IBA Guide on Shareholders Agreements

Transcription

1 IBA Guide on Shareholders Agreements Denmark Stig Bigaard BECH-BRUUN 1. Are shareholders agreements frequent in Denmark? Shareholders' agreements are frequent in Denmark. They are widely used in companies incorporated as Danish public limited companies and private limited companies (in Danish "Aktieselskab" and "Anpartsselskab" in the singular, respectively, indicated with the Danish abbreviations "A/S" and "ApS" added to the name of the company respectively). 2. What formalities must shareholders agreements comply with in Denmark? Danish law does not lay down specific formal requirements for shareholders' agreements. 3. Can shareholders agreements be brought to bear against third parties such as purchasers of shares or successors? In accordance with the general law of contracts in Denmark, shareholders' agreements are binding only on the parties hereto. Thus, as a general rule, shareholders' agreements are not binding on purchasers of shares or successors, including such third parties who do not know of the rules in the shareholders' agreement at the time of the transfer of rights in the shares. Under the prevailing interpretation of Danish case law and legal doctrines, an exception to this general rule is made if the purchaser or the successor in question is aware of the specific rules in the particular shareholders' agreement. In that case the rules of the shareholders' agreement are consequently deemed to be binding on that third party. In order for the shareholders' agreement to be binding, it is not sufficient that the third party simply knows of the existence of the shareholders' agreement. On the other hand, the shareholders' agreement may be binding on the third party if the third party acquires shares from a party to the shareholders' agreement under which circumstances the third party knows of the fact that the parties to said shareholders' agreement may only transfer their shares to the third party if that third party at the same time undertakes to be subject to and accept the said shareholders' agreement. Most often a clause in the articles of association of the company stipulates that any transfer of shares is subject to the approval and consent of the board of directors in order to ensure that third parties are made aware of the shareholders' agreement and that they accept the shareholders' agreement. The shareholders' agreement then lays down the specific circumstances under which the board of directors may and shall approve the transfer. It is always a condition in order to acquire the shares that the acquirer accepts the shareholders' agreement. If the shareholders' agreement is deemed to be binding on a third party, it can be brought to bear against that third party. 1

2 4. Can a shareholders agreement regulate non-company contents? It is presupposed in the Danish Companies Act that shareholders' agreements regulate matters pertaining to the ownership and the management of the company. Common contents of the shareholders' agreements are therefore matters which are related to the shareholding and the legal relations between the shareholders. Danish law does not, however, prevent shareholders' agreements from regulating non-company matters in addition to customary corporate issues. It is not unusual to grant or incorporate rules on e.g. intellectual property rights, obligations to provide services, a comprehensive business plan, or a CEO's contract of employment in the shareholders' agreements and/or in appendixes enclosed hereto. 5. Are there limits on the term of shareholders agreements under the law of Denmark? There are no limits on the term of shareholders' agreements under the law of Denmark. The parties to the shareholders' agreement may therefore agree on a shareholders' agreement not limited in time or limited in time. Alternatively, the parties to the shareholders' agreement may provide that the shareholders' agreement shall lapse in case of certain events, e.g. at the time of an execution of a contemplated stock market listing. 6. Are shareholders agreements related to actions by directors valid in Denmark? The general rule under Danish law is that the duty of a director is personal and as such not subject to instructions of anybody save from a duty of good faith and loyalty towards the company. Obviously, the directors must execute their powers in accordance with Danish law and the articles of association of the company. However, according to jurisprudence on shareholders' agreements related to actions by directors, the shareholders and each of the directors (or each member of the supervisory board appointed by the general meeting) may agree on so called 'coronation charters' which possibly could be a part of a shareholders' agreement by which the shareholders undertake to ensure that the directors recommended by each of them and elected by the general meeting are informed of and undertake to observe the clauses of the shareholders' agreement while executing their powers. On the other hand, this 'coronation charter' is not binding on a director if this clause interferes with the rights and duties of the director to manage the company in accordance with the requirements imposed under the Danish Companies Act. 7. Does the law of Denmark permit restrictions on transfer of shares? As a main rule, pursuant to the Danish Companies Act, shares are freely transferable and irredeemable. Notwithstanding hereof, Danish law permits restrictions on transfer of shares. If the shares are registered shares, the articles of association may impose transferability restrictions on the shares, e.g.: a. restrictions on a shareholders' access to hold shares; b. a right of pre-emption granted to the non-selling shareholders of the company; 2

