HAREHOLDERS' AGREEMENTS IN THE OHADA AREA: ISSUES AND PROSPECTS

Shareholders' agreements, the validity of which was confimed in OHADA law on 5 May 2014 (by the entry into force of the OHADA Uniform Act on the Law of Commercial Companies and Economic Interest Groups - AUSCGIE), are now an essential tool for corporate governance and essential to the development of fast-growing "private equity" operations in the OHADA area.

KEY POINTS

The validity of shareholders' agreements is now expressly recognised in the OHADA area, allowing shareholders to organise their relations and the terms of access to capital in a flexible and their relations and the terms of access to capital in a flexible and confidential manner promote the development of "investment capital" in the OHADA area.

The drafting of a shareholders' agreement is a delicate matter and must be considered in light of the mandatory provisions of the AUSCGIE and take into account certain clauses that must be included in the articles of association.

The implementation of a shareholders' agreement can be usefully supplemented by the use of preference shares and hybrid shares.

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A shareholders' agreement is an agreement concluded outside the articles of association to organise the rules of governance and access to the capital of a company. They are very flexible and, unlike the articles of association, can remain confidential and concern only certain shareholders.

RECOGNITION OF THE VALIDITY OF SHAREHOLDERS' AGREEMENTS UNDER OHADA LAW

Prior to the reform of the AUSCGIE, the validity of shareholders' agreements could only be defended by reference to ordinary contract law. However, the lack of recognition of shareholders' agreements in company law meant that this important tool for organising relations between shareholders was not secure (even though a judgment of 19 June 2009 by the Ouagadougou Court of Appeal No. 037/09 recognised their validity).The reform of the AUSCGIE of 5 May 2014 has therefore expressly confirmed their validity.

CONTENT AND LIMITS OF SHAREHOLDERS' AGREEMENTS

Through the conclusion of a shareholders' agreement, shareholders (or some of them) can now freely provide for organising (Article 2-1 of the AUSCGIE):

Relations between partners;
The composition of the company's organs;
The conduct of the company's business;
Access to capital;
The transfer of company shares.

This freedom of organisation, through a separate (extra-statutory) and by nature confidential agreement, is however framed:

on the one hand, by the mandatory provisions to which the AUSCGIE provides that it cannot be derogated from (the AUSCGIE specifying that any clause to the contrary is, depending on the case, null and void or deemed unwritten). For example, it is not possible to derogate in an agreement from the power reserved to the extraordinary general meeting of a company to amend the articles of association.
On the other hand, while the AUSCGIE provides that certain mechanisms may alternatively be introduced in the articles of association or in a shareholders' agreement (e.g. a right of pre-emption or an inalienability clause), other mechanisms are expressly reserved for the articles of association and may not be introduced in an agreement. These include, for example, approval clauses, which the AUSCGIE requires to be included in the articles of association and therefore in principle shared by all shareholders.

Without claiming to be exhaustive, we would like to address some of the problems we have encountered since the introduction of the revised AUSCGIE.

VETO RIGHTS

Minority shareholders (e.g. private equity funds investing alongside the founders) may legitimately wish to be granted a veto right on certain important decisions, which implies agreeing on reinforced majority rules.

In the case of a public limited company (where a 2/3 majority is required at an Extraordinary General Meeting, for example), a strict interpretation of the provisions of the AUSCGIE suggests that the introduction of a veto right (e.g. unanimity) would be contrary to the majority rules presented as imperative by the AUSCGIE (any provisions to the contrary being deemed to be unwritten, the veto right could thus be deprived of any effectiveness).

In order to avoid this difficulty, it may be possible "in practice" to consider

organising in the shareholders' agreement a veto right of the members of the Board of Directors (to be replicated mutatis mutandis in the articles of association, which may provide for unanimous votes), accompanied in particular by specific sanctions (penalty clause), making it possible to control certain decisions falling within the remit of the Board of Directors, but also to control the power of the Board of Directors to convene a General Meeting on a particular subject.
to use the SAS (especially when the company is not listed), whose articles of association can derogate (unlike SAs) from the majority rules of the AUSCGIE and introduce veto rights (see Article 853-11 paragraph 1 of the AUSCGIE).

EXIT CLAUSES

Approval: approval clauses in SAs can only be provided for in the articles of association (not only in a shareholders' agreement). In practice, the provisions of shareholders' agreements providing for the approval of new shareholders must therefore be replicated mutadis mutandis in the articles of association, with a view to approval by the board of directors (where unanimity is possible) or by the general meeting, provided that a sufficient majority is obtained. mutadis mutandis in the articles of association, with a view to approval by the board of directors (where unanimity is possible) or by the general meeting, provided that a sufficient majority is obtained.

Furthermore, it is important to note that the approval clause can only concern transfers to third parties and not between shareholders (any transfer made in violation of the statutory clause is null and void, see Article 771-1-1 of the AUSCGIE), and an agreement cannot derogate from this principle.

Pre-emption/ inalienability: pre-emption or inalienability clauses (the latter being limited to 10 years and having to be justified by a serious and legitimate reason) may be stipulated in an agreement or in the articles of association. They can therefore remain confidential vis-à-vis certain shareholders and such clauses contained in an agreement do not (unlike approval clauses) have to be replicated mutadis mutandis in the articles of association.

Finally, the parties may freely agree on specific joint or forced exit clauses ("drag along", "tag along", "call", "put", etc.).

CAN SHAREHOLDERS' AGREEMENTS BE SUBJECT TO FOREIGN LAW (OUTSIDE OHADA)?

It is not uncommon in transactions involving multinational groups for investors to choose to associate through a foreign vehicle (outside the OHADA zone) and to this end conclude a main shareholders' agreement ("framework" agreement) organising the relations between the shareholders at the level of the foreign holding company. As the said agreement most often contains organisational arrangements for local subsidiaries, the question arises as to the recognition of foreign law shareholders' agreements in the OHADA area.

As the AUSCGIE has enshrined the validity of shareholders' agreements without adding any specific condition relating to their formation or the law to which they must be subject, it is necessary to refer to the contract law of the State Party in which the company is registered to check whether it recognises the validity of agreements subject to a foreign law chosen by the shareholders. Such agreements may generally be recognised as valid where there is a legitimate interest in choosing a foreign law and provided that they do not contravene the public policy provisions of the State Party.

If recognition is not possible, a specific agreement subject to OHADA law must be established.

NON-COMPLIANCE WITH THE SHAREHOLDERS' AGREEMENT: SIMPLE DAMAGES OR COMPULSORY EXECUTION

With the exception of the nullities expressly provided for by the AUSCGIE in case of violation of the pre-emption and inalienability clauses, the sanction for non-compliance with the provisions of a shareholders' agreement refers to the law of obligations of the State Party concerned, which most often leads to damages in case of non-performance.

The question of the possibility of obtaining from the judge the forced execution of the agreement remains open (the AUSCGIE does not specify anything in this respect), this possibility having already been admitted by the aforementioned case law of the Court of Appeal of Ouagadougou (having ordered the forced transfer of shares in application of an agreement).

In any event, sanctions may be agreed in advance in the covenant to reinforce it (penalty clause providing for the payment of a sum of money fixed in advance in the event of contractual non-performance).

Although shareholders' agreements are undoubtedly useful, they are sometimes not sufficient on their own to solve all the problems encountered and can be supplemented by other tools recently introduced into OHADA law (in particular preference shares and composite securities).

François NOUVION
Partner