Austria: Sell-Side M&A: Shareholder Information Rights

Sell­ing share­hold­ers have an inter­est in max­i­miz­ing sales pro­ceeds. This requires pro­vid­ing the poten­tial pur­chaser with as much (price-relevant) infor­ma­tion as pos­si­ble – infor­ma­tion the sell­ing share­hold­ers need to obtain from the tar­get company.

The impor­tance of information

If con­fir­ma­tion was ever needed of the impor­tance of infor­ma­tion for deal-making, the (joint) award of the 2013 Nobel Prize in Eco­nomic Sci­ences to Eugene F. Fama drove home the point. Fama is most renowned for his work on the effi­cient mar­ket hypoth­e­sis, which, in essence, argues that asset prices reflect avail­able information.

Pur­suant to Sec 22 para 2 of the Aus­trian Act on Lim­ited Lia­bil­ity Com­pa­nies (GmbHG), share­hold­ers are enti­tled to inspect the books and records of their com­pany dur­ing a period of 14 days prior to the annual gen­eral meet­ing con­vened to resolve on the company's finan­cial state­ments. This con­trol right is awarded to each share­holder, irre­spec­tive of the size of the shareholder's par­tic­i­pa­tion in the com­pany. The idea behind this is to give share­hold­ers enough infor­ma­tion to be able to mean­ing­fully exer­cise their other share­holder rights, pri­mar­ily their vot­ing rights.

Far-reaching share­holder rights

Over sev­eral years, the Aus­trian Supreme Court has con­sid­er­ably expanded this statu­tory infor­ma­tion right. Pur­suant to its case law, each share­holder has the right, exer­cis­able at any time (and not only in prepa­ra­tion of the annual or an extra­or­di­nary gen­eral meet­ing) to request infor­ma­tion on all of the company's legal, com­mer­cial, and oper­a­tional affairs. There is thus in par­tic­u­lar no restric­tion to infor­ma­tion or data rel­e­vant for under­stand­ing the finan­cial state­ments. The infor­ma­tion right also extends to affil­i­ates (where the right to inspect account­ing records is, how­ever, lim­ited to 100% sub­sidiaries) and includes the right to make copies. The only rec­og­niz­able con­straint put in place by the court is that the infor­ma­tion obtained may not be used to the detri­ment of the com­pany (e.g. if the share­holder wanted to use infor­ma­tion to fos­ter a com­pet­ing business).

Enter the sell-side M&A process

What impact does this have on a (sell-side) M&A deal? The typ­i­cal set up requires the sell­ing share­holder to pro­vide inter­ested par­ties with an oppor­tu­nity to con­duct due dili­gence. For this, the sell­ing share­holder will rejoice: sanc­tioned by the Supreme Court, he has a pow­er­ful tool in hand to obtain far-reaching infor­ma­tion on the (busi­ness of the) com­pany. This is even more so if there are argu­ments that a trans­ac­tion is in the inter­est of the com­pany, e.g. because the investor would pro­vide fresh capital.

A seller will, how­ever, be well-advised to be pru­dent: if eg the sale is run as an auc­tion and (poten­tial) com­peti­tors are among inter­ested par­ties, access to sen­si­tive infor­ma­tion needs to be severely restricted. In gen­eral, a seller should be care­ful to clearly doc­u­ment that only as the sales process moves along and a suc­cess­ful deal becomes more and more cer­tain, a small group of/the poten­tial acquirer(s) gained access to sen­si­tive infor­ma­tion. It may even be nec­es­sary (includ­ing from a com­pe­ti­tion law point of view) to aggre­gate data and restrict access to eg exter­nal advis­ers sub­ject to pro­fes­sional secrecy oblig­a­tions, impos­ing report­ing restric­tions also towards their own client.

Draw­ing the line is dif­fi­cult, both for the seller and the man­age­ment. For the lat­ter, an infor­ma­tion request that forms the basis for a due dili­gence will be cum­ber­some and time-consuming to deal with. How­ever, to turn "hos­tile" even to a minor­ity shareholder's request may not be an option. While there may come a point where the man­age­ment have to say "no", this will expose them to pres­sure and may even trig­ger litigation.

In a case that at the time of writ­ing is mak­ing its way through the appeals process, the Vienna Court of Appeals found an infor­ma­tion request "abu­sive". It requested that the review be con­ducted by an exter­nal adviser sub­ject to pro­fes­sional secrecy who was pro­hib­ited from report­ing on "infor­ma­tion and data rel­e­vant from a com­pe­ti­tion point of view" – but it upheld the infor­ma­tion request in principle.

The sit­u­a­tion in listed companies

The gen­eral prin­ci­ple is quite dif­fer­ent for stock cor­po­ra­tions (AG) and even more so for listed com­pa­nies, even though indi­vid­ual authors argue for a "right to due dili­gence". In gen­eral, share­hold­ers must sub­mit ques­tions dur­ing the annual gen­eral meet­ing. The man­age­ment may refuse to respond for a num­ber of rea­sons, includ­ing that the infor­ma­tion requested is not required to be able to mean­ing­fully assess the spe­cific agenda item. In listed com­pa­nies, man­age­ment must deter­mine whether a dis­clo­sure is in the company's best inter­ests – which may or may not be aligned with the inter­ests of a share­holder – and com­ply with insider rules.

Quote: Under Austrian case law, shareholders of a GmbH have far-reaching information rights. While they may not use information to support a competing business to the detriment of their company, otherwise there are virtually no limits. This is good for a selling shareholder, but may put management in a difficult spot. Dealing with information request may also be burdensome, costly, and time-consuming.

This article was originally published in the schoenherr roadmap`14 - if you would like to receive a complimentary copy of this publication, please visit: pr.schoenherr.eu/roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions