Are you unsure whether a takeover bid is required when a controlling interest in a company is transferred to a trust? The Czech National Bank (CNB) has issued a clarifying statement on this issue.
Generally, contributing a decisive share of voting rights in a target company – whose shares are admitted to trading on a regulated market – to a trust typically triggers the obligation to launch a takeover bid. The crucial factor is whether this transfer results in a change of control of the target company.
Who is obligated to make the takeover bid?
- The trustee is responsible for fulfilling the takeover bid obligation, acting in their own name but on behalf of the trust.
- The beneficiary or even another person, such as the founder, may also be obligated if they are part of a group of cooperating persons. This may occur if they exert such influence over the trustee that the trustee's decisions align with their will.
- Ultimately, the determination will always depend on an assessment of the individual legal rights and factual relationships in the specific case, particularly when dealing with comparable legal arrangements under foreign law.
Why does transferring shares to a trust trigger this obligation?
Upon the creation of a trust, the allocated assets become separate and independent property. The trustee exercises ownership rights to the assets in their own name but on behalf of the trust; however, the assets do not belong to the trustee, the founder or the beneficiary. The trustee has full control over the trust's assets in accordance with the trust's purpose and its statute.
The Czech Act on Takeover Bids does not provide an explicit exemption for the transfer of voting rights to a trust. The transfer of voting rights constituting a controlling interest in a target company listed on a regulated market in the Czech Republic from the founder to the trust's assets leads to a change of ownership, which is a relevant situation that can give rise to a takeover bid obligation under Section 35(1) of the Act on Takeover Bids.
The concept of cooperating persons
Under the Act on Takeover Bids, a cooperating person is defined as someone who, in mutual understanding with the offeror, collaborate to gain or assert joint influence over the management or operation of the target company, particularly through the joint and coordinated exercise of voting rights. This mutual understanding encompasses any intentional coordination of actions, whether explicit or implicit, regardless of the specific form it takes.
In the context of a trust, a certain level of coordination may typically be expected between trustees and beneficiaries, as the trustee manages the trust for the benefit of the beneficiary. If the exercise of voting rights is coordinated in this context, the broad definition of a cooperating person under the Act on Takeover Bids can include the beneficiary. The beneficiary or the founder can be considered cooperating persons, particularly if the beneficiary can give formal or de facto instructions to the trustee that the trustee is obliged to respect. Similarly, the founder's rights related to oversight or otherwise stemming from the trust's statute can also establish the status of a cooperating person.
A group of cooperating persons is defined more narrowly and only includes cooperating persons who hold a share in the voting rights of the target company and the cooperating persons who control that company. Therefore, a beneficiary (or founder) will not be considered part of a group of cooperating persons with the trust unless they have a direct share in the voting rights of the target company or such a share is attributed to them (e.g. if they control a person holding voting rights).
Relevance to foreign legal arrangements
While the legal regulations of comparable foreign legal arrangements may differ from the Czech legal framework for trusts, the CNB's conclusions are broadly applicable, with a stronger emphasis on assessing the specific legal relationships involved. The conditions for triggering a takeover bid obligation for a controlling interest in a company listed in the Czech Republic are assessed according to the Czech Act on Takeover Bids.
Importance of individual assessment and CNB consultation
Given the diversity of rights associated with the functioning of a trust, identifying the holder of voting rights and thus the cooperating persons and the group of cooperating persons will always require an individual assessment, primarily based on the statute of the relevant trust. Due to the complexity and individual nature of these cases, the CNB recommends consulting on the parameters of any specific transaction involving the acquisition of a controlling interest in a target company by a trust, including the provision of all relevant information.
In conclusion, the transfer of a controlling interest to a trust generally triggers a takeover bid obligation in the Czech Republic. The trustee is primarily responsible, but beneficiaries and founders can also be obligated if they form a group of cooperating persons exerting control over the target company through the trust. A thorough assessment of the specific trust structure and related factual circumstances is always necessary.
By Lukas Tomanek, Senior Associate, JSK, PONTES
