6 x 10.Three Lines - Cambridge University...

894

accounting assets purchases, 626EU regulation, 69, 86, 516executive earnings, 417, 422–423principles, recognition, 66

ad hoc Mitteilungen, 524–526AFA, 679agency

See also authorityagency costs, 299–300authority, 312–313, 317–318contracting capacity, 312fiduciary principles, 11leveraged buyouts, 845–846partnership and, 25questions for discussion, 321

Aktiengesetz, 8Alexander, Jacob, 424American Bar Association, 17, 86analysts, 454, 459, 528annual general meetings

abuse, 549electronic methods, 547EU law, 70, 559, 566medium for collective action,

546–549procedures

Germany, 555–563Greenwell v. Porter (UK), 571–573overview, 549–567Puddephatt v. Leith (UK),

569–570Schnell v. Chris-Craft (Delaware),

568–569United Kingdom, 563–567United States, 549–555

shareholder litigation and, 604–608

terminology, 549applicable law. See conflict of lawsArmour, John, 11, 12, 262Assmann, Heinz-Dieter, 173asymmetric information, 193, 456,

524Athens, 546Aufsichtsrat. See German management,

supervisory boardsAustralia, company seals, 316Austria, prospectuses, 195authority

company directors, 312–313, 315–318

company law, 315–317contract law, 317–318implied authority, 318reliance on ostensible authority,

318–320company seals and, 316–317documenting chain of authority,

320–321signature books, 320–321

General Overseas Films v. Robin International (New York), 324–331

Hurley v. Ornsteen (Massachusetts), 323–324

questions for discussion, 321Royal British Bank v. Turquand

(UK), 322–323automotive industry, 337

Baird, Douglas, 845Ballantine, Henry Winthrop, 153Barad, Jill, 420Baums, Theodor, 82, 561, 606

I N D E X

www.cambridge.org© in this web service Cambridge University Press

Cambridge University Press978-0-521-76873-3 - Comparative Company Law: Text and Cases on the Laws GoverningCorporations in Germany, the UK and the USAAndreas Cahn and David C. DonaldIndexMore information

http://www.cambridge.org/9780521768733

http://www.cambridge.org


Index 895

Bebchuk, Lucien, 95, 96, 420, 489Berle, A. A., 497BERR, 21, 135best practice, 4Betriebsverfassungsgesetz, 309–311Bezugsrecht, 417, 431–432Bezugsrechte, 200–202, 431, 478Bismarck, Otto von, 308Blumberg, Dean Phillip, 677bonding expenditures, 300Börse. See Frankfurt Stock ExchangeBörseneinführung. See German listed

companiesbranches, EU regulation, 68, 69Bratton, William, 95Broadrige Financial Solutions, 555bullet-dodging, 423business judgment rule

See also DelawareARAG v. Garmenbeck (Germany),

373–381Aronson v. Lewis (Delaware),

382–383 assessing, 369–373meaning, 334questions for discussion, 373Sinclair Oil v. Levien (Delaware), 693Unocal v. Mesa Petroleum

(Delaware), 407–415 Walt Disney Company Derivative

Litigation, Re (Delaware), 383–406

Zapata v. Maldonado (Delaware), 613–617

Cao, Jerry, 847capacity

company contracts, 312–313ultra vires doctrine, 134,

313–315, 318capital

increasing, legal issues, 195–197shares. See share capitalsources of financing, 188–190structure

comparative law, 190determinants, 188–195effect on firm’s value, 190–193

debt/equity ratio, 190–192Modigliani/Miller thesis, 192pecking order hypothesis,

192–193trade-off model, 193

legal and economic factors, 193–195

questions for discussion, 206terminology, 195

care. See duty of careCary, William, 90CESR, 525Chandler, Alfred, 678–679, 680Chinese Walls, 460choses in action, 263Clark, Robert, 797Coffee, John, 422Cohen Report (1945), 453commenda, 31company law

effects test, 12–13functional components,

9–23comparative law

approach to company law, 3–9legislative comparative law, 5methodology, 6–7social and historical context, 7–8transition economies and, 6

compensation. See executive remuneration

competition, directors’ conflicts of interests, 338

Comverse Technologies (New York), 424

confidentiality fiduciary duty, 339, 455German obligations, 339, 455merger negotiations, 637UK management, 455US obligations, 455, 458–459

conflict of interests competing businesses,

338corporate opportunity doctrine,

360, 364, 368situations, 333, 337–338takeovers, 800






Index896

use of rules in conflict areas, 337–338

conflict of laws cases, 97–127European Union

Centros (ECJ), 78–80, 100, 105, 115, 118

cross-border mergers, 640–643Inspire Art (ECJ), 108–119member states, 66–72regulatory competition, 65–72,

78–82securities law, 80–81SEVIC Systems (ECJ), 640–643Überseering (ECJ), 97–108, 634

Germany, 73Überseering (ECJ), 97–108, 634

levels, 65–66questions for discussions, 96–97United Kingdom, 75–77United States, 82–96

regulatory competition, 90–96Vantagepoint v. Examen

(Delaware), 119–127contemporaneous ownership rule, 605contingency fees, 8, 600–601, 603, 608contracts

assets purchases, 626authority, 312–313, 317–318share purchases and, 628

convertible securities, 190, 202, 265, 267

corporate groups. See groups of companies

corporate opportunity doctrine, 360, 364, 368

corporate veil, piercing Amoco Cadiz (US), 737–740Polly Peck (UK), 740–751Rave v. Entertainment Equities (New

York), 732–736share repurchase, 243tort victims, 737–740US requirements, 689

corporations comparative approach, 3–9core structural characteristics, 9

Germany, 13–17

table, 22–23United Kingdom, 19United States, 17–19

functional components, 9–23partnerships and, 24–26

creditor protection capital maintenance and, 169, 219,

220–221leveraged buyouts and, 846share repurchase and, 243, 244shareholders as residual claimants,

261–262, 471subsidiaries and, 680tort victims, 169, 221

CRESTCo, 567Crown Jewel, 413–414

Davies, Paul, 204, 205, 260, 271Davos World Economic Forum, 846debt financing

buyouts. See leveraged buyoutsconvertible bonds, 190, 202, 265, 267covenants, 196forms, 189–190pecking order hypothesis, 193securitization, 190, 846shareholder approval, 196

Delaware annual general meetings

balloting methodology, 554–555conduct of proceedings, 554information requirements,

550–552notification, 550participants, 550proxy battles, 568–569quorums, 553–554Schnell v. Chris-Craft (Delaware),

568–569shareholder expenses, 553shareholder participation,

552–553timing, 549–550, 568–569vote counting, 555voting entitlement, 554

authorized representatives, 316, 318Hurley v. Ornsteen

(Massachusetts), 323–324basic law, 9

conflict of interests (cont.)






Index 897

business judgment rule, 372Aronson v. Lewis (Delaware),

382–383 disinterested directors, 382, 413duty of loyalty and, 341, 346information duty, 382–383meaning, 382, 410restrictions, 382–383Sinclair Oil v. Levien (Delaware),

693standard, 383–406takeover defenses, 837–838Unocal v. Mesa Petroleum




de facto incorporation, 142–143Cleary v. North Delaware A-OK

(Delaware), 148–151directors

annual election, 305entrenchment, 569presidents, 316, 318removal, 307role, 382

distributions management discretion, 196,

227–228nimble dividends, 228

duty of loyalty Broz v. Cellular Information

Systems (Delaware), 360–368

common law, 344–345corporate opportunity doctrine,

360, 364, 368D&O insurance, 347listed companies, 345–346no safe harbor, 396rules, 345spring-loaded options and, 424standard, 346–347, 360–368 Walt Disney Company Derivative

Litigation, Re (Delaware), 395–397, 399

executive remuneration

business judgment rule and, 384disclosures, 426shareholder control, 428stock options, 424, 529–534Walt Disney Company Derivative

Litigation, Re (Delaware), 384

fiduciary duties, 89, 206, 392Benihana of Tokyo v. Benihana

(Delaware), 218confidential information, 455corporate waste and, 394, 400duty of care, 394–395good faith, 344, 345, 394, 397–399,

400–406gross negligence, 395, 400–404groups of companies, 688, 692,

729increasing share capital, 206merger negotiations and, 647–648takeover defenses and, 830–832,

833–843to shareholders, 336transactions with their

companies, 345–346groups of companies

company v. group interest, 721–732

fiduciary duties, 688, 692, 729Hollinger v. Black (Delaware),

721–732minority shareholders and

Sinclair Oil v. Levien (Delaware), 691–695

regulation method, 681, 688incorporation

amendment to bylaws, 729–731amendment to certificates of

incorporation, 482, 721–732declarations of nullity, 145defensive charter amendments,

413optional default terms, 18procedures, 136–137

increasing share capital, 205–206approval, 205Benihana of Tokyo v. Benihana

(Delaware), 206–218duty of care, 218






Index898

duty of loyalty, 218improper primary purpose,

215–218validity of transaction,

214–215payment methods, 205–206preemption rights, 201, 206

initial capital payment cash payments, 177–178in-kind payments, 178Lewis v. Scotten Dillon (Delaware),

