Opting-out has been the most discussed topic in Swiss takeover law since its entry into force in 1998. At the core of the debate has been the question as to who should regulate the right to opt-out from the mandatory offer obligation—the civil courts, the Takeover Board or both? On 11 October 2012, the Takeover Board (TOB) issued a decision in the matter Advanced Digital Broadcast Holdings SA (decision 0518/01), whereby the TOB stated that (i) it would review itself whether the introduction of the opting-out prejudices the rights of minority shareholders by examining the votes of these minority shareholders at the general meeting introducing such opting-out (departing from the LEM Holding SA decision of 22 September 2011) and that (ii) an opting-out could also only apply to a specific transaction/shareholder, thereby allowing the introduction of the so-called selective opting-out (confirming its ESEC Holding AG recommendation of 6 June 2000, but departing from the decision of the Federal Banking Commission of 23 June 2000 in the same matter). No recourse has been filed against the decision of the TOB; it is therefore final.

By Frank Gerhard (Reference: CapLaw-2012-53)

1) The Statutory Regime of the Opting-Out

Any shareholder exceeding the threshold of 33.33% of the voting rights in a Swiss company with a primary listing on a stock exchange in Switzerland must launch a mandatory offer for all outstanding shares of the target (article 33 Stock Exchange Act (SESTA)). However, shareholders may exclude generally the application of the rules on the mandatory offer by introducing a so-called “opting-out” (article 22 (2) and (3) SESTA) in the articles of incorporation by a resolution of the shareholders’ meeting adopted by a simple majority of the votes represented (article 703 Code of Obligations (CO)). This opting-out is a Swiss specialty: the laws of no other European jurisdiction provide for a mechanism through which the shareholders of a listed company can elect to “opt-out” generally from the mandatory offer regime. In fact, the Swiss regime on the opting-out goes further than permitting an exemption/whitewash in a certain specific situation (see e.g., article 32 (2),(3) and (6) SESTA and article 38 and 39 FINMA Stock Exchange Ordinance (SESTO-FINMA)): once validly introduced, an opting-out is valid for any acquirer, for an unlimited period of time (assuming no subsequent deletion from the articles of incorporation) and irrespective of the reason why such an acquirer has exceeded the mandatory offer threshold. If the introduction of such opting-out is made after the listing, article 22 (3) SESTA requires additionally that such opting-out shall not prejudice the interests of the shareholders within the meaning of article 706 CO. Accordingly, shareholders may decide to opt-out from the mandatory offer obligation after listing if such decision would not (i) withdraw or restrict the rights of the shareholders in breach of the law or the articles of incorporation (article 706 (2) (1) CO), (ii) withdraw or restrict the rights of shareholders in an improper manner (article 706 (2) (2) CO), (iii) give rise to an unequal treatment of, or an advantage to, shareholders in a manner not justified by the company’s purpose (article 706 (2) (3) CO) or (iv) revoke the profit-making orientation of the company without the consent of all shareholders (article 706 (2) (4) CO).

In order to better understand the importance of the ADB decision, we will briefly set forth below the most important milestones of the practice regarding the introduction of an opting-out after the listing of the company. A more detailed overview can be found in CapLaw 5/2011 (Frank Gerhard, Takeover Board Opts-Out From Opting-Out, p. 11ss).

2) The Development of the Opting-Out Doctrine

The first relevant case regarding the opting-out was the ESEC Holding AG/Unaxis Holding AG case in 2000 (Recommendation 0018/02 of the TOB dated 6 June 2000). Faced with the question whether an opting-out limited in time (14 months) and limited to one specific acquirer (Unaxis) was valid, and to have such provision vetted by the non-conflicted shareholders in a special meeting, the TOB decided in the affirmative, because the question put forward was whether the mandatory offer obligation was applicable—which was clearly a question of takeover law—and, in order to answer such question, the TOB had to determine whether the shareholders’ resolution was valid, and, in order to make such determination, whether the opting-out provision was compatible with the general standards of corporate law enshrined in article 706 CO. Interestingly, the TOB concluded that if the opting-out provision was approved by both the general meeting and a special meeting of non-conflicted shareholders (i.e., the shareholders who would not benefit from the introduction of the opting-out provision) there would be no reason to challenge the resolution for non-compliance with the general principles of corporate law. In other words, a proper procedure would presume that the substance of the resolution was correct. Yet, the FBC (Decision of the FBC dated 23 June 2000) overturned the TOB’s decision and held that an opting-out provision which is only in favor of a specific acquirer or in view of a specific transaction (i.e., a selective opting-out) is not permissible under Swiss law, whether or not the provision was approved by a special majority of the non-conflicted shareholders. The FBC insisted on the numerus clausus of the possibilities offered by the SESTA to waive the mandatory offer. In other words, the general and specific exemptions from the mandatory offer obligation (which were not applicable in casu) on the one hand, and the opting-up and the opting-out provisions which are, based on the wording of article 22 (2) and (3) SESTA, applicable to all acquirers and not limited in duration on the other hand, leave no room for such a formally selective cherry-picking.

