Specific performance of dismissal clause in shareholders’ agreement cannot be claimed M-C Brzezinski The court of appeal of Amsterdam recently delivered an interesting judgment regarding the question whether a reinforced majority for a dismissal resolution that has been laid down in a shareholders’ agreement can be observed. In joint ventures, the shareholders of the relevant BV (a Dutch private company with limited liability) may want to prevent the possibility that a managing director can be dismissed too easily. However, Dutch law does not allow the company’s articles of association to require a larger majority than two thirds of the votes cast, representing half of the issued share capital. It is generally assumed that parties are allowed to deviate from this maximum in a shareholders’ agreement. Therefore, such clauses are regularly included. The case handled by the court of appeal of Amsterdam concerned a dispute between four shareholders of a company named RedBlue. The shareholders were entitled to the share capital of RedBlue for 25% each, and three of them were also managing directors. In a shareholders’ agreement concluded among these shareholders, they had agreed that the resolution to dismiss a managing director requires a unanimous vote, cast in a meeting at which the entire issued share capital is represented. When at some point, three out of the four shareholders intended to dismiss one of the managing directors, he demanded a ban on passing the dismissal resolution in preliminary relief proceedings. The court in preliminary relief proceedings allowed the claim. In the court’s view, specific performance of a clause of this type can, in principle, be claimed. However, special circumstances may apply, implying that a shareholder cannot be required to fully comply with the agreement based on the principle of reasonableness and fairness that is to be observed within the company. This could occur if observing the agreement in full harms the interest of the company to an unacceptable degree. In the opinion of the court in preliminary relief proceedings, such circumstances were insufficiently evident in this case. On appeal, however, the court of appeal was of the opinion that sufficient indication for this could indeed be found - particularly the long-lasting disruption of the relationships within RedBlue’s board of managing directors - and therefore reversed the judgment by the court in preliminary relief proceedings. In the view of the court of appeal, it was sufficiently evident that the course of events had affected the board’s performance and as a result was detrimental to the interest of the company. The court of appeal held that the statutory maximum for the reinforced majority for dismissal resolutions guards against making the dismissal of a managing director too difficult or impossible. This provision serves the interest of the company. From that perspective, according to the court of appeal, an action for specific performance of a clause in a shareholders’ agreement, such as the one in question, that is aimed at preventing the possibility that a managing director/shareholder can be dismissed against his or her wishes even though the other shareholders (who, together, represent three quarters of the share capital) do wish for this dismissal, will soon have to be considered unacceptable according to the standards of reasonableness and fairness. This was the case here. The judgment by the court of appeal is based on the specific circumstances of this case and the court of appeal has not expressed its opinion on the question whether or not the contract clause in question is void based on being contrary to Dutch law and the articles of association. Nevertheless, this judgment confirms that when a clause such as this is inserted in a shareholders’ agreement, it is hard to predict in advance to what degree this clause can eventually be relied on. Finally, it can be noted that since the introduction of the “Flex BV” legislation in October 2012, it is possible for a BV’s articles of association to stipulate that, instead of the general meeting, a meeting of holders of shares of a certain class or designation may appoint a managing director. The corporate body appointing that director is then also authorized to dismiss said director. In such a way, each joint venture partner can appoint and dismiss its own managing director. It is necessary, however, that each shareholder with voting right has the possibility to take part in the decision-making process regarding the appointment of at least one managing director. This option could provide an alternative route to accomplish the result that a managing director/shareholder cannot be dismissed against his or her wishes.