When an owner's shareholding in a limited company rises above 90 %, the right and obligation to redeem arises under the Limited Liability Companies Act. The size of the limited liability company or whether it is an ordinary limited liability company or a public limited liability company (plc) is irrelevant for the creation of the right of redemption or the use of the redemption procedure.
Creation of the right of redemption
The right to redeem minority shares and the redemption procedure are laid down in Chapter 18 of the Companies Act. According to the Companies Act, a shareholder holding more than nine tenths of the company's shares and of the total number of votes attached to all shares (the redeemer) has the right to redeem the shares of other shareholders at fair value.
Accordingly, a shareholder whose share is redeemable has the right to demand redemption of his share at any time if the redemption conditions are fulfilled. However, a shareholder requesting redemption must submit a redemption request for all the shares he holds. He may not demand the redemption of only some of his shares.
On the other hand, a shareholder who is obliged to redeem has the right to redeem all minority shares, even if only some minority shareholders have submitted their redemption claims.
Notification obligations concerning the right of redemption
The redeemer shall promptly notify the Company of the creation or termination of the right and obligation to redeem. The right of redemption shall arise when the shareholder holds more than 90 % of the shares and votes of the company. There is no precise deadline for the notification, but I recommend that it be made within one month of the date on which the redeemer takes possession of 90 % of the shares.
If the right of redemption is not notified to the company in time, the shareholder who fails to notify the company may be fined for breach of company law.
When the company has received this notification or otherwise reliable information from the redeemer about the creation or termination of the right and obligation to redeem, the company shall immediately notify the creation or termination of the right and obligation to redeem to the Trade Register for registration.
Redemption procedure
1) Application to open a redemption procedure and opening of the procedure
If the matter of redemption cannot be resolved by voluntary action, for example as a result of a takeover bid by the redeeming party, the company or the redeemer may apply to the Central Chamber of Commerce's Redemption Committee to initiate redemption proceedings. On the basis of the application, the Board shall select the necessary number of impartial and independent arbitrators and a trustee. The trustee's role is to safeguard the interests of minority shareholders, in particular passive and unknown minority shareholders.
An experienced lawyer, university professor or otherwise highly experienced lawyer is usually chosen as an arbitrator and an experienced accountant is usually chosen as a trustee. The fact that some or all of the minority shareholders may be unknown does not prevent this procedure, as the trustee represents all the minimum shareholders.
2) Arbitration
In arbitration proceedings, the arbitrator usually first asks the parties for their written submissions on the application, the right of redemption and the redemption price offered. The arbitrator then decides on the course of the proceedings; whether to request further written submissions and statements, hold actual hearings, etc. The proceedings usually last about three months.
3) Share redemption price
The redemption price of a share is determined by the fair market price (market price of the share) at the time before the arbitration is initiated. In my experience, these redemptions pay particular attention to the prices at which share transactions took place before the right of redemption arose. The other criteria used to determine the fair value are usually the balance sheet value or net asset value and various calculations based on the company's return on assets. There is a separate article on valuation on these pages.
4) Transfer of shares and payment of the redemption price
The shares are automatically transferred to the redeemer upon payment of the redemption price. The redemption price (plus interest) must be paid one month after the judgment has become final. If the payment is not made on time, interest on arrears will be due.
If the redeemer does not receive the share certificates of the minority shareholder(s), the redeemer shall be entitled to receive a new share certificate in place of the previously issued share certificate, with an indication that it replaces the previous share certificate. If the original share certificates outstanding are not received from the minority shareholders, they may also be cancelled.
5) Procedure with unknown minority shareholders' shares
To the extent that minority shareholders are not known or the shares cannot be redeemed for any other reason, the redeemer may pay the redemption price by depositing it with the Regional State Administrative Office of the company's registered office. In this case, the shares will be transferred to the redeemer at the time of the deposit and the outstanding share certificates held by unknown shareholders will only be entitled to receive the redemption price against the deposit with the Regional State Administrative Office.
6) Costs of arbitration
The costs of the arbitration shall be borne by the redeemer, unless the arbitrators consider it reasonable for a particular reason to order otherwise.
The redemption committee determines the fees of the arbitrators. The Board shall fix the remuneration of the sole arbitrator or the chairman of the arbitral tribunal in accordance with the published schedule. The fees of the trustee are not regulated in such detail anywhere, but they are generally considerably lower than those of the arbitrators.
The redemption committee determines the amount of the statutory management fee from the table.
7) Right of appeal
Arbitrators report the arbitration award to the Trade Register within two weeks. A party dissatisfied with the arbitration award may appeal against it to the Helsinki District Court within 60 days of the registration of the arbitration award. The decision of the District Court may be appealed to the Supreme Court if the Supreme Court grants leave to appeal.
Amos Attorneys at Law Oy
www.amoslaki.fi