Shareholder activist strategiesStrategies
What common strategies do activist shareholders use to pursue their objectives?
Activist shareholders in Austria apply well-known strategies to leverage their influence beyond their proportionate shareholding through informal measures such as issuing open letters to the management and campaigns publicly voicing their dissatisfaction with the management’s strategy.
However, shareholders also increasingly take advantage of the possibilities provided to them by corporate law, such as to contest shareholder resolutions in court. However, in general, shareholder activists do not primarily intend to block resolutions in shareholders’ meetings by using their minority shareholders’ rights. As common practice, the share exchange ratio of mergers and the squeeze-out compensation are examined in court, however, without blocking the transaction as such.
Depending on the approach and the quality of the proposals of activist shareholders, it is expected that the boards of listed companies are interested in a dialogue with activist shareholders making constructive proposals or who can be expected to gain substantial support from other shareholders.
Activist shareholders can also benefit from several legal measures that force companies to engage constructively with them, such as the right to request a shareholders’ meeting or the right to include items on the agenda of the shareholders’ meeting.
Shareholder minority rights, regardless of the number of shares held, include:
- attending and speaking at shareholders’ meetings (sections 111 and 112, AktG);
- exercising voting rights; and
- asking questions and receiving answers at the shareholders’ meetings in connection with items on the agenda (section 118, AktG); and the right to challenge a shareholder’s resolution in court (sections 196 and 201, AktG).
Shareholders individually or collectively representing 1 per cent of the share capital may:
- submit motions (counter proposals) to agenda items (outlined in question 6); and
- request the review of the amount of consideration for a mandatory offer as well as for a voluntary offer aimed at gaining control with the Austrian Takeover Commission (section 26, paragraph 5 and section 33, paragraph 2, No. 4, Austrian Takeover Act).
Shareholders representing 5 per cent of the share capital may:
- call for a shareholder meeting (section 105, AktG), which can be enforced in court in case of non-compliance;
- request to amend items to the agenda (section 109, AktG);
- request an audit of the annual accounts by a different auditor for good cause (section 270, paragraph 3, Austrian Commercial Code);
- request that certain claims are levied by the company against certain persons or deny a waiver or settlement regarding such claims, in connection with the establishment, post-formation acquisitions and management of the company, if the claims are based on certain reports; and
- call as shareholders of an acquiring company for a shareholder meeting during the course of a simplified merger, up to a month after the transferring company resolved upon the merger, where it is resolved upon if the merger shall be approved (section 231, paragraph 3, AktG).
Shareholders representing 10 per cent of the share capital may:
- file for removal of a supervisory board member for good cause by the court (section 87, paragraph 10 and section 88, paragraph 4, AktG); and
- request that certain claims are levied by the company against certain persons or deny a waiver or settlement regarding such claims, in connection with the establishment, post-formation acquisitions and management of the company.
Shareholders representing 20 per cent of the share capital may:
- deny a waiver or settlement regarding certain claims against members of the management or supervisory board or founding shareholders (section 43, section 84 para 4 and section 99 AktG).
Shareholders representing more than 25 per cent of the share capital present at the shareholders’ meeting may (unless the majority requirement is reduced in the AoA):
- veto changes of the company’s AoA, including capital measures, selective share-buy backs; and
- veto measures carrying exclusion of subscription rights of the shareholders.
Shareholders representing one-third of the share capital may:
- elect an additional member to the supervisory board in the case that three or more members of the supervisory board are elected in one shareholders’ meeting and one candidate got at least one-third of the votes in all prior elections. In this case, that candidate gets the last mandate without a further election.
What are the general processes and guidelines for shareholders’ proposals?
At shareholders’ meetings, every shareholder is entitled to speak, to ask questions and to propose motions directed against proposals of the management or the supervisory board regarding the items of the agenda. Shareholders are not required to notify the company in advance of such proposals. However, shareholders may use the company website in order to solicit support for their counter proposal. For that purpose, shareholders representing 1 per cent of the company’s share capital may:
- submit motions to agenda items, together with reasoning, up to a week prior to the meeting; and
- request that the proposals (including reasons) and the names of the proposing shareholders shall be uploaded to the company’s website. The proposal must be received by the company at least seven business days prior to date of the shareholders’ meeting.
