A breakdown of legal protections for minority shareholders in Tunisia

No major economic legislation was established in 2017 as policymakers remained focused on completing the implementation of a new investment framework, which was enacted on April 1, 2017 with the New Investment Law.

Under the old framework, foreign investment was subject to government authorisation. There were, however, broad exceptions to this principle, and a list of areas open to foreign investment was established by decree and regularly expanded.

The New Investment Law, however, takes the opposite approach by establishing the principle of freedom of investment for both nationals and foreigners with a limited list of sectors for which authorisation is required.

This list has not been established, although the deadline had been set for March 2018. It is likely that this list will consist mainly of sectors for which foreign investors will be free to hold minority shares but will have to obtain special authorisation in the event of majority shareholding.

Independent of this constraint, which will probably encourage foreign minority equity investments, particularly in the distribution sector, we are increasingly witnessing the arrival of financing either in the form of private equity investment funds or as part of industrial equity investments made jointly between foreign and local investors. As a result, officials have moved to enshrine the protection of minority investors under Tunisian law.

In addition to the New Investment Law, which is expected to encourage foreign investment, stock exchange authorities are looking to boost financial markets, and various studies are under way to modernise local markets for issuers and investors alike.

Protection of Minorities

The need to avoid blockages in corporate decision-making has prompted the Tunisian legislature – like its foreign counterparts – to opt for a structure based on majority rule, with the exception of certain decisions that would require unanimous vote.

This is a sound operating model, as companies are currently the primary drivers of economic expansion, and it would considerably hamper business dealings if all decisions required the total mutual agreement between partners.

However, the necessity of operating according to majority rule engenders a risk for minority partners that poor decisions will be taken by majority partners. It is therefore necessary to balance some of the risks of majority rule with protective mechanisms for minority shareholders. The need to protect the interests of minority shareholders has increased substantially over the last two or three decades, following a slow – but nevertheless significant – transformation in the Tunisian economic fabric.

The positive evolution of minority shareholders’ rights has continued, in particular, with the passing of Law No. 69 of 2007 on economic initiatives, which introduced important changes, and the Law No. 16 of 2009, which amended and completed the Commercial Companies Code The Commercial Companies Code (Code des Sociétés Commerciales, CSC) has, to a certain extent, improved the situation for minority shareholders, compared to that which existed under the previous commercial code, while retaining existing protections. The generally positive evolution of minority shareholders’ rights has continued, in particular, with the passing of Law No. 69 of 2007 on economic initiatives which introduced important changes, and with the passing of Law No. 16 of 2009, which amended and completed the CSC.

However, the development of such protections remains insufficient, owing in large part to the rigidity of Tunisian company law.

Public Limited Companies

The most significant and interesting development from our point of view has happened in the rights of minority shareholders in public limited companies (PLCs).

Undoubtedly, this is significant because of the frequent use of PLCs for the realisation of largescale projects that require a number of investors to work together. It is for this reason that we have chosen to focus on measures enacted to protect the minority shareholders of PLCs.

The protection of minority shareholders can be distinguished according to the following:

• Whether or not they are given information rights;

• Whether or not they are given an increased role and powers in general meetings of shareholders; and

• Whether or not they are given the chance to challenging decisions taken by majority shareholders.

Right to Information

The CSC recognises a certain number of rights for minority shareholders to access information. These are listed as follows:

• Access to basic information is open to all shareholders.

• Some information is only accessible to one or more shareholders holding a significant portion of the company’s capital.

• Shareholders have the right, under certain conditions, to have information verified by an expert, who is appointed by an interim relief judge.

Information Accessible to All

The information available to both minority and majority shareholders is mainly that which enables them to exercise their voting rights under appropriate conditions. The CSC provides that a company’s board of directors must make available to all stakeholders the documents necessary for them to make an informed decision and give their opinion on the management and operation of the company. The documents must be available at the company’s registered office at a minimum of 15 days before the prearranged date of the meeting in question.

