Approval of sale of shares of (minor) subsidiary

Restructurings within groups of companies and acquisitions of companies are happening all the time. These can always have different reasons. Here it is always important that the formal decision-making on the restructuring or acquisition is done correctly. Failure to do so may affect the validity of the transfer of those shares. The Amsterdam Court of Appeal (also known as the Enterprise Chamber) has issued a ruling from which it follows that the decision-making process can be even more extensive than expected. In this article, I explain more about the decision-making process and the ruling of the Amsterdam Court of Appeal.

Facts

The case before the Amsterdam Court of Appeal involved the structure shown here.

TICA Aalsmeer B.V. (“TICA Aalsmeer”) operated an exhibition hall in which nearly 200 wholesale companies had set up stands to serve the retail trade.
The Coöperatie Trends-In-Center-Aalsmeer U.A. (“TICA Coöperatie”) actually had the sole purpose of operating and renting spaces in (international) trade and purchasing centers and representing the interests of users of the purchasing centers. The activities thus focused on the operation of the exhibition hall by TICA Aalsmeer.

At the end of 2013, a member of TICA Cooperative made an offer for the shares in TICA Aalsmeer, whereby also all profits for 2013 would (eventually) be distributed to the members of TICA Cooperative.

The Board of TICA Cooperative submitted the sale proposal to the General Assembly of TICA Cooperative for approval. This proposal was passed with 25 votes in favor and 24 against. This is also referred to as a simple majority, because it was more than 50%. Some members argued that the sale actually amounted to a liquidation/dissolution of TICA Cooperative, because after the sale of the shares in TICA Aalsmeer, the Cooperative had no further purpose. According to its bylaws, a decision to dissolve TICA Cooperative requires an enhanced majority. This means that more than a 50% majority is required. With that, a decision could not have been taken with 25 votes in favor and 24 against. They went to the Enterprise Chamber requesting that the effect of the approval decision be suspended and prohibited.

Judgment Enterprise Chamber

The Enterprise Chamber grants the request. It agrees with the applicants, ruling that the sale of TICA Aalsmeer can indeed be equated with the liquidation/dissolution of TICA Coöperatie. It bases this, among other things, on the fact that the Board of TICA Cooperative believed at the General Meeting that the cooperative structure was no longer suitable to ensure the continuity of the business. The reason the Board felt this was because the number of exhibitors was decreasing and there were also concerns about the manageability and decision-making within TICA Cooperative. Thereby, the agreement that the 2013 profits would eventually be distributed to the members made it appear that there was a winding down/settlement. The Enterprise Chamber stated that the sale of the shares in TICA Aalsmeer could be equated with a material liquidation of TICA Cooperative.

As indicated earlier, dissolution requires an enhanced majority: that was not the issue in the Enterprise Chamber case. Thus, the decision could not have been taken.

Conclusion

It is important to consider carefully what approval should be given by whom for a transfer of shares, as well as by what majority such approval should be given. In doing so, what actually happens must be taken into account. If the transfer of shares involves more than “just” a simple sale for the other companies in the group, such approval may require an enhanced majority.

Are you restructuring or selling a company, or do you foresee this coming your way? We are happy to help you from start to finish so you know the process will go smoothly. Contact one of our attorneys by email, phone or fill out the contact form for a no-obligation initial consultation. We are happy to think with you.