## Facts

- The Bank for International Settlements (BIS), created in 1930, had a mixed shareholding structure including central banks and private investors and operated under the 1930 Hague Agreement, the BIS Statutes, and (subsidiarily) Swiss law.
- On January 8, 2001, the BIS General Meeting adopted a statutory amendment (Article 18A) authorizing the compulsory recall (forced redemption) of all privately held BIS shares, thereby excluding private shareholders.
- Private shareholders (including Dr. Horst Reineccius and other individual and institutional investors) challenged both (a) the legality of the statutory amendment and recall and (b) the compensation offered for their recalled shares.
- Claimants argued the change effectively altered the Bank’s basic legal structure and, under Article 58 of the Statutes, required enactment of a Swiss law supplementing the BIS Charter rather than implementation solely through an internal shareholder resolution.
- Claimants sought compensation reflecting their proportionate interest in the BIS’s net asset value (NAV), contending that market indicators were unreliable due to limited liquidity and the Bank’s special structure.
- BIS maintained the amendment and recall were within its lawful authority and that its chosen compensation method complied with its obligations.
- An arbitral tribunal, constituted under Article XV of the 1930 Hague Agreement and administered by the Permanent Court of Arbitration, issued a Partial Award on November 22, 2002 addressing legality and the valuation standard, while reserving remaining valuation components (including real estate), interest, costs, and a counterclaim for later proceedings.

## Issues

1. Whether the January 8, 2001 amendment to the BIS Statutes and the compulsory recall of privately held shares were lawful under the Hague instruments, the BIS Statutes (including Article 58), and applicable subsidiary Swiss law.
2. If the recall was lawful, what compensation standard applied to recalled shares: market-based measures, book value, or a proportionate share of BIS NAV.
3. If NAV was the baseline, whether a discount was appropriate and, if so, what discount reflected the shares’ minority, illiquid, and institution-specific characteristics.

## Decision

- The tribunal determined that the January 8, 2001 amendment excluding private shareholders and authorizing the recall of private shares was lawful.
- The tribunal determined that claimants were entitled to compensation per recalled share corresponding to a proportionate share of the BIS’s NAV, discounted by 30%.
- The tribunal noted the parties’ accepted NAV figure (excluding real estate) of US$ 10,072,000,000, equal to US$ 19,034 per share (CHF 33,820) as the stipulated base for valuation.
- The tribunal retained jurisdiction to decide remaining matters, including valuation of BIS real estate, the exact amount due (including interest), a BIS counterclaim, and arbitration costs.

## Legal Principles

- The BIS Statutes and the 1930 Hague instruments governed the legality of internal corporate acts affecting shareholders; Swiss law applied in a subsidiary, gap-filling role.
- A statutory change eliminating private shareholders could be lawful where it fell within the institution’s internal amendment competence and complied with the prescribed decision-making procedures, without necessarily requiring separate state legislative action.
- Even where a compulsory recall is lawful, compensation must reflect fair treatment consistent with general principles of law, including good faith and protection of shareholder property interests.
- For thinly traded or institution-specific shares where market price is not a reliable indicator of intrinsic worth, a proportionate NAV approach may be the appropriate valuation baseline.
- A discount to NAV may be justified to reflect minority status, lack of control, limited transferability/liquidity, and the entity’s special purposes and constraints.

## Conclusion

The tribunal upheld the BIS’s 2001 forced redemption of privately held shares as lawful but required compensation tied to each shareholder’s proportionate share of the Bank’s net asset value, subject to a 30% discount, with further proceedings reserved to complete the valuation and resolve ancillary financial issues.


Reineccius v. Bank for Int’l Settlements (Perm. Ct. Arb. 2002)