178, 185–187shareholder policing, 178,

185–187jurisdiction, 17–19jurisprudence, 18loan covenants, 228mergers and acquisitions

appraisal rights, 662–663Weinberger v. UOP (Delaware),

666–674assets sales, 631, 655cross-border mergers, 634defensive provisions

no-shop provision, 645Paramount v. QVC (Delaware),

643–648stock option agreements, 645termination fees, 638–639, 645

fiduciary duties and merger negotiations, 647–648

Kahn v. Lynch Communication (Delaware), 586–594, 634

minority shareholders, 656, 666–674

shareholder approval, 655–656Katz v. Bregman (Delaware),

664short form mergers, 656statutory mergers, 631–632

minority shareholders actions for written consents, 604fiduciary duties to, 18, 576,

588–589groups of companies, 691–695Kahn v. Lynch Communication

(Delaware), 586–594mergers, 656

Weinberger v. UOP (Delaware), 666–674


takeovers, 774Tooley v. Donaldson (Delaware),

609–612non-profit corporations, 145preliminary injunctions, 837regulatory competition, 88–90

internal affairs, 89Vantagepoint v. Examen

(Delaware), 119–127securities regulation, 19share capital

authorized stock, 205increasing, 205–206maintenance, 253–256no par shares, 167–168, 227

share classes, 274Lacos Land v. Arden (Delaware),

278–287variation of rights, 275, 278–287

share repurchase, 250burden of proof, 411disclosures, 256–258Klang v. Smith’s Food & Drug

Centers (Delaware), 252–258selective repurchase, 413self-tenders, 258, 407–415 treasury shares, 250

shareholder duties fiduciary duties, 586–594Kahn v. Lynch Communication

(Delaware), 586–594loyalty, 576majority shareholders, 18,

588–589shareholder information rights

Melzer v. CNET Networks (Delaware), 529–534

on request, 513, 529–534shareholder litigation, 608

Aronson v. Lewis (Delaware), 382–383

board duties and, 612–617demand rule, 612–617derivative or direct actions,

609–612, 827

Delaware (cont.)






Index 899

Tooley v. Donaldson (Delaware), 609–612


shareholder voting rights agreements, 555amendment to certificates of

incorporation, 482appointments, 481–482assets issues, 482balloting methodology, 554–555Blasius v. Atlas (Delaware), 473,

487, 493–500democratic legitimacy, 473, 497,

499entitlement, 554Hollinger v. Black (Delaware),

721–732initiating procedures, 486–488Katz v. Bregman (Delaware), 664mergers, 664required majorities, 491–492sale of rights, 469vote counting, 555

takeovers defensive measures, 800–801

Carmody v. Toll Brothers (Delaware), 821–832

“dead hand” poison pills, 821, 823–824, 828–832

fiduciary duties and, 830–832, 833–843

lock-up options, 833, 840–842poison pills, 838–839Revlon v. MacAndrews &

Forbes Holdings (Delaware), 833–843

self-tenders, 407–415 Unocal v. Mesa Petroleum

(Delaware), 407–415 judicial approaches, 798minority shareholders, 774section 203, 770stakeholders, 850

delegation of powerSee also authorityagency costs, 299–300

democracy methodology, 548

shareholder voting rights and legitimacy, 473, 497, 499

DeMott, Deborah, 125derivative actions

Delaware. See Delawaredifficulties, 600distinguishing from direct actions,

602Tooley v. Donaldson (Delaware),

609–612effect, 603Germany, 339, 604–605meaning, 602shareholder right, 264United Kingdom, 607–608US control, 178Walt Disney Company Derivative


derivatives executive remuneration and,

424–425leveraged buyouts, 846regulation, 66

Deutsche Bank, 484directors. See managementdisclosures. See shareholder rightsdistributions

capital maintenance and, 219–220EU restrictions, 221–222Germany, 222–225internal financing and, 196questions for discussion, 228–229Sam Weller, Re (UK), 232–237shareholder rights, 262, 264taxation, 219UK restrictions, 226–227United States, 227–228Wells Fargo Bank v. Desert View

(Nevada), 237–240dividends. See distributionsD&O insurance, 341, 344–346,

347Donne, John, 678dot.com bubble, 422, 426Drury, R. R., 144–145du Pont de Nemours, 678duties. See fiduciary duties;

shareholder duties






Index900

duty of care common requirement, 332Delaware, 218, 394–395German management, 303, 339UK directors, 17, 20, 369–370

duty of loyalty Broz v. Cellular Information Systems

(Delaware), 360–368 common requirement, 332conflict situations, 333, 337–338Delaware. See DelawareGermany, 303, 338–341overview, 338–347questions for discussion, 347Regal (Hastings) v. Gulliver (UK),

347–359United Kingdom, 341–344United States, 344–347use of rules in conflict areas,

337–338

Easterbrook, Frank, 471Ebbers, Bernard, 418EDGAR system, 523Eisenberg, Melvin, 370–371, 680,

686–687enlightened shareholder model, 336Enriques, Luca, 81Enron, 91, 384, 516, 688entity proliferation, 24environmental liability, 626equity

See also share capitalequity financing, 189

pecking order hypothesis, 193executive remuneration and

creative accounting, 422–423derivatives, 424–425manipulation, 420, 422–423

meaning, 189equity swaps, 424–425estoppel, US defective incorporation,

143, 151–155European Companies (SEs)

mergers, 635–636employee participation, 635–636,

662registration, 636

shareholder approval, 661–662regulation, 69–70statutory form, 634

European Economic Interest Groupings (EEIGs), 40

European Private Equity and Venture Capital Association, 853

European Union accounts, 69, 86, 516annual general meetings, 559, 566

shareholder rights, 70branches, 68, 69company law

directives, 68–71First Directive, 69harmonization, 68–71, 72regulatory competition, 82Second Directive, 69

convertible securities, 202cross-border mergers, 70, 634–636

consideration, 635Directive, 634–635European Companies (SEs),

635–636SEVIC Systems (ECJ), 640–643shareholder approval, 661–662

directives, 68binding effect, 160–161direct effect, Marleasing (ECJ),

147–148European Private Company, 82free establishment, 67, 78

Centros (ECJ), 78–80, 100, 105, 115, 118

cross-border mergers, 640–643German cumbersome rules and,

224Inspire Art (ECJ), 108–119provisions, 108–109SEVIC Systems (ECJ), 640–643Überseering (ECJ), 97–108, 634

free movement of capital, 803–809harmonization of law, 5, 68incorporation

declarations of nullity, 143–144direct effect, 147–148Marleasing (ECJ), 143,

146–148






Index 901

objects of companies, 134, 143, 148

insider dealing. See insider dealingjurisdiction, 65, 66–72

company law directives, 68–71concurrent jurisdiction, 67EC Treaty competence, 66–68

leveraged buyouts, 848–849conflicts of interest, 849disclosures, 851financial assistance rules,

848–849minority shareholders, 849

market abuse insider dealing, 453Lamfalussy process, 71share repurchase and, 244–246

mergers cross-border, 70, 634–636leveraged buyouts, 848–849regulation, 69shareholder approval, 661–662

partnerships and, 40preemption rights, 200pre-incorporation liabilities, 138,

160UK implementation, 139

prospectuses detailed regulation, 194–195Directive, 514Lamfalussy process, 71

regulatory competition, 78–82Centros (ECJ), 78–80, 100, 105,

115, 118company law future, 82securities, 80–81

securities regulation, 70–71Directives, 445dominance, 194harmonization of law, 72jurisdiction, 80–81Lamfalussy process, 71regulatory competition, 80–81share repurchase, 244–246

share capital declarations of nullity, 143distribution restrictions, 221–222employee share options, 245

financial assistance rules, 848–849, 853

maintenance, 220Second Directive, 221–222US model and, 221

minimum, 136, 168non-cash contributions, 174payment of initial capital, 175, 203share options, 417

share repurchase, 243–246annual reports, 244Buy-back Regulation, 245–246capital markets rules, 244–246corporate law rules, 243–244creditor protection, 244equal treatment of shareholders,

244German implementation,

246–247voting rights, 244

single-shareholder companies, 69subsidiarity principle, 67–68, 78supremacy of EU law, 67, 79takeovers

definition of takeover bids, 755disclosure of bidders’ plans, 760free movement of capital,

803–809regulation, 69reporting significant holdings,

578terminology, 66transparency, 114–115

annual financial reports, 516Directive, passport structure,

515–516, 517half-yearly reports, 516–517interim management reports, 517listed companies, 515–517publication methods, 517routine disclosures, 515–517Transparency Directive, 515–517

executive remuneration accounting, 417consultants, 420earning management, 422–423elements, 418–419equity, 419






Index902

creative accounting, 422–423derivatives, 424–425manipulation, 420, 422–423

Germany, 303, 429–432governance tool, 417–419incentives, 301incompetence and, 420Mannesmann prosecution

(Germany), 435–441moral hazard, 416–417, 419–422objectives, 418performance-linked pay

evaluation issues, 420moral hazard, 416–417

perquisites, 418questions for discussion, 434–435risks, 419–425share options

bullet-dodging, 423insider dealing, 424manipulating value, 423–424spring-loading, 423

United Kingdom, 305, 432–434United States, 307, 425–429Walt Disney Company Derivative


Ferran, Ellis, 81, 271, 314, 845, 849, 850fiduciary duties

See also specific dutiesbusiness judgment. See business

judgment ruledue care, 332fiduciary relationships, 334–335, 575good faith, 333insider dealing and, 455loyalty, 332, 338–347merger negotiations and, 639,

663–664John Crowther v. Carpets

International (UK), 648–653Paramount v. QVC (Delaware),

647–648partnerships, 49performance-linked pay and, 416questions for discussion, 347rules and standards, 332–335

safe harbors, 333share options, derivatives, 424–425shareholder litigation and, 608–609


shareholders, 575–577standard, 384to whom owed, 335–337

shareholder primacy, 336stakeholders, 336suppliers, 337

use of rules in conflict areas, 337–338

finance debt financing, 189–190, 193equity financing, 189, 193internal financing, 189, 193

distributions and, 196pecking order hypothesis, 192–193sources, 188–190

Financial Accounting Standards Board (FASB), 429

financial assistance rules European Union, 848–849, 853Germany, 852–853United Kingdom, 853–854

Brady v. Brady (UK), 855–862principal purpose exception,

75–77, 854US lack of rules, 849, 851

financial markets. See securities lawFinancial Services Authority

Disclosure and Transparency Rules centrality, 21, 445EU regulation and, 71implementing Transparency

Directive, 519–520management standards, 304

jurisdiction, 20, 77Listing Rules. See UK listed

companieson private equity, 846

Fischel, Daniel, 280, 471Fischer, Robert, 15France

Code Napoleon, 41takeovers, 765

Frankfurt Stock Exchange annual general meetings, 555

executive remuneration (cont.)






