
Under Supreme Court case law, (minority) shareholders are protected against the dilution of their participation following a capital increase if their statutory subscription rights are excluded. In such cases the court requires that the new shares be issued in exchange for an 'adequate issue price', which may also require the determination of an adequate share premium.
This principle applies in case of an exclusion of subscription rights both for the benefit of an existing shareholder and for the benefit of a third party. Legal commentators in Germany have argued that this principle should also apply following a disagreement among shareholders as regards the need for a capital increase. This view has been confirmed by a decision of the Stuttgart Upper Regional Court, which was quoted in the Austrian decision.
However, the Austrian Supreme Court was not convinced by the reasoning of the German court. It cautioned against the potential "risk of extortion" that might be brought about if this line of argument were followed. Focusing on the case at hand, the court further held that there was no requirement to implement a capital increase only at an adequate issue price where:
- the statutory subscription rights of the minority shareholders were not excluded;
- the minority shareholders were able to finance their share of a capital increase; and
- an intention of the majority shareholder to abuse its legal rights "had not been determined".
Thus, even if minority shareholders are overruled (and their shareholdings are ultimately diluted as a result), a disagreement between shareholders regarding the need for a capital increase will not generally require the determination of an adequate issue price.
(1) 6 Ob 155/12f.