In the 2004 case Adval Tech Holding AG, the TOB draw the conclusion from the FBC ruling in the ESEC case that a formally general opting-out provision, but in fact introduced in view of a specific acquirer or a specific transaction—even if such acquirer or transaction was not explicitly disclosed—is not enforceable under the takeover law: indeed, it was tantamount to a selective opting-out and therefore violated the principle of equal treatment of the shareholders because it did not benefit all shareholders. Against this background, any opting-out provision introduced within five years prior to a change of control would be deemed introduced in favor of a specific acquirer or a specific transaction and thus be selective in fact (Recommendation 0184/01 of the TOB dated 3 March 2004 in the matter Adval Tech Holding AG, confirmed by the Recommendation 0203/01 of the TOB dated 7 July 2004 in the matter Société de Gares Frigorifiques et Ports Francs de Genève SA).

In 2010, the TOB rendered two decisions that adopted a more relaxed approach. In the CI Com SA case (Decision 0437/01 dated 4 March 2010), the TOB held that although the opting-out clause at stake was introduced only three years prior to a change of control, such clause was not selective in fact, i.e., was not introduced in view of a specific acquirer or a specific transaction whose identity, even though not explicitly named, was implicit in light of the circumstances. In addition, and more importantly, the TOB held that the mere fact that an opting-out clause was introduced by a majority shareholder and would preponderantly benefit such majority shareholder (indeed, CI Com SA had a 60.9% shareholder at the time of the introduction of the opting-out) does not invalidate such clause from a takeover law point of view. In such a situation, it would be clear to the other shareholders from the outset that such a majority shareholder would benefit from an opting-out; under these circumstances, it is not necessary to extend the protection granted by article 706 CO et seq. through a mechanism embedded in the takeover law, but it should be left up to the shareholders whether they want or not challenge within two months the shareholders’ resolution before the civil courts.

In the COS Computer Systems AG case (Decision 0440/01 dated 4 June 2010), the TOB applied a new reasoning. In connection with a strategic review with the purpose of making the company an interesting partner for a reverse takeover, the board of COS Computer Systems AG proposed to its shareholders in 2009 to introduce an opting-out clause into its articles of incorporation—without having a specific acquirer or a specific transaction in mind. A reverse takeover was later completed in 2010, but first contacts with the acquirer were not initiated until after the introduction of the optingout clause. The TOB found itself in a different position than in the CI Com SA case, since not only there was no acquirer around at the time the clause was introduced, but also there was no major shareholder who would implicitly benefit from the introduction of the opting-out clause. So the TOB could not use the transparency argument since the shareholders could per se not make an educated decision. However, instead of declaring that the clause was not selective because it was not introduced in favor of a specific acquirer or a specific transaction (which would have made it easy for the TOB to declare the opting-out clause valid from a takeover law point of view), the TOB held that an opting-out clause, whether formally selective or selective in fact, could be enforceable if it does not prejudice the interests of the shareholders within the meaning of article 706 CO. In other words, for the first time the TOB decided to actually look at the substance of the matter by applying the requirements of article 706 CO—thereby accepting that a selective opting-out clause is not per se invalid from a takeover law perspective. In casu, the opting-out clause was an element of COS Computer Software AG’s new strategy and thus justified by an overriding corporate interest. Moreover, no shareholder had challenged the introduction of the opting-out clause in court under corporate law.

