Corporate Governance In The Context Of Corporate Restructurings

Who calls the tune in corporate restructurings – managers or shareholders?

Overview

Overcoming so-called "agency problems" occupies centre stage in corporate law. Generally speaking, whenever an agent acts on behalf of a principal, the problem arises that the agent does not necessarily share the principal's interests or act accordingly. With regard to corporate law, conflicts of interest must be addressed between (i) managers and shareholders, (ii) controlling and minority shareholders, and (iii) shareholders and non-shareholder constituencies. This is especially true for corporate restructurings (eg, mergers, demergers, etc.). Corporate law around the world attempts to mitigate the opportunism related to corporate restructurings.

With that said, this articles shows how the Austrian law on stock corporations (Aktiengesellschaften) and limited liability companies (Gesellschaften mit beschränkter Haftung) assigns the roles between managers and shareholders in the context of corporate restructurings.

Managerial power

Austrian stock corporations and limited liability companies are governed by their management. However, the law reserves certain fundamental decisions to the shareholders. Shareholders have more say in limited liability companies than in stock corporations.

For fundamental decisions that require the involvement of shareholders, management has the duty to prepare shareholder decisions and implement shareholder resolutions.

Further, the management power (Geschäftsführer) of an Austrian limited liability company can be restricted by shareholders' directives (compare section 20 para 1 of the Austrian Limited Liability Companies Act [GmbH-Gesetz]). In contrast, the management board (Vorstand) of an Austrian stock corporation cannot, in general, be bound by shareholders' directives.

Shareholders' resolutions approving corporate restructurings

Usually, corporate restructurings must be approved by the company's shareholders (compare section 221 of the Austrian Stock Corporation Act [Aktiengesetz], section 8 of the Austrian Law on Demergers [Spaltungsgesetz]). The management is typically obliged to inform the shareholders about the envisaged restructuring and prepare the shareholders' meeting approving the restructuring. Certain intragroup restructurings do not, however, require shareholder approval.

Once the restructuring is approved by the company's shareholders the management no longer has the discretion to decide whether it will proceed...