In addition to the documents provided to them by the board of directors, shareholders who attend general meetings also have the right to access certain information from the statutory auditor through their general contribution. This set of information must be submitted to the general meeting. The statutory auditor is also required to submit a special report on regulated agreements.

It should be noted that the CSC outlines clear sanctions for the failure to provide these documents to shareholders. Punishment can consist of the nullification of any decisions made by the general meeting in approving financial statements. The legislator also gives shareholders access to the company’s shareholding structure by allowing them to obtain a list of shareholders before any general meeting. In the same vein, the CSC gives shareholders the right to obtain copies of the attendance sheets for general meetings.

Access for Majority Shareholders

In addition to the basic information available to all shareholders, the CSC reserves access to certain information to shareholders holding, alone or in concert, a significant portion of a firm’s capital.

Two alternative determining criteria have been adopted. It is sufficient for the shareholder(s) to meet one of the two criteria to benefit from the right of access to information:

• Concerning the percentage of capital held, the threshold has been set by the CSC at 5% of an unlisted PLC’s capital or at 3% of a listed PLC’s capital.

• Concerning the amount of participation, the threshold has been set by the CSC at TD1m (€384,000). The satisfaction of these criteria gives shareholders access to the following corporate documents:

• The company’s balance sheet, to which is appended a statement of sureties, endorsements and guarantees given by the company, and a statement of the securities granted by it; and

• The detailed annual report of the board of directors on the company’s management. If the company refuses to disclose all or part of these documents, the shareholder(s) reserve the right to refer the matter to an interim relief judge.

Minority shareholders meeting the same criteria as those mentioned above have the right to pose written queries to the board of directors. This action can be taken only twice a year.

However, the exercise of this right assumes, first, that the shareholder concerned is not a member of the board of directors; and second, that the questions asked do not relate to any information likely to jeopardise the company’s interests.

Appointing an Expert

The first paragraph of Article 290 (bis) of the CSC provides that one or more shareholders holding at least 10% of the company’s share capital, either individually or jointly, may ask a judge to appoint an expert or a panel of experts whose task will be to present a report on one or more management operations.

These rules are not without issue. The right of minority shareholders to request the appointment of an expert plays an important part in their protection; however, this right could benefit from being extended to a global audit of the company.

Formulating a request for the appointment of an expert or panel of experts on one or more management operations requires knowledge of these operations; however, minority shareholders for the most part have little to no knowledge of certain management operations.

General Shareholders Meeting

Access to information, as such, does not effectively protect the interests of a minority shareholder. The interests of a shareholder who is fully informed of the abuses of the majority stakeholders, but who does not have the means to take action to counter these abuses, would not be protected in practice.

The practical protection of minority shareholders requires that they be able to invoke debate and vote on the decisions they wish to see taken, as well as oppose certain decisions. To this end, the CSC grants minority shareholders the following:

• The right to initiate voting, subject to certain conditions; and

• The right to change the voting prerequisites, which enables minority shareholders to oppose certain decisions.

Voting Initiative

The CSC gives minority shareholders representing at least 5% of the share capital the right to place additional draft resolutions on meeting agendas. Moreover, according to the provisions of Article 277 of the CSC, where necessary, a general meeting may be convened by an agent appointed by the court at the request of any interested party in an emergency, or at the request of one or more shareholders holding at least 5% of the capital of an unlisted PLC or 3% of a listed PLC.

The CSC establishes the principle of simple majority voting. As previously noted, this rule is widely regarded as sound and allows for rapid decision-making. However, blind application of this principle could potentially lead to a significant weakening of the interests and rights of minority shareholders, thereby making exceptions necessary. In some cases, a unanimous decision, the introduction of qualified majority voting or the suspension of voting rights for certain shareholders is required.

Decisions mandating unanimous approval are very rare. Thus, the CSC only calls for unanimous shareholder vote in the following situations:

• An amendment to the articles of association by the constituent general meeting;

• A reduction in the valuation of contributions in kind by a shares auditor; and

• An increase in share capital via an increase in the registered value of shares, unless such a decision has been carried out by the incorporation of reserves, profits or premium issuances.

