By Hein Hoogendoorn
An earlier blog by Dutch lawyer Hein Hoogendoorn explained that in preliminary relief proceedings one shareholder can claim from the other shareholder that the latter has to sell his shares. Not every conflict between shareholders is suitable for preliminary relief proceedings. In this blog corporate lawyer in The Netherlands Hein Hoogendoorn discusses the outcome of a main action that also addressed an enforced takeover of shares. This case was submitted to the Court of North Netherlands.
Claim for resignation Dutch shareholder
In these proceedings there were two shareholders that indirectly held 50 percent of the shares in a private company. The lawyer of the claimant claimed in these proceedings that his co-shareholder, pursuant to article 2:343 of the Civil Code of The Netherlands, should be convicted to take over his shares against a price to be determined by an expert.
Lawyer: harm to shareholder’s interests
In these proceedings, the claimant’s lawyer based his claim on the fact that in all reasonableness continuation of the shareholdership could no longer be demanded from him. The actions of the other shareholder consisted, among others, of refusing to pay the other shareholder a dividend and to execute the right of first refusal in the Articles of Association.
Shareholder refuses to provide information
The co-shareholder also refused to provide the other shareholder with information about the private company, no annual accounts approved by the general meeting of shareholders were deposited, and the claimant had been deregistered as managing director from the Chamber of Commerce without a shareholders resolution. The other shareholder allegedly also withdrew money from the private company. The claimant had therefore in fact been excluded and no longer had a say in the private company in which he owned 50% of the shares. What did the court find?
Continuation of shareholdership reasonable?
The court finds, first of all, that to successfully invoke article 2:343 of the Civil Code of The Netherlands, it is required that the actions of the co-shareholder harm the rights or interests of the other shareholder to such an extent that continuation of the shareholdership can no longer in all reasonableness be demanded. The respondent argued in these proceedings that these actions had to concern the capacity of shareholder, but the court rejected this argument.
Reasonableness and fairness between shareholders
The court also finds that to successfully invoke article 2:343 of the Civil Code of The Netherlands it is not necessarily required that there is misconduct or that the interests of the private company are harmed. According to the court, the issue is that shareholders should act reasonably and fair towards one another. Firstly, the court finds that the mutual relationship between the shareholders is in any case severely impaired. Because one shareholder did not provide any information to the other shareholder, and decided on his own authority that the profits of the private company would not be paid out as dividends but would be added to the reserves, the court concluded that the claimant could no longer be demanded to continue his shareholdership. The court finds that the one shareholder has to sell his shares to the other shareholder.
Takeover price: current value according to Dutch law
In cases such as these it is of course always an issue what the price of the shares to be taken over should be. The legislator foresaw this problem in by determining, in article 2:339 paragraph 1 of the Civil Code of The Netherlands, that in such cases the takeover price can be determined by an expert to be appointed by the court. This concerns the current value. In article 2:343 paragraph 3 of the Civil Code of The Netherlands, the legislator also includes a corrective mechanism, i.e. this article states that the court, in determining the price of the shares, can apply a reasonable increase in connection to the conduct of a co-shareholder. In such a case, it has be made plausible that this conduct resulted in a reduction of the value of the shares to be transferred. For this reduction it should also be shown that this should not be fully to the account of the claimant.
Dispute shareholders: Dutch corporate lawyer
The shareholder has a number of instruments at his disposal if there is a dispute between shareholders. Which instrument is best suitable depends on the tangible circumstances of the case. If you are involved in a shareholders’ dispute, you can always contact the lawyers of the Corporate Law section of AMS Lawyers to seek advice about the various options.
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