Index 903

governance and, 448jurisdiction, 72, 73–75reporting requirements, 519rules, 16, 73–75takeover code, 765

fraudulent conveyances, 13, 87, 92, 237–240, 626, 850–851, 862–876

free riding, 474–475Fried, Jesse, 420Friedman, Milton, 259

Gattung, 267–270General Electric, 678Georgeson Shareholder, 555German groups of companies

creditor protection, 682, 684de facto groups, 683, 684–685

damages to subsidiaries, 686dependence reports, 685–686domination relationships,

685–686, 852–853Holzmüller, Re (Germany),

700–701distributions, 681enterprise agreements, 683–684

creditor protection, 684profit transfer agreements, 684standard of care, 684

grouping strategy, 678judicial extension of Konzernrecht,

686–687Gelatine, Re (Germany),

710–721Holzmüller, Re (Germany),

686–687, 695–709Konzernrecht, 682–687minority shareholders

enterprise agreements, 684Gelatine, Re (Germany),


695–709parent companies, 695–709

regulation, 682–687shareholder approval, 683, 695–709,

710–721terminology, 678

German listed companies

ad hoc disclosure of significant events, 524–526

annual general meetings. See German shareholders

audit committees, 450–451directors’ transactions with their

companies, 448executive remuneration, disclosures,

430Kodex, 446prospectuses

EU regulation, 71false information, 535

regulation, 445reporting requirements, 517–519

ComROAD Securities Litigation (Germany), 534–540

liability for false information, 534–535

securities law, 445supervisory boards, 450takeovers. See German takeoversterminology, 443voluntary delisting, shareholder

voting rights, 501, 504German management

appointments criminal records, 302labor representatives,

qualifications, 300management boards (Vorstand),

478procedures, 302removal, 302, 477shareholder voting rights,

476–478terms of office, 302, 476–477

auditors, appointment, 477authority to represent, 315, 317

apparent authority, 318authority by forbearance, 318–319

business judgment rule, 371, 372ARAG v. Garmenbeck (Germany),

373–381deciding on legal proceedings,

373–381challenging shareholders’

resolutions, 376–378co-determination, 8, 308–311






Index904

1976 Act, 310–3112004 Act, 309–310appointments, 477constitutionality, 311core characteristic, 10history, 308–309intention v. function, 11mining, iron and steel sector,

309three regimes, 309–311

conflicts of interest, 560Corporate Governance Code

(Kodex), 16duty of loyalty, 303, 338–341

confidentiality, 339, 455consulting agreements, 340damages, 340derivative actions, 339D&O insurance, 341executive bonuses and, 441legal proceedings, 341loans, 303, 339–340Mannesmann prosecution

(Germany), 441non-compete rule, 339rules, 339–340service contract negotiations, 340source and nature of duty,

338–339standard, 340–341transactions with their

companies, 340, 448executive remuneration, 303,

429–432accounting treatment of options,

431–432disclosures, 429–430informal capping, 417Mannesmann prosecution

(Germany), 435–441prosecutions, 430restrictions, 421share options, 417shareholder approval, 431supervisory directors, 430

false reporting, 229–232, 534–535fiduciary duties

duty of care, 303, 339interests of the company, 335loyalty, 303, 338–341

governing rules, 131loans to board members, 303,

339–340, 418maximum directorships, 302rules and standards, 302–303self-dealing, 303supervisory boards, 427, 450

co-determination, 310–311, 477executive remuneration and, 430function, 431model, 449no confidence votes, 477removal of members, 477responsibilities, 373rights of judicial review, 376–378sub-committees, 302terms of office, 476–477

two-tier structure, 302, 431German mergers and acquisitions

appraisal rights, 663assets sales, 632audits, 658creditor protection, 658EU cross-border mergers, 661forms, 632information rights, 512leveraged buyouts

disclosures, 847financial assistance rules, 852–853regulation, 852

merger agreements, 657–658merger reports, 658public offers, 657registration, 628, 633, 659share purchases, 632shareholder approval, 478, 657–659short form mergers, 658statutory mergers, 632–633

cross-border mergers, 640–643registration, 640–641SEVIC Systems (ECJ), 640–643

UmwG, 14, 633German partnerships

civil law partnerships (GbR) court actions, 28, 52–57

German management (cont.)






Index 905

dissolution, 28formation, 27legal capacity, ISM GmbH v.

ARGE Wua (Germany), 52–57

management, 27–28commercial partnerships (OHG)

commercial purpose, 29death of partners, 31joint and several liability, 30–31loyalty duty, 30management, 29–30profits, 30

jurisprudence, 15limited partnerships (KG), 31–33

commenda origin, 31general partners, 31GmbH & Co. KG, 32limited liability, 61–64limited partners, 31limited partners’ duties, 33management, 32registration, 31W. J. v. S. Sch. (Germany),

61–64partners as agents, 25types, 26–33

civil law partnerships (GbR), 27–28

commercial partnerships (OHG), 29–31

limited partnerships (KG), 31–33partnerships limited by shares

(KGaA), 33professional partnerships (PartG),

28–29German share capital

bonus shares, 197, 204cash payments

auditing, 171, 172circumventing techniques, 171disguised in-kind contributions,

172–173IBH/Lemmerz (Germany),

180–185increasing capital, 200initial capital, 170judicial flexibility, 172–173

post-incorporation rules, 172, 182–184

private companies, 173distributions, 196, 222–225financial assistance rules, 852–853increasing

approval, 197–199bank underwriting, 200bonus shares, 197charter amendment, 197–199class votes, 198conditional increases, 198, 431convertible securities, 203effective or nominal, 197–198issue price, 198overview, 197–202payment methods, 200preemption rights, 200–202shareholder voting rights, 478

large blockholders, 632leverage, 195limited liability companies, 99maintenance, 222–225

accounting principles, 225EM.TV, Re (Germany), 229–232groups of companies, 684, 852loans to shareholders and, 224

minimum, 132, 165no par shares, 133, 167–168non-cash assets

auditing, 133, 174complexity, 173disguised non-cash contributions,

172–173IBH/Lemmerz (Germany),

180–185initial capital, 133, 173–174plausibility, 133

payment of initial capital, 133, 170–174

preemption rights, 200–202, 431, 478

reserves, 223share classes, 267–270

bundling of rights, 268–269changing rights, 269–270meaning of class, 267–268new classes, 269–270






Index906

preference shares, 268, 270single shareholders, 267voting shares, 193, 268–269

share ownership transparency, 10–11

share premiums, 171share repurchase, 246–247

10 percent purchase limit, 246accounting treatment, 247appraisal rights, 246corresponding reserve, 247equal treatment, 246fully paid-up shares, 247implementation of Directive,

246–247leveraged buyouts and, 853shareholder voting rights, 478suspension of all rights, 247

splitting shares, 562subscription, 132–133

German shareholders annual general meetings, 303

balloting methods, 560–562conduct of proceedings, 559–560counting votes, 562–563false information, 558information requirements,

557–558notification, 556–557participants, 556procedures, 555–563proxy voting, 547, 557quorums, 558–559shareholder participation, 558strike suits, 559timing, 555–556transmission, 560voting entitlement, 560

fiduciary duties Girmes, Re (Germany), 594–598Linotype, Re (Germany), 583–585

information rights ad hoc disclosure of significant

events, 524–526annual reports, 518ComROAD Securities Litigation

(Germany), 534–540

false reporting, 229–232, 534–535financial statements, 303half-annual reports, 518interim management statements,

518on request, 511–512prospectuses, 535routine disclosures, 514, 517–519,

534–540websites, 519

litigation blocking registration strategy,

601, 606–607business judgment rule, 373–381challenging shareholder

resolutions, 605, 659class actions, 604derivative actions, 339, 604–605direct actions, 604economic incentives, 606–607exculpating resolutions, 500, 605general meetings and, 604–607

loans to, 224minority shareholders

appraisal rights, 663blocking minorities, 491,

594–598, 606–607calling general meetings, 604Gelatine, Re (Germany), 710–721Girmes, Re (Germany), 594–598groups of companies, 682, 684,

695–709, 710–721Holzmüller, Re (Germany),

695–709Linotype, Re (Germany), 583–585mergers, 633takeovers, 768–769, 802–809

resolutions, board challenges, 376–378

voting rights agreements, 562amendment to Satzung, 478appointments, 302, 476–478, 803assets matters, 478balloting methods, 560–562business splits, 478calculation, 802capital changes, 478

German share capital (cont.)