Qualified Majority

The qualified majority voting mechanism is halfway between simple majority voting and unanimous voting, in which a predetermined majority of 50% + 1 shares is required. This action is generally reserved for extraordinary general meetings, in which an amendment to the articles of association is proposed. For PLCs, an amendment to the articles requires two-thirds of the votes. This majority is even higher for limited liability companies, where the amendment of an article requires three-quarters of the votes.

Voting with the two-thirds rule ensures that any minority shareholder or group of minority shareholders possessing more than one-third of the company’s capital may block any amendments to the articles of association that they consider contrary to their interests or to those of the company.

Eliminating Voting Rights

Some agreements between the company and its shareholders and managers are expressly prohibited.

For certain decisions related to agreements between the corporation and its officers or shareholders, the CSC provides that the concerned parties will not be permitted to participate in the vote, and that their shares will not be counted in determining either a quorum or for the vote itself.

This regulation was clearly established with the intention of protecting minority shareholder rights.

In addition to the voting adjustments provided in the CSC, it would have been beneficial to necessitate the provision of reinforced qualified majorities for decisions to cancel preferential subscription rights, as well as for decisions to reduce capital to zero followed by a capital increase.

Rights to Contest

Since minority shareholders have limited control over decision-making processes, the protection of their interests includes the ability to contest decisions made by the directors, especially in the event of illegal activity. Challenges can involve any of the following:

• The cancellation of certain decisions;

• Civil liability of the directors; and

• Criminal liability of the directors.

Annulling Decisions

The CSC provides a mechanism for shareholders holding at least 10% of the share capital to request the annulment of certain decisions. For the request to be accepted, such decisions must be contrary to the articles of association or prejudicial to the interests of the company, and must be taken in the interest of one or a few shareholders, or for the benefit of a third party.

Civil Liability

The CSC opens the possibility for the company to bring a civil liability action against members of the executive board following a decision from the general meeting. The general meeting may, at any time, compromise or renounce the exercise of this action. However, trading may be blocked by one or more shareholders holding at least 5% of the capital of an unlisted PLC or 3% of the capital of a listed PLC, and not having the status of member of the executive board. Thus, the legislation provides a kind of blocking minority for settlement decisions.

In addition, one or more shareholders holding at least 5% of the capital of an unlisted PLC or 3% of the capital of a listed PLC, or whose shareholding capital is equal to TD1m (€384,000) or more, may exercise an action against the members of the executive board for misconduct in the performance of their duties. The person or group of people which lead the action must not be a member or members of the executive board of directors.

Criminal Liability

Article 223 of the CSC provides that the following shall be punished by imprisonment of between one and five years and/or a fine of between TD2000 (€770) and TD10,000 (€3800).

This includes members of the executive board who engage in the following:

• In the absence of inventories, or by means of fraudulent inventories, distribute fictitious dividends among shareholders;

• In the absence of any dividend distribution, knowingly publish or present to the shareholders an inaccurate balance sheet in order to conceal the true situation of the company;

• In bad faith, make use of the corporation’s property or credit that they knew was contrary to its interest for a personal purpose or to favour another corporation in which they had a direct or indirect interest; and

• In bad faith, use powers or votes that they had in a way that they knew was contrary to the interests of the company for a personal purpose or to favour another company in which they had any interest in some way.


A review of the provisions regarding the rights of minority shareholders indicates that the Tunisian legislature was concerned about this protection when the CSC was first enacted as well as during subsequent amendments.

However, the rights granted to minority shareholders and the draft of the texts organising these rights is far from complete. It must also be noted that the multiplication of different holding thresholds as a condition for exercising the rights granted to minority shareholders prevents the solidification of the notion of a significant minority holding.

With regard to the protection of minority shareholders, simply improving the foundation of their rights and the drafting of the texts governing those protections is considered insufficient.