In the LEM Holding AG case (Decision 0490/01 dated 22 September 2011), the TOB reversed its practice instituted by the Adval Tech Holding AG precedent. The TOB qualified an opting-out clause introduced by the AGM of LEM with 71% of the votes represented as being selective in fact, since it benefited de facto mainly one specific shareholder, Werner Weber, who owned 27.8% of the voting rights of the company when the opting-out was voted upon request by him. Attendance at the AGM was high with 70.07% of the share capital represented (39.84% of the votes represented (or 27.8% of the outstanding share capital) were held by Mr. Weber). However, the TOB did no longer address the question of whether the clause was in compliance with the corporate principles enshrined in article 706 CO as mentioned above. Instead, the TOB came to the conclusion that the shareholders were fully informed when voting in favor of the opting-out clause (the identity and intentions of the shareholder requesting the introduction of the opting-out were known, the consequences of such introduction were explained by the board, the board even recommended rejection of the opting-out) and hence took an educated decision (“en toute connaissance de cause”). In fact, without counting the votes of Mr. Weber, the opting-out would still have been adopted by 53% of the votes represented at the AGM. In addition, following the shareholders’ meeting, any shareholder could have challenged the introduction of the opting-out clause before the civil courts (which no one did). Hence, extending the two months deadline provided by corporate law in article 706 CO et seq. in order to challenge the shareholders’ resolution by adding an additional five year period during which the TOB could review the resolution without the two months deadline of corporate law to be complied with, would create a doubling of the legal remedies which is not necessary and would be contrary to the need of the security of transactions.

Finally, in the BT&T Timelife AG case (Decision 0511/01 dated 8 May 2012), the TOB confirmed the LEM Holding SA practice in a case where the major shareholder, who held 45% of the voting rights of the target at the time of the introduction of the opting-out and was simultaneously chairman of the company, requested confirmation from the TOB that the opting-out (introduced 4 years prior to the request) upon proposal by the board was valid. Indeed, the TOB stated that at that time the board of the company informed fully and in a transparent way the shareholders of the target about the consequences of such opting-out. The board of the target had recommended the adoption of such an opting-out alleging that the subsequent intended purchases by the then biggest shareholder would enhance liquidity of the shares, the opting-out would open the strategic option of a going private and the waiver of the mandatory offer would facilitate the cooperation with other major shareholders. Finally, worthwhile to note was that the opting-out had been adopted by unanimous vote of the shareholders represented at the meeting and had not been challenged. Certainly that this unanimous approval played a central role for the decision-making process of the TOB.

3) The ADB Holdings SA Decision

a) Facts

The ADB Holdings SA case shakes up the principles developed in the LEM Holding SA decision, at least when a “controlling” (as defined below) shareholder is involved in the target or the opting-out has been requested by a shareholder.

The shareholders of ADB Holdings SA adopted an opting-out (the company already had an opting-up) at the AGM of 15 June 2012 at the request of 4T SA which already held 41% of the voting rights in the company. The invitation to the AGM mentioned that in case the opting-out would be adopted any shareholder exceeding the threshold of 33.33% or 49% would not be obliged to launch a takeover offer. It also mentioned that 4T SA intended to increase its stake above 49% if the opting-out were introduced. The board of the company abstained from giving any recommendation. At the general meeting, 90% of the votes represented voted in favor of the opting-out. However, only 52% of the share capital and voting rights were represented, among which were the 41% held by 4T SA. Hence, without the votes of 4T SA, the opting-out was rejected by a majority of 80% (the TOB did not take into consideration the abstentions). These facts differ materially from the cases CI COM SA, COS Computer Systems AG, LEM Holding SA and BT&T Timelife AG, where the opting-out was also approved by the non-requesting or non-controlling shareholders. The ADB shareholders’ resolution was however not challenged before the civil courts within the two months statutory deadline. On 31 August 2012, 4T SA requested confirmation from the TOB that any further shares acquired by 4T SA in excess of the threshold of 49% would not trigger the obligation to launch a takeover offer. The board of ADB Holding SA seconded this request.

b) TOB Considerations and Ruling

One year after having established a new practice in the landmark decision LEM Holding SA, the TOB threw over board such practice and came to the following conclusions:

• First, the TOB will examine itself whether the introduction of an opting-out causes a prejudice to the shareholders which is not justified by the company interest (article 22 (3) SESTA in connection with article 706 CO). This remarkable change is justified by the fact that (i) in cases where a “controlling” shareholder exists, minority shareholders are often not in a position to oppose such introduction when facing such a shareholder at the general meeting, (ii) in cases where a shareholder requests the introduction of an opting-out in order to take directly advantage thereof (e.g. in view of a transaction which would trigger a mandatory offer), it is not sufficient, from a Stock Exchange Act perspective, to require full transparency and to rely on the possibility that any shareholder can challenge such a decision before the civil courts in accordance with article 706 CO, and, finally (iii) since the legislator has modified on 28 September 2012 (entry into force: most probably on 1 April 2013) the minimum price rule by excluding the possibility for an acquirer of a controlling stake to offer to the recipients of the takeover offer a lower price than the price offered to other shareholders prior to the launch of the offer (article 32 (4) SESTA), a trend might develop towards the introduction of the opting-out in order to avoid the general application of the modified minimum price rule at all. Hence, the conditions for the introduction of such opting-out must be reinforced.
• Second, when reviewing the resolution of the shareholders against the background of article 706 CO, the TOB will look at the result of the overall vote and at the result of the overall vote without the votes of the “conflicted” shareholder(s) (and the shareholder(s) acting in concert). If the other shareholders, i.e., the “minority” shareholders, have also approved the opting-out, the TOB will assume de facto that the opting-out is in the interest of the “minority” shareholders and of the company (presumption of correctness), provided that in very exceptional cases, such clause could still be invalid and provided that any annulment after a challenge according to article 706 CO remains reserved. In this respect, the TOB is back to the same reasoning it held in the ESEC Holding AG recommendation on 6 June 2000. If, however, the “minority” shareholders have not approved the opting-out, the TOB would assume that the opting-out is neither in the interest of the “minority” shareholders nor in the interest of the company, provided that in exceptional cases (but we believe probably less exceptional than when both majorities are in favor of the introduction of the opting-out), such clause could still be valid, e.g. in case of a recapitalization of the company by the entry of a new investor (see e.g. the facts that led to the COS Computer Systems AG decision), and provided that any confirmation of the validity of the opting-out after a challenge according to article 706 CO remains reserved.
• Third, when determining who are the “minority” shareholders whose votes will be looked at, the TOB stated that any shareholder holding more than 33.33% of the voting rights (i.e., a “controlling” shareholder) and any shareholder who requested the introduction of the opting-out, in both cases including the shareholder(s) acting in concert, shall be excluded from the relevant votes. Indeed, these shareholders are “conflicted” because they would directly benefit from the introduction of such an opting-out, the first because they could sell their shares without the acquirer being obliged to launch a mandatory offer, the second because they can take control of the company without being obliged to launch a takeover offer for all the shares of the company.
• Fourth, in all possible scenarios, the introduction of the opting-out must be preceded by a transparent procedure. Shareholders must be duly informed about the situation, about the intentions of the “controlling” shareholder(s), if any, and of the shareholder(s) requesting the introduction of the opting-out, as well as about the consequences of the adoption of the opting-out. This information must be disclosed in the invitation to the general meeting. If needed, the board shall request from each “controlling” shareholder and from the shareholder(s) requesting such introduction their intention with respect to any transaction that would benefit from such opting-out. If such shareholder(s) would not cooperate, the opting-out would not benefit them from a takeover law perspective.
• Finally, in an obiter dictum, the TOB also considered that the practice of the FBC in the ESEC Holding AG case denying any validity to opting-out clauses that are formally selective, i.e., which benefit a specific transaction/shareholder(s) clearly and fully disclosed at the shareholders’ meeting, shall be revisited. Indeed, the impact of such a clause—duly adopted by the “majority of the minority” by an educated decision — is of lesser importance than a general opting-out, since “minority” shareholders waive their right to obtain an offer price complying at least with the minimum price rule only in connection with a specific transaction and/or in favor of one or several shareholder(s) that are duly known. They do not waive their rights for a mandatory offer in any change of control transaction.

In casu, even though the shareholders of ADB Holdings SA took an educated decision when voting in favor of the opting-out clause since the information provided to them was complete and transparent, the TOB held that the clause was invalid from a takeover law point of view, because it was not approved by the “majority of the minority” and the presumption of invalidity could not be reversed. Indeed, the arguments of the board and of 4T SA were not convincing (increased stability of the shareholder base vs. the shareholder group of 4T SA already held 41% of the voting rights and could increase its stake to 49% without launching a takeover offer; increase of the liquidity of the shares by the purchases to be undertaken by 4T SA vs. this would have only have a short-term effect since additional purchases will in fact reduce the free float and hence the liquidity).

