That the corporate interests of a company are harmed through the actions of a pledgee holding the voting rights in respect of shares, does not in it itself increase support for a claim for deprivation of such voting rights as would be the case when claiming compulsory transfer of the actual shares - on the contrary, it appears.

Amsterdam District Court 4 May 2016 (ECLI:NL:RBAMS:2016:5819).

The relevant facts in this judgment are that the shares in the Dutch company were held by the claimant and a third party, who were both also the managing directors of the company. The company was party to a junior loan agreement. As security for the obligations under this junior loan agreement, the shareholders of the company granted, among other things, a right of pledge over the shares in the company in favour of a well-known financial institution. Following an event of default which is continuing, under the junior loan agreement, the voting rights on the shares were transferred to the financial institution.

After several years, the financial institution was requested by the claimant and its co-director to cooperate in convening a formal shareholders' meeting on a number of matters, including the dismissal of the claimant and its co-director as directors of the company and the subsequent appointment of new directors. The financial institution refused, stating it was not in the corporate interests of the company to replace the directors and that the voting rights did not permit it to convene a formal shareholders' meeting. The claimant asked the court to rule that the decision reached by the financial institution was not in the company’s best interests and that it was no longer possible to expect the financial institution to reasonably exercise its voting rights. The claimant requested the financial institution be deprived of its voting rights and that such voting rights be transferred back to the company's shareholders.

The court ruled that the requirements the law imposes on assignment of a claim for deprivation of voting rights are not materially different to the requirements for a claim for compulsory transfer of shares. The standard of conduct for either claim is composed of the following three elements: (i) it must concern conduct of the shareholder or pledgee, (ii) which harms the corporate interest of the company in such a way that (iii) exercising the voting rights on the shares by either the shareholder or pledgee can no longer be reasonably expected to continue. The second element in this standard of conduct is difficult to fulfil under both types of claim, as the pledgee has a legitimate (financial and practical) interest vested in the use of the voting rights. The court acknowledged that this interest may not always coincide with the interests of the company, but held that the corporate interest must sometimes give way to the vested interests of the pledgee in order to prevent the erosion of a share pledge as a form of security in financial transactions. In light of this judgment, caution should be exercised when assessing whether the conduct of a pledgee damages the company's corporate interests in such a way that its voting rights should be transferred back to the shareholders.