Estimation of Cash Compensation in Corporate Structural Measures: Extension of Valuation Methods According to OLG Celle
The questions regarding the adequacy of cash compensation in corporate restructuring – such as in squeeze-out, merger, or control and profit transfer agreements – are crucial for external shareholders, as they significantly affect their financial interests. Judicial practice relies on reliable methods to ensure appropriate compensation. The Higher Regional Court of Celle addressed in a decision (Case No. 9 W 88/09, ruling of July 22, 2010) the issue under which conditions an “estimation” of cash compensation is permissible and what requirements must be met for the derivation and comprehensibility of such an estimation.
Derivation of Cash Compensation: Regular Valuation Methods
In practice, compensation amounts are usually determined either using the income capitalization method or the discounted cash flow method, focusing on future expectations and the sustainable earnings of the company. This established approach is based on the principles of IDW S 1 and finds its judicial validation in the case law of Higher Regional Courts and the Federal Court of Justice.
The legal basis for determining appropriate cash compensation is anchored in § 305 AktG (compensation in control and profit transfer agreements) as well as §§ 327a ff., 320b AktG (squeeze-out or integration). The granted compensation is intended to ensure that outgoing shareholders are economically positioned as if they had remained involved in the further development of the company.
Permissibility of Alternative Methods: Estimation as a Judicial Instrument
In light of the above-mentioned decision of the OLG Celle, it is emphasized that the court allows flexible use of valuation methods. According to the court, a ruling procedure cannot fail due to a specific uncertainty if the foundations of an exact valuation cannot be determined with sufficient certainty. In exceptional cases, the court is permitted to estimate the amount of cash compensation, considering all circumstances of the individual case – particularly the financial statement figures, industry developments, and the current and future economic situation (§ 287 ZPO in conjunction with § 14 SpruchG).
Prerequisites and Limits of Judicial Estimation
It is necessary that all available sources of information are exhausted. The estimation must be based on a solid factual foundation. The focus is particularly on the perspective of the objectively judging average shareholder, while purely speculative assumptions or generalizing empirical values are inadmissible. In the decided case of the OLG Celle, the affected company values could not be determined with full precision. However, the chamber incorporated all relevant valuation parameters, especially historical financial ratios and industry analyses, into a plausibility check.
The court emphasized that estimation is considered a last resort if, due to incomplete or contradictory information, an accurate company value cannot be calculated. Neither the rights of minority shareholders may be disproportionately restricted nor the interest of the majority shareholder in orderly corporate development impaired.
Contested Issue: Requirements for Transparency and Comprehensibility
Case law places particular emphasis on ensuring that the chosen estimation method and its derivation are comprehensible to all parties involved in the ruling proceeding and are openly disclosed in the grounds for consideration. This acknowledges that judicial decision-making does not occur in a legal vacuum but is subject to parliamentary reservation and effective legal protection.
If the court concludes that estimation is necessary and appropriate, it must transparently disclose and plausibly justify the applied valuation criteria as well as the underlying premises. The participants have the opportunity to raise objections to the methodology and data presented. Thus, judicial estimation takes place within the context of a dialogical procedure, ensuring, in the interest of fair compensation, the balance of divergent participant interests.
Perspectives for Affected Shareholders and Corporate Bodies
The possibility of estimating the amount of cash compensation within the judicial ruling procedure, if necessary, shows that even in cases of insufficient data basis, compensation for minority shareholders can be provided. This serves both the protection of minority interests and the operational capability of the company. However, companies and shareholders should note that judicial estimation always represents the ultima ratio and that documented company data continue to form the basis of a proper valuation.
Current Developments and Further Considerations
The decision of the Higher Regional Court of Celle has been met with approval in the commentary literature and sets clear standards for how courts can and must handle valuation gaps. It emphasizes the importance of careful documentation and transparent communication before and during corporate structural measures. Potential uncertainties regarding company valuation can have significant economic consequences for both majority and minority shareholders.
Courts are required to carefully weigh the legitimate claims of all parties involved and to transparently present this in appraisal proceedings. It remains open to what extent future supreme court decisions will further clarify the requirements for judicial valuation.
For companies, investors, and shareholders, the complex issues of cash compensation and company valuation can be of far-reaching importance. In the case of more detailed legal questions and in the context of specific corporate disputes, the lawyers at MTR Legal are available as reliable contacts.