Index 907

conflicts of interest, 560counting votes, 562–563custodian accounts, 560–562decision matters, 478–479entitlement, 560executive remuneration, 431Gelatine, Re (Germany), 710–721groups of companies, 683,


695–709initiating procedures, 483–485Macrotron Shareholder Litigation

(Germany), 500–509mergers, 478, 657–659minority protection, 501, 506proxy voting, 547, 557required majorities, 490–491rights-based theories, 469share repurchase, 478takeovers, 802–809transfer of rights, 469Volkswagen privatization, 803voluntary delisting, 501, 504voting matters, 476–479waiver of pre-emptive rights, 478

German takeovers acting in concert, 768

Württembergische Metallwarenfabrik (Germany), 782–787

BaFin jurisdiction, 765bearer shares and, 577–578bids to purchase securities, 765defensive measures

Commission v. Germany (ECJ), 802–809

Volkswagen Law, 802–809disclosures, 765–766

electronic publication, 766false information, 766

equal treatment of shareholders, 767–768

highest price rule, 768Württembergische

Metallwarenfabrik (Germany), 782–787

mandatory bid threshold, 765

non-compliance, 768minority shareholders, 768–769

sell-outs, 769squeeze-outs, 768–769

partial bids, 765regulation, 764–769

origins, 756, 764–765Takeover Act, 16

takeover bids, 765time limits, 767

Germany accounting

annual accounts, 86principles, 14, 225publication, 514share options, 431–432share repurchase, 247

applicable law BaFin jurisdiction, 75incorporation v. real seat theory,

518jurisdiction and EU, 65legal capacity, 97–108stock corporations, 73stock exchanges, 73–75Überseering (ECJ), 97–108, 634

banks, custodian accounts, 556–557, 560–562

Codes, 41Civil Code, 16Commercial Code, 16Corporate Governance Code,

74–75company law

Aktiengesetz (AktG), 8concept, 16core functions, 13–17jurisprudence, 15

constitutional property rights, 311

creditor protection groups of companies, 682, 684mergers, 658restrictive covenants, 222

debt financing, covenants, 196directors. See German managementfraudulent conveyances, 13general rules, 16






Index908

groups of companies. See German groups of companies

incorporation of AGs amendment to Satzung, 478articles of incorporation

(Satzung), 132corporation in formation status,

132declarations of nullity, 144defective incorporation,

liabilities, 141post-incorporation, 172pre-incorporation liabilities,

138–139, 145–146procedures, 132–134public notices, 133registration, 133–134, 317share subscription, 132–133

insolvency, full payment of shares, 171

iron and steel industry, 308joint ownership, 54–55labor councils, 308legal capacity, 98

applicable law, 97–108limited liability legislation, 16listed companies. See German listed

companiesmergers. See German mergers and

acquisitionspartnerships. See German

partnershipspre-incorporation companies, 138pre-incorporation liabilities,

145–146private companies (GmbH), 138promoters, 138–139

private companies (GmbH) financial assistance rules and, 853pre-incorporation liabilities, 138

real seat theory, 79Rechtsfortbildung, 15registration system, 601Securities Act, 16security interests, 13share capital. See German share

capital

shareholders. See German shareholders

stock exchanges See also Frankfurt Stock Exchange

jurisdiction, 73–75takeovers. See German takeoverstort liability, 525, 536Volkswagen privatization, 802,

803Weimar Republic, 308, 717workers’ councils, 308

Gesellschaft mit beschrånkter Haftung (GmbH), 138, 853

globalization, 3, 4GmbH, 138, 853Golden Parachute, 413golden shares, 266Gonenc, Halit, 194–195good faith

Delaware, 344, 345, 394, 397–399, 400–406

fiduciary requirement, 333merger negotiations, 638UK directors, 335, 341, 343–344

Gordon, Jeffrey, 89, 831greenmail, 411–412, 413, 415groups of companies

company v. group interests Hollinger v. Black (Delaware),

721–732corporate veil, 688–689, 732–751

Amoco Cadiz (US), 737–740Polly Peck (UK), 740–751Rave v. Entertainment Equities

(New York), 732–736tort victims, 737–740

creditor protection, 680interests affected, 680–681internal capital market, 682limited liability, 679

or single economic unit, 688–689, 732–751

minority shareholders and, 680–681Gelatine, Re (Germany), 710–721Holzmüller, Re (Germany),

695–709parent companies, 695–709,

710–721

Germany (cont.)






Index 909


subsidiaries, 691–695nature, 677–678questions for discussion, 690rationale, 678–680regulation methods, 681–688

constitutional documents, 687–688

Delaware, 681, 688German Konzernrecht, 682–687United Kingdom, 687

Grundfest, Joseph, 492

Hague Conference on Private International Law, 5

Handelsgesetzbuch, 16Handelsregister, 133–134, 317, 601Hansmann, Henry, 11, 12, 25Hirschman, Albert, 467historical context, 7–8Honoré, A. M., 261Hopt, Klaus, 4HSBC, 419

incorporation cases, 146–164

Cleary v. North Delaware A-OK (Delaware), 148–151

Jacobson v. Stern (Nevada), 162–164

Kelner v. Baxter (UK), 155–158Marleasing (ECJ), 146–148Phonogram v. Lane (UK), 158–162Timberline v. Davenport (Oregon),

151–155corporate purpose, 313–315declarations of nullity, 143–145

European Union, 143–144Germany, 144Marleasing (ECJ), 146–148United Kingdom, 144–145United States, 145

defective incorporation Cleary v. North Delaware A-OK

(Delaware), 148–151German liabilities, 141shareholders’ liabilities, 141–143

Timberline v. Davenport (Oregon), 151–155

UK liabilities, 141–142US liabilities, 142–143, 148–155

pre-incorporation liabilities European Union, 138, 160German promoters, 138–139Jacobson v. Stern (Nevada),

162–164Kelner v. Baxter (UK), 161Phonogram v. Lane (UK), 158–162promoters, 138–141scenario, 145–146UK promoters, 139–140US promoters, 140–141

procedures differences, 131–132Germany, 132–134specification of share capital, 165United Kingdom, 134–136United States, 136–137

information technology, 547initial public offerings (IPOs), 443insider dealing

argument for, 422, 455breach of fiduciary duty, 455European Union, 453

exceptions, 526framework, 457Lamfalussy process, 71non-selective disclosure of

material events, 457share repurchase schemes, 462

Germany, 422definition of inside information,

524derivatives, 461massive change, 461preventive rules, 453–454, 456rapid disclosure of material

events, 456, 524–525regulating use of inside

information, 461–462share repurchase schemes, 462valuations, 462

market abuse, 454preventive rules, 451–454

Germany, 453–454, 456






Index910

United Kingdom, 453, 456United States, 451–453, 456

rapid disclosure of material events, 456–457, 524

regulating use of inside information, 457–462

Germany, 461–462United Kingdom, 460–461United States, 457–460

scale of problem, 454securities analysts and, 454, 459share options and, 424United Kingdom, 21, 453

definition of inside information, 460–461

definition of insider, 460preventive rules, 453, 456rapid disclosure of material

events, 456, 526–527regulated information services,

526regulating use of information,

460–461United States, 445

disgorgement of profits, 452, 459

duty of trust and confidence, 458–459

employee stock option plans, 452misappropriation theory, 459non-selective disclosure, 457penalty, 460preventive rules, 451–453, 456rapid disclosure of material

events, 456regulating use of information,

457–460shareholder groups, 452Wall Street crash (1929), 451

insider trading. See insider dealingInsiderhandel. See insider dealinginsolvency

company law and insolvency law, 11, 12

fraudulent conveyances, 13, 87, 92, 237–240, 626, 850–851, 862–876

intermediaries, 575, 577

International Accounting Standards Board (IASB), 429, 431

International Financial Reporting Standards (IFRS), 516

internet, 474IOSCO, 70, 523, 657

Jackson, Thomas, 845Jenkins Report (1962), 659Jennings, Philip, 846Jensen, Michael, 299–300, 418, 420,

429judicial proceedings. See shareholder

litigationjunk bonds, 362, 365, 407, 408, 412,

493, 774

Knoll, Leonhard, 483Kodex, 446Kötz, Heinrich, 5, 7Kraakman, Reinier, 11, 12, 25Kübler, Friedrich, 173

Lamfalussy process, 71legal personality

core characteristic, 9, 260partnerships v. corporations, 26purchase of assets and, 625purpose, 11

Lehman Brothers, 847Lerner, Josh, 847leveraged buyouts

2008 crisis, 847–848agency problems, 845–846Brady v. Brady (UK), 855–862cheap credit and, 846creditor protection and, 846derivative instruments, 846effect on stakeholders, 847EU regulation, 848–849German regulation, 852improved governance, 847management buyouts, 845meaning, 844–845minority shareholders, 845Moody v. Security Pacific Business

Credit (US), 862–876participation/return ratio, 844–845philosophy, 847

insider dealing (cont.)






