Is the attribution of voting rights under the “acting in concert” rule contrary to European law?

First published in Noerr Public M&A-Report 01/2025

Recent referral by the German Federal Court of Justice to the ECJ for a preliminary ruling of 22 October 2024 – II ZR 193/22 has considerable implications

Introduction

The question of whether attributing voting rights for acting in concert is contrary to European law is a highly contentious issue in capital market law, especially regarding the publicity of shareholdings. The Federal Court of Justice recently had a rare opportunity to deal with this attribution under section 34(2) Securities Trading Act (Wertpapierhandelsgesetz, “WpHG”). The central question was whether attributing voting rights due to a common policy adopted “otherwise than by agreement” pursuant to sentence 1, second alternative (i.e., without an agreement) is in conformity with European law. Due to doubts in this regard, the Federal Court of Justice referred an interpretation question regarding the Transparency Directive to the ECJ for a preliminary ruling (Federal Court of Justice, referral dated 22 October 2024 – II ZR 193/22).

This decision has considerable implications for the practice of disclosing shareholdings and, due to its function as a preliminary condition, also affects takeovers.

Facts of the case

The legal dispute concerns an action to avoid (Anfechtungsklage) and action for annulment (Nichtigkeitsklage) brought by three shareholders in 2018 against resolutions of the annual general meeting of the defendant, a listed stock corporation (Aktiengesellschaft, “AG”), regarding discharges granted to board members and elections to the supervisory board.

The actions were dismissed at first instance and the appeal was also unsuccessful. In the appellate court’s opinion, the plaintiffs were not entitled to challenge the actions due to their breach of notification obligations pursuant to sections 33, 34 WpHG since 2017, resulting in a loss of rights pursuant to section 44(1) WpHG. The court argued that the voting rights of the plaintiffs and another shareholder were mutually attributable pursuant to section 34(2) WpHG due to their acting in concert from 2017 to 2019, as they had in any case coordinated their behaviour “otherwise than by agreement”.

The plaintiffs were therefore initially obliged to report that their voting rights exceeded the 10% threshold before the 2017 annual general meeting because they and another shareholder together held more than 10% of the voting rights. Subsequently, they were obliged to report falling below the 10% threshold before the 2018 annual general meeting as their combined holdings were less than 10% at that time. The legal consequence of this loss of rights included not only the right to vote at the 2018 annual general meeting, but also the right to challenge resolutions passed at the meeting.

Decision and reasons

The Federal Court of Justice stayed the proceedings and referred a question on the interpretation of the Transparency Directive to the ECJ for a preliminary ruling under Art. 267 Treaty on the Functioning of the European Union (TFEU). The legal dispute raised the question of the compatibility of acting in concert on the basis of adopting a common policy “otherwise than by agreement” pursuant to section 34(2), sent. 1, second alternative WpHG with the requirements of Article 10(a) of the Transparency Directive (Directive 2004/109/EC).

The conformity of this attribution requirement with the directive is disputed in the legal literature and essentially concerns the question of whether the excessive national provision on acting in concert is permissible despite the general full harmonisation of the Transparency Directive in accordance with the exemption in Article 3(1a)(iii) of the Transparency Directive Amending Directive (Directive 2013/50/EU). According to this directive, stricter national provisions are permissible if they are adopted “in relation to takeover bids, merger transactions and other transactions affecting the ownership or control of companies, supervised by the authorities appointed by Member States pursuant to Article 4 of the Takeover Directive (Directive 2004/25/EC)”. The Federal Court of Justice therefore referred the question to the ECJ as to whether this exemption provision should be interpreted as precluding attribution on the basis of adopting a common policy “otherwise than by agreement” pursuant to section 34(2), sentence 1, second alternative WpHG.

Implications at a glance

• The Federal Court of Justice’s referral on acting in concert “otherwise than by agreement” (“in sonstiger Weise”) has considerable implications for shareholding practice and, by extension, takeovers.
• In the short term, investors and issuers will have to deal with this legal uncertainty, which has now been recognised by the Federal Court of Justice. Currently, this uncertainty mainly concerns the trend towards actual behavioural coordination among investors in the form of collaborative engagement or ESG activism as well as questions of admission to the annual general meeting in the upcoming season (keyword: loss of rights).
• In the long term, the ECJ’s preliminary ruling is likely to clarify how shareholding publicity exceeding the Transparency Directive requirements can be justified, not only in cases of acting in concert, but also in many other areas because it is “in relation to takeover bids”.
• Ultimately, the intended parallel interpretations of the securities trading law regime (section 34 “WpHG”) and the takeover law regime concerning the control threshold (section 30 Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG) is at stake, along with the function of shareholding publicity as a preliminary condition under takeover law.

In the Federal Court of Justice’s opinion, the referred question is also relevant for the decision of the legal dispute. If EU law precluded acting in concert by adopting a common policy “otherwise than by agreement”, the Federal Court of Justice would have to set aside the appellate judgment and remand the case for further findings on the adoption of a common policy. Conversely, if EU law did not preclude such coordination, the appeal would have to be dismissed because the plaintiffs would have suffered a loss of rights due to their breach of their notification obligations pursuant to section 44(1), sent. 1 WpHG, rendering them ineligible to challenge the resolutions of the annual general meeting.

