Decision of the Munich Regional Court I on the legality of the squeeze-out at Hypo Real Estate Holding AG
In the context of corporate structural measures, the Munich Regional Court I, by decision of 20 January 2011 (Ref. 5 HK O 18800/09), reviewed the validity of the squeeze-out at Hypo Real Estate Holding AG (HRE). In particular, it was examined whether the resolution of the general meeting in favor of the German Financial Market Stabilization Fund – Institution under Public Law (FMSA) and the cash compensation granted in this context were in accordance with the legal requirements of the German Stock Corporation Act (AktG).
Background of the squeeze-out
The squeeze-out is a procedure provided for in stock corporation law whereby a main shareholder holding at least 95% of the shares of a stock corporation can exclude the remaining minority shareholders from the company against appropriate cash compensation (§§ 327a ff. AktG). In the case of HRE, all prerequisites were formally met: the FMSA held the required shareholding and the general meeting passed the corresponding exclusion resolution. A large number of minority shareholders were directly affected in view of the comprehensive government stabilization measures during the financial crisis.
Legal framework for review and central areas of dispute
Adequacy of the cash compensation
The main focus of the court’s review was whether the determined cash compensation met the requirements of adequacy under § 327b AktG. The law requires compensation reflecting the full proportional enterprise value as realistically assessed at the time of the general meeting. In the case of Hypo Real Estate Holding AG, the company valuation was subject to particular uncertainties, as the business model had already been substantially influenced by state intervention. The cash compensation was determined on the basis of a comprehensive business valuation and an expert opinion. The Regional Court found no indications that would require a subsequent correction of the determined cash compensation.
Procedural errors and grounds for objection
In addition, lawsuits were filed alleging procedural errors in the preparation and conduct of the general meeting. The claimants criticized in particular the design of information rights and the accuracy of the company valuation. The court found that all essential procedural requirements had been observed and that there were no violations of the legal requirements on transparency or minority protection under stock corporation law.
Implications for minority shareholders and corporate structural measures
The decision of the Munich Regional Court I reflects typical issues arising in squeeze-out proceedings, particularly with regard to valuation and the impact on institutional and private shareholders in restructuring processes involving state participation or control. The continued importance of proper and transparent valuation to protect the rights of minority shareholders remains at the forefront. The mechanisms of stock corporation law control, as well as the possibility of judicial review of the cash compensation granted, again prove to be key elements of minority protection under German law.
Subsequent legal remedies
Minority shareholders are, in principle, entitled to request a judicial review of the cash compensation in the so-called appraisal procedure after a squeeze-out. This underscores the necessity for an objective and comprehensible valuation basis by the principal shareholder.
Significance of the decision for future transactions
The decision of the Munich Regional Court I provides practice-relevant guidance for future structural measures in listed companies. It emphasizes the need for careful procedural design and thorough documentation in preparing a squeeze-out, especially when public bodies act as main shareholders and the customary company valuation is affected by extraordinary circumstances. The judgment clarifies the limits of judicial intervention and the crucial role of careful company valuation.
For companies, investors, or shareholders who are confronted with similar issues regarding the exclusion of minority shareholders or complex restructuring measures, it may be helpful to have the individual legal framework conditions thoroughly analyzed. The Rechtsanwalt of MTR Legal are available as contacts for this purpose.
