4.3.9.3 Valuation clauses creating a significant imbalance afterwards

A shareholder may be faced with a valid valuation clause that results in an unreasonably low compensation. This valuation clause may not be declared null and void, due to the expiration of the three years term in which the shareholder can call on the voidance. It may be that the shareholder was too slow to react.

It is also conceivable that at the time the valuation clause was included into the articles of association, the clause would not have the result of an unreasonably low compensation. For instance, the valuation clause may encompass that the company is valued at its book value and the shares are valued pro rata parte to this book value. This valuation method does not take into account the hidden reserves and the goodwill of the company. At the time the company is incorporated, this valuation clause may lead to the result that the book value reflects the full market value. At this stage, there is nothing unreasonable in including a valuation clause referring to the book value. However, throughout the years, the company may prosper and hidden reserves and goodwill may develop. A significant imbalance between the full market value of the shares and its value based on the valuation clause may arise accordingly. It has to be admitted that a development in the opposite direction may occur as well.

Several authors have asserted that these fluctuations in the full market value of the company form the reason that valuation clauses not only have to be judged on their validity pursuant to § 138 I BGB. Judging a valuation clause from a validity perspective, may lead to a conflict with the principle of legal security:

Currently, the generally accepted view is that valuation clause that is not null and void or nullified pursuant to § 138 I BGB is valid.2 Courts and legal literature sought for another way to deal with valuation clauses that create a significant imbalance. As a starting point, the Supreme Court held that such valuation clauses restrict the exit right in an unjustifiable way:

In 1993, the Supreme Court decided that if the valuation clause leads to a significant imbalance, the clause is to be interpreted in light of the changed circumstances due to the principle of good faith (Treu und Glauben):

The principle of good faith is laid down in § 242 BGB. The type of interpretation used by the Supreme Court is known as supplementing interpretation (ergänzende Interpretation). In order to reach an accurate interpretation of the valuation clause, all relevant circumstances must be considered. These circumstances include the literai meaning of the valuation clause, but also the circumstances underlying the import reason to exit the company. Factors that can be taken into account are the period that the shares have been held by the shareholder, the way in which the shareholder contributed to the development and prosperity of the company and the cause of the exit.5

The hypothetical interpretation of the intentions of the parties involved has been severely criticized in legal literature.6 At the outset, the assumption can be doubted that valuation clauses contain gaps that need to be filled through interpretation. Furthermore, it is doubtful whether the interpretation of the valuation clause based on the circumstances of the case, is desirable from the perspective of the principle of legal certainty. Nonetheless, a judicial correction of the valuation is preferred from the perspective of the principle of good faith.7

It does not seem to be easy to assess when a significant imbalance (grobes Miβverhältnis) is present. The Supreme Court has never indicated any percentage. Several legal authors assume that if the full market value exceeds the value according to the valuation clause with at least 100%, anyhow a significant imbalance is present.8Müller pleads for the approach that, as a starting point, a shareholder has to be compensated at the full market value of the shares. In his opinion, a discount exceeding 20%-25% of the full market value is not acceptable.9

Lutter and Hommelhoff emphasize that a differentiated approach is desirable, depending on the type of case. In the event that the import reason lies in the company's affürs, the starting point should be the full market value of the shares. In their opinion, in this situation there should be limited scope for restrictions on the valuation, whereas the co-shareholders should not receive a premium if the minority shareholder deserves protection.10If the important reason stems from the personal affürs of the shareholder, a discount of at maximum 50% is acceptable.11

Schindler disapproves of the desirability of the opinion of the Supreme Court that valuation clauses leading to a significant imbalance are valid.12 He points out that the question whether valuation clauses apply, has to be answered differently depending on the reason that justifies the exit of the shareholder. In his opinion, a shareholder has to receive the full market value for his shares, when fundamental changes in the structure of the company take place without the consent of the shareholder.13 In this context, Schindler refers to the parallel with the appraisal rights that are found in the Reorganization Act (UmwG, see § 4.4). These appraisal rights are conferred on the shareholder in circumstances indicated by the legislator. These circumstances concern specific fundamental changes in the structure of the company to which the shareholder does not consent. These appraisal rights lead to compensation at full market value.

Furthermore, Schindler argues that a shareholder has to receive a similar treatment if the majority shareholder has abused his position to the detriment of the minority shareholder and this abuse justifies an exit. To award the minority shareholder with compensation not equal to the full market value gives the majority shareholder an advantage. This unjustified advantage leads to a conflict with the duty of loyalty.

Schindler submits that when the important ground lies in the personal affürs of the shareholder, such as illness or emigration, the shareholder must assume responsibility for these facts of life. Therefore, in these circumstances, the shareholder is bound by a valuation that follows from the valuation clause.14