Unclear ownership of public limited companies
According to Reto Leisi of Credit Suisse, the ownership structure is unclear in about two thirds of all Swiss SMEs. This circumstance often goes unnoticed for a long time because, on the one hand, shares in SMEs are not often transferred and, on the other hand, a faulty transfer often only becomes apparent during a thorough due diligence review or in a dispute.
Ownership is particularly relevant in the case of restructuring, succession arrangements or financing rounds. However, ownership can also be significant in disputes between shareholders; a shareholder can only exercise his rights if he can prove ownership of the shares. The problem affects both established companies, where succession is at stake, and start-ups, where ownership can change again and again due to financing rounds.
A correct transfer of shares requires both an obligation transaction and a disposal transaction. In practice, often only an obligation transaction, e.g. a purchase agreement, is concluded, but the actual transfer of ownership, the disposal transaction, is forgotten. If the shares were issued as deeds, this is usually noticeable. However, there are enough cases where not all share certificates can be found at the time of the transfer and these may first have to be declared invalid.
Today, however, many Swiss companies do not issue certificates and have structured the registered shares as uncertificated securities. The creation of uncertificated securities is therefore nothing unusual. With regard to the use of uncertificated securities, two models can be distinguished: In the registered share model with deferred title printing, shares or share certificates are only issued if the shareholder so requests; otherwise, the registered shares exist only as uncertificated securities. In the registered share model with cancelled printing of titles, the entitlement to printing and delivery of shares ceases completely.
In addition to the book of value rights, a share register must be kept, whereby a company could combine this. Only if a shareholder is registered with name and address, he has a voting right and a right to the dividend (Art. 686 CO). If the shares are restricted, the company may refuse registration. In the case of succession planning for an SME, the new shareholder often takes over the operational management and thus, for example, the right to dividends is not even questioned.
A transfer (assignment) must be in writing. Before a company allows a shareholder to act, it may require proof of ownership. If ownership is disputed in a dispute, proof of ownership must be provided in court. An error in the chain of assignment will result in the transfer as well as subsequent transfers not having been made in accordance with the law and thus no transfer of shares having taken place. Indeed, anyone claiming to be a shareholder of a company has to provide evidence of a complete chain of assignment. Acknowledgement by the company does not release from the proof (cf. judgments BGer 4A_314/2016 and 4A_320/2016 of 17 November 2016 E. 4.2.3). A subsequent rectification of the chain of cession can quickly become tedious and time-consuming.
In many cases, such unclear ownership relationships go unnoticed for a long time. However, a ruling by the Commercial Court of Zurich in November 2018(HG160228) has once again shown that this is not a theoretical problem. In this case, only the obligation transaction but not the disposal transaction could be proven. The shareholder status could therefore not be proven, which meant that the plaintiff could also not yield any actions for annulment and rescission. He could therefore not exercise his shareholder rights.
In order to avoid such unpleasant situations, the ownership situation should be checked during calm phases. In a transaction, both buyers and sellers are well advised to check the ownership situation in advance.
If companies and shareholders want to avoid a major paper war, they can now also opt for digital solutions. Various banks offer solutions for the management of digital shares (e.g. Credit Suisse). In addition, there are now also the first projects that use blockchain technology to manage digital share registers and shares (e.g. DAURA / SIX Digital Exchange).
If you have any questions regarding the legally compliant transfer of shares, please do not hesitate to contact us.
This article was written by RA Yves Gogniat.
Your contact persons: Balthasar Wicki, Hans Kuhn