4) Comments

a) Competence of the TOB

Conceptually, the ADB Holdings SA decision is a fundamental change against the LEM Holding SA decision. The TOB will again review opting-out clauses, even if shareholders approved such clause after having been fully informed of the circumstances and the consequences of such approval. However, when the company has no “controlling” shareholder and the request to introduce such an opting-out comes from the board of the company (and not from a shareholder), the new practice should not trigger fundamental changes in its results.

In our discussion of the LEM Holding SA decision, we welcomed the approach whereby the TOB “opted-out” from reviewing questions of corporate law when this can be done by the civil courts because a parallel review of the same facts by various authorities at different moments in time reduces transaction certainty. We still continue to believe so, but we also believe that a literal reading of article 22 (3) SESTA allows the TOB to review the opting-out as well for the following reasons:

• First, article 22 (3) SESTA provides that a company may at any time adopt an opting-out in its articles of incorporation, “provided that this does not prejudice the interests of the shareholders within the meaning (‘im Sinne von’; ‘au sens de’) of article 706 CO”. This reference to article 706 CO may have several meanings, which have not been discussed during the parliamentary debates and have not been given attention in any of the three ordinances implementing the SESTA. Is it only a reference to a concept of corporate law, i.e., the prejudice of interests of shareholders pursuant to article 706 CO? Or is it also a reference to the competence and procedure set forth in article 706 CO, i.e., if a shareholder wants to challenge such clause, he/she must do this before a civil court within two months after the decision has been taken? At this stage, we believe it is only a reference to a concept of corporate law and not to the competence and procedure set forth in article 706 CO et seq.

• Second, article 23 (3) SESTA provides that the TOB shall, in each case, ensure compliance with the rules applicable to public takeover offers (takeover matters). As of 1 January 2009, the competences of the TOB have been reinforced: According to article 33a (1) SESTA, the TOB shall render the decisions necessary for the enforcement of the provisions of chapter V of the SESTA (takeover matters) and its implementing provisions, and shall monitor compliance with the statutory and regulatory provisions. Hence, not only the duty of the TOB to monitor compliance with the statutory and regulatory takeover law provisions has been repeated, but also the competence to issue decisions pursuant to the Federal Act on Administrative Procedure (FAAP) and the applicability of the FAAP to the procedures before the TOB have been declared. Finally, article 33a (3) SESTA provides that if the TOB becomes aware of breaches of provisions of chapter V of the SESTA or of other irregularities, it shall ensure that an orderly situation is restored and that such irregularities are remedied. The amendments of 2009 have fundamentally modified the status of the TOB: from a self-regulatory commission only capable to issue recommendations with a limited enforcement power, it has become a fully-fledged authority with the power to act ex officio, the competence to issue binding decisions according to the FAAP and the power to enforce them under certain circumstances.

Against this background, which was not contemplated when the Parliament adopted article 22 (3) SESTA, it becomes clear that at least since 1 January 2009 the TOB may also review whether the adoption of an opting-out clause prejudices the interests of the shareholders within the meaning of article 706 CO. This is the consequence of the TOB being a fully fledged authority with the duty to monitor compliance with the statutory and regulatory provisions and equipped with full intervention and decision-issuance competence.

b) Intervention of the TOB—Parallel Procedures

Even though the literal wording of article 22 (3) SESTA supports the view that the TOB is competent to review the introduction of an opting-out clause in a specific case, we think that the protection offered by the LEM Holding SA test of full information of the circumstances and the consequences of such approval was sufficient and enhanced the security of transactions by avoiding parallel procedures.