The management board of the company (or the supervisory board in case of board or auditor elections) may render a statement to the proposal to be published on the website accompanying the shareholder motion. The company’s managing directors are liable for damages occurring to the shareholders if the motion is not uploaded on the website. A resolution passed may also be contested by the minority shareholders on that basis. Motions will not be considered by the company for publication only in exceptional circunmstances, in particular, if they lack a written reason, would be unlawful or if the proposal would be defamatory or offensive under criminal law.
Amendment of the agenda of a shareholder meeting
Shareholder proposals concerning subjects other than items on the agenda are only admissible if the agenda is amended accordingly. Only shareholders individually or collectively that have been shareholders for at least three months and represent in total 5 per cent of the company’s share capital may, in written form, request that additional proposals are included on the agenda of a shareholders’ meeting (section 109, paragraph 1, AktG). This request must be received by the company 21 days prior to an ordinary or 19 days prior to the date of an extraordinary shareholders’ meeting. An amended agenda has to be published in the same manner and form as the original agenda (for listed companies publication in the Federal Gazette, push forward media (eg, Bloomberg, Reuters or Newswire) as well as on the company’s website). To pursue their rights, shareholders may request the convening of an additional shareholders’ meeting, which can then be enforced in court.
Ordinary subjects of shareholder resolution proposals are:
- counterproposals on profit distributions;
- alternative or additional supervisory board candidates;
- special audit by appointing a special auditor;
- the enforcement of certain compensation claims against board members or other persons; and
- the appointment of special representatives to enforce these claims.
The shareholders’ meeting is competent only as far as expressly provided for by corporate law or by the AoA. The AktG provides mandatory competence of the shareholders’ meeting on the following items:
- approval of the annual accounts if the supervisory board did not approve or if the management board as well as the supervisory board decided to entrust the shareholders’ meeting to resolve upon the issue (section 104, paragraph 2, lit 1, AktG);
- appropriation of distributable profits (section 104, paragraph 2, lit 2, AktG - please note that the profits shown on the balance sheet have to be fully distributed unless the AoA allows a full or partial retention by shareholder resolution);
- adjournment of the shareholders’ meeting (section 104, paragraph 2, lit 3, AktG);
- discharge of the members of the management board and supervisory board;
- appointment and removal of supervisory board members (section 87, AktG);
- compensation of the supervisory board members (section 98, AktG);
- appointment of the company auditor (section 270, paragraph 1, Austrian Commercial Code);
- issuance and authorities for issuance of convertible or profit participating bonds (section 174, paragraph 1, AktG) or participation rights (section 174 para 3 AktG);
- amendment of the AoA (section 145, paragraph 2, AktG);
- capital measures, including authorisations to the management to increase the share capital;
- management matters brought to the shareholders’ meeting by the management board or supervisory board (the latter as far as subject to supervisory board approval) (section 103, paragraph 2, AktG);
- decisions of major importance for the company such as major divestments, drop-down acquisitions (based on adopted German case law known as the Holzmüller/Gelatine-doctrine);
- mergers, demergers and certain other corporate restructuring measures;
- vote of no-confidence in respect of members of the management board (section 75, paragraph 4, AktG);
- special audit and appointment of a special auditor (section 130 paragraph 1, AktG);
- profit-pooling agreements (section 238 para 1 AktG);
- delegation or lease of the operation of the company’s commercial activities or the acceptance of such delegation or lease in respect of another company (section 238, paragraph 2, AktG);
- transfer of the entire assets of the company (section 237, paragraph 1, AktG);
- dissolution of the company (section 203, paragraph 1, lit 2, AktG) and continuation of a dissolved company (section 215, AktG);
- appointment and removal of liquidators (section 206, AktG); and
- discharge of the liquidators (section 211, paragraph 2, AktG).
