Opposability of statutory or conventional transfer restrictions

A shareholder sells his shares to a third party without having given to the other shareholders priority to acquire these shares pursuant to the right of first refusal included in the articles of association. Is this transfer to a third party valid? Or is it possible to oppose the transfer restriction to the third party-buyer?

The Code for Companies and Associations stipulates that transfer restrictions included in the articles of association (such as right of first refusal, standstill provisions, tag along, clause of approval, etc.) are always opposable to third parties. The new Code thus confirms the majority opinion in jurisdiction and legal doctrine. Statutory transfer restrictions are opposable even if the third party has acted in good faith (i.e. he did not know about the transfer restriction) and even if the transfer restriction has not been recorded in the share register despite the obligation to do so (see also blog “Mandatory recording of transfer restrictions in the share register”). The company and the existing shareholders do not have to tolerate the third party acquiring shares in breach of a statutory transfer restriction as new shareholder.

What if the transfer restriction is not included in the articles of association, but only in a shareholders’ agreement?

The Code does not say anything about the opposability or non-opposability of contractual transfer restrictions. The explanatory memorandum to the new Code confirms however that this issue must be addressed according to the theory of third party complicity in breach of contract. If the transferee knew or should have known about the transfer restriction and has participated in the transfer in bad faith, the contractual provisions could by enforced against him/her and compensation in kind may be enforced by annulling the sale to the third party. The recording of the transfer restriction in the share register upon the request of one of the parties (see also blog “Mandatory recording of transfer restrictions in the share register”) does not create an irrebuttable presumption of knowledge of the transfer restriction, but might help to provide the proof of knowledge.

Pieter Van Braband and Anneleen Steeno, intui attorneys

pieter.vanbraband@intui.be / anneleen.steeno@intui.be