Thus, the Constitutional Court has again overturned legal provisions, now even two. This week, the provision on VAT for publications with less than 25,000 words has been suspended until a final decision, while last week Article 13, paragraph 3 of the Companies Act (ZPDD) was actually repealed.
We say ‘actually’ because the Constitutional Court suggests that it does not apply until the validity ceases on December 15, 2013. The suspension of the VAT provision is in some way a continuation of the activities of the Constitutional Court, while the repealed provision of the ZPDD is a step further.
Proportionality and rigidity The Constitutional Court challenged the provision of the ZPDD because it states ‘that a natural or legal person is obliged to publish a takeover bid when directly or indirectly, independently or acting jointly, acquires shares with voting rights of the target company, so that, together with the shares already acquired, it exceeds the threshold of 25 percent of shares… (control threshold)’. If it fails to do so, Hanfa’s sanction follows, suspending that shareholder from participating in decision-making in the company; they are also not allowed to sell their shares. This is intended to protect minority shareholders, thereby respecting the principle of a legitimate aim, as stated by the Constitutional Court. However, the principle of proportionality has been violated, which requires that the harm from one decision not exceed the benefit, which is actually at play here. Namely, the consequence of such punishment of a shareholder who has a controlling stake is that decisions affecting them are made by shareholders with smaller stakes, which is not good at all and is contrary to the Constitution, i.e., the principle of market freedom.
This provision is also very rigid as it does not foresee whether a shareholder who has acquired a controlling stake wants the remaining shares, especially in a crisis, when upon announcing a takeover they must still secure funds for the offer. Practice shows, and the Constitutional Court cites one case from 2007, that many shareholders cannot allocate that money due to the crisis, which is why they do not publish a takeover bid, thus violating the law. This provision ultimately repels investors.
It is striking that the last two ruling coalitions had the opportunity to correct these provisions as amendments to this law were made in 2009 (at the twilight of Sanader’s rule) and last year, when the Kukuriku coalition was already in power. Moreover, the current government had experience after the Constitutional Court’s decision to abolish Hanfa’s order regarding the mandatory Agrokor takeover bid for the remaining shares of Belje, when it could have reconsidered the sustainability of the ZPDD, i.e., some of its provisions.