May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?
If an item of the agenda in a shareholders’ meeting, any shareholder (group of shareholders) representing 1 per cent of the share capital of a listed company, can propose candidates for election to the supervisory board. For that purpose, the details of proposed candidates for the supervisory board have to be submitted (including a declaration of the candidate according to section 87, paragraph 4, AktG) requesting an upload to the company’s website together with the names of the proposing shareholders (section 110, paragraphs 1 and 2, AktG). Such a proposal must be received by the company at least seven business days prior to date of the shareholders’ meeting. The supervisory board may render a statement with respect to the proposal to be published on the website accompanying the shareholder proposal.
In the case of listed companies, only candidates presented on the company’s website on the fifth business day prior to the shareholders’ meeting at the latest qualify for an election to the supervisory board. No candidates can be proposed ad hoc in the shareholders’ meeting of a listed company (section 87, paragraph 8, AktG).
May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?
Request to call a shareholders’ meeting
Shareholders who together hold at least 5 per cent of the share capital (or less if stated in the AoA) may require the company to call a shareholders’ meeting (section 105, paragraph 3, AktG). The request has to be addressed to the management board in writing and should state the objective and reasons together with an agenda and motions for each agenda item. Requesting shareholders must prove that they hold a sufficient number of shares (quorum) for the legally required minimum period of ownership of three months. The shareholding, including the holding period of three months, may be evidenced by a deposit confirmation (or in the case of registered shares by an entry in the share register).
Permission to call a shareholders’ meeting at the company’s expense
If the company fails to comply with a proper request to call a shareholders’ meeting, requesting shareholders may apply to the court for an authorisation to call a shareholders’ meeting at the company’s expense (section 105, paragraph 4, AktG).
Shareholders’ meeting required:
Shareholders may not act by written consent in lieu of a shareholders’ meeting.Litigation
What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?
Each shareholder may request at a shareholders’ meeting to resolve upon an appointment of a special auditor investigating actions of the management. The purpose of the special audit is to obtain information on any breaches of duty. This information might be necessary to bring an action, especially as the plaintiff bears the burden of proof. In case such resolution is not passed a shareholder (or group of shareholders) holding 10 per cent of the share capital (over the last three months) may request a special audit and appointment of a special auditor at court, provided that the shareholders are able to demonstrate evidence that the company has been harmed.
The assertion of damage claims by the company against shareholders, members of the management board or the supervisory board, can be requested by a shareholder (or a group of shareholders) holding 10 per cent of the share capital (over the last three months until the legal proceedings have been completed), if such claims are not manifestly unfounded. The threshold to request the assertion of damage claims by the company is reduced to 5 per cent of the share capital, if a report by special auditors reveals a potential basis of liability.
In Austria, strike suits by professional plaintiffs seeking profits through litigation are not very common. The general idea is to block (delay) the registration of a shareholder resolution with the commercial register (eg, capital increases, merger, spin-off) as they become effective only upon registration with the commercial register. The commercial register court may decide to suspend the proceedings to register a shareholder resolution in the case of a pending challenge. However, the court would also have the discretion to register the shareholder resolution irrespective of the pending suit, if the interest of the company in the transaction outweighs the interest pursued by the claiming shareholder. The cost risk of litigation, however, often deters shareholders from raising such claims.
Further, the challenge of a shareholder resolution on restructurings (such as mergers) or a squeeze-out shall not be based on an alleged inadequate share exchange ratio of merger or squeeze-out compensation. Those may be examined in a special court procedure, which may lead to additional compensation payments (or the granting of additional shares in case of a merger) without, however, blocking the registration with the commercial register and delaying the transaction.
Austrian law does not provide for class actions. However, depending on the subject matter, models based on private law agreements have been developed, involving assignment of claims to claimant vehicles including financing by litigation finance providers.
There is no comprehensive right to obtain information or the right to inspect the company’s books; rather, the right to obtain information and raise questions is exclusively concentrated on the shareholders’ meeting.