Index 911

questions for discussion, 854–855regulatory concerns, 845–848reversed leveraged buyouts, 846–847scenario, 845securitization, 846UK regulation, 853–854US regulation, 849–852

limited liability core structural characteristic, 9essence, 25groups of companies, 679, 688–689,

732–751minimum share capital and, 168purpose, 11

Lipton, Martin, 260liquidations, shareholder rights, 262,

264listed companies

annual general meetings. See annual general meetings

corporate governance codes, 446directors’ transactions with their

companies Germany, 448overview, 446–448UK companies, 447–448US companies, 447

exchange rules, 445initial public offerings (IPOs), 443insider dealing. See insider dealingmarket rules, 445–446meaning of listing, 443–445reporting requirements, 514–524

ad hoc disclosure of significant events, 524

EU Transparency Directive, 515–517

Germany, 517–519primary v. secondary markets,

514–515United Kingdom, 519–520United States, 520–524, 527–528

securities exchanges, 443–444securities law, 445shareholder information rights,

511supervisory committees, 449–451

audit committees, 449Germany, 450–451

United Kingdom, 450United States, 449–450

litigation. See shareholder litigationLondon Stock Exchange

electronic voting, 567listing standards, FSA jurisdiction,

77reporting requirements, 519

loyalty. See duty of loyalty

McCahery, Joseph, 95Macey, Jonathan, 603management

authority. See authoritybusiness judgment. See business

judgment rulecapacity, 313–315core structural characteristic, 9delegation of powers, 315

agency costs, 299–300duties. See fiduciary dutiesincentives. See executive

remunerationrules and standards

generally, 301Germany, 302–303United Kingdom, 304–305United States, 307

screening and appointing generally, 300Germany, 302, 476–478United Kingdom, 303–304United States, 305–307

shareholder litigation and, 608–609shareholder rights, 262–263supervisory activities, 372–373

management buyouts, 845Manning, Dean Bayless, 167, 220market abuse

EU regulation, Lamfalussy process, 71

insider trading. See insider dealingshare repurchase, 242, 243

Mattel, 420Meckling, William, 299–300media, 242meetings. See annual general meetingsmergers and acquisitions

appraisal rights, 662






Index912

Germany, 663United Kingdom, 663United States, 662–663Weinberger v. UOP (Delaware),

666–674assets purchase

accounting, 626contracts, 626fraudulent conveyances, 626liabilities, 626overview, 625–627restrictions, 654subsidiary vehicle, 627taxation, 626transaction costs, 626

complexity, 623–624conflicts of interest, 338cross-border mergers, 634–636

European Union, 70, 634–636, 640–643

SEVIC Systems (ECJ), 640–643United States, 634

fiduciary duties and, 639, 663–664forms, 624–631

Germany, 14, 632United Kingdom, 633United States, 631–632

leveraged buyouts. See leveraged buyouts

meaning, 623minority shareholders, 662protection of deals, 636–639

confidentiality agreements, 637duty of good faith negotiations,

638fiduciary out clauses, 639,

647–648John Crowther v. Carpets

International (UK), 648–653no-shop agreements, 638, 639no-talk agreements, 638Paramount v. QVC (Delaware),

638–639stalking horses, 636, 637termination fees, 638–639, 645

questions for discussion, 639–640right to be bought out, 662

share purchases, 627–628disadvantages, 628liabilities, 628public offers, 627subsidiary vehicle, 628taxation, 627–628termination of contracts, 628

shareholder approval, 655–662European Union, 661–662Germany, 657–659Katz v. Bregman (Delaware), 664United Kingdom, 659–661United States, 655–656

shareholder rights, 262, 654–655non-discrimination, 655

statutory mergers, 628–631subsidiary vehicle, 629–630taxation, 630triangular mergers, 629–630

takeovers and, 631Mertens, Hans-Joachim, 73Miller, Geoffrey, 603Miller, Merton, 192minority shareholders

fiduciary duties, 576–577Girmes, Re (Germany),

594–598Kahn v. Lynch Communication

(Delaware), 586–594leveraged buyouts, 845Menier v. Hooper’s Telegraph Works

(UK), 581–583mergers, appraisal rights, 662parent companies and, 680–681Linotype, Re (Germany), 583–585takeovers, 757

Minow, Neil, 472–473Mitbestimmung, 8, 308–311, 477Modigliani, Franco, 192Monks, Robert, 472–473moral hazard, executive remuneration

performance-linked pay, 416–417self-dealing, 419–422

Murphy, Kevin, 418, 420, 429Myers, Stewart, 193

Nasdaq audit committees, 449

mergers and acquisitions (cont.)






Index 913

directors, appointment and screening, 305–306

executive remuneration and, 427, 449

shareholder approval, 428, 482Netherlands

capital requirements, 115, 118creditor protection, 117–118foreign corporations, 79, 109–110pre-incorporation liability, 109

New York Stock Exchange brokers’ voting rights, 554compensation committees, 427corporate governance committees,

449director appointments, 305–306executive remuneration, shareholder

approval, 428, 482Listed Company Manual, 74notification of AGMs, 550share classes, 276

Northern Ireland, jurisdiction, 72

objects of companies capacity and, 313–315EU law, 134, 143, 148UK law, 134–135, 144, 659

öffentliches Angenbot, 657Ovitz, Michael, 385–391

Pac Man, 413partnerships

agency and, 25basic characteristics, 48–50

capital tied to partners, 48–49fiduciary duties, 49informal establishment, 48management, 48–49transfer restrictions, 49, 50–52

cases, 50–64Fairway Development v. Title

Insurance (Ohio), 50–52ISM GmbH v. ARGE Wua

(Germany), 52–57Meinhard v. Salmon (New York),

58–61W. J. v. S. Sch. (Germany), 61–64

corporations and, 24–26

questions for discussion, 49–50theory of partnership

Fairway Development v. Title Insurance (Ohio), 50–52

ISM GmbH v. ARGE Wua (Germany), 52–57

types Germany, 26–33overview, 26–48United Kingdom, 33–40United States, 40–48

pecking order hypothesis, 192–193perquisites, 418poison pills, 267, 273, 821, 823–824,

828–832, 838–839Pound, John, 473–474preemption rights

Benihana of Tokyo v. Benihana (Delaware), 206–218

Delaware, 201, 206European Union, 200German shares, 200–202, 431, 478UK shares, 203–205, 434, 480United States, 274

preemptive rights. See preemption rights

preference shares, 265, 266–267private equity, 846, 847Prokurist, 315, 317promoters, pre-incorporation

liabilities Germany, 138–139overview, 138–141United Kingdom, 139–140United States, 140–141

property rights bundle of rights, 261–262shares, 469

control, 262–263judicial remedies, 262levels of property interests, 260minority shareholders, 576nature of property interests,

261–264ownership of corporation, not

assets, 259–261residual rights, 261–262, 471types, 259–267






Index914

prospectuses EU regulation, 194–195

Directive, 514Lamfalussy process, 71

German liabilities, 535regulation, 514United Kingdom, 195

proxy voting abuse, 549Germany, 547

custodian accounts, 560–562information, 557

mechanism, 546–547United Kingdom, 565, 567United States, 547

fiduciary duty, 555proxy service companies, 555proxy statements, 551–552Schnell v. Chris-Craft (Delaware),

568–569pyramid schemes, 375

Raiser, Thomas, 308rational apathy, 474regulated information services, 526regulatory competition

dynamics, 65–72European Union, 78–82

Centros (ECJ), 78–80, 100, 105, 115, 118

company law future, 82Inspire Art (ECJ), 108–119securities law, 80–81share capital, 165Überseering (ECJ), 97–108, 634

meaning, 65United States, 90–96

Vantagepoint v. Examen (Delaware), 119–127

reliance company contracts, 312–313fraud-on-the-market theory, 541,

543–544ostensible authority, 318–320

repurchase of shares. See share repurchase

Ripert, Georges, 160Roman law, 53Romano, Roberta, 95–96

Rosenblum, Steven, 260

safe harbors, 333Schmidt, Karsten, 73Scotland

jurisdictional divergences, 72partnerships, legal personality, 34,

76seals, 316–317Securities and Exchange Commission

(SEC) creation, 91executive remuneration and, 428insiders’ transaction reports to, 452jurisdiction, 88registration with, 445regulation of takeovers, 769reporting rules, 521–524safe harbors, 333share repurchase, 250–251

securities exchanges. See stock exchanges

securities law dual listing, 80European Union

harmonization, 72regulation, 70–71regulatory competition, 80–81

flexibility, 448triggered by listing, 445

securitization, 190, 846Seifert, Bruce, 194–195Seligman, Joel, 88shadow directors, 342share capital

acquisitions. See mergers and acquisitions

classes. See share classescore structural characteristic, 9EU regulatory competition, 165groups of companies and, 679–680increase, 197

Benihana of Tokyo v. Benihana (Delaware), 206–218

Delaware, 205–206Germany, 197–202United Kingdom, 202–205

initial capital payment, 170–178






Index 915

specification, 165maintenance, 219–220

distributions and, 219–220EM.TV, Re (Germany), 229–232EU members, 220EU Second Directive, 221–222Germany, 222–225move to disclosure system,