3 c. options to purchase shares; d. rules on tag-along rights and drag-along rights. In addition to these transferability restrictions, provisions regarding redemption of shares may be imposed on registered shares; e. in connection with the right of pre-emption, the articles of association often stipulate that any transfer of shares is subject to the approval or consent of the board of directors. The specific circumstances according to which such approval or consent is given, are then determined in the shareholders' agreement in question. The clause of approval/consent of the articles of association ensures that third parties cannot acquire shares without the consent of the board of directors, which may as well protect the underlying, confidential shareholders' agreement. It is always a condition in order to acquire the shares that the acquirer accepts the shareholders' agreement. See also the answer to question 3 above. 8. What mechanisms does the law of Denmark permit for regulating share transfers? As a general rule, the law of Denmark permits all types of mechanisms in terms of regulating share transfers. The most common examples of restrictions on share transfers are mentioned in the answer of question 7 above. 9. In Denmark do bylaws tend to be tailor-drafted, or do they tend to use standard formats? In Denmark articles of association of Danish public and private limited companies tend to use standard formats of articles of association. Most frequently the actual regulation of the mutual rights and duties of the shareholders is set out in a shareholders' agreement while the articles of association of the company in question are concerned only with basic information required by law. 10. What are the motives in Denmark for executing shareholders agreements? The overall motives for executing Danish shareholders' agreements primarily consist of a need: a. to outline in sufficient details how the shareholders will perform their duties as shareholders; b. to be able to control who may have shares in the company; c. to outline how to break up the joint ownership and to regulate the immediate period after such a break up. In addition to this, specifically, the motives consist of a variety of purposes, including i.a.; d. regulating the election of the board of directors and / or the supervisory board; e. regulating restrictions in the transferability of the shares; f. determining the quorum or special majorities for certain resolutions of the company; g. the possibility of obtaining confidentiality regarding all or some of the above matters; h. certain requirements on the adoption and execution of amendments of articles of association do not apply to the execution of shareholders' agreements. Reference is also made to the answer to question 12 below. 3

4 11. What contents tend to be included in shareholders agreements in Denmark? Please see the answers to questions 9, 10, 12 and What determines the content included in shareholders agreements in Denmark? The content included in Danish shareholders' agreements is determined on the basis of a variety of parameters, including i.a.: 1. Unlike articles of association, shareholders' agreements are not public available which meets the need for confidentiality. 2. The need for flexibility; formalities which are to be observed when executing an amendment of the articles of association of a company do not apply to the execution of shareholders' agreement. 3. According to section 82 of the Danish Companies Act, shareholders' agreements are not binding on the company or on those resolutions which are adopted by the general meeting. This means that even if a resolution relating to company law adopted by the general meeting conflicts with a shareholders' agreement, this 'infringement' has no effect on the validity of said resolution. Consequently, a chairman of the general meeting shall neglect the shareholders' agreement despite the possibility that some shareholders claim that a contemplated resolution of the company is inconsistent with the shareholders' agreement in question. Furthermore, the fact that the validity of the resolutions adopted by the general meeting is not affected whatsoever by the shareholders' agreement means that the examination by the Danish Commerce and Companies Agency, in connection with the entering of an amendment of the articles of association in the companies register, does not entail a verification of the consistency between the resolution adopted by the general meeting and the shareholders' agreement in question. For that reason a given matter may profitably be regulated in the articles of association, thereby binding the company, instead of the shareholders' agreement. 4. Clauses concerning the financing of company activities may e.g. include a shareholder obligation to invest further capital on future capital increases or to make a loan to or provide security for loans granted by a third party. If these obligations were integrated in the articles of association, third parties would be able to rely hereon. Reference is also made to the answer to question 10 above. 13. What are the most common types of clauses in shareholders agreements in Denmark? The most common types of clauses in Danish shareholders' agreements are clauses regarding; (i) the business objectives which the members of the company intend to pursue; (ii) the dividend policy of the company; (iii) the financing of the activities of the company; (iv) the election to the board of directors of the company and the supervisory board; (v) appointment of auditors; (vi) the voting requirements on resolutions of the general meeting; 4

