Compulsory acquisition of minority shareholdings: Bank of Russia consultation paper
The Bank of Russia proposes that a court become empowered to assess whether the buyout terms and prices of minority shareholdings are fair when the majority shareholder obtains a controlling stake in a public company. Importantly, the court will act as an independent arbitrator in a preliminary phase — before the buyout starts.
These arrangements will work to strengthen protection of minority shareholders and help prevent a squeeze-out in an unfair attempt to obtain a controlling stake in a company. The regulator’s initiatives are outlined in the consultation paper ‘Overhauling approaches to compulsory acquisition of minority shareholdings in public joint-stock companies’.
Practice shows that nothing but a price-setting procedure and a framework ensuring a fair buyout price are central and the most acute issues in compulsory minority shareholding acquisition processes. The process is currently initiated by a public offer based on the majority shareholder’s buyout request and involves no court decision.
In an effort to reduce costs, majority shareholders tend to underestimate share prices, while minority shareholders may fail to provide evidence in support of market share prices — as long as they lack access to relevant public company documents and have no opportunity to arrange for a due diligence examination of share prices.
A preliminary judicial review would secure a balance of interests of all participants in these legal relations.
The consultation paper also outlines frameworks enabling a reduction in majority shareholders’ buyout costs and an expansion of cases when the right to request a compulsory buyout arises.
The regulator welcomes comments and suggestions on the consultation paper, including its questions for discussion, through 26 March 2021.