220–221protection of creditors, 219,

220–221United Kingdom, 226–227United States, 227–228Wells Fargo Bank v. Desert View

(Nevada), 237–240minimum legal requirements,

168–169alternative creditor protection,

169complexity of procedures, 169critique, 169deception of creditors, 169deterrence effect, 169

non-cash contributions ascertaining, 170IBH/Lemmerz (Germany),

180–185Lewis v. Scotten Dillon (Delaware),

178, 185–187restrictions, 170

par/nominal value of shares, 165–168

payment of initial capital Germany, 170–174IBH/Lemmerz (Germany),

180–185Lewis v. Scotten Dillon (Delaware),

185–187overview, 170–178United Kingdom, 175–177United States, 177–178

preemption rights. See preemption rights

premium, 166–167questions for discussion, 178–179registration, share transfers,

577–579significant holdings, duty to report,

577–581

stock watering, 170terminology, 168transferability of shares, 9, 25transparency, 10–11

share classes common shares, 265convertible securities, 190, 265,

267cumulative preferred, 265customizing shares, 265–267discussion questions, 276–278functions, 264–267Germany, 267–270golden shares, 266Greenhalgh v. Arderne Cinemas

(UK), 287–294Lacos Land v. Arden (Delaware),

278–287preference shares, 265, 266–267redeemable shares, 265, 267subscription rights, 267tracking stock, 266United Kingdom, 270–273United States, 273warrants, 267

share options bullet-dodging, 423insider dealing, 424manipulating value, 423–424spring-loading, 423

share repurchase advantages, 242–243control and, 241creditors and, 243dangers, 243entrenchment power, 243EU law, 243–246German rules, 246–247hostile takeover offers and, 243issues, 241–242Klang v. Smith’s Food & Drug

Centers (Delaware), 252–258market manipulation, 242, 243popularity, 247redemption, 241strategy reasons, 243taxation, 242United Kingdom, 248–250US rules, 250–251






Index916

shareholder duties fiduciary duties, 575–577minority shareholders

Girmes, Re (Germany), 594–598Kahn v. Lynch Communication

(Delaware), 586–594Menier v. Hooper’s Telegraph

Works (UK), 581–583protection, 576–577Linotype, Re (Germany),

583–585reporting significant holdings,

577–581shareholder information rights

ad hoc disclosure of significant events

Basic v. Levinson (US), 540–545Germany, 524–526overview, 524United Kingdom, 526–527United States, 527–528

false information, 511, 528Basic v. Levinson (US), 540–545causality, 534–540ComROAD Securities Litigation

(Germany), 534–540fraud-on-the-market theory,

543–544forms, 510–511listed companies, 511on request, 511–513

Germany, 511–512Melzer v. CNET Networks

(Delaware), 529–534United Kingdom, 512–513United States, 513, 529–534

questions for discussion, 529routine disclosures, 513–524

ComROAD Securities Litigation (Germany), 534–540

EU Transparency Directive, 515–517

Germany, 514, 517–519primary v. secondary markets,

514–515United Kingdom, 514, 519–520United States, 520–524

shareholder litigation abusive situations, 600

board duties and, 608–609Tooley v. Donaldson (Delaware),

609–612class actions

effect, 603meaning, 602

contingency fees and, 600–601, 603, 608

derivative actions difficulties, 600distinguishing from direct

actions, 602, 609–612effect, 603meaning, 602Tooley v. Donaldson (Delaware),

612–617Zapata v. Maldonado (Delaware),

612–617difficulties, 600–601direct actions, 601–602general meetings and, 604–608

Germany, 604–607United Kingdom, 607–608United States, 608

shareholder rights collective action, 474–475, 546–549enforcement. See shareholder

litigationequal treatment requirement, 470information. See shareholder

information rightsmeetings. See annual general

meetingsmergers. See mergers and

acquisitionsoptions, 467–468political v. economic solutions, 467property rights, 259–267, 469residual claimants, 261–262, 471technology and, 546–548voice or exit, 467–468voting. See shareholder voting rights

shareholder voting rights capital structure and, 194collective action problems, 474–475

takeovers and, 797, 798–800democracy theory of rights, 472–474

Blasius v. Atlas (Delaware), 473, 493–500






Index 917

doctrinal reasoning, 468–470economic theory of rights, 470–472equal treatment requirement, 470free riding, 474–475initiating procedures, 483–490

Germany, 483–485United States, 486–490

instrumental theory, 470–472Macrotron Shareholder Litigation

(Germany), 500–509political theory of rights, 472–474proxy voting. See proxy votingrational apathy, 474required majorities, 490–492

Germany, 490–491United Kingdom, 491United States, 491–492

rights-based theory, 468–470takeovers and, 475voting matters

Germany, 476–479overview, 476–482United Kingdom, 479–481United States, 481–482

shareholders duties. See shareholder dutiesinformation. See shareholder

information rightslitigation. See shareholder litigationproperty rights. See property rightsrights. See shareholder rightsvoting. See shareholder

voting rightsshares

capital. See share capitalchoses in action, 263classes. See share classesproperty rights. See property rightsrepurchase. See share repurchase

short selling, 242short-swing profits, 452Siemens, 678Siems, Mathias, 336signature books, 320–321single-shareholder companies, 69social context, 7–8Sorgfaltspflicht, 303, 339Spain, void contracts, 146spring-loading, 423

Squire, Richard, 25stakeholder rights, 336stalking horses, 636, 637stock exchanges

See also specific exchangesadvantages, 445–446rules, 445, 515

stock options. See share optionssub-prime lending, 847subscription rights, 267subsidiarity principle, 67–68, 78system theory, 472

takeovers arguments against, 797–800consumer protection, 756control thresholds, 757cross-border

BAT Industries (Takeover Panel), 809–821

defensive measures, 474BAT Industries (Takeover Panel),

809–821Carmody v. Toll Brothers

(Delaware), 821–832Commission v. Germany (ECJ),

802–809Hanson Trust v. SCM (US),

775–780Revlon v. MacAndrews & Forbes

Holdings (Delaware), 833–843

EU regulation, 69Commission v. Germany (ECJ),

802–809free movement of capital,

803–809hostile takeovers as governance,

795–797auctions increase bid premiums,

796–797collective action problems,

798–800deterrence effect, 797, 799incentives, 796ineffective ordinary governance,

795, 797market tool, 796, 797shareholder gains, 796






Index918

information rights, 757leveraged buyouts. See leveraged

buyoutsmanagement role

conflicts of interest, 800influence on shareholders,

800–801questions for discussion,

801–802share repurchase, 243

meaning, 755–756mergers/acquisitions and, 631minority shareholders, 757public offers, 757regulation

BT/PlusNet (Takeover Panel), 780–782

Germany, 764–769Guinness/Distillers (Takeover

Panel), 788–794Hanson Trust v. SCM (US),

775–780questions for discussion, 775reasons to regulate bids, 756–757United Kingdom, 758–764United States, 769–774Württembergische

Metallwarenfabrik (Germany), 782–787

share purchases or takeovers, 755shareholder voting rights, 475transaction costs, 798

taxation assets purchase, 626distributions, 219partnerships v. corporations, 26share purchases, 627–628share repurchases, 242statutory mergers, 630

technology, shareholder rights and, 546–548

Telefunken, 679tort victims

assets purchases and, 626groups of companies, Amoco Cadiz

(US), 737–740involuntary creditors, 221protection, 169

tracking stock, 266trade-off model, 193transparency. See shareholder

information rightsTreitel, G. H., 161Treuepflicht. See German management,

duty of loyaltytreuhänderische Pflicht. See German

management, fiduciary duties

Tröger, Tobias, 81

UK groups of companies control contracts, 687corporate veil, Polly Peck (UK),

740–751regulation, 687

UK listed companies annual general meetings. See UK

shareholdersboard composition, 446Chinese Walls, 460Combined Code, 304, 445

compliance with, 446model, 74

directors’ transactions with their companies, 447–448

related parties, 447smaller transactions, 448

employee share schemes, 434executive remuneration, 432–433

shareholder voting rights, 480insider dealing. See insider dealingListing Rules, 21, 77Model Code, 445prospectuses, disclosure rules, 195registered information, 512–513regulation, 445reporting requirements, 519–520

ad hoc disclosure of material events, 526–527

shareholder voting rights appointments, 479

supervisory committees, 450takeovers. See UK takeovers

UK management appointments

listed companies, 304procedures, 303–304

takeovers (cont.)






