Communication from the Constitutional Court No 132 / 2013 Coll.

The extent of the legal procedural guarantees of the constitutionally guaranteed ownership of minority shareholders (Article 11 of the Charter of Fundamental Rights and Freedoms) in determining the amount of the appropriate remuneration for participating securities whose ownership is forfeited as a result of the adoption of the resolution of the general meeting on the redemption of participating securities pursuant to Article 183i of Act No. 513 / 1991 Coll., the Commercial Code, as amended, does not constitute grounds for complying with the action sought by the minority shareholder under Section 131 (1) of the Commercial Code, as amended, the annulment of that resolution by the general meeting. In this context, the judicial protection of that fundamental right may be exercised by minority shareholders in proceedings for the examination of the proportionality of the consideration under Article 183k of the Commercial Code.

1. Before the Constitutional Court, proceedings were initiated for a constitutional complaint Ing. Aleš Hodiny against the order of the Supreme Court of 20 June 2012 No 29 Cdo 1169 / 2011-238, the order of the Supreme Court of Prague of 4 November 2010 No 7 Cmo 477 / 2009-209 and the order of the Regional Court of Ústí nad Labem of 11 September 2009 No 72 Cm 150 / 2008-178; the case is conducted under point III of the ÚS 3489 / 12. Those decisions were issued in an action for annulment of the General Meeting of Copper Povrly, a.s., held on 28 August 2008, which was decided under point 3 of the agenda for the transfer of shares of the company owned by other shareholders to the main shareholder. The complainant was a minority shareholder of the company at the time of its holding. The Regional Court in Ústí nad Labem dismissed the action by its order, and the Supreme Court in Prague subsequently confirmed its decision to appeal the complainant. The appeal against the confirmatory order of the latter court was rejected as inadmissible by the Supreme Court.

2. The complainant contends that the transfer of shares to the main shareholder was decided pursuant to § 183i to 183n of Act No. 513 / 1991 Coll., Commercial Code, as amended by Act No. 104 / 2008 Coll., that is to say, the legislation which contradicts the constitutional order. It does not include the obligation to supervise the purchase of participating securities by the Czech National Bank as one of the necessary guarantees of protection of the rights of minority shareholders within the meaning of the finding of 27 March 2008 sp. zn. Pl. ÚS 56 / 05 (N 60 / 48 SbNU 873; 257 / 2008 Coll.), in particular its paragraph 71. In those circumstances, the complainant considered that it was the duty of the General Courts to grant, by their decision, the protection of its constitutionally guaranteed right to own property pursuant to Article 11 (1) of the Charter of Fundamental Rights and Freedoms (hereinafter referred to as the Charter), a decision to revoke the decision of the General Meeting in question. By not doing so, they should have infringed this fundamental right.

3. According to the Third Chamber of the Constitutional Court, that objection is not relevant in the present case. Even at the time of the effectiveness of the legislation, on whose constitutionality the finding of sp. zn. Pl. ÚS 56 / 05 was expressed, the supervision of the Czech National Bank (or before the Securities Commission) concerned the issue of the amount of consideration for the participating securities that had been transferred to the main shareholder (cf. § 183i (5) of the Commercial Code, as amended by Act No. 377 / 2005 Coll. and Act No. 57 / 2006 Coll.). Although its approval was conditional on the adoption of a resolution by the General Assembly on the forced redemption of participating securities, the issue of the appropriateness or merits of this step was never supervised, since its assessment was solely within the competence of the General Assembly provided that the statutory procedural conditions were fulfilled. If the legislator decided by amendment of Act No. 104 / 2008 Coll., on takeover offers and on the amendment of certain other laws (the Law on takeover offers), it limited the supervision thus defined by the Czech National Bank only to the purchase of participating securities that were admitted to trading on a regulated market, it only touched on those procedural guarantees of the rights of minority shareholders relating to the determination of the level of appropriate remuneration for the remaining public limited liability companies. For this reason, the application of the objection in question, without the Constitutional Court's III Chamber expressing its relevance at that point, would be considered in substance only in the proceedings in which the General Court decides on a proposal to examine the proportionality of the consideration under Paragraph 183k (1) of the Commercial Code and not in the proceedings for the annulment of decisions of the General Assembly under Article 131 (1) of the Commercial Code. Finally, the definition of Paragraph 183k (4) and (5) of the Commercial Code, which explicitly excludes the inadequacy of the amount of consideration as a reason for the annulment of the general meeting's resolution on the transfer of participating securities to the main shareholder under Section 183i of the Commercial Code, is also consistent with this.

