May the management board deprive a shareholder of the right to vote?
Violation of obligations related to acquisition of a major stake in a public company is subject to the sanction of loss of voting rights. Loss of the right to vote occurs immediately, but the management board must allow the shareholder to vote until a judgment is issued by a court.
Poland’s Act on Public Offerings provides for a number of duties related to acquisition of significant stakes in a listed company. These duties fall into two groups: reporting requirements and tender requirements. Reporting requirements apply to acquisition of shares in a public company causing the shareholder to obtain a significant percentage of votes in the company. The threshold of 33% or 66% of the votes may be exceeded only as a result of a tender offer to the current shareholders to sell or exchange their shares.
The acquirer of shares will be deprived of the right to vote the shares if it acquired them in violation of these requirements. Loss of the right to vote may apply to the specific shares, or to all of the shareholder’s shares. Some take the view that the management board is authorised to decide on its own to strip a shareholder of the right to vote. However, as correctly pointed out in a recent article (A. Pęczyk-Tofel & M. Tofel, Prawo Spółek 2010 No. 4), there is currently no law on the books vesting the company authorities with such competence. Taking away voting rights is a far-reaching interference in the rights of a shareholder, which should be carried out only pursuant to express statutory authority. Therefore, in order to enforce the sanction for violation of duties related to acquisition of a significant stake of shares, a judicial ruling is required. This was also held by the Polish Supreme Court in its resolution dated 17 October 2007 (Case No. II CSK 248/07). The court stressed that even if violation of the shareholder’s tender obligation is disclosed before the general assembly of shareholders, none of the company authorities may deprive the shareholder of the right to vote without a judgment to this effect.
The Białystok Regional Court followed this line of reasoning in a recent decision. The court was hearing a claim seeking a declaratory judgment of the invalidity of a shareholders’ resolution. The case was filed by shareholders who were barred from participating in the assembly under the allegation of failure to report passing specific thresholds in the total number of votes within the company. Although the court did find that the allegations concerning violations by the shareholders were justified, it nonetheless held that the resolution was invalid because the management board imposed sanctions on the shareholders without first obtaining a judgment from the court confirming the violation. (It should be pointed out by the way that there is a distinction between the right to vote the shares and the right to participate in the general assembly of shareholders; the sanction for violation of obligations related to acquisition of a significant stake of shares involves loss of the right to vote.)
The management board of the company should thus apply to the court for a ruling that as a result of the violation, the shareholder does not have the right to vote the shares. If the shareholder has already taken part in voting on a resolution, the management board may seek to set aside the resolution by filing an action for a declaratory judgment to that effect.
Jakub Koziński, Capital Markets team, Wardyński & Partners