The Federal Civil Court (BGH) recently ruled that a (former) minority shareholder of a public limited company (Aktiengesellschaft, AG) does not have a right to receive a guaranteed dividend under a domination and profit transfer agreement if the minority shareholder previously had been effectively squeezed-out (Wella AG).
The plaintiff in the case was a minority shareholder of an AG. Under a domination and profit transfer agreement that had been in place between the AG and its majority shareholder since 2004, a guaranteed dividend was provided for holders of preference shares (including the plaintiff). Under the agreement, the guaranteed dividend became due for payment on the day following the annual general meeting for the preceding financial year of the AG. The financial year of the AG commenced on 1 July and ended on 30 June of a given year. In December 2005, the general meeting of the AG resolved upon a proposal by the majority shareholder to squeeze out all minority shareholders against a payment of cash compensation. The squeeze-out was registered with the commercial register in November 2007. The next annual general meeting was held in January 2008. The plaintiff claimed payment of the guaranteed dividend for the financial year 2006/2007.
The BGH held that a (former) shareholder ceases to be a shareholder once the resolution on the squeeze-out is registered in the commercial register. According to the BGH, minority shareholders who are beneficiaries under an enterprise agreement, in principle, become entitled to the benefit once the agreement becomes effective. However, an entitlement to the specific annual guaranteed dividend only arises after the annual general meeting following the end of a financial year. This general rule may be changed only if so provided in the profit transfer agreement. Because the plaintiff in the case ceased to be a shareholder of the AG in November 2007 and the next annual general meeting was not held until January 2008, the BGH rejected the plaintiff’s claim. The BGH also clarified that in these circumstances, no claim for a partial guaranteed dividend exists.
The decision illustrates that timing can be of utmost importance when structuring a squeeze-out process. On the other hand, minority shareholders should ensure that a profit transfer agreement contains the appropriate wording in order to maintain their benefits.
If you have any questions, please contact Dr. Tim Luthra of Raupach & Wollert Elmendorff Rechtsanwaltsgesellschaft mbH.
