October 13, 2011
Practice Groups:
Corporate
Capital Markets
Public M&A
German Federal Court of Justice (BGH)
Removes Uncertainties for Voting Right
Trustees
No reverse attribution of voting rights from trustor to trustee
Summary
In a decision of 19 July 2011, the German Federal Court of Justice removed uncertainty for trustees
of shares in German listed companies, which existed since 2009. Voting rights held on the basis of a
trust arrangement will continue to be attributed only from the trustees to the trustor, not in the
opposite direction. The Federal Court of Justice has thereby overruled the Munich Court of Appeal
which had considerably increased the risk for shareholders, punishable by a fine, of an omitted or
faulty voting right notification. Following the Federal Court of Justice ruling, trustees no longer have
a duty to discover which, if any, notifiable agreements may exist between the trustor and any third
parties, but rather they can continue to rely on the facts already known to them.
1. The Case
The case disputed the authority of a plaintiff who contested certain resolutions of the annual
shareholders' meeting of TRIA IT solutions AG, Munich. The defendant company argued that the
plaintiff had not made the required voting right disclosures and thereby lost all rights pertaining to,
and resulting of, the shares (cf. section 28 of the German Securities Trading Act), including the right
to bring forth any voidance claims.
The plaintiff was the trustee for only about 1% of TRIA IT solutions' shares and was therefore not
required to make any voting rights disclosures, pursuant to the applicable disclosure thresholds
(starting at 3%). The trustor, however, had entered into an acting-in-concert agreement with other
shareholders and had declared the crossing of the 5% threshold, not only disclosing the attribution of
voting rights on the basis of such acting in concert, but also the shares held by the trustee. The other
concert parties had also made the necessary voting rights notifications incumbent on them. Only the
notification by the trustee was missing.
The Munich Court of Appeal considered this faulty. The voting rights of the trustor should also be
attributed to the trustee and indeed not only those which belong to the trustor, but also those which are
attributed to the trustor on the basis of an acting-in-concert. Since the trustee had not duly complied
with its disclosure requirements, he lost all rights pertaining to, and resulting of, the shares he held.
The trustee was also forbidden from relying on a contrary view by the German Federal Financial
Services Supervisory Authority (BaFin). The Munich Court of Appeal rather held that the trustee
should have sought further legal advice.
BGH: No reverse attribution of voting rights to trustees
2. The Decision
The Federal Court of Justice now strongly disagrees with the Munich Court of Appeal making it clear
that a reversed attribution of voting rights from the trustor to the trustee is consistent with neither the
wording nor the intent and purpose of the law. The Court holds that in the present case of third party
beneficial fiduciary trust (fremdnützige Verwaltungstreuhand) voting rights would only have to be
attributed from the trustee to the trustor. The Court does not see a need for a reversed attribution, as
the trustee is, due to her shareholding, already under a full disclosure obligation regarding the shares
and voting rights held in trust, provided that the required thresholds are reached, exceeded or
undercut.
Even an acting-in-concert of the trustor does not warrant a different understanding. The voting rights
of the trustor (or any third party) could only be attributed to the trustee on the basis of an acting-inconcert if the trustee actually and actively participated in the acting-in-concert himself. Otherwise, the
simple passing on of the trustor's disclosure obligations arising from his acting-in-concert would
clearly contradict the express wording of the law. Also, neither the intent nor the purpose of the
disclosure obligations would require any such attribution. Voting right notifications are meant, as the
court states, to enhance the efficiency of the capital markets, which are, in turn, strengthened by the
disclosure of significant shareholdings and other forms of influence on the company. However, the
required transparency had already been achieved through the voting right disclosures of the concert
parties. In particular, the trustor had communicated not only the acting-in-concert but also the
attribution of the trustee's voting rights. In addition, the trustee, not having participated in the actingin-concert, did not have any form of influence over the exercising of the concert parties' voting rights.
The Court also based its reversing opinion on the principle that an interpretation of the law against its
clear wording (resulting in an analogous application of the law as de facto suggested by the Munich
Court of Appeal) was constitutionally not permissible since the implied legal consequences could
include a fine. However, no such legal consequence may be based on an analogous application of the
law.
3. The Consequences
The German Federal Court of Justice has removed considerable uncertainty for trustees of shares in
German publicly listed companies.
3.1 Trustees no longer have to inquire of their trustors which, if any, notifiable agreements may exist
between the trustor and third parties, but rather they can continue to rely on the facts already
known to them. Apart from the loss of all rights associated with shares, the risk of a fine of up to
EUR 200,000 or even – in serious cases (that is, when holding more than 30%) – the obligation
to make a mandatory takeover offer under the German Securities Acquisition and Takeover Act
was looming large on trustee shareholders. The present ruling of the Federal Court of Justice is,
therefore, especially welcome, since it restores to some extent the boundless broadening of the
statutory disclosure requirements and the subsequent risks to the normal standard. The decision
concerns in particular trustees of third party beneficial fiduciary trust, for example, the special
purpose vehicle in connection with a contractual trust arrangement (CTA) or any trustee bound
on a contractual basis by instructions or interests of the trustor for exercising voting rights. The
depository/custodian of shares in foreign companies is also included, provided the respective
investor's item list has not yet been furnished (which as a rule only happens at the investor's
request). A trusteeship may, however, also be concerned in cases where voting right disclosures
are more likely to be overlooked or where the trusteeship itself is not clearly to be identified:
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BGH: No reverse attribution of voting rights to trustees
here the all-clear may be given in the course of the Federal Court of Justice's ruling, including,
inter alia, asset managers without activities other than the administration of participating interests
or special investment funds under the German Investment Companies Act (if, as an exception, a
trust structure was chosen). They must no longer fear the attribution of voting rights resulting
from the share portfolios of their shareholders and/or investors. Pure holding companies, on the
other hand, had never been qualified as trusteeships to whom the respective disclosure
obligations may apply, nor have issuers of depository receipts been under a disclosure
requirement since German law stipulated that only the holder of a depository certificate is
obliged to make the voting right notifications.
3.2 The Federal Court of Justice's ruling is also of great importance to issuers themselves. Previous
uncertainty regarding the portfolio of voting rights had consequences regarding admitting
shareholders to annual general meetings, counting or not counting such shareholders' voting
rights (including entitlement to dividends) as well as the validity of resolutions passed at such
annual shareholder meetings. Predatory shareholders have hence additionally appropriated the
loss of rights statement as a means of attack.
3.3 The extent to which the information request from and given by the German regulator BaFin can
be relied on against the accusation of the violation of disclosure requirements, however, has been
left open by the Federal Court of Justice. The court had already rejected any such violation of
disclosure requirements for the trustee. Even if courts are not bound by BaFin's views,
information requested from and given by BaFin may enjoy particular attention before the courts
– due to BaFin's position and authority and the principle of good faith, certain leeway may be
granted to shareholders who wish to comply with their obligations but are in doubt about the
details of the specific notifications, mostly due to a highly complicated system of rules and
exceptions. However, a final ruling in favor of BaFin information is yet to come.
Author:
Claudius Paul, LL.M. (University of Chicago)
claudius.paul@klgates.com
+49.69.94.51.96.385
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