By Martijn Kesler
The district court in Amsterdam had recently ruled – in preliminary relief proceedings – that invoking the regulation in a shareholders’ agreement that a decision to dismiss a director should be adopted unanimously, was contrary to the principles of reasonableness and fairness that apply to Dutch law in general. According to the court in preliminary relief proceedings such a stipulation was out of line, and not in the interest of the company. Dutch corporate lawyer Martijn Kessler explains.
Articles of association and shareholders’ agreement conflict
The board of management of the company was made up of three of the four shareholders. The shareholders had agreed to articles of association that stipulated that decisions for appointment, dismissal and suspension could only be adopted by at least 2/3 of the shareholders. This was contrary to the shareholders’ agreement that stipulated that such a decision for dismissal had to be adopted unanimously. Because the board of management was only represented by shareholders, it was almost impossible to adopt such a decision.
Directors disagree
At a certain point in time, one of the directors no longer saw eye-to-eye with the other members of the board of management. She was informed of this by e-mail. This e-mail stated, among others, that the chemistry was missing in the board of members and that this was having (adverse) consequences for the company. The other directors placed her on ‘non-active status’.
Penalty of 1 million euro
However, this director did not want to be placed on the sidelines that easily and demanded compliance with the shareholders’ agreement, subject to a 1,000,000 euro penalty. The court in preliminary relief proceedings for the most part awarded the claim and prohibited the company from dismissing the director. However, the Court of Appeal disagreed and overturned the ruling.
Requirement for unanimity contrary to article of law
The law states, in article 2:244 paragraph 2 of the Civil Code of The Netherlands, that a decision to suspend or dismiss a director cannot require a quorum of over 2/3 of the votes in a shareholders’ meeting. Less than that is always allowed. The idea behind this legal stipulation is that when 2/3 of the shareholders disagree with a director, there is an impaired relationship within the company. The requirement for unanimity as defined in the shareholders’ agreement was therefore found to be contrary to law.
Clause contrary to reasonableness and fairness
Although it is not prohibited to include such a clause, the stipulation can often be considered contrary to reasonableness and fairness, as defined in article 2:8 paragraph 2 of the Civil Code of The Netherlands. However, as there is an obvious impairment of the internal relationships and there have been numerous attempts to take away the irritations through discussions, in this case the unanimity threshold has to give way to the company’s interest. In this case invoking compliance with the shareholders’ agreement is unacceptable and contrary to reasonableness and fairness.
Corporate law firm in The Netherlands
In principle parties in The Netherlands are free to incorporate whatever they want in agreements, including in shareholders’ agreements. Stipulations can be deviated from, but each stipulation can be tested against the standards of reasonableness and fairness. If a stipulation is intended to protect the corporate interest, as for example the required 2/3 quorum for a dismissal decision, exceeding this standard is often considered contrary to reasonableness and fairness. So invoking such a stipulation is debatable.
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