CONSTITUTIONAL LAW AND THE SQUEEZE-OUT OF MINORITY SHAREHOLDERS
Most developed jurisdictions allow the squeeze-out of minority shareholders by a majority shareholder via fair compensation. However, the specifics and conditions precedent for a squeeze-out vary significantly from country to country. Sometimes the squeeze-out is only possible in the course of a takeover, a minimal solution the European Takeover Directive required European Member States to legally implement. Other jurisdictions are more liberal and do not make the right of squeeze-out dependent on a particular situation, but solely on the existence of a majority shareholder who holds more than a certain threshold of the company’s shares – often more than 90 percent.
The squeeze-out of minority shareholders is legally sensitive as it constitutes an expropriation by which the minority shareholder loses its share in the company. In many countries, such expropriation is in tension with constitutional law and international legal obligations protecting a person’s right to property. This applies to virtually all of Europe, where the European Convention on Human Rights, which is in force in all 47 Council of Europe Member States, stipulates that “every natural or legal person is entitled to the peaceful enjoyment of his possessions”.
It is often argued that the squeeze-out of minority shareholders is unconstitutional or otherwise legally impermissible. The main reason usually put forward is that the squeeze-out is only in the interest of the majority shareholder and not the public. This argument has particular relevance in Europe, where the European Convention on Human Rights sets out that nobody shall be “deprived of his possessions except in the public interest and subject to conditions provided for by law and by the general principles of international law”.
Apr-Jun 2019 issue