We believe that the argument that “minority” shareholders are often not in a position to oppose such adoption when facing a “controlling” shareholder at the general meeting is not relevant, as by definition, a general meeting is a capitalistic assembly governed by the majority votes of the represented or present shareholders, which do not owe any duty of loyalty neither to their other fellow shareholders nor to the company. Developing this reasoning further could reverse the democratic legitimacy within a corporation by systematically listening to the minority shareholders, even in cases where their interests are not at stake or are aligned with those of the majority shareholder(s). Further, we believe that the possibility that any shareholder may challenge such a decision before the civil courts in accordance with article 706 CO et seq. is a sufficient corrective to protect the rights of the “minority” shareholders against an unequal or abusive treatment imposed by a “controlling” shareholder. It is true that shareholders only seldom challenge in court the resolutions of the general meeting and the courts themselves are reluctant to annul shareholders’ resolutions. However, affirming this is basically negating any efficiency to the remedies of the Code of Obligations that are available to minority shareholders in order to fend for themselves when a majority shareholder is abusing its power. Hence, we believe that the main reason that has pushed the TOB to revisit the LEM Holding SA practice (as stated by the TOB itself) is actually a political motivation: preventing that companies use heavily the means of the opting-out in the future in order to avoid being subject to the modified minimum price rule which will exclude the possibility for an acquirer of a (controlling) stake to offer to the recipients of the takeover offer a lower price than the price offered to other shareholders prior to the launch of the offer (article 32 (4) SESTA).

Shareholders are fully informed, e.g., when a “controlling” shareholder clearly identified would immediately benefit from the clause when selling its shareholding (e.g., CI Com SA matter, where the shareholder owned more than 33.33% at the time of the adoption of the opting-out clause; BT&T Timelife AG, where the shareholder owned 45% at the time of the adoption of the opting-out clause), or when the shareholder requesting the introduction of the opting-out announces his/her intention to exceed the mandatory offer threshold and thereby benefits directly from such a clause (e.g., LEM Holding SA, where the shareholder owned 27.8% at the time of the adoption of the opting-out clause; ADB Holdings SA, where the shareholder owned 41% at the time of the adoption of the opting-out clause (in the last case, the mandatory offer threshold was 49% since the company already had an opting-up)).

In our view, the only reason for the TOB to intervene should be to protect the shareholders who voted on the introduction of an opting-out without being sufficiently informed about the perspective of a specific transaction or the intention of a specific shareholder. Indeed, if such undisclosed transaction or intention is then completed (by such a “controlling” shareholder or a shareholder requesting the introduction of the opting-out) more than two months after the approval of the opting-out clause, the “minority” shareholders are no longer able to challenge such approval and their waiver of the mandatory offer and of the minimum price rule shall no longer be valid from a takeover law perspective. In such case, as the TOB rightly declared, such opting-out would be invalid from a takeover law perspective. However, we are of the view that for the reason of transaction security the five years cooling-off period set up by the TOB in the Adval Tech Holding AG recommendation is still applicable. The TOB should not review at all opting-out clauses that are older than five years. Also, referring to one of the arguments put forward by the TOB for the change of practice, namely the amendment to the minimum price rule, this could be seen as a transitory period in connection with such change in law.

c) “Majority of Minority” as a Procedural Presumption and Substantive Test

If the TOB has the competence in principle to review the validity of the opting-out under article 22 (3) SESTA, the question remains when the TOB shall use this competence and what rules the TOB shall apply when reviewing such opting-out. We are of the opinion that the reference to article 706 CO is a direct reference to general principles of corporate law and that the TOB must apply such principles when reviewing an opting-out clause. Hence, if there should be a room for the presumptions set up by the TOB, we believe that the presumption of correctness or incorrectness should be a procedural presumption (whether the TOB should review the introduction of the opting-out or not—analogical with the five years test of Adval Tech Holding AG) rather than a presumption as to the validity of the opting-out itself.

According to the presumption of correctness set up by the TOB, the opting-out is presumed in the interest of the “minority” shareholders and of the company if the “minority” shareholders have also approved the opting-out (not taking into account the abstentions). In such case, the TOB will deem the opting-out in compliance with article 706 CO. From a corporate law perspective, looking at the votes of the “minority” shareholders as a group might at the most be an indication whether or not conflicting shareholders’ interests exist, but not necessarily whether such a decision is “correct” as to its content. Indeed, the consequences of such a presumption of “content” correctness are rather unclear in case a “minority” shareholder challenges nevertheless the shareholders’ resolution before a civil court. In our view, it cannot be a presumption in the technical sense (which would have an impact on the burden of proof or on the assessment of evidence): Before a civil court, the presumption could only mean that such court would no longer review whether the shareholders’ resolution is not objective (sachlich) or appropriate (angemessen) pursuant to article 706 (2) (2) CO. However, the presumption could not be applied in order to determine whether an unequal treatment according to article 706 (2) (3) CO occurred: If a “minority” shareholder challenges the resolution of the shareholders’ meeting even though a “majority of the minority” has approved such resolution, the court would still have to review (i) whether an unequal treatment occurred and (ii) whether such unequal treatment was justified by valid reasons. Hence, the “content” presumption set up by the TOB cannot be based on article 706 CO. Further, if the TOB looks into the matter, it must investigate ex officio and may freely assess evidence—irrespective of the overall vote of the “minority” shareholders. The only possibility to justify such a presumption of correctness would hence to qualify it as a “procedural” presumption (i.e., whether the TOB should review the introduction of the opting-out at all or not) based on the administrative rules applicable to the procedure before the TOB and justified by the special position of the TOB.

