Retained right to bring an action
By: Pontus Sörlin
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Retained right to bring an action
In 2011, Bure Equity AB (Bure) bought 30% of the shares in Rushrail AB (Rushrail).
The remaining 70% is owned by Couplers Inc AB (Couplers), owned by private individuals J.B. and J.L.
Both owners are also members of the board of Rushrail and J.L. is ceo.
Bure’s shares in Couplers are subject to a transfer ban and a home bid clause.
Despite this, in 2012 Bure transferred the shares to its subsidiary, Investment AB Bure (the subsidiary), which according to the former companies constitutes only an administrative measure.
Couplers learns that Bure’s shares were transferred to the subsidiary in August 2013 and in connection with that Bure is deleted from the share register, citing the home bid clause.
Couplers contact Bure and announce that they accept the transfer, but that the home bid now applies to the shares.
The subsidiary returns the shares to Bure immediately after Coupler’s announcement that the home bid clause has been updated.
However, Bure remains deleted from the share register, even though no new owner is brought in in their place.
In 2014, Rushrail held two general meetings that Bure is neither summoned to nor attend.
At the general meetings, decisions are made that are unfavourable to Bure, and they therefore bring an action against Rushrail in the District Court (TR) in 2014 to have the decisions overturned.
Arbitration in 2015 found that Rushrail’s conduct involved material breach of the shareholder agreement.
The arbitrator also does not consider that the take-home bid clause could have been applied to Bure’s transfer to the subsidiary.
Rushrail is therefore correcting and reintroducing Bure in the book april 2015 with a note that they have been owners since the shares were returned from the subsidiary.
As regards the judicial review, Rushrail argues that Bure was not recorded in the share register at the time of the action and therefore has no right of appeal under Chapter 7, section 50 of the Swedish Companies Act (ABL).
The judgment of the courts on Bure’s right to bring an action and not the possible invalidity of the agm decisions is addressed below.
TR starts by stating that shareholders entered in the share register have standing in a general court against a general meeting decision that has been created in unauthorised order or is contrary to ABL (Chapter 7, section 50 ABL).
The time that the owner in question must be entered in the book is when the action against the decision is brought and thus not at the general meeting.
Shareholders who are unauthorisedly denied entry in the share register also have such a right of reproach.
TR must therefore examine whether Bure has the right, as a shareholder, to bring an action against Rushrail.
The Couplers allege that Bure was removed from the book because their shares were passive under the home bid clause (Chapter 4, section 35, section 1 of the 2 sent. ABL).
According to ABL, the person who has acquired a share obliged to bid may not be entered in the share register until it is clear that the right to resolve has not been exercised (Chapter 4, section 35, Section 1 1 sent. ABL).
By interpreting the provision in contradiction, the Court also concludes that the transferor should not be deleted until the right of resolution has been used by the right to resolve, as is the case with Bure’s shares.
Furthermore, it should be noted that the purpose of the take-home bid clauses is generally to maintain control and influence over the ownership circle.
In the present case, however, Coupler’s reaction to Bure’s transfer was to waive the right to pre-purchase, assert the right to a home bid and use it as a reason to remove Bure from the share register.
According to TR, Coupler’s use of the clause is neither purposeful nor protective, but rather indicates that they want to cut Bure off from influence.
However, TR notes that strict application of Chapter 7, section 50 of the ABL means that shareholders who have been removed from the book have no right of appeal.
The lack of standing remains until the owner may find out that he has been deleted and asks to be reinstated.
Then the board can either reinstate the owner in the book or refuse, but in both cases reproach arises.
However, any agm decisions taken prior to the reinstatement are deemed to have been made in due course, if all shareholders in the book have been called.
In such situations, referring the owner to bringing an action for damages against the company (Chapter 29 ABL) does not constitute sufficient protection under TR.
Instead, the court sees Coupler’s deletion of Bure as comparable to the unauthorized refusal to include them in the book.
The court’s conclusion is therefore that Bure is allowed to bring an action against Coupler’s agm decision, even though they were not in the share register at the time of the action.
Court of Appeal
For its assessment, the Court of Appeal (HovR) takes support of previous preparatory work to ABL.
However, it has been discussed whether standing should also be introduced for shareholders who have been wrongly deleted from the book The proposal was not adopted, but the legislator was satisfied that shareholders who were unauthorisedly refused to be included in the book have standing.
Against this background, HovR concludes that Bure has not been reprehensed against the decisions as a result of the deletion.
The reinstatement of Bure after arbitration with the note that they have been owners since the shares were returned from the subsidiary does not change that assessment as they were still not in the share register at the time of the action.
According to Bure, the incorrect deletion can be compared to couplers refusing to enter them in the share register.
The Court therefore examines Chapter 7, section 50 of the ABL may be applied by analogy to the situation.
However, the discussion previously taken in the preparatory work as described above, hovr considers that such a solution is opposed.
In addition, the Court considers that Bure could have required reintroduction to the share register; whether they had been denied by the Board or not, they had regained their standing.
Thus, HovR does not see it as bure completely lacking standing in reality.
The court also hears that the ABL penal provision (Chapter 30 § 1) and the possibility of bringing actions for damages under the same law (Chapter 29) provide some protection for shareholders in Bure’s situation.
This, combined with the preparatory work, leads the Court to conclude that there are not sufficient grounds for an analogue interpretation of the law.
Bure therefore has no standing rights because they were not in the share register at the time of the action.
The Supreme Court
The Supreme Court (HD) initially observes that a shareholder entered in the book should normally be able to rely on not being deleted, unless such a decision is taken by judgment or arbitration.
It is true that there are certain occasions when the Board of Directors may remove owners on its own initiative (Chapter 5, section 9 of the ABL), but it is not allowed to do so without further ado.
The purpose of Chapter 7, section 50 of the ABL is also to protect shareholders against unfair behaviour on the part of the Board of Directors.
The Court sees it as clear that owners have the same need for protection against being deleted without a legal basis as being refused entry in the share register.
In the case of shares covered by home bids, it is not regulated by law whether the first owner may be deleted after a transfer.
Hd’s assessment, however, is that such deletion presupposes a request from the former shareholder, since that is what applies to shares that are not covered by the home offer.
The deletion of Bure from the share register has therefore been made unlawful.
HD concerns that, although shareholders in Bure’s situation may demand to be included in the book, bring damages claims or report it to the police.
However, the alternative routes of action are not considered to provide adequate protection.
The Court sees it as reasonable and consistent that an unauthorised deletion does not deprive the owner of his right of appeal.
What is considered to be contrary to the maintenance of the right is that the share register is public and that owners and stakeholders should be able to rely on its contents.
However, since even those who are unauthorisedly refused entry in the book can bring an action, HD considers that the legislator has in a way already broken the link between standing and registration in the share register, since some owners who are not registered may in fact blame decisions.
It is therefore concluded that unauthorised owners retain their right of appeal.
The next question the court will consider is whether the continuation of the right of appeal depends on the shareholder acting in any way as soon as he learns that the deletion has been made.
What speaks for such a solution is judged to be that cooperation within companies is based on mutual loyalty.
Any conflicts should therefore, as far as possible, be resolved internally.
However, given the protection interest of the shareholders, it is not considered an appropriate solution.
Nor should continued inaction lead to the loss of the right of speech, as it would erode the protection that the share register is intended to provide to the company’s owners.
According to HD, the interest in respecting the management of the share register by the Board of Directors also speaks in favour of this solution.
The above reasoning leads the Court to conclude that Bure maintains his right of reproach against the decisions in question because they were unlawfully deleted from the share register.