Heirs could not exercise estate’s pre-emption right

The Supreme Court has rejected five heirs’ claim to a pre-emption right over 90.72 per cent of the shares in Nesvellir íbúðir ehf., a housing company, mbl.is reported. The declarations seeking to exercise the right were made in the name of an estate whose settlement had been completed eight years earlier, when nobody was authorised to enter into new commitments on its behalf.

The ruling, issued on 11 November, upheld the Court of Appeal’s decision to acquit the defendants. The Supreme Court also ordered that legal costs be waived at every court level.

Nesvellir íbúðir grew out of a project to build housing under an occupancy-right scheme for people aged 55 and over in Reykjanesbær between 2005 and 2007. After the company ran into financial difficulties, claims by 29 occupancy-right holders for fees they had paid were converted into shares at the end of 2015.

The man from whom the heirs derived their claim was one of the occupancy-right holders. He died in 2013, and the private settlement of his estate was completed in April 2014 without the occupancy right being included. When the claims were later converted into shares, the estate was registered as owning a 2.444 per cent stake in the company.

Under Nesvellir íbúðir’s articles of association, the company itself had a pre-emption right over shares offered for sale. If the company did not use that right, shareholders had the same right in proportion to their holdings.

Negotiations took place in spring 2022 over P190 ehf.’s purchase of shares in Nesvellir íbúðir. On 30 April, shareholders were told that the company’s offer had been accepted, with approval from owners of 90 per cent of the shares.

A lawyer notified the board on 9 May that the estate intended to exercise its pre-emption right. The declaration was reaffirmed at the company’s annual meeting that day, where the planned removal of the right from the articles was opposed. The meeting nevertheless voted to remove it. Notices that the estate intended to exercise the right were also sent to individual shareholders on 13 May.

The estate’s settlement was not reopened until 7 June, when its shares were transferred to the five heirs in equal shares. Later that month, 90.72 per cent of the company’s shares were sold to P190.

The heirs argued that they were entitled to dispose of assets belonging to the estate that had not been included in the settlement. The Supreme Court disagreed, finding that the estate had ceased to exist as a separate legal entity when the private settlement ended in 2014. The heirs’ control over its interests, and the authority of others to act on its behalf, had ended at the same time.

The heirs could regain that authority only with permission from the district commissioner to reopen the settlement. They did not have that permission when the declarations were made. By the time the settlement was reopened, the pre-emption right had already been removed from the company’s articles.

The District Court had acquitted the defendants on the grounds that no binding purchase agreement had been made to trigger the pre-emption right. The Court of Appeal upheld the acquittal on the basis that the heirs lacked standing to bring the case. The Supreme Court upheld the outcome because nobody had been authorised to bind the estate through the declarations. It therefore did not need to decide whether the agreement reached in spring 2022 would otherwise have triggered the pre-emption right.