As a lawyer I regularly advise and litigate on behalf of companies and/or their partners or shareholders in relation to (imminent) conflicts. The legal approach may differ depending on the legal form of the company: private limited liability company (BV), public limited liability company (NV), business partnership (VOF), business partnership with silent partners (CV) or common partnership (maatchap). I also help companies, shareholders and partners to reduce the risk of disputes by drafting proper shareholder and partnership agreeements.
Conflicts can be avoided
by making proper arrangements and shareholder and partnership contracts. In case of a limited liability company (BV or NV) part of such arragements should also be in its articles of association to be fully effective, in addition to the shareholder agreement, which is usually more elaborate than the articles. In case of a business of common partnership, the partnership agreement is usually the sole and prime constitution document laying out the partners rights and obligations. The shareholder or partnership agreement should be tailor-made and fit your specific business goals and organisation, also for the long term.
Alternative dispute resolution
Disputes can be resolved more quickly and cheaply if the shareholder or partnership agreement includes a proper dispute settlement system. This may contain an obligation to first negociate in good faith, then try to resolve the remaining conflict through mediation and/or, when specific expertise is required, by binding advice of an independ third party experts, for example when the dispute relates to the financial statements or the value of the company or its shares. Furthermore, the parties should be obliged to keep all conflicts confidential and refrain from court proceedings as long as other methods of dispute resolution, such as mediation or binding advice, are still pending or possible.
Each party is entitle to enforce compliance with the shareholder or partnership agreement, the articles of association of the company and applicable law and statutes through the courts, e.g. through summary proceedings. Remedies may include an orde to convene a general meeting of shareholders, draw up and publish financial statements and providing information about the company. These include enforcing a prescribed meeting of shareholders, partners or members, drawing up mandatory financial reports and providing information about the company. .
Suspending and nullifying resolutions of the board or shareholders
A BV or NV acts on the basis of resolutions of the board and/or the shareholders’ meeting. A shareholder or partner may object to a decision taken. For example, because this is contrary to the law, the articles ofassociation or to principles of reasonableness and fairness that apply to the company and its shareholders or partners. Such party may then ask the Court to nullify (invalidate) the resolution and, pending the court proceedings, have the execution of the resolution suspend through a request in summary proceedings.
Exit provisions, dissolution and dispute settlement
A proper shareholder or partnership agreement also includes exit provisions. Such provisions regulate the (forced) departure of a shareholder or partner in case of irreconcilable conflicts or other circumstances that block further cooperation between the shareholders/parners. In case there are no exit provisions, Dutch law provides a default option. In the case of a business or common partnership, each partner may ask the court to terminate the partnership agreement. Shareholders in a BV or privately owned NV can ask the court to enforce a transfer of shares at a price determined by an expert. Such request can be made with the District Court of, if the parties to the conflict agree to this, directly with the Enterpise Chamber and may then be combined with enquiry proceedings as set out herebelow.
Procedures before the Enterprise Chamber
If the business is in the form of a limited liability company (BV or NV) each shareholder or group of shareholders holding at least 10% of the shares may start enquiry proceedings (‘enqueteprocedure”) at the Enterprise Chamber (‘Ondernemingskamer’) of the Amsterdam Court of Appeal. This may, and in most case does, include a request to the Enterprise Chamber to impose provisional measures.
Grounds for granting the request
The Enterprise Chamber may order an enquiry if there are reasonable grounds for doubting the policies or course of action in the company and/or its business such as:
- Stalemates within the board or shareholders’ meeting that prevent necessary investment and financing decisions from being made;
- Impermissible conflicts of interest such as a director who conducts transactions with himself or related persons or who is competing with the company;
- Careless decision-making such as granting loans without adequate collatoral or corporate takeovers or making large investments without proper prio due diligence;
- Minority shareholdes are deprived of dividends while there are sufficient financiel reserves or they are excluded from vital information or decision making;
In practice, enquiry proceedings are often initiated mainly because of the possibility of requesting the Enterprise Chamber to impose immediate measures. The Enterprise Chamber usually handles this request for preliminary measures very quickly, i.e. within a few days up to a few weeks, after submission of the request. This is often even faster than regular summary proceedings before the District Court. Another advantage is that the Enterprise Chamber can take other and more fare-reaching measures than the District Court would normally impose in a regular summary judgment. Common measures are the appointment of remporary independent directors and/or supervisory board mebers with far-reaching powers, the temporary transfer of shares to an independent third party, the suspension of board or shareholders resolutions with a temporary prohibition to carry out such resolutions and temporary suspension of members of the management and/or supervisory board(s). The Enterprise Chamber may also appoint an independent mediator or binding advisor in order to promote a rapid resolution of the conflict.
The Enterprise Chamber may order an enquiry if there is reasonable doubt about a correct policy or proper conduct within the legal entity or company, the Enterprise Chamber may order an investigation. He then appoints an independent inquiry to make a report. On the basis of this report, the Enterprise Chamber can then, on request, establish that there has been a mismanagement and take substantial measures as a result, which may include a winding up of the company. A mismanagement report can also be used as evidence in a civil law claim for damages against the managing and supervisroy directors.
Buy-out of shareholders/partners
When a shareholder or partner leaves there can be a dispute over the price he should receive for his shares. It is wise to include a valuation procedure in the shareholder or partner agreement to avoid lengthy litigation on this matter. Such procedure usually distinguishes so-called good leavers and bad leavers. For example, a bad leaver is a shareholder or partner who leaves prematurely for no good reason or who is in serious default with the fulfilment of the agreements made between the partners. A good leaver usually receives the economic value of his shares which is determined by parties by mutual agreement or otherwise by an independent expert. A bad leaver may recieve a discounted value, e.g. 25% or 50% of the economic value,