No Direct Individual Right of Action for Holders of Participation Certificates

On 5 February 2021, the Swiss Federal Supreme Court (the “SFSC“) published an interesting and important new precedent (judgment 4A_98/2020 dated 21 January 2021), to be published in its collection of landmark cases, concerning holders of participation certificates (“HoPC“) with the right to a preferred dividend.

In a very compressed and also simplified fashion for the purposes of this short article, this is what the SFSC decided in its new precedent:

If the general assembly (“GA“) of a Swiss stock corporation passes a resolution that violates the preferential right(s) of HoPC, namely the right to a preferred dividend, such HoPC have no direct individual right of action to ask a court to obligate the corporation to pay the preferred dividend to them. Rather, the HoPC with a preferential right have to sue for and obtain a judgment that declares the GA’s decision as being invalid because of a violation of the corporation’s articles of association (“AoA“). Thereafter, i.e., in the event of a successful invalidation of the GA’s resolution by court judgment, the corporation’s GA is bound to pass a new resolution that conforms with the corporation’s AoA. Only if and when the GA does not do so in due time, or passes a new resolution that does again violate the preferential right(s) of the HoPC, i.e., if the corporation’s GA acts in an abusive manner, may the HoPC have a direct individual right of action to enforce their preferential right(s).

Sounds complicated? Well, it is. Therefore, it is strongly recommended that shareholders or holders of participation certificates seek legal assistance at an early stage if issues arise.

Philipp H. Haberbeck, Zurich, 5 February 2021 (www.haberbeck.ch)

The information contained in this article is for general informational purposes only and is not intended to constitute legal advice. Readers of this article should not take any actions or decisions without seeking specific legal advice. Any mandate is subject to the full execution of an engagement letter.

Rechtsgebiete: Gesellschaftsrecht inkl. Vereinsrecht