According to the Finnish Companies Act, a shareholder with more than nine-tenths (9/10) of all shares and votes in the company (the redeemer) has the right to redeem the shares of the other shareholders at the fair price (right of squeeze-out). The minority shareholder shall have the corresponding right to demand that the shareholder’s shares be redeemed (right of sell-out). These rules, together with the redemption procedure described below, apply to both public limited companies and limited companies.
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Notice of the Right of Squeeze-out
The redeemer must without delay notify the target company of the commencement and termination of the rights of squeeze-out and sell-out. The Companies Act does not set down a specific time limit for the notice, yet it is advisable to give the notification in a month after the redeemer has acquired over nine-tenths of all shares. Breach against the reporting on the right of redemption or the redemption obligation to the company may, among other things, result in a conviction for a company law violation for which the sentence is fine.
After the company has received the redeemer’s notification or other reliable information on the commencement or termination of the rights of squeeze-out and sell-out, the company shall without delay notify the commencement or termination of the rights of squeeze-out and sell-out to be registered to the trade register.
The Settlement of Redemption Disputes (Arbitration)
1. The Redemption Proceedings Application and the Initiation of Proceedings
If the minority shareholder rejects the redeemer’s bid, the parties may soon end up in a situation where they cannot agree on the fair redemption price. In these situations, as well as in disputes about the right of squeeze-out, any concerned party may apply for the initiation of the redemption proceedings from the Redemption Committee of the Central Chamber of Commerce.
The Redemption Committee appoints the requisite number of impartial and independent arbitrators (typically one and three in more complex cases) and, if necessary, a special representative. Experienced attorneys, university professors, or other merited lawyers are selected as arbitrators. If appointed, the special representative must make a case on the behalf of all the minority shareholders, especially of those who are passive and unknown.
2. Arbitration Proceedings
The sole arbitrator or the arbitrator that has been designated as a chairperson asks for written statements to the application, to the right of squeeze-out, and to the bid, after which the arbitrator(s) decide how the proceedings are carried out. Usually, the proceedings take three months.
3. The Determination of the Redemption Price
The market price of the share before the initiation of the arbitration serves as the basis for the determination of the fair redemption price. Typically, the arbitrators pay a great deal of attention to the prices used in share transactions that have materialized before the commencement of the squeeze-out right. In addition, the balance sheet value and other calculations of the company’s yield value are used in the valuation of the redemption price.
4. Payment of the Redemption Price and the Transfer of Rights
The title to the shares may transfer already during the redemption process if the redeemer posts security for the payment of the redemption price and the arbitrators approve the security. Unless it has already been transferred, the share is transferred to the redeemer once the redemption price has been paid. The redemption price must be paid within one month of the award or judgment on the redemption becoming res judicata. Otherwise, the redeemer must pay interest on the overdue payment.
The redeemer that does not receive the minority shareholder’s share certificate, is entitled to receive a new, replacing one. The new certificate bears a mention that it replaces the earlier one. Old share certificates may be canceled.
It may not always be possible for the redeemer to pay the redemption price directly to the shareholder whose shares are subject to redemption. For example, if the shareholder is unknown, the redeemer may deposit the redemption price with the State Provincial Office of the place where the company has its registered office. Once a deposit has been made, the possessor of the old share certificate is only entitled to the redemption price held by the State Provincial Office.
6. The Costs of the Arbitration
Unless the arbitrators for a special reason deem that it is reasonable to order otherwise, the redeemer bears the costs of the arbitration.
The Redemption Committee determines the fees of the arbitrators. A sole arbitrator’s and the chairperson’s fees are determined according to the official pay scale. No scale determines the special representative’s fee but usually, it is notably more moderate than the arbitrators’ fees.
In addition, the Redemption Committee issues a standard administrative fee.
The arbitrators notify the award for registration within two weeks of its delivery. A party discontent with the arbitral award may appeal against it before the District Court of Helsinki. The letter of appeal, with a copy of the arbitral award attached, must be filed with the District Court no later than 60 days after the registration of the award. The decision of the District Court is open to appeal before the Supreme Court, provided that the Supreme Court grants leave.
Jari Sotka, LL.M, MBA
Partner, Almgren & Sankamo Ltd.
+358-40 544 0610