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Constitutional complaints regarding delisting unsuccessful
Press Release No. 53/2012 of 11 July 2012
Judgment of 11 July 2012
1 BvR 3142/07
In its judgment pronounced today, the First Senate of the Federal Constitutional Court rejected as unfounded two constitutional complaints relating to the consequences of the revocation of the admission of shares to trading on a German stock exchange in what is known as the regulated market upon the application of the stock corporation itself (voluntary delisting). According to the judgment, admission to trading in the regulated market is not protected by the fundamental right to property. Furthermore, in its Macrotron decision from 2002, the Federal Court of Justice (Bundesgerichtshof – BGH) observed the bounds of further development of the law by judges (Decisions of the Federal Court of Justice in Civil Matters (Entscheidungen des Bundesgerichtshofes in Zivilsachen – BGHZ 153, 47), in which it demanded that the minority shareholders be made a mandatory offer for a takeover of their shares or be paid a compensation for the loss of the share’s increased transferability resulting from the stock exchange listing, and that it must be possible to review the offer in valuation proceedings.
Press release no. 79/2011 of 16 December 2011, which can be retrieved (in German) from the website of the Federal Constitutional Court, provides information on the facts and on the legal background of the proceedings.
In essence, the judgment is based on the following considerations:
I. Area protected by the shareholder’s fundamental right to property – proceedings 1 BvR 1569/08
1. The property guaranteed by Article 14.1 of the Basic Law (Grundgesetz – GG) includes the ownership in a company that is embodied in the share. The elaboration by company law of the ownership in a company is characterised by the private benefit of the property and the right to dispose of it. The protection of the fundamental right to property covers the substance of the ownership in a company in its elaboration under the law governing membership rights and under company law. The area of protection is therefore affected if shareholders lose their legal position embodied in the share, or if the substance of the legal position is altered, for instance by the integration of the stock corporation into a group, by the conclusion of a control agreement or of a profit transfer agreement or by a squeeze-out of the shareholder.
2. According to these standards, the revocation of the admission of shares to trading in the regulated market does not affect the area protected by the shareholder’s fundamental right to property.
a) The continued existence of the membership right and the relative participation rights resulting from membership are not affected. The shareholders’ position under the law governing membership rights is not weakened, as would be the case for instance by a watering down of their participation rights. The internal structure of the company is not altered by its withdrawal from the regulated market of the stock exchange.
b) It is true that the Federal Constitutional Court’s case-law acknowledges the share’s special transferability as a “characteristic” of the property in shares. This means, however, that only the legal transferability is part of the property acquired, which is protected under Article 14.1 GG. The transferability of the share, which is understood as the legal authority to sell it in a market at any time, is not affected by the delisting. According to the elaboration in non-constitutional (ordinary) law, shares not listed at the stock exchange are as transferable as listed ones; in principle, they can be sold without requirements as to form having to be complied with, and without the trade being bound to a trading platform established under public law. However, the actual tradability of the share is, in principle, insignificant with regard to the question of the existence and the allocation of the property in the share. If it were possible to ascertain an increased transferability in actual terms, this would be a mere opportunity for earnings and trade.
c) Thus, admission to the regulated market is a value-creating factor. Several other such factors can be identified with regard to shares; they are merely considered as market opportunities, which means that they are not protected by constitutional law. The Federal Constitutional Court’s relevant case-law to date, in particular its DAT/Altana ruling (Decisions of the Federal Constitutional Court, Entscheidungen des Bundesverfassungsgerichts – BVerfGE 100, 289, 305), does not demand a different assessment. In this decision, the Senate merely emphasised, for the case that property in shares has already been interfered with, that the stock market value of the share affected in the specific case must be taken into account as a value-creating factor when it comes to the assessment of compensation.
d) Neither the fact that admission to the regulated market results in the application of numerous special company-law and commercial-law provisions concerning stock exchange listed companies, nor the standards of stock exchange law that are applied in the regulated market make it possible to consider the listing in the regulated market as part of property. The provisions are intended to contribute to a better corporate culture and to greater corporate success, and in particular, they are intended to protect against undesirable developments. It is true that the detailed set of regulations applying to stock exchange listed companies and the high standards of protection under stock exchange law indirectly serve, inter alia, the individual shareholder’s asset and membership interests. In this respect, however, their benefit to the shareholder is merely a reflex, which does not make the special regime of regulations for stock exchange listed companies and the standard under stock exchange law an object of protection of the shareholder’s property in shares.
e) Thus, the challenged decisions do not violate the fundamental right to property of the complainant in proceedings 1 BvR 1569/08 because the area protected by it is not affected at all by the delisting. The downgrading of the share to stock exchange regulated qualified over-the-counter trading without a mandatory offer by the company or by its main shareholder that can be reviewed in valuation proceedings, which is at issue here, is also constitutionally unobjectionable.
