The right to buy back shares as a result of influence and some related procedural aspects

If the controlling person uses its influence in such a way that the position of the shareholders of the controlled person is substantially worsened or the legitimate interests of the controlled person are otherwise substantially harmed, and such shareholders can no longer be fairly required to remain in the controlled person, the shareholders have the right to demand the purchase of their shares at a reasonable price (right of redemption).

On this issue, the Supreme Court recently issued a decision under Case No. 27 Cdo 2451/2019, in which it clarified several issues related to the right of redemption.

Voluntary proposal of the controlling person

If a shareholder wants to exercise the right of redemption, he must first invite the controlling person to buy out the share.

In such a case, the controlling person should, without undue delay, make a proposal to the shareholder to purchase the share at a reasonable price to be determined on the basis of an expert's report. Moreover, in the aforementioned decision 27 Cdo 2451/2019, the Supreme Court explicitly stated that:

 "The controlling person cannot be prevented from proposing to the shareholder that the share be transferred at a higher than reasonable price, nor can the shareholder and the controlling person agree that the share be transferred at a price to which both parties agree (without the need to determine the price of the share to be transferred on the basis of an expert's opinion)."

The Supreme Court therefore emphasizes the autonomy of will in private law, where in the case of a voluntary buyout it leaves the agreement on the price primarily to the will of the contracting parties, and admits both the possibility of the controlling person to offer a higher amount and the possibility to conclude a contract for less than a reasonable amount if the contracting parties agree to it.

Proposal of a shareholder

According to the legislation in force until 31 December 2020, if the controlling person did not make a proposal for the purchase or did not make it at least for a reasonable price, the shareholder had the right to submit a proposal for a contract for the purchase of the share at a reasonable price to the controlling person, which the controlling person was obliged to accept. Only if the controlling person failed to comply with the obligation to accept the proposal could the shareholder apply to the court to conclude the contract in a special procedure.

One of the issues the Supreme Court addressed was the particulars of such a shareholder petition. According to the Court of Appeal in this case, the share purchase agreement proposal made by the shareholder must include, among other things, the specific amount for the transfer of the share. However, according to the Supreme Court, it is sufficient if the parties agree with sufficient certainty on the manner of determining the amount, similar to an 'ordinary' share transfer agreement. In this case, the clause was that the price would be determined on the basis of an expert's report.

However, after the amendment to the Corporations Act, this inter-step in the form of a compulsory proposal to the controlling person for the right to buy-out was omitted and remained only for compulsory public proposals pursuant to Section 327 et seq. of the Corporations Act. In the case of the right of redemption, the above conclusion no longer applies, or a proposal made to the non-cooperating controlling person before the shareholder can apply to the court becomes redundant.

Contract conclusion procedure

As mentioned above, if the controlling person and the shareholder do not voluntarily conclude the agreement, the shareholder is entitled to seek the conclusion of the agreement in court. In the case before the Supreme Court, in one proceeding, the shareholder sought the conclusion of a contract and then, in a separate proceeding, sought the appointment of an expert to determine the value of the shareholding. The Supreme Court, like the Court of Appeal, quite logically concluded that it would be completely contrary to the principle of procedural economy for an expert to be appointed in a separate proceeding, but would be appointed directly in the proceeding in which the shareholder seeks the conclusion of the contract, pursuant to Section 127 of the Code of Civil Procedure.

Binding nature of the decision

One of the innovations brought about by the amendment to the Commercial Corporations Act regarding the right to redemption of shares is the addition of Section 89(3), which provides in the sentence after the semicolon that the decision is binding on other shareholders in a similar position as regards the basis of the right granted. If, for example, the liquidating shareholder fails to carry the burden of proof and the action is dismissed, in our opinion and according to the literal wording of the said provision, this should not lead to an automatic dismissal of the action of other shareholders in a similar position, since the law expressly speaks about the basis of the right granted, however, the opposite approach cannot be excluded. If, on the other hand, the controlling party is guilty of passivity in allowing the action, it is unlikely to be able to prove in subsequent proceedings against the other shareholders that there has been no deterioration in the position, even if that were the case.

There is also the question of how this provision will be applied in practice, as the position of each shareholder is to a large extent individual and if the position of one shareholder has deteriorated, the position of another shareholder will not necessarily deteriorate. It is therefore important how broadly the "similar position" is interpreted, as an overly broad interpretation would significantly disadvantage the controlling person.

It will therefore be interesting to see how the case law will interpret this provision, as there are a number of possible interpretations.

Authors: David Fabián and Tomáš Brůha