When a pre-emption right exists in the transfer of shareholdings, its purpose is clear: to allow the shareholders to acquire those shareholdings before they are sold to third parties, under the same terms agreed with those third parties. This right may be provided for in the company’s articles of association or in shareholders’ agreements, and is a mechanism designed to protect the stability of the corporate structure, control the entry of outsiders into the company, and preserve the balance among the shareholders, preventing unwanted changes in the company’s control.
In practice, situations have arisen in which this right is circumvented indirectly. Instead of selling the shareholdings he or she owns directly, the shareholder structures the transaction through a special purpose vehicle (SPV), which is the formal holder of those shareholdings. Instead of selling the shareholdings in the company concerned, the shareholder sells the shareholdings in the SPV. Thus, formally, there is no sale of the company’s shareholdings and, therefore, the pre-emption right is not triggered. Materially, however, the result is the same: the effective control of the shareholding changes hands.
The Portuguese legal system does not ignore this reality. Although the transfer of the SPV is, in itself, legitimate, when that company exists merely as an instrument for holding shareholdings and does not carry out any other relevant activity, the sale of its control is materially equivalent to the direct sale of the shareholdings. In such cases, what may be at stake is a true fraud on the contract, and not mere simulation. The parties genuinely intend to enter into the transaction they conclude, but they use that structure to achieve a result that the articles of association or the shareholders’ agreement were precisely intended to prevent: the bypassing of the other shareholders’ pre-emption right.
The difference between fraud on the contract and simulation is essential. In simulation, there is a divergence between the real intention and the declared intention; in fraud, the transaction is genuine but is used to circumvent the purpose of a contractual provision. The sale of shareholdings, in these cases, is not invalid in itself, but it may be treated as an indirect sale of the shareholdings for the purposes of applying the pre-emption right regime. This means that, in the event of a dispute, the possibility remains that the court may find that the pre-emption right should have been triggered, even where no direct transfer of the shareholdings occurred.
For shareholders intending to dispose of shareholdings, the creation of artificial structures may entail significant legal risks and therefore requires specialised legal support in structuring such transactions. For investors and buyers, in turn, this means that it is essential to carefully review the articles of association and any shareholders’ agreements before concluding a transaction, and it is highly advisable to seek preventive legal advice, failing which they may be exposed to disputes and to the risk of having their transaction challenged.
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The content of this information does not constitute any specific legal advice; the latter can only be given when faced with a specific case. Please contact us for any further clarification or information deemed necessary in what concerns the application of the law.