4. That interpretation is not in line with the legal opinion reached by the First Chamber of the Constitutional Court in its decision of 21 March 2011, sp. zn. I. ÚS 1768 / 09 (N 49 / 60 SbNU 577). This finding met the constitutional complaint of the same complainant and noted a breach of his fundamental right to own property pursuant to Article 11 of the Charter, which the general courts were required to commit by rejecting his action for annulment of the order of the General Assembly on the compulsory redemption of participating securities pursuant to Article 183i of the Commercial Code, as amended by 28 September 2005, i.e. adopted for the effectiveness of the legislation prior to the establishment of the supervision of the Czech National Bank. It was precisely the absence of such supervision that should have been combined with a shorter time limit for the assembly of the general meeting, which was not suitable for the preparation of minority shareholders, with sufficient grounds to comply with its action, since it prevented the complainant's fundamental rights from being properly protected. These conclusions were maintained by the First Chamber of the Constitutional Court and by the finding of 26 January 2012 in sp. zn. I. ÚS 2154 / 11 (available at http: / / nalus.ujud.cz), which, in a similar case, complied with the constitutional complaint of a minority shareholder against decisions of the general courts.

5. The third Chamber of the Constitutional Court does not agree with that view. It is based on incorrect reasoning that the lack of legal guarantees of the rights of minority shareholders in determining the amount of the appropriate remuneration, for example due to the absence of binding supervision by the Czech National Bank, may be a reason for the annulment of the resolution of the general meeting, which decided to move them to the main shareholder.

6. First, it should be noted that the Institut of Forced Purchase of Participating Securities (so-called Squeezeout), pursuant to Sections 183i to 183n of the Commercial Code, has become part of the Legal Code on the basis of the amendment of Act No. 216 / 2005 Coll., amending Act No. 513 / 1991 Coll., Commercial Code, as amended, Act No. 99 / 1963 Coll., Civil Code, as amended, Act No. 189 / 1994 Coll., on Senior Judicial Officers, as amended, and Act No. 358 / 1992 Coll., on notaries and their activities (notaries), as amended on 3 June 2005. The provisions laid down by the Commission on the Obligatory Supervision of the Securities Commission have been supplemented with effect from 29 September 2005 to the amendment made by Act No. 377 / 2005 Coll., on the Supplementary Supervision of Banks, Savings and Credit Cooperatives, Insurance Companies and Securities Traders in Financial Conglomerates and on the amendment of certain other laws (Financial Conglomerates Act), while another amendment, this time implemented by Act No. 57 / 2006 Coll., on the amendment of the laws relating to the consolidation of the financial market supervision, with effect from 1 April 2006, was entrusted to the Czech National Bank to the same extent. As mentioned above, the amendment to the Commercial Code implemented by Act No. 104 / 2008 Coll., which took effect on 1 April 2008, limited the obligation to purchase listed shares. The Constitutional Complaints decided on by the First Chamber of the Constitutional Court concerned situations where the purchase of participating securities was decided for the original legislation (i.e. before the establishment of supervision); in the case under examination by the Third Chamber of the Constitutional Court, this happened only after the relevant amendment was restricted.

