Between the shareholders of the public limited company, and the limited liability company, conflicts on a variety of fields may occur. Usually, the shareholders can work the matter out, for instance, by discussing the matter in a general meeting of shareholders. The supervisory board, if any, may also be of use.
Sometimes parties cannot resolve the matter, however. This may have serious consequences on the company, but on the shareholders as well. In the legislation, several regulations have been incorporated to achieve a solution to the conflict. Below you will find several of these discussed briefly.
The Enterprise Section of the Amsterdam Court of Appeal
Many procedures concerning conflicts between shareholders are brought before a specialised court of justice: the Enterprise Section of the Amsterdam Court of Appeal. Not just regular judges have a seat in the Enterprise Section, but experts on economic fields as well, such as (chartered) accountants.
Inquiry at the Enterprise Section
(Minority) shareholders that do not agree with the company’s policy may address the Enterprise Section to request internal rules (“immediate relief”). The requesting shareholders should jointly hold at least 10% of the shares. The Enterprise Section is free in the choice of relief measures and uses these generously, if “the state of the company” so requires. These could be the suspension of directors, of board decisions, or even a shareholder’s voting rights.
In case of “mismanagement”, the Enterprise Section may also take definitive measures, as far as dissolution of the company. Violation with the principles of sound administration means mismanagement, but under certain circumstances also a deadlock between shareholders or directors.
An inquiry procedure is not just possible for limited liability companies and public limited companies, but also for foundations, associations, and cooperative societies.
Squeeze-out settlement at the Enterprise Section
Having to deal with other shareholders may prove to be unwelcome or difficult for a shareholder. Some examples: if there is more than one shareholder, general meetings of shareholders (GMS) must be convened according to the statutory rules; the other shareholders may frustrate the consolidation of the annual accounts with other group companies; in general, forming a tax entity is not possible. Through a so-called squeeze-out procedure, it is possible to unite all shares to a single party.
The majority shareholder that holds at least 95% of the shares can eliminate the other shareholders (with the exception of priority shareholders). The eliminated shareholders will receive a fair price, that is to be determined by the court. That price is determined by the Enterprise Section, after advice from an expert (chartered accountant).
Arbitration rules
This procedure is held before a regular court. One or more shareholders, who jointly hold at least one third of the shares, may demand that another shareholder transfers his shares (or voting rights) to them, or just the other way round. In short: “he goes, or I go”. The downside of this procedure is that it is procedurally complex and includes appeal, and appeal to the Supreme Court, while the shares can only be transferred after a judgement in favour has become irrevocable. This might take years. Therefore, arbitration procedures hardly ever occur.
Regulations in accordance with the articles of association; voting agreements
It is possible to record the manner in which certain issues need to be resolved in the articles of association. In particular, this goes for rights of first refusal. These clauses originate in the United Kingdom and the United States. They have evocative names such as “Russian Roulette Clause”, “Mexican Shoot Out”, “Texas Shoot Out” or “Dutch Auction”.
These arrangements may also be recorded in a separate agreement instead of the articles of association. This usually goes for voting agreements. Voting agreements are permitted within certain limits. However, they should never conflict with public order or morals.
Information
You need a lawyer who will consult, but also who litigates, if necessary. He can advise you how to approach a conflict between shareholders, set a course together with you and, if necessary, represent you at the Enterprise Section or in other procedures.
