In every company, differences of opinion can arise about the policy to be followed and the course of business. Sometimes these differences of opinion lead to a dispute between shareholders. Company law offers two procedures that can be used to resolve shareholder disputes:
- The dispute settlement; and
- The divestment procedure.
The dispute settlement procedure: expulsion and withdrawal
The dispute settlement procedure provides for four procedures that provide a definitive remedy in case a dispute between shareholders cannot be resolved amicably:
- The expulsion procedure
- The claim for transfer of voting rights
- The withdrawal procedure; and
- The joint application to determine the price.
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Expulsion of a shareholder
The eviction of a shareholder (the so-called squeeze-out) can be claimed by one or more of its co-shareholders who individually or jointly hold at least 1/3 of the shares. The claim may be instituted if the shareholder in question harms or has harmed the interests of the company through his actions to such an extent that the continuation of his shareholding cannot reasonably be tolerated. This discharge standard contains three elements:
- The basis for the expulsion is that the interests of the company are harmed, not that the interests of the plaintiff are harmed. Merely annoying or even unacceptable behavior on the part of a shareholder is not in itself a reason to expel him as a shareholder.
- It must concern conduct in the capacity of a shareholder and this conduct must endanger the functioning of the company. It is not about the behavior of the shareholder in another capacity, for example as a competitor of the company.
- The reasonableness test. Shareholders can no longer reasonably be tolerated. The court assesses whether the interest of the shareholder to be divested outweighs the corporate interest that would be served by the divestiture.
The law also provides for a special form of expulsion, namely the claim for a forced transfer of voting rights on shares in the event that the voting rights are vested in a usufructuary or pledgee of shares. The same requirements as stated above apply to the deprivation of voting rights from a pledgee or usufructuary. This has been the subject of two legal proceedings since 1989.
The withdrawal of a shareholder
This procedure entails that a shareholder demands that his shares be taken over by the co-shareholder(s) or by the company, if this shareholder has been harmed in his rights or is threatened that the continuation of his shareholding can no longer reasonably be expected of him by the conduct of one or more co-shareholders.
As with the expulsion standard, the reasonableness test plays a role in disengagement. The withdrawal standard deviates from the expulsion standard in two respects:
- Withdrawal is not a violation of the company’s interest, but a violation of the shareholder’s own rights and interests; and
- The shareholder’s conduct does not need to have been committed in their capacity as a shareholder. Conduct in which the co-shareholder competes with the company is now eligible.
The friendly withdrawal
In addition to the three subpoena procedures mentioned above, the dispute settlement also provides for a petition procedure to determine the purchase price in cases where there is agreement between shareholders and/or the company about the withdrawal of a shareholder, the so-called ‘friendly withdrawal’.
The advantage is that the investigation into the actions of the shareholder was already embedded in the divestment procedure. Because of this, two procedures are combined and the divestment procedure acquires more clout (in the near future).
The divestment procedure
The dispute procedure can take a long time. That is why the choice can also be made to start proceedings at the Enterprise Chamber. The behavior of a shareholder may be reason to request the Enterprise Chamber to establish that there are valid reasons to doubt the correct policy. The Enterprise Chamber may be requested to take provisional measures, such as putting the shares of the misbehaving shareholder under manageme
Legislative amendment for dispute settlement: broadening the grounds
The ‘Adjustment of the dispute settlement’ bill aims to improve the effectiveness of the dispute settlement procedure by broadening the grounds on which claims under the dispute settlement scheme can be awarded. Some procedural aspects of the scheme will also be adjusted. For example, the criterion in the event of an expulsion that it must concern acting as a shareholder, will disappear. With regard to the withdrawal, it is clarified that this concerns a violation of reasonableness and fairness. In addition, the scheme aims to shorten the processing time for dispute settlement with the introduction of a simplified dispute settlement procedure, which can be started after the Enterprise Chamber has rendered a judgment about mismanagement.
Simplified dispute settlement at the Enterprise Chamber
A solution from the bill that aims to contribute to the effectiveness of the dispute settlement procedure is the amendments to the procedural aspects of this settlement. For example, this bill provides that a simplified dispute settlement procedure at the Enterprise Chamber is possible. Access to this simplified procedure will be granted if it is determined in the inquiry procedure that there has been incorrect policy or mismanagement. As soon as this opinion has been given, the shareholder can immediately submit the claim or request to the Enterprise Chamber. As a result, the dispute settlement procedure is only completed in one instance – appeal is not possible.
Statutory or contractual arrangement
The company’s articles of association or the shareholders’ agreement between the shareholders of the company may also contain arrangements for the resolution of disputes between shareholders.
Are you in need of advice on the expulsion or buyout of a shareholder?
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