Passage of the right to participate in profit to the acquirer of a share in a limited liability company

The Czech Supreme Court has ruled that the right to participate in a company’s profit passes to the person who acquired a share in such company. Also, shareholder resolutions may be challenged by invoking contra bonos mores.

According to the Czech Supreme Court, the right to participate in a company’s profit is part and parcel of the shareholder’s rights, as such it passes to the acquirer of shares (and thus to the new shareholder). This applies also to the specific situation in which the share is being transferred after the general meeting decided on the payment of dividends but before the actual payout occurred.

In the view of the court, the right to invoke the nullity of shareholder resolutions pursuant to Sec. 191 of the Corporations Act is vested in one’s status as a shareholder. Where a share is being transferred after the general meeting passed its resolution but before the transferor has become precluded from bringing a claim in court pursuant to Sec. 191 of the Corporations Act, then this right to sue passes to the acquirer. The acquirer has this right to bring a claim in court to the same extent as the transferor, irrespective of whether the resolution in question has direct impact on the acquirer.

In other words, the share transfer has no bearing on the passage of the subjective time limit for bringing an action within the meaning of Sec. 259 of the Corporations Act. If this time period was triggered before the share transfer (when the right to sue rested with the transferor), then it will continue to pass in the same manner for the transferee, irrespective of the share transfer. Consequently, the time period for bringing court action lapses when three months have passed since the transferee learned of (or could have learned of) the relevant shareholder resolution. The transferee (acquirer) is thus subject to the same limitations, as per Sec. 192 (2) of the Corporations Act, and may only invoke the nullity of a shareholder resolution if the same conditions are met which the transferor would have had to fulfill. In other words, it would be erroneous to assume that the transferee must be allowed to claim the nullity of a resolution on any grounds whatsoever, simply because they were not present when the resolution was passed or because they had not yet been a shareholder at the time.

On the other hand, the acquirer may of course claim nullity on grounds which could not have been discerned at the time at which the resolution was made, other than by making disproportionate efforts.

Among the admissible grounds for nullity of a shareholder resolution is the conflict of the resolution with the good morals. When reviewing the nullity of resolutions on grounds of contra bonos mores, all concrete circumstances of the specific case must be taken into account. For instance, if the sole rationale behind the shareholder resolution was to prevent the passage of the right to participate in profit from the transferor to the transferee along with the share itself (contrary to what under normal circumstances be the case), and if the participation of the acquirer in the company was moreover deliberately diluted (by way of an increase of the registered capital, followed by the set-off of the right of a fellow shareholder to participate in the profit against the company’s right to demand payment of the new capital deposit), then this constitutes a violation of good morals, with the result that the underlying shareholder resolution is null and void.

Source:
Supreme Court resolution of 10 October 2018 (Az. 27 Cdo 1499/2017)

 

 

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