How to prevent shareholders disputes
Sometimes, shareholder disputes amongst shareholders can be prevented. After all, entrepreneurs are often already collaborating with other entrepreneurs. This can take on different forms. When an organizational form is chosen where shares are allocated (publicly traded company or private company with limited liability) it is important to think about the future. Because collaboration will sometimes lead to disputes. A shareholder dispute can be a big threat for the continuity of the company. It is important that an attorney is engaged to explore a dispute settlement.
Conflicts between shareholders can quickly escalate to downright rows between these entrepreneurs. This can jeopardize the value and continuity of the company. Shareholders can suddenly see their life’s work disappear. Especially if the other party threatens to use the scorched-earth policy.
TIP: It is essential that an experienced specialist in business law is consulted in an early stage of a shareholder dispute, when there are still a lot of viable options. This way, legal options can be presented and weighed against other solutions to solve a shareholder dispute.
Inquiry proceedings in the event of shareholder disputes
Inquiry proceedings are proceedings with the Enterprise Division of the Court of Appeal of Amsterdam where shareholders (or depositary receipt holders), the company itself, supervisory board members, or employees’ organizations can request an inquiry into the policy of the company. Inquiry proceedings can therefore be initiated when there is a shareholder dispute. The applicant has to put forward facts and circumstances that provide a valid reason to doubt an appropriate policy.
Not just any shareholder or depositary receipt holder can initiate inquiry proceedings. The law provides a regulation for this which requires that shareholders or depositary receipt holders represent a certain value of the issued capital before they can file an application for an inquiry. Would you like more information on initiating inquiry proceedings? Please contact Fruytier Lawyers in Business.
If the Enterprise Division upholds the application, it can order an inquiry into the policy of the company, and appoints one or more examiners. Based on the outcome of that report the initial applicant can file an application with the Enterprise Division within two months in order to determine that there was mismanagement, and a dispute in this instance. If that is the case the Enterprise Division can make the following provisions:
• Suspension or nullification of a decision of the directors, supervisory board members, general meeting or any other body of the legal entity;
• Suspension or dismissal of one or more directors or supervisory board members;
• Temporary appointment of one or more directors or supervisory board members;
• Temporary deviation from the provisions of the articles of association as indicated by the Enterprise Division;
• Temporary transfer of shares on the basis of a trust;
• Dissolution of the legal entity.
If the condition of the company or the interest of the inquiry require immediate provisions, the above-mentioned provisions can also be imposed as interim relief. Interim relief can also be imposed prior to and during the inquiry.
Dispute settlement procedure
The law also provides for another solution for shareholder disputes; the so-called dispute settlement procedure. Similar to the inquiry proceedings, this procedure can be used in the event of unworkable relationships between shareholders. This procedure is mainly meant for companies with shares that are not freely marketable, for instance because of transfer restrictions. There are two possible procedures: the squeeze-out procedure and the share buy-back procedure.
The squeeze-out procedure pertains to a shareholder who harms the interests of the company such that a continuation of his ownership of shares can no longer be reasonably tolerated. If this is the case, the other shareholder can demand that the shareholder harming the interests of the company transfers his shares to the other shareholder(s). The shareholders who demands this (squeeze-out) does have to own one-third of the shares.The District Court appoints an expert to determine the value of the shares. The articles of association or shareholders’ agreement can include a specific formula for the valuation of the shares. This can be very helpful and prevent a lot of discussion.
Share buy-back procedure
The claim in the share buy-back procedure is opposite of the squeeze-out procedure. In this case a shareholder demands that his shares are purchased from him. The requirement that the shareholders holds at least one-third of the shares does not apply here. In order to determine the purchase price of the shares a special rule applies. With the determination of the price of the shares the judge can apply a reasonable increase, at the request of the claimant.
The law furthermore contains a separate provision for shareholders with an interest of 95% or more: the buy-out procedure.
This also concerns the buy-out of shareholders, but in this case it involves a large shareholder who is stuck with small shareholders who own less than 5% of the issued share capital. The valuation takes place by appointing one to three experts who determine the value.
If the shareholders do agree that it is better that they split, and the business activities are suitable for that, the option of a division can be considered. In that event, the assets of the company to be divided will be transferred to the acquiring company by universal title. The advantage of this is that no exhaustive assets transaction has to take place.
Solving a shareholder dispute?
The attorneys at Fruytier Lawyers in Business in Amsterdam are experienced lawyers who can solve your shareholder dispute professionally, with as little damage to your company as possible.
Call +31(0) 205 210 130 or complete the form below and discover what we can do for you.