Index 919

shareholder voting rights, 479audit committees, 427auditors, appointment, 479authority to represent, 315, 317

ostensible authority, 318, 319–320Royal British Bank v. Turquand

(UK), 322–323seals, 317

business judgment rule and, 371–372conflicts of interests, 342–343

disclosure, 342golden handshakes, 343loans, 304, 343, 418quasi-loans, 343self-dealing, 304service contracts, 342transactions with own companies,

304, 343, 447–448, 480duty of care, 17, 20, 369–370duty of confidentiality, 455duty of loyalty, 341–344

good faith, 335, 341, 343–344insurance, 344–346Regal (Hastings) v. Gulliver (UK),

347–359rules, 342–343source and nature of duty, 341standard, 343–344, 347–359

executive remuneration, 432–434accounting treatment, 434disclosures, 432incentives, 305listed companies, 432–433, 480share options, 417shareholder approval, 434supervisory directors, 433

fiduciary duties, 304annual reporting, 336loyalty, 341–344to companies, 335

governing rules, 131loans to, 304, 343rules and standards, 304–305secretaries, 315service contracts

information rights, 513shareholder voting rights, 480

shadow directors, 342supervisory committees, 449, 450

UK mergers and acquisitions assets sales, 659creditor protection, 661EU cross-border mergers, 661–666forms, 633information rights, 513leveraged buyouts

2008 crisis, 847Brady v. Brady (UK), 855–862circumventing rules, 854disclosures, 761regulation, 853–854

mergers by absorption, 629, 633protection of deals, John Crowther

v. Carpets International, 648–653

registration, 633share premium accounts and,

176–177shareholder approval, 481, 659–661short-form mergers, 660–661

UK partnerships definition, 34dissolution, 37duties of partners, 36joint liability, 36legal personality and, 34, 76limited liability partnerships (LLPs)

corporate members, 37designated members, 38legal personality, 37new partners, 39overview, 37–39partners as agents, 38registration, 37, 39vicarious liability, 38–39

limited partnerships (LPs), 39–40assignment of shares, 40classes of partners, 39limited partners’ rights, 40profit distribution, 40registration, 39–40

partners as agents, 25retirement of partners, 37transfer of shares, 36–37types, 33–40

limited liability partnerships (LLPs), 37–39

limited partnerships, 39–40






Index920

partnerships, 33–37UK share capital

bonus shares, 204cash payments, 175–177

currency, 175debt-for-equity swaps, 175meaning of cash, 175, 177, 203post-incorporation transactions,

175share premiums, 175–177

merger relief, 176–177certificates, 136distributions

restrictions, 226–227Sam Weller, Re (UK), 232–237shareholder voting rights, 480unfair prejudice, 232–237

employee share schemes, 202converted securities, 202preemption rights and, 434shareholder voting rights, 480

financial assistance rules, 853–854Brady v. Brady (UK), 855–862principal purpose exception,

75–77, 854in-kind contributions

implementation of EU changes, 174

increased capital, 203initial capital, 177

increasing, 202–205advance authorization, 202approval, 202–203convertible securities, 202employee share schemes, 202non-cash share distribution, 202payment methods, 203preemption rights, 203–205registration, 203

initial capital payment, 175–177maintenance, 226–227

accounting principles, 226–227executive share options and, 434shareholder voting rights, 480

minimum, 165preemption rights, 203–205, 434

waiver, 480

share classes, 270–273articles of association, 272bundling of rights, 271–272cumulative preference shares,

271Greenhalgh v. Arderne Cinemas

(UK), 287–294meaning of class, 270–271Model Articles of Association,

289nominal value, 271ordinary shares, 271preference shares, 271redeemable shares, 272sub-division of shares, 290variation of rights, 272–273,

287–294share repurchase

10 percent limit, 249accounting treatment, 248authorization, 248–249disclosures, 249–250fully paid-up shares, 248market purchases, 248off-market purchases, 248rules, 248–250self-tenders, 249treasury shares, 249, 250

statements on incorporation, 135UK shareholders

annual general meetings conduct of proceedings, 566false information, 565Greenwell v. Porter (UK), 571–573information requirements, 564listed companies, 564, 565, 566,

567notification, 563participants, 563procedures, 563–567proxy votes, 565, 567Puddephatt v. Leith (UK),

569–570quorums, 565–566shareholder participation,

564–565timing, 563vote counting, 567

UK partnerships, types (cont.)






Index 921

voting entitlement, 567information rights

ad hoc disclosure of significant events, 526–527

annual reports, 520beneficial v. registered owners,

577half-yearly reports, 520interim management statements,

520leveraged buyouts, 761listed companies, 304on request, 512–513registers, 512–513reports, 304routine disclosures, 514

litigation class actions, 607derivative actions, 607–608direct actions, 607general meetings and, 607–608pre-purchase wrongs, 605

minority shareholders appraisal rights, 663calling general meetings, 604Menier v. Hooper’s Telegraph

Works (UK), 581–583takeovers, 764unfair prejudice, 576, 581–583

residual power to manage, 262, 304rights, 262voting rights

agreements, 569–570, 571–573amendment to articles, 480appointments, 304, 479assets issues, 480–481balloting methods, 567decision rights, 479–481entitlement, 567executive remuneration, 434Greenwell v. Porter (UK),

571–573mergers, 481, 659–661mortgaged shares, 569–570overview, 479–481Puddephatt v. Leith (UK),

569–570required majorities, 491

show of hands, 8structural matters, 481takeovers, 481vote counting, 567

UK takeovers acting in concert, 760, 761

Guinness/Distillers (Takeover Panel), 788–794

defensive measures BAT Industries (Takeover Panel),

809–821General Principle 7, 809, 815–816legal proceedings, 818lobbying, 816–818

disclosures, 759–762accuracy, 762bidders’ plans, 760–761declarations of responsibility, 762financial statements, 760funding, 761leveraged buyouts, 761



highest price rule, 763–764management role, 801mandatory bid threshold,

759–760BT/PlusNet (Takeover Panel),

780–782liability for breach, 782Rule 9, 781–782

minority shareholders, 764principles, 759regulation, 758–764

origins, 756sell-outs, 758, 764shareholder voting rights, 481squeeze-outs, 758, 764Takeover Code, 21, 445, 758–759

characteristics, 770General Principle 7, 809,

815–816permitted consideration, 801prescriptive approach, 770Rule 9, 781–782

Takeover Panel, 758






Index922

BAT Industries (Takeover Panel), 809–821

BT/PlusNet (Takeover Panel), 780–782


jurisdiction, 76–77timing of bids, 762–763twelve-month moratorium, 819

ultra vires doctrine, 134, 313–315, 318

Umwandlung, 633UNCITRAL, 5UNIDROIT, 5United Kingdom

accounting annual accounts, 86, 304executive share schemes, 434principles, 226–227publications, 479, 514

agency, non-existent principal, 139, 157, 161

capital market, 21Companies Act 2006, 8, 19–21company law, core functions, 19creditor protection, mergers, 661directors. See UK managementfloating charges, 13fraudulent conveyances, 13FSA. See Financial Services

Authoritygroups of companies. See UK groups

of companiesincorporation of plcs

application for registration, 135articles of association, 18, 134, 135

amendment, 480Model Articles, 21, 135share classes, 272

certificates of incorporation, 136, 142, 145

declarations of nullity, 144–145illegal objects, 144memoranda of association,

134–135, 272objects, 134–135, 659post-incorporation transactions,

175

pre-incorporation liabilities, 136, 139–140

procedures, 134–136registration, 135–136trading certificates, 136

insider dealing. See insider dealinginsolvency

1986 Act, 21corporate veil, 740–751double proof rules, 746hiving out rules, 20wrongful trading, 21

jurisdiction, 75–77European Union, 65Financial Services Authority, 77multiple jurisdictions, 75Secretary of State, 76Takeover Panel, 76–77

leverage, 195mergers. See UK mergers and

acquisitionspartnerships. See UK partnershipspre-incorporation liabilities, 136

implementation of First Directive, 139, 160–161

Kelner v. Baxter (UK), 161Phonogram v. Lane (UK), 158–162promoters, 139–140

share capital. See UK share capitalshareholders. See UK shareholdersSingle European Act, 78trade unions, ban on incorporation,

144ultra vires doctrine, 134

United Nations, 5United States

See also Delaware21st-century investment landscape,

799accounting

scandals, 516standards, 522–523, 524

agency law, 140, 142banking, 166conflict of laws, 65, 82–96

creditor rights, 87Exchange Rules, 87–90federal laws, 84–87federal preemption, 83–84

UK takeovers (cont.)






Index 923

foreign corporations, 92–95internal affairs doctrine, 122,

123–124certainty and, 125state law of incorporation,

126–127uniformity requirement,

125–126Model Act, 86Model Business Corporation Act,

9, 17regulatory competition, 90–96SEC jurisdiction, 88securities exchanges, 88, 90state corporate laws, 9, 17–19systemic balance of state and

federal law, 90–92takeovers, 769–770Vantagepoint v. Examen

(Delaware), 119–127Constitution

Commerce Clause, 83Full Faith and Credit Clause,

94Privileges and Immunities

Clause, 94Supremacy Clause, 83

creditor protection applicable law, 87evolution, 227–228, 251fraudulent conveyances, 87, 92,

237–240leveraged buyouts, 850–851Wells Fargo Bank v. Desert View

(Nevada), 237–240directors. See US managementdue process, 124estoppel

defective incorporation, 143, 151–155

Timberline v. Davenport (Oregon), 151–155

groups of companies. See US groups of companies

incorporation amendment to certificates of

incorporation, 482certificates of incorporation,

136–137, 152

de facto incorporation, 137, 142

Cleary v. North Delaware A-OK (Delaware), 148–151

Model Act prohibition, 142–143, 152

declarations of nullity, 145defective incorporation, 142–143,

151–155pre-incorporation liabilities, 137,

140–141procedures, 136–137

insider trading. See insider dealinginsolvency law, 92

fraud, 736fraudulent conveyances, 13,

850–851, 862–876Moody v. Security Pacific Business

Credit (US), 862–876unreasonably small capital,

871–875insurance, 166, 811

D&O insurance, 347listed companies. See US listed

companiespartnerships. See US partnershipspre-incorporation liabilities

Jacobson v. Stern (Nevada), 162–164

promoters, 140–141regulatory competition, 90–96

foreign corporations, 92–95, 119–127

incorporation theory, 78, 123–124, 126–127

outreach statutes, 92–95, 124–125stable future, 95–96systemic balance of state and

federal law, 90–92Vantagepoint v. Examen

(Delaware), 119–127Sarbanes–Oxley Act, 85

board composition, 446executive remuneration and, 423internal matters, 88, 91, 94objective, 91–92

