Shareholder dispute

Shareholders may find themselves in conflict with each other in practice. A shareholder dispute often has far-reaching consequences for the continuity of a company or organisation and can cause considerable damage. When there is a conflict of interests between shareholders in a company, each shareholder is free to put their own interests first. In a situation where the shares are divided 50/50 and no decisions are made, this can have a paralysing effect on the company.

Lawyers specialising in corporate law can help to resolve disputes by restoring relations between parties through mediation or a legal split, the sale of shares to a third party or the dissolution and liquidation of the company (turbo liquidation).

Engaging corporate law solicitors

Shareholder disputes can arise quite quickly among shareholders. This is because entrepreneurs often work with other entrepreneurs. This can take various forms. When choosing an organisational form in which shares are distributed (NV or BV), it is important to think about the future. It is best to lay down agreements in advance in a shareholders’ agreement with a solicitor, because working together can sometimes lead to disagreements. A shareholder dispute can pose a significant threat to the continuity of the company. It is therefore important to engage the services of a solicitor to settle the dispute.

Disputes between shareholders: How can a shareholder dispute affect a company?

A shareholder dispute can have major consequences for the stability and continuity of a company. Internal tensions often lead to a loss of confidence, blockages in decision-making and disrupted cooperation within the board. In serious cases, it can bring business operations to a standstill or cause external parties, such as investors or customers, to withdraw. In addition, there is a risk of legal proceedings that cost time and money. Conflicts between shareholders can quickly escalate into outright disputes between these entrepreneurs. The value and continuity of the company can be jeopardised by such a shareholder dispute. Shareholders can see their company, often their life’s work, destroyed in one fell swoop. This is especially true if one of the parties threatens to employ scorched earth tactics.

A timely approach and clear agreements are therefore crucial to prevent escalation and keep the company on track. It is very important to seek advice from solicitors who have extensive experience in corporate law at an early stage of a dispute between shareholders, when most options are still open. A solicitor can clarify the legal options and weigh them against other solutions for disputes between shareholders, without resorting to (costly) legal proceedings.

How can a solicitor help resolve a shareholder dispute?

In the event of a shareholder dispute, a corporate solicitor will help to immediately assess the legal situation. Based on this assessment, the powers of the parties, their rights in the event of disputes and the possible consequences of certain actions will be evaluated. Advice is then given on concrete solutions and legal steps to be taken. The formal decision-making process within the company is also supervised and ensured to comply with legal and statutory requirements. In this way, the dispute is not only resolved, but also correctly recorded in order to prevent further legal action or recurrence.

What can I do if a conflict arises between the shareholders in my company?

In the event of a shareholder conflict, it is important to act quickly before it affects the decision-making or continuity of the company. The first step is to assess the articles of association and any shareholder agreement. A commercial solicitor can help to interpret these provisions correctly from a legal perspective and advise on possible courses of action. It is crucial to work towards a solution that is workable for the company and legally sound.

Inquiry procedure in the event of a shareholder dispute

The inquiry procedure is a procedure before the Enterprise Chamber of the Amsterdam Court of Appeal in which shareholders (or certificate holders), the company itself, supervisory directors or employee organisations can request an investigation into the company’s policy. This is possible in the event of a shareholder dispute. To this end, the applicant must present facts and circumstances that give good reason to doubt the correctness of the policy.

Not every shareholder or certificate holder can initiate an inquiry procedure. The law provides for a regulation whereby holders of shares or share certificates must represent a certain percentage of the issued capital before they can submit such a request to the court.

Example:

In the case of a private limited company or a public limited company with an issued capital of 22.5 million euros, shareholders and certificate holders who hold 10% of the shares or certificates are entitled to submit an inquiry request. If the issued capital exceeds 22.5 million euros, the applicants must jointly hold at least 1% of the issued capital. Only in the case of a listed company must the applicants’ interest represent a value of at least €20 million if this is less than the requirement of 1% of the issued capital. In short, in practice it is the percentage of shares held by the applicant that counts, and not

Submitting a request to the Enterprise Chamber

If the request is upheld, the Enterprise Chamber may order an investigation into the company’s policy, for which one or more investigators will be appointed. Based on the outcome of that report, the original applicant may, within two months, submit a request to the Enterprise Chamber to determine that there has been mismanagement and, in this case, a shareholder dispute. In that case, the Enterprise Chamber may decide to take the following measures:

– suspension or annulment of a decision by the directors, supervisory directors, general meeting or any other body of the legal entity;

– suspension or dismissal of one or more directors or supervisory directors;

– temporary appointment of one or more directors or supervisory directors;

– (temporary) withdrawal or transfer of shareholders’ voting rights to an expert;

– temporary deviation from the provisions of the articles of association specified by the Enterprise Chamber;

– temporary transfer of shares for management purposes;

– dissolution of the legal entity.

If immediate measures are required in connection with the situation of the legal entity or in the interests of the investigation, the above measures may also be taken as provisional measures. Provisional measures may also be imposed prior to and during the investigation.

Dispute resolution

The law also provides for another solution to a shareholder dispute, known as statutory dispute resolution. Like the inquiry procedure, this procedure can be used in the event of unworkable relations between shareholders. This procedure is primarily intended for companies whose shares are not freely tradable, for example due to a blocking arrangement. There are two possible procedures: the expulsion procedure and the withdrawal procedure.

Expulsion procedure

In short, the expulsion procedure means that if a shareholder’s conduct harms the interests of the company to such an extent that the continuation of his shareholding cannot reasonably be tolerated, the other shareholder(s) may demand that this shareholder transfer his shares to them. The shareholder making this demand (expulsion) must hold one-third of the shares.

An expert is appointed by the court to determine the value of the shares in the event of expulsion. The parties are then obliged to offer or sell the shares at the price determined by the expert. If the articles of association or shareholders’ agreement checklist contain a clear formula for the shareholders’ agreement, this will certainly help and can prevent a lot of discussion in the event of a shareholders’ dispute and expulsion.

Withdrawal arrangement

In the case of a withdrawal arrangement, the opposite claim applies. In the event of withdrawal, a shareholder demands that his shares be purchased from him. In this case, the requirement to hold at least one third of the shares does not apply. With regard to the determination of the purchase price of the shares upon withdrawal, a special provision applies. When determining the price of the shares in a shareholder dispute, the court may apply a fair increase at the request of the claimant. The law also includes a separate arrangement for the withdrawal of shareholders with an interest of 95% or more: the buy-out arrangement.

Buy-out scheme

This also concerns the buy-out of shareholders, but in the case of a large shareholder who is saddled with small shareholders who own less than 5% of the issued share capital. The valuation is carried out by appointing one to three experts to determine the value.

In practice, a shareholder dispute may arise in which a minority shareholder does not wish to cooperate with a buy-out scheme. A minority shareholder may also be of the opinion that the way in which the major shareholder behaves within a company is reason enough to proceed with a buy-out. The law prescribes a buy-out scheme for both situations.

Split of shares

If the shareholders agree that it is better for them to go their separate ways and the business activities lend themselves to this, it is advisable to consider a split and resolve the shareholder dispute as effectively and quickly as possible. The assets of the company to be split will then be transferred to the acquiring legal entities under general title, which has the advantage that no exhaustive asset transaction needs to take place.

Resolving a shareholder dispute?

The solicitors at Fruytier Lawyers in Business in Amsterdam are experienced solicitors who can resolve your shareholder dispute professionally and with as little damage to the company as possible. For more information or no-obligation advice, please contact one of our solicitors specialising in corporate law and shareholder disputes.