The Federal Court of Justice clarifies that – contrary to a few opinions – such a loss of rights (and thus the relevance of the referred question for a decision on the attribution of voting rights) does not automatically cease if the required notification of voting rights for exceeding or falling below a threshold is not made and the threshold crossing is subsequently actually reversed. Instead, the loss of rights is only rectified by fulfilling at least the last notification obligation.

Scope

The decision of the Federal Court of Justice to refer a central question on the attribution of voting rights for acting in concert pursuant to section 34(2) WpHG for a preliminary ruling has short-term and long-term implications:

Short-term legal uncertainty

In the short term, investors and issuers will have to deal with the legal uncertainty now recognised by the Federal Court of Justice regarding the attribution of voting rights in the case of acting in concert “otherwise than by agreement”. This currently primarily affects the trend towards actual behavioural coordination among investors in collaborative engagement or ESG activism as well as questions of admission to the annual general meeting in the upcoming season. Experience shows that a clarification of the interpretation by the ECJ is first likely to occur within about a year from now.

For investors, there is legal uncertainty regarding attribution only within the scope of acting in concert under shareholding publicity. Acting in concert “otherwise than by agreement” under takeover law in accordance with section 30(2) WpÜG will undoubtedly continue to have an attribution effect.

Investors who consider not disclosing voting rights in these cases will continue to face the risk of being penalised by BaFin and suffering a loss of rights in the event that the attribution provision subsequently proves to be compliant with European law. The hurdles for claiming an unavoidable legal error against issuers and BaFin are extremely high in view of the legal uncertainty.

Investors who, as a precautionary measure, continue to assume that acting in concert “otherwise than by agreement” justifies attribution do not risk anything by submitting a voting rights notification.

Issuers run a high risk if they refuse to allow investors to participate in the annual general meeting even where the investors have not submitted voting rights notifications and where there is evidence of acting in concert “otherwise than by agreement”. The legally required “reasonable certainty” of a loss of rights cannot be assumed with sufficient (legal) certainty due to the legal uncertainty confirmed by the Federal Court of Justice.

Legal uncertainty remains regarding the question (not clarified by the Federal Court of Justice) as to whether, in the event of repeated breaches of notification obligations, fulfilment of not only the last, but all notification obligations is required for the loss of rights to cease.

Long-term legal certainty following the ECJ’s preliminary ruling

The Federal Court of Justice’s referral to the ECJ focusses on acting in concert “otherwise than by agreement”, but it also prompts a decision on whether stricter shareholding disclosure rules are permissible under the Transparency Directive Amendment Directive, specifically when these are “in relation to takeover bids”. The ECJ’s preliminary ruling is therefore likely to be relevant for understanding all provisions regarding shareholding publicity that go beyond the requirements of the Transparency Directive and whose permissibility is based on this takeover-related exception from full harmonisation.

If, following the ECJ’s preliminary ruling, it is clear that an attribution for acting in concert “otherwise than by agreement” does not comply with European law, the following will apply:

• The provision on the attribution of voting rights in the case of acting in concert “otherwise than by agreement” pursuant to section 34(2), sent. 1, second alternative WpHG is no longer to be applied by German courts. BaFin will have to change its supervisory practice.
• If the attribution in the case of acting in concert “otherwise than by agreement” cannot be justified because it is not “in relation to takeover bids”, it is likely that many other attribution provisions under section 34 WpHG are incompatible with European law. This applies, on the one hand, to the other excessive provisions for acting in concert pursuant to section 34(2) WpHG (e.g., regarding the subject of coordination and mutual attribution even for pool members without influence) and, even more so, to the excessive attribution provisions of section 34(1) WpHG.
• The basis for the parallel interpretations of the attribution regime under section 34 WpHG and the takeover law regime of section 30 WpÜG, as assumed by the legislature and BaFin, is removed.
• The legislature must adjust the attribution provisions of section 34 WpHG to comply with European law. This creates an unfortunate legal policy and doctrinal situation where the same circumstances can trigger a mandatory takeover bid under section 30 WpÜG due to control thresholds, yet not require notification under section 34 WpHG.

If, according to the ECJ’s preliminary ruling, it is clear that an attribution for acting in concert “otherwise than by agreement” is compliant with European law, the following applies:

• The excessive attribution of voting rights for acting in concert is generally justified, e., not only with regard to coordination “otherwise than by agreement”, but also with regard to other excessive attribution provisions (see above).
• In this respect, the parallel interpretation assumed by the legislature and BaFin between acting in concert under securities trading law pursuant to section 34 WpHG and acting in concert under takeover law pursuant to section 30 WpÜG is also justified.
• However, the attribution provisions of section 34(1) WpHG that go beyond the requirements of the Transparency Directive are not automatically They are not necessarily also “in relation to takeover bids” since otherwise the full harmonisation of shareholding publicity would be completely undermined (“gold plating”).