7. The Constitutional Court concluded in the sp. zn. Pl. ÚS 56 / 05 that the law on the compulsory redemption of participating securities under § 183i to 183n of the Commercial Code, as amended by Act No. 377 / 2005 Coll. (i.e. after the determination of supervision) provides sufficient guarantees to minority shareholders as to the level of adequate remuneration. These guarantees consisted in the obligation of the main shareholder to demonstrate the adequacy of the remuneration by expert opinion, and in the binding supervision of the Czech National Bank, which, in its context, assessed the amount of the remuneration and whose agreement was a condition for the adoption of the decision in question by the General Meeting, and finally in the possibility of subsequent judicial review, since minority shareholders could, within a specified period, be able to obtain the protection of their rights by making a proposal under Paragraph 183k of the Commercial Code to examine the proportionality of the remuneration. It can be concluded from the grounds for the finding (in particular paragraphs 66 to 71) that the Constitutional Court considered the supervision of the Czech National Bank as an important means of ensuring the requirement of an impartial professional determination of an adequate remuneration, the fulfilment of which is a prerequisite for the protection of the ownership of minority shareholders. This supervision was intended to eliminate possible risks arising, on the one hand, from the fact that the security of the expert's opinion is in the hands of the main shareholder and, on the other hand, from the absence of application practices of established criteria on the basis of which the proportionality of the remuneration should be assessed or reviewed. However, this does not mean that the Constitutional Court would formulate the requirement of supervision of the Czech National Bank as a necessary condition for the constitutionality of the legislation.

8. It is clear that, in the light of the conclusions set out above, the original legislation, which was effective between 3 June 2005 and 28 September 2005 (i.e. before the establishment of supervision) and the findings of point I. I. ÚS 1768 / 09 and I. ÚS 2154 / 11, were also concerned with the application of which there were significant deficiencies. Indeed, the lack of supervision of the Czech National Bank or any other similarly effective legal means to protect the rights of minority shareholders could justify the conclusion on the existence of an anti-constitutional loophole in the law in the context of the legislation in question and thus constitute a derogatory reason for it. However, such a conclusion could not be made by the First Chamber of the Constitutional Court in its findings. Instead, he pointed out the shortcomings of this legislation, i.e. the absence of supervision by the Czech National Bank and the short deadline for the assembly of the general meeting, and drew a conclusion that could affect their existence on the basis of their established private-law relations. In his view, the general courts should have complied with the actions of minority shareholders and annulled the orders of the general meeting which decided on the forced redemption of the participating securities.

9. In the different view of the Third Chamber of the Constitutional Court, those deficiencies could not open the way to calling into question the private-law relations in question prior to the determination of supervision, nor could this result in a possible comparable deficit of today's legislation (i.e. after the restriction of supervision). The first reason is the general inadmissibility of the retroactive effect of the deregulation of the law or the declaration of its unconstitutionality, in relation to private relations [in particular the finding of 6 February 2007 sp. zn. The principle of legal certainty thus defined must also apply here, although the First Chamber of the Constitutional Court has not declared the unconstitutional nature of the legislation in question. In fact, it was based on it when, taking into account the legal conclusions contained in the finding in sp. zn. Pl. ÚS 56 / 05, it found that its shortcomings were such as to call into question the possibility of its application.

10. The amendment of the Law does not deprive the Constitutional Court of the legal basis of the existing private-law relations that arose on its basis, nor does it subsequently render them invalid. An exception to this principle can only be granted very exceptionally, for example in the case of an extremely intense deregulation (particularly a contradiction with the material core of the Constitution of the Czech Republic), which would have to question the constitutional positions of the institutions of forced redemption of participating securities as such. However, in the light of the legal conclusions contained in the finding in the sp. zn. In fact, the Constitutional Court sought to address as a constitutionally conformal principle the forced redemption of participating securities, i.e. the possibility of the demise of the ownership rights of minority shareholders on the basis of a decision by the General Assembly, which received a majority of nine-tenths of the owners' votes, provided that adequate remuneration was granted.

11. As regards the second reason, this was already indicated at the beginning of this opinion (see paragraph 3). The objection of the absence of supervision by the Czech National Bank concerns the issue of the review of the adequacy of the remuneration, not the decision itself as to whether forced redemption of participating securities is to take place. It is not said that these are two completely separate questions. However, if the adoption of the relevant resolution of the General Assembly is not conditional on the approval of the Czech National Bank, this does not mean that the minority shareholders concerned have been reduced to their right to a reasonable remuneration. Its content remains the same in terms of substantive law. Only procedural guarantees of satisfaction of this claim are changed, which would not have occurred if its amount had been misstated as lower.