5 (vii) the pre-emption rights in connection with capital increases; (viii) the rules on protection of certain minority rights; (ix) the 'consultation procedures' according to which the shareholders undertake to discuss and establish the items on the agenda and their positions on these prior to the general meeting; (x) the rules on 'coronation charters' by which shareholders agree to ensure that directors recommended by them and elected by the general meeting are informed of and undertake to observe the clauses of the shareholders' agreement while executing their powers; (xi) the rules on the prior approval of the general meeting when selling the company or substantial parts hereof, including rules on other material resolutions of the company; (xii) appointment of the management board; (xiii) the principles of business relations between the company and its shareholders; (xiv) the rules on disposal of shares, including specific rules on the prior approval/consent of the board of directors in connection with share transfers, the transferees' acceptance of the shareholders' agreement as a precondition of the acquisition of shares, rights of pre-emption, methods for share valuation in the event of transfer, options to purchase, tag-along rights and drag-along rights (xv) potential limitations on pledge of the shares; (xvi) 'dead-lock' situations in which the parties cannot reach an agreement, including rules on which conditions solvent liquidation of the company shall or can be done; (xvii) notice of termination of the cooperation between the parties; (xviii) particular requirements for the accounting and rules on insight in the state of the company; (xix) remedies for breach of the shareholders' agreement, including penalty clauses; (xx) (xxi) non-competition clause; rules on a non-disclosure agreement covering the shareholders' agreement in itself and other information on the company; (xxii) arbitration. 14. What mechanisms does the law of Denmark permit to ensure participation of minorities on the board of directors and its control? Subject to certain conditions, the Danish Companies Act contains a number of provisions which protect or grant the minority shareholders certain rights and/or influence on the company, including i.a.; a. employee representation in the supreme governing body; b. minority shareholders constituting a part of 5 % of the share capital are granted the right to request an extraordinary general meeting; c. minority shareholders holding at least 25 % of the share capital are entitled to elect a liquidator at the general meeting who will liquidate the company together with other liquidators elected by the general meeting; d. minority shareholders representing no less than 10% of the share capital are granted the right to request that the question of compulsory dissolution of the company is brought before court subject to certain specific conditions; 5

6 e. minority shareholders holding 5% of the share capital are granted the right to request that a resolution on a merger or demerger, in certain situations, has to be passed by the general meeting; f. the rights of veto are granted to the minority shareholders in certain specific situations, in which amendments of the articles of association result in an increase of the duties of the shareholders towards the company; g. minority shareholders are granted the right to demand redemption if the majority shareholder holds more than 90% of the shares of the company and a corresponding share of the votes; h. shareholders representing 25% of the share capital vote may request that scrutinisers be appointed by the bankruptcy court regarding scrutiny of the company's formation, of any specific matter relating to the administration of the company or of certain financial statements. 15. Is it possible in Denmark to ensure minority shareholder control by means of a shareholders agreement? Certain minority protection provisions in the Danish Companies Act do only apply if the minority shareholders hold a specific percentage share (often 5% / 10%) of the share capital of the company. By entering into a shareholders' agreement, the shareholders may decide that those minority protection rules shall apply even if the minority shareholders' equity interests constitute a smaller part than required by law in order to claim the said protection, including in certain cases to avoid redemption of shares by the majority shareholder. In addition to this, the shareholders' agreement may grant profitable preemptive rights to the minority shareholders even though the Danish Companies Act and the articles of association of the company do not grant such rights. Through the different clauses mentioned in the answer of question 13 above, the minority shareholders may be granted profitable rights as to the ownership and management of the company. 16. What are the usual valuation mechanisms in connection with rights of first refusal or share transfer regulations? The usual valuation mechanisms in connection with rights of first refusal or share transfer regulations are i.a. the use of diverse versions of the net asset value/ booked value, an expert assessment with or without predefined methodological criteria, a sealed bid tender, a mutual option to purchase which is characterised as a 'put and call option', the liquidation value, or the market capitalisation, including hereunder valuation mechanisms which are; a. market based, i.e. value based on a benchmarking of financial ratios, e.g. EV / EBIT and EV / EBITDA of similar companies and/or transactions, or the EPS value and PE ratio value; b. based on the revenues of the company involving present value calculation of typical earnings (net present value) or future cash flow (Discounted Cash Flow); or which entails c. a value calculation of the specific assets on the basis of the particular situation of the company, e.g. as 'going concern'. 17. Is it admissible for a shareholders agreement clause to refer dispute resolution to the courts other than those of Denmark and/or under a law other than that of Denmark? 6

7 According to Danish law, the parties to a shareholders' agreement may agree on a clause pursuant to which dispute resolution is referred to the courts other than those of Denmark. In addition to this, or alternatively, under the rules of Danish private international law, a shareholders' agreement clause may as the general rule refer dispute resolution to be solved under a choice of law other than that of Denmark. 18. Is it admissible for a shareholders agreement to include an arbitration clause with seat outside Denmark and/or under a law other than that of Denmark? It is admissible for a shareholders' agreement to include an arbitration clause with seat outside Denmark and/or under a law other than that of Denmark. 7