416 12 Acquisition of Shares in a Privately-owned Company for Cash
and the vendor may not invoke problems with its internal decision-making against
the acquirer (for counterparty corporate risk, see Volume II).
However, there can be clear statutory restrictions on the right of the acquirer’s
“organs” to represent it. Breach of those constraints can be invoked against the ac-
quirer.^38
Some of those constraints are based on provisions of EU company law that
make certain transactions subject to authorisation by the general meeting. They
apply in particular to mergers, cross-border mergers, the formation of an SE, and
generally the issuing of shares (or rather, the increasing of some forms of “legal
capital”). Where a transaction must be decided on by the general meeting under
EU company law, the decision rights of the general meeting must not be frustrated
by any agreement to the contrary.
Other constraints can be based on mandatory provisions of Member States’ na-
tional laws setting out the “organ’s” duties. For example, members of the board
may not contract out of their duty of care owed to the company or their duty to act
in the interests of the company. On the other hand, those duties are typically quali-
fied by the business judgment rule or similar rules.
In principle, such restrictions can therefore influence the validity of some
agreements that seek to ensure exclusivity.
Exclusivity clauses are nevertheless not prohibited as such. On the contrary,
exclusivity clauses are often objectively necessary and in the interests of the ven-
dor, because there might not be any acquisition agreement between the acquirer
and the vendor if the vendor could freely solicit competing offers and eventually
abuse work done by the acquirer and its often substantial up-front costs in making
the offer. In many cases, exclusivity clauses can reduce risk for both parties, give
an incentive to invest in information and the negotiation process in general, miti-
gate information asymmetries, and lead to a higher price.
This means that performance promises such as best efforts clauses and various
forms of no-shop covenants tend to be unproblematic from the perspective of EU
company law and Member States’ national company laws.
On the other hand, provisions for monetary compensation in the event that the
transaction fails to go forward can be legally more problematic.
Some provisions on monetary compensation can be necessary in order to: sig-
nal the intention to negotiate in good faith; facilitate mutual investment in infor-
mation and the mutual disclosure of information; and mitigate the risk of abuse of
confidential information.
However, sometimes the vendor’s cancellation fees and liquidated damages are
not intended to reimburse the acquirer for out-of-pocket costs associated with
making the offer and perhaps its lost time and opportunities but to frustrate the
right of the vendor’s corporate bodies to decide on the transaction. Excessively
high cancellation fees and liquidated damages can violate the mandatory duties of
(^38) Article 9(1) of Directive 68/151/EEC (First Company Law Directive): “Acts done by the
organs of the company shall be binding upon it even if those acts are not within the ob-
jects of the company, unless such acts exceed the powers that the law confers or allows
to be conferred on those organs ...”