12. It can therefore be concluded that a reduction in the guarantee of the rights of minority shareholders may lead to a conclusion on the unconstitutional nature of the legislation, but its possible abolition by the Constitutional Court would not affect the transfer of participating securities to the main shareholder or the existence of the right of minority shareholders to an adequate remuneration. In such a case, the courts are obliged to grant the judicial protection to the minority shareholders concerned of their constitutionally guaranteed rights of ownership of the property, but it cannot consist of the annulment of the purchases in question, as this would unduly interfere with the acquired rights not only of the main shareholders, but ultimately of the minority shareholders that they accepted the forced ransom. The granting of protection to minority shareholders by the courts will, in principle, only be possible in such a way as to call into question the amount of remuneration provided for by the general meeting's resolution and thus to obtain payment of the amount to which they would be entitled under the law. However, such a determination cannot be made in the proceedings for the annulment of the general meeting pursuant to Article 131 (1) of the Commercial Code, but by a proposal under Article 183k of the Commercial Code to examine the adequacy of the consideration, which was already taken into account as a procedural instrument in the effectiveness of the original legislation (i.e. before the provision of supervision).

13. It is clear from the wording of the findings of the First Chamber of the Constitutional Court against which this opinion is set out that he, too, was aware of the possible conflict between the existence of the stated reason for the annulment of the General Assembly resolution on the one hand and the principle of legal certainty on the other. In the light of several years of legal proceedings, the legal certainty of the parties to the legal relations in question gave priority in both cases. However, it remains a question of whether he would have had any other option if this time span had been shorter, for example for several months. This question had no need to be addressed by the First Chamber of the Constitutional Court, as its legal conclusions relate only to a relatively short and long-term period from 3 June 2005 to 28 September 2005 (i.e. before the establishment of supervision), but both the general courts and the Constitutional Court are confronted with it in connection with the new legislation, which is also called into question by minority shareholders to limit the supervision of the Czech National Bank. Similarly, the question is whether, at all, the general courts themselves can assess the degree of legal certainty of the ownership rights of minority shareholders and whether, if it appears to them to be insufficient, legislation can be applied in a constitutional manner in such a way that it does not actually allow the forced purchase of participating securities. According to the Third Chamber of the Constitutional Court, both questions must be answered in the negative. The General Courts may either file a motion to abolish the provisions of the Commercial Code which they have applied pursuant to Article 64 (3) of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended, or, if there is no other matter, to comply with the law and respect the extent of guarantees of the rights of minority shareholders. In the case in respect of which the Third Chamber of the Constitutional Court submitted this draft opinion, that is to say that the general courts could not comply with the action for annulment of the general meeting's orders on the sole ground that the law, without calling into question its constitutionality, did not provide sufficient guarantees for the complainant's right as a minority shareholder to obtain adequate remuneration. In addition, this claim is completely irrelevant in this type of procedure, since the judicial review of the above-mentioned remuneration could only be obtained by the complainant in the application procedure under Paragraph 183k of the Commercial Code (see also paragraph 3 of this Opinion).

14. It remains to be said that the existence of the latter proceedings clearly excludes the possibility that the complainant may be able to compensate for any compensation for damages against the State on the basis of a finding by the Constitutional Court which merely declares a breach of its constitutional rights by contested decisions. In fact, he could have exercised his right to an appropriate remuneration within the time limit laid down in that procedure.

15. For all these reasons, the III. Chamber of the Constitutional Court, pursuant to Article 23 of the Law on the Constitutional Court, raised the question of the relevance of the objection to the absence of sufficient legal guarantees of the rights of minority shareholders in determining the amount of the appropriate remuneration (in this case the absence of supervision by the Czech National Bank), which the complainant disputes in the action for annulment of the General Court's decision on the transfer of the shareholders' securities to the main shareholder pursuant to Article 183i of the Commercial Code, in order to assess the full extent of its reasoning, and to adopt the legal opinion expressed in the opinion.