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Legal Aspects of Finance
Slide Set 14
Matti Rudanko
Decision on case 1
• 1st argument: major shareholders’ commitments
• 2nd argument: ideological motivation
– any causality to damage difficult to construct: it should
be shown that new shares are less worth than old ones
– damage is mainly embodied in differences between
subscription price / redemption price (merger) and
market price / selling price obtained by subscribers
– theoretically it should rather consist of differences
between a fictitious price under the hypothetical
exclusion of distorted information impact and the actual
market price / selling price
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Right of a shareholder to
demand redemption
•
•
•
Companies Act, Ch. 14, Section 12 (14.2.1997/145; repealed, now the
same rules apply by virtue of the New Companies Act Ch. 16, sect. 13)
A shareholder of the company being acquired who has voted against the
merger decision shall have the right to demand that the company redeem,
at the market price, from him the shares notified for entry in the share
register prior to the General Meeting of the Shareholders. The shareholder
shall reserve the right to demand the redemption at the General Meeting of
the Shareholders when the shareholders are asked about the matter prior
to the vote on the merger. A written claim of redemption shall be submitted
to the company within one month from the General Meeting of the
Shareholders that has decided upon the merger.
If no agreement can be reached on the right of redemption or the
redemption terms, the matter shall be referred to be decided by arbitrators
in the order referred to in chapter 16, section 5 unless otherwise agreed. In
the determination of the redemption price, factors arisen after the General
Meeting of the Shareholders that has decided upon the merger shall not be
taken into account.
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Decision on case 1 (cont.)
• Arguments 1 and 2 indicate a motivational error
of the subscribers / misstatement of the issuer
– misstatement: OikTL (Contracts Act) art. 30
– error in motivis: OikTL art. 33: breach of the good
faith in contracts rule (not all motivation errors)
• both are possible grounds for invalidity of subscription
– no need for negligence / damage
• that can be combined with a damages claim
based on the restitution of the purchase price
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Contracts Act
• Section 33
• A transaction that would otherwise be binding shall not
be enforceable if
– it was entered into under circumstances that would
make it incompatible with honour and good faith
– for anyone knowing of those circumstances to invoke
the transaction
– and the person to whom the transaction was directed
must be presumed to have known of the
circumstances.
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The Economic values of contract
• Expectation value /
interest
• Reliance value/interest
– the additional value of
contract to a party
– e.g. earnings, increased
turnover
– protected object:
rationality of
commitment
– with contract breaches
– productivity
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– the value of party
commitments
– e.g. investments, costs,
value of performances
– protected object:
rationality of risk taking
– with invalidity
– protectiveness
Decision on case 1 (cont.)
• Argument 3 (the economic status of the bank)
• damages claim (the breach was considered to be shown
but the claim rejected as non-causal)
– breaches of norms create a presumption of negligence
– damage and causation:
• classical law: difficulties in bringing evidence
• Market Fraud Theory: preconditions may be fulfilled
• facilitates the introduction of class action (not yet available in
Finland): the evidence procedure simplified
• if the subscription remains valid, (only) the expectation
interest compensated (e.g. lost profit) but not e.g. contracting
costs
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Decision on case 1 (cont.)
• if the subscription is invalid, no compensation
for expectation interest (e.g. lost profit), only for
reliance interest
• basis: ban of enrichment in damages law
• cf also the duty of the injured person to do
everything in his power to limit the escalation of
damages
– e.g. to oppose to the merger and to take the
redemption price
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