Further, the TOB assumed that the opting-out clause is not in compliance with article 706 CO if the majority of the “minority” shareholders voted against the its adoption (not taking into account the abstentions) and only exceptional circumstances can overturn this presumption (presumption of incorrectness). According to our opinion, this point of view is not compatible with article 706 CO because this would mean that the introduction of an opting-out clause depends on the approval of a special group of shareholders (i.c., the “minority” shareholders). However, such additional approval by a special group of shareholders does not exist, except for particular cases provided for by statutory law (for example in article 654 (2) CO). It is only foreseen where statutory law grants special rights to a group of shareholders and an additional mechanism is provided in order to protect these rights. Introducing as prerequisite an additional approval of a special group of shareholders would however be against the ratio of the existing corporate remedies mechanisms. The TOB needs to actually look at the substance of the matter by applying the requirements of article 706 CO. Both formally selective and selective in fact opting-out clauses can be considered as unequal treatment of shareholders since they advantage a specific shareholder or a specific group of them. Nevertheless, this cannot per se lead to the conclusion that a selective opting-out clause is presumed to be incompatible with the law as article 706 CO only addresses an unequal treatment which is not covered by valid reasons. The interpretation of what can be considered a valid reason cannot depend upon the opinion of a special group (in case the “minority” shareholders) but has to be assessed from an objective point of view.

For instance, we believe that the opting-out requested by a shareholder in order to exclusively avoid launching a mandatory takeover offer and to sell his/her stake to an acquirer without forcing the latter to launch a mandatory offer either, hence allowing him/her to collect potentially the entire premium for the control over the target will probably not pass the test of article 706 CO. Indeed, in order to obtain the approval of the minority shareholders and hence being within the procedural presumption proposed above, the requesting shareholder or the company will have to explain why such opting-out clause contributes to reaching the goal set by the company or is not aiming at favoring the interests of certain specific shareholders, and is proportionate, i.e., is adequate and necessary in order to pursue the interest of the company and the advantages to the company supersede the interests of the minority shareholders. The mere privatization of the control premium—without any overwhelming corporate interest—will not justify the introduction of the opting-out clause.

Even if the opting-out is introduced (i) within the five years presumption period and (ii) refused by the “majority of the minority” (but approved by the general meeting), the assessment could, however, be different if the opting-out is introduced by a target in connection with a general strategic review (e.g., the COS Computer Software AG case) or in connection with a specific corporate transaction (e.g., ESEC Holding AG, where the shareholder owned 13.28% and intended to exercise a call option to reach 76.66%): the introduction would be based on a valid reason and any disadvantages incurred by the shareholders could be justified by the overwhelming corporate interest of such a target to achieve, e.g., such merger or acquisition.

d) Formally Selective Opting-out

The last example above of the issuance of new shares in connection with a corporate combination—dealt with in the UK within the whitewash procedure—is a very good example why we believe that a formally selective opting-out should be permitted. We share the view of the TOB in that respect and hope that the FINMA will depart if seized in the future with the question from the practice it created in the ESEC Holding AG case twelve years ago. The principle “a majore ad minus” should also be applicable in the case of the introduction of an opting-out. Not only it would enable transactions that can be in the interest of the target adopting the opting-out, but also it would actually follow the principle of proportionality (“schonende Rechtsausübung”), as only a specific (new) shareholder/transaction would benefit from the opting-out. The “minority shareholders” would waive their right to sell their shares at a minimum price only in presence of a specific transaction about which they must be fully informed. Any subsequent transaction or transfer would again trigger the mandatory offer.