Eject a shareholder or start a withdrawal procedure?

Disagreements among shareholders usually have a negative effect on the company. Such a shareholders’ dispute cannot always be resolved by mutual agreement.

The dispute settlement therefore offers shareholders various options to resolve a shareholder dispute by forcing the departure of one or more shareholders. However, there are few regulations in Dutch law that are so critically discussed. That is why a good approach is crucial.

The dispute settlement procedure includes two processes:

Expulsion procedure (forced transfer) Article 2:336 of the Dutch Civil Code;
Withdrawal procedure (forced takeover) Article 2:343 of the Dutch Civil Code.

Divestment procedure: forcing a shareholder to transfer his shares

An elimination claim can be filed against a shareholder if you alone or with several shareholders jointly hold at least one third of the shares.

The judge can then grant an expulsion claim. This happens when the relevant shareholder 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 (art. 2:336 BW). There must therefore be some degree of culpability.

It is important for an emission claim that it concerns acting in the capacity of shareholder. Conduct that has nothing to do with the performance of the relevant shareholder (as such) is not relevant to these proceedings and therefore cannot lead to expulsion under this article.

Withdrawal procedure: claiming a share takeover

On the basis of art. 2:343 BW, a certain shareholder can demand that the other shareholders take over his shares.

A claim for withdrawal can be filed if the shareholder’s rights or interests have been harmed by the behaviour of one or more co-shareholders to such an extent that the continuation of his shareholding can no longer reasonably be required.

Another (logical) condition is that the defendant shareholder is not willing to voluntarily take over the shares.

In contrast to an exclusion procedure, a withdrawal claim can:

Be instituted against the company itself, which must then take over the shares as a party (Article 2:343 paragraph 1 of the Dutch Civil Code), while
the interest of the company does not have to be harmed.

For example, a claim for withdrawal can be justified when a minority shareholder has no say in the general meeting and the shareholders’ agreement is also not complied with. As a result, the relations are disrupted to a large extent (Rb. Rotterdam 28 maart 2012, ECLI:NL:RBROT:2012:BW0672).

Or, when obligations by a co-shareholder to the other shareholder are deliberately frustrated and dialogue is no longer possible between the parties (Rb. Noord-Holland 31 maart 2021, ECLI:NL:RBNHO:2021:3288).

There must in any case be compelling circumstances that may result in a shareholder being entitled to invoke art. 2:343 BW and to have his shares transferred at a price to be determined by an expert.

Determining the share price and transfer

If the court has awarded a claim for expulsion or withdrawal, it is important to determine the price of the shares.

In an interlocutory judgment, the judge will appoint one or more experts to determine the value of the shares. This is an important part, but also a reason why such a claim is often not instituted.

Valuing shares by an expert not only takes time but is also expensive.

Moreover, an expert has to take into account the potential of the company in question, because the company (and therefore also the value) frequently suffers from the fighting shareholders. By final judgment, the transfer of the shares is effected and the compensation that the shareholder receives for his shares.

Broadening of grounds for expulsion and withdrawal

In practice, judges are typically reluctant to grant claims for eviction and withdrawal. Hence, the strong criticism of this arrangement.

This is not so much because judges do not want to do so, but mainly because this claim resents the ‘right of ownership’ and a thorough and objective preliminary investigation is sometimes difficult.

Apparently, the legislator is not deaf to the flood of criticism these regulations have received. In the preliminary draft, the Adjustment of the Disputes Scheme and Clarification of the Admissibility Requirements of the Inquiry Procedure Act has been submitted for consultation with the aim of broadening the criteria for the exclusion and withdrawal procedure by making them (among other things) part of the inquiry procedure.

The advantage is that the investigation into the shareholder’s conduct was already embedded in the inquiry procedure. In this way, two procedures are combined, and the inquiry procedure acquires more clout (in the near future).

Eject a shareholder or start a withdrawal procedure? VIOTTA is happy to help

Both in the case of expulsion and a claim for withdrawal, it is important that the procedure runs smoothly and quickly.

The costs should also be kept in mind. A procedure to effect an exit of a shareholder can result in a lengthy procedure if this procedure is not set up properly.

VIOTTA’s lawyers are experienced with divestment and withdrawal procedures and are happy to help you with disputes between shareholders.