II. Permissibility of further development of the law by judges – mandatory offer for a takeover of shares (Macrotron decision) – proceedings 1 BvR 3142/07
The rulings challenged in proceedings 1 BvR 3142/07, which held admissible the valuation proceedings which had been applied for to be instituted against the complainant to review the share purchase offer made by it, are also constitutionally unobjectionable.
1. The ordinary courts’ assessment that the complainant’s offer was a mandatory offer to be inferred from an overall analogy to company-law provisions governing other structural measures (§§ 305, 320b, 327b of the Stock Corporation Act (Aktiengesetz – AktG), §§ 29, 207 of the Corporate Transformation Act (Umwandlungsgesetz – UmwG)), and the corresponding application of the Valuation Proceedings Act (Spruchverfahrensgesetz), respect the bounds set by the constitution to the judicial authority to decide (Article 2.1 in conjunction with Article 20.3 GG).
a) The application and interpretation of the laws by the courts is in harmony with the rule of law (Art. 20 Abs. 3 GG) if it takes place within the bounds of justifiable interpretation and permissible further development of the law by judges. The duties connected with the administration of justice include the further development of the law. Therefore, an analogous application of provisions from ordinary law and the closing of gaps in the legislation are in principle constitutionally unobjectionable. The further development of the law by judges may however not result in the recognisable will of the legislature being pushed aside and being replaced by an autonomous weighing of interests by judges. Instead, the duty of the administration of justice is restricted to bringing to bear the sense and purpose of a law that has been laid down by the legislature as reliably as possible under changed circumstances, or to fill a gap in the legislation that runs counter to the legislative objective by means of the recognised methods of interpretation.
b) The overall analogy challenged by the complainant lives up to these standards. Statute law does not contain a provision prescribing that in case of the revocation of the listing of a share in the regulated stock exchange market, the majority shareholder or the corporation itself must offer the minority shareholders a compensation for an impairment of tradability. Only the provision under capital markets law of § 39.2 of the Stock Exchange Act (Börsengesetz – BörsG) provides that the delisting may not contradict the protection of investors; it leaves, however, the further elaboration of the modalities of the delisting to the respective stock exchange rules.
The courts originally dealing with the matter regarded this protection under capital markets law as insufficient; they ultimately assumed that with regard to its requirements and legal consequences, the situation under company law applying to voluntary delisting had to be assessed in the same manner as the existing provisions under capital markets law. This is not a gross contradiction to the clearly recognisable will of the legislature, or any other derogation from the law in terms of judges’ self-assumed authority (richterliche Eigenmacht). The ordinary courts have inferred the consistent fundamental idea from the statutory duties of compensation existing in the cases of integration (§ 320 AktG), merger (§ 29 UmwG), change of legal form (§ 207 UmwG) and the conclusion of a control and profit transfer agreement (§ 305 AktG) that mandatory offers prescribed by statute provide the shareholders with the possibility to decide whether they want to uphold their membership right under the circumstances that have substantially changed by the structural measure. They particularly provide minority shareholders, who cannot prevent such a structural measure, with the possibility of withdrawing from the stock corporation due to the changed circumstances against adequate compensation. The fact that the legislature, in spite of repeatedly becoming active in corporate transformation and company law, did not see a reason to counteract the legal development initiated by the Federal Court of Justice’s Macrotron decision is another factor that speaks against the assumption that the limits of the judiciary’s being bound by the law have been transgressed.
As the overall analogy that has been established with regard to the requirement of a mandatory offer in the case of a complete withdrawal from the stock exchange is constitutionally unobjectionable, this also applies to the corresponding application of the provisions of the Valuation Proceedings Act to make it possible to review the adequateness of the purchase price offered.
2. The result of a constitutionally unobjectionable overall analogy also does not run counter to the assumption that the revocation of the stock exchange listing does not affect the area protected by the fundamental right to property. It is true that one of the factors that initiated the legal development concerning the overall analogy was the fact that in its Macrotron decision, the Federal Court of Justice held that the property in shares was affected. However, to answer the question of whether a further development of the law by judges is still constitutional, it is not decisive whether the further development of the law can be justified, inter alia, by Article 14.1 GG. For the further development of the law is not evaluated according to its motives but only according to whether the interpretation as such respects the boundaries of a constitutionally permissible further development of the law.
Thus, the overall analogy – with the result that in the case of voluntary delisting, a mandatory offer that can be judicially reviewed is demanded –, is permissible, but not required under the constitution. It is left to the further case-law of the ordinary courts to examine, on the basis of the circumstances in share trading that will then apply, whether the line of argument followed in case-law until then will be upheld, and to evaluate how the change from the regulated market to qualified over-the-counter trading will be assessed in this context.