In our view, more flexibility should be introduced in company law so as to give the parties more flexibility in determining their fiduciary relationship on a treaty basis. This additional flexibility could involve, in particular, a genuine legislative enshrinement of shareholder agreements, which would grant shareholders the possibility of creating special securities, and/or the creation of a new form of company whose operation would, to a large extent, be determined solely by the will of the involved parties.

Shareholder Agreements

In the amendments made to Act No. 16 of 2009 of the CSC, lawmakers have acknowledged the conclusion of shareholder agreements. The current wording of the third paragraph of Article 3 of the CSC provides that no agreement between partners is allowed to contradict the articles of association. However, agreements that are concluded between partners as a function of the partnership are valid and binding when they are limited to governing rights specific to them and are not contrary to the provisions of the by-laws.

This measured recognition of shareholder agreements is inadequate and ignores the increasing importance of this type of contract in the conclusion of mergers and acquisitions by introducing, in particular, enhanced protections for the interests of minority shareholders. In addition, it also fails to recognise the function played by shareholder agreements in investment contracts.

The imperative of legal certainty and predictability dictates that agreements with third parties should not be able to contradict existing statutes or regulations, given that this right also does not exist between partners. However, it should nonetheless be possible for partners to adjust the statutory rules in a conventional way – for example, by giving a veto right to minority shareholders on certain decisions.

It is widely understood that protections for minority shareholders are in the public interest, and that it should not be possible to eliminate or diminish them, but a question is raised as to whether or not involved parties should maintain the ability to reinforce these rights of their own accord if they so desire.

According to Article 3, shareholder agreements are only binding if they pertain to themselves, and do not contravene existing statutes.

However, this effectively implies that agreements can only govern marginal rights not already provided for in the statutes. So while, according to this wording, it would be possible, for example, to organise a specific pre-emptive right in a shareholder agreement, this is far from sufficient.

It would be far better for regulators to allow shareholder agreements to govern broader issues, especially since the wider business world already makes ample use of shareholder agreements that far exceed what is permitted according to a strict interpretation of Tunisian law.

This trend has developed because investors feel the need to clarify their agreement as partners in a company. The role of the legislature is to recognise this need, and provide a legal framework that enables partners to organise such agreements under the appropriate conditions of legal security.

In Practice

While the validity of shareholder agreements concluded in violation of Article 3 is doubtful, parties use a number of legal techniques to circumscribe the risks of invalidity. Fortunately, these techniques are generally accepted, particularly with regard to arbitration law.

It is now a commonly accepted practice for shareholder agreements to reinforce the rights of minority shareholders by providing veto rights and organising rules for the appointing of directors in a manner that overrides the by-laws. It is also common for shareholder agreements to stipulate rules and regulations for the distribution of conventional dividends. These policies are exempted from the legal and statutory decisions made by the ordinary general meeting, thereby protecting minority shareholders against the possibility of non-distribution.

It is now common practice for shareholder agreements to reinforce minority shareholder rights by providing veto rights and organising rules for the appointing of directors in a manner that overrides the by-laws In order to make such improvements to shareholder agreements, drastic amendments to Article 3 would be required. Reforms to the law should ensure that no agreements with third parties would be allowed that contradicts the articles of association, but pacts concluded between partners are valid and binding as long as they do not violate public interest.

Additionally, while the CSC allows for the creation of different classes of shares, the law provides that these classes of shares must have the same voting rights and the same rights to profits. Here again, it would be useful to give partners, greater flexibility to reframe this as needed in their statutes.

It would be useful for the business world to create a new type of company whose operations are based on the agreement of the involved parties who would thereby be free to set the rules and regulations for decision-making in the by-laws. Additionally, freedom to organise the statutory rules and regulations provides an advantage over shareholder agreements in that it would be enforceable against third parties.

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The Report: Tunisia 2018

Legal Framework chapter from The Report: Tunisia 2018

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