SEC. See Securities and Exchange Commission (SEC)

share capital. See US share capital






Index924

shareholders. See US shareholderstakeovers. See US takeoverstrade unions, 145

Unternehmensinteresse, 335US groups of companies

See also Delawarecorporate veil

Amoco Cadiz (US), 737–740piercing, 734–735Rave v. Entertainment Equities

(New York), 732–736reasons for grouping, 678

US listed companies annual general meetings. See US

shareholdersapplicable law, 80, 515

exchange rules, 87–90listing rules, 92SEC jurisdiction, 88, 90

appointments, 305–306audit committees, 449board composition, 446cross-border mergers, 634directors’ transactions with own

companies, 345–346, 447executive remuneration

accounting treatment of options, 428–429

disclosures, 426–427, 447shareholder voting rights, 482,

488insider trading. See insider dealingmergers, shareholder approval, 656regulation, 13, 18–19, 445

1930s, 472applicable law, 80, 515federal law, 91primary market, 514

reporting requirements, 520–524ad hoc disclosure of material

events, 527–528, 540–545Basic v. Levinson (US), 540–545foreign private issuers, 523–524,

528–529significant holdings, 578,

579–581share classes, 276share purchases, 631

shareholder information rights, on request, 513

shareholder voting rights, initiating procedures, 487–490

supervisory committees, 449–450supervisory directors, 427–428, 449

US management See also Delawareappointments

listed companies, 305–306procedures, 305–307terms of office, 306

audit committees, 427, 449authority to represent, 317

apparent authority, 318, 324–331General Overseas Films v. Robin

International (New York), 324–331

Hurley v. Ornsteen (Delaware), 323–324

business judgment rule, 371–372Aronson v. Lewis (Delaware),

382–383 Unocal v. Mesa Petroleum




chief executive officers, 305remuneration, 417, 420

duty of loyalty, 344–347directors’ transactions with own

companies, 345–346, 447D&O insurance, 347listed companies, 345–346rules, 345self-dealing, 307source and nature, 344–345standard, 346–347

executive remuneration, 425–429abuse, 421accounting treatment of options,

428–429, 529–534CEOs, 417, 420disclosures, 426–427, 447empire building, 417–418growth, 425–426

United States (cont.)






Index 925

listed companies, 426–427, 447, 482

manipulation of share options, 424

overview, 307shareholder approval, 428supervisory directors, 427–428

fiduciary duties centrality, 178insider dealing and, 451Kahn v. Lynch Communication

(Delaware), 586–594loyalty, 344–347shareholder litigation and, 609to companies and shareholders,

336to stakeholders, 336Zapata v. Maldonado (Delaware),

612–617rules and standards, 307supervisory committees, 449–450

US mergers and acquisitions appraisal rights, 242, 662–663

Weinberger v. UOP (Delaware), 666–674

assets sales, 631cross-border mergers, 634fiduciary duties, Kahn v. Lynch

Communication (Delaware), 586–594

forms, 631–632leveraged buyouts, 849–852

disclosures, 851ex post remedies, 850–851fraudulent conveyances, 850–851,

862–876judicial definition, 863minority shareholders, 851Moody v. Security Pacific Business

Credit (US), 862–876no financial assistance rule, 849,

851unreasonably small capital,

871–875unsecured creditors, 850–851

self-tenders, 250share purchases, 631shareholder approval, 482, 655–656

Katz v. Bregman (Delaware), 664

statutory mergers, 631–632US partnerships

aggregate theory, 51, 52distribution of profits, Meinhard v.

Salmon (New York), 58–61general partnerships, 40–44

definition, 41dissolution, 44distribution of profits, 58–61entity approach, 44fiduciary duties, 43, 59–60formation, 42joint and several liability, 43–44joint ventures, 42, 58–61legal personality, 42management, 42–43transfer of shares, 44Uniform Partnership Act, 41

limited liability partnerships (LLPs), 44–45

limitation of liability, 45limited partnerships

definition, 45distributions, 46formation, 45limited liability, 46management, 46overview, 45–47transfer of shares, 46–47

partners as agents, 25theory of partnership, Fairway

Development v. Title Insurance (Ohio), 51, 52

transfer of partners’ interests dissolution v. winding up, 51–52effect, 51Fairway Development v. Title

Insurance (Ohio), 50–52new certificates, 51

types, 40–48general partnerships,

40–44limited liability companies, 47limited liability partnerships

(LLPs), 44–45limited partnerships, 45–47

US share capital cash payments, 177–178distributions, 227–228






Index926

leading to bankruptcy, 228, 237–240

in-kind payments, 178fiduciary duties, 178

initial capital payment, 177–178shareholder policing, 178,

185–187leverage, 195maintenance, 92, 227–228

disclosure system, 220Wells Fargo Bank v. Desert View

(Nevada), 237–240minimum, 166reporting significant holdings, 578,

579–581share classes, 273

bundling of rights, 273–275debt instruments with voting

rights, 274express rights, 274–275Lacos Land v. Arden (Delaware),

278–287listing requirements, 276meaning of class, 273par value, 273payments-in-kind, 275poison pills, 267, 273preemption rights, 274redeemable shares, 274residual rights, 274sub-classes, 273variation of rights, 275, 278–287voting shares, 193, 554

share ownership transparency, 10–11

share repurchase disclosures, 251market abuse, 251market manipulation, 251rules, 250–251SEC rules, 250–251self-tenders, 250

US shareholders annual general meetings

balloting methodology, 554–555

conduct of proceedings, 554false information, 553

information requirements, 550–552

notification, 550participants, 550procedures, 549–555proxy duties, 555proxy service companies, 555proxy statements, 551–552proxy voting, 547quorums, 553–554Schnell v. Chris-Craft (Delaware),

568–569shareholder participation,

552–553timing, 549–550, 568–569vote counting, 555voting entitlement, 554

information rights ad hoc disclosure of significant

events, 527–528, 540–545annual reports, 521–523Basic v. Levinson (US), 540–545EDGAR system, 523false statements, 522foreign private issuers, 523–524,

528–529fraud-on-the-market theory,

543–544Melzer v. CNET Networks

(Delaware), 529–534on request, 513, 529–534routine disclosures, 520–524

litigation, 608contemporaneous ownership

rule, 605contingency fees, 8, 600–601, 603,

608demand rule, 609, 612–617Tooley v. Donaldson (Delaware),

609–612Zapata v. Maldonado (Delaware),

612–617minority shareholders

appraisal rights, 662–663Weinberger v. UOP (Delaware),

666–674leveraged buyouts, 851takeovers, 774

protection, intention v. function, 11

US share capital (cont.)






Index 927

residual control rights, 262shareholder groups, 452voting rights

amendment to certificates of incorporation, 482

appointments, 481–482assets decisions, 482balloting methodology, 554–555Blasius v. Atlas (Delaware), 473,

493–500democratic legitimacy, 473, 497,

499entitlement, 554executive remuneration, 428initiating procedures, 486–490listed companies, 487–490mergers, 482, 655–656

Katz v. Bregman (Delaware), 664

overview, 481–482proxy service companies, 555proxy voting, 547required majorities, 491–492share classes, 554structural matters, 482vote counting, 555

US takeovers See also Delawaredefensive measures

constituency statutes, 336legal proceedings, 818lobbying, 816–818

disclosures, 771–772boards’ opinion, 772consumer protection, 772misstatements, 772Schedule 13D, 771Schedule 14D-9, 772Schedule TO, 771–772


fiduciary duties, 586–594highest price rule, 773–774junk bonds, 774lobby power, 76management role, 800–801meaning of tender offer, 755

Hanson Trust v. SCM (US), 775–780

minority shareholders, 774poison pills, 267, 273regulation, 769–774

characteristics, 770–771origins, 756state v. federal law, 769–770Williams Act (1968), 769, 778

reporting significant holdings, 578, 579–581

SEC rules, 769self-tender, 243time limits, 772–773two-tier tender offers, 774

Vahtera, Veikko, 193Vergütung, 303, 429–432Vollmacht, 547, 557Vorstand. See German managementVorzugsaktien, 268, 270

warrants, 267Wenger, Ekkehard, 483Wertpapierbörse. See Frankfurt Stock

ExchangeWertpapiererwerbs-und

Übernahmegesetz. See German takeovers

Wertpapierhandelsgesetz. See German listed companies

Wertpapierprospekt, 71, 535Whincop, Michael, 262white knights, 413–414, 588, 841, 842Wikipedia, 474, 547Williamson, Oliver, 371, 680, 682Williston, S., 329, 331Wood, Philip, 4, 6World Bank, 5WorldCom, 91, 384, 418Wruck, Erick, 418, 429Wymeersch, Eddy, 244, 849

YouTube, 474

zero-cost collars, 424–425Zweigert, Konrad, 5, 7






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