Significant shareholdings in public limited companies (Aktiengesellschaften)

The German Supreme Court (Bundesgerichtshof - BGH) has imposed more stringent requirements with regard to the notification by shareholders of any acquisition of a significant shareholding in a company to that company in accordance with Section 20 of the German Act on Stock Corporations (Aktiengesetz – AktG).

By way of judgment handed down on 5 April 2016 (Case II ZR 268/14), the BGH clarified the actions which must be taken by any company holding, directly or indirectly, more than 25% of the shares in an unlisted German stock corporation (Aktiengesellschaft) in notifying the latter, in performance of its obligations pursuant to Section 20 of the AktG, of its acquisition of any such significant shareholding.

Pursuant thereto,

1. The notification must be effected following the acquisition in question, i.e. the submission to the company of a purchase agreement or draft agreement prior to the actual acquisition will not suffice in this regard;

2. It must be apparent to the company's Management Board that the notification has been effected pursuant Section 20 of the AktG; and

3. The notification must be effected in such a manner as to enable its publication without any need for corrective measures by the company and the identification by the public of the type of the shareholding in question and the party acquiring it. Thus, the company's Management Board should not be forced, for example, to itself calculate the size of the shareholding on the basis of the information provided by the shareholder, even if this were in fact possible.

The consequences of non-notification are considerable: No rights (for example, voting rights or rights to receive dividends) will accrue to the shareholder in question in connection with the shares concerned (Section 20(7) of the AktG) until the latter complies with its notification obligation vis-à-vis the company. Resolutions of the company's annual general meeting may therefore be contested where a notification has not duly been effected. A shareholder may, by way of exception, insist upon payment of dividends where the failure to effect the requisite notification is not due to any wilful intent on its part and is rectified without delay (second clause of Section 20(7) of the AktG); the burden of proof in this regard is on the shareholder failing to effect the requisite notification.

In light of this most recent ruling, shareholders should always take care to ensure that notifications effected in accordance with Section 20 of the AktG are expressly designated as such and clearly indicate the type and size of the shareholding in question, with a view to enabling the company to simply adopt the information contained therein in any corresponding announcements. A failure to do so could, in the worst-case scenario, result in the repayment of any dividends paid to those shareholders over a number of years, and in resolutions adopted by the company's annual general meeting being subject to contestation.

Incidentally, the requirements as to transparency with regard to shareholdings in listed companies are even more stringent: The acquisition of shareholdings in the amount of 3% or more are subject to a notification obligation pursuant to Section 21 et seqq. of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), and numerous complex provisions with regard to attribution apply to group companies. The legal consequences of a failure to issue such a notification are governed by the provisions of Section 20 of the AktG.