On October 1 2012 the Act on Simplification and Flexibility of the Law on Limited Liability Companies entered into force. The act includes significant amendments to the rules applicable to limited liability companies, including with regard to the statutory dispute settlement rules applicable to shareholders.
The Law on Limited Liability Companies already included dispute settlement rules. However, the rules were rarely used as the procedure took a long time (the few relevant cases lasted for an average of five years). Thus, the dispute settlement rules became a 'dead letter' in Dutch corporate law. The main aim of the amendment is to speed up proceedings and to make the rules an effective instrument for shareholders.
Broadly, the rules can be divided into:
- rules regarding a claim by one or more shareholders to expel a shareholder; and
- rules regarding a claim by a shareholder to have one or more shareholders take over its shares.
A claim to expel can be made if the interests of the company are harmed in such a way that it would be unreasonable to allow the continuation of shareholdership. Takeover claims can be made if the claimant shareholder's interests or rights are harmed in such a way that the continuation of its shareholdership cannot reasonably be required. Pursuant to the rules, the competent court can order the transfer of shares against a (reasonable) price. In principle, the rules do not apply if the company's articles of association or shareholders' agreement include specific dispute settlement rules for shareholders.
The new act includes the following key amendments with regard to the dispute settlement rules:
The procedural rules may provide for faster results, as:
- the court can declare its order to transfer the shares to be immediately enforceable. It is expected that shareholders may use this legal instrument more frequently than before, given that an actual transfer can take place after a ruling at first instance; and
- it is no longer possible to file an interim appeal against the court's decision that the claiming shareholder has a good cause of action.
The claiming shareholder has more instruments to safeguard or enforce its rights in the framework of these proceedings, as:
- the shareholder can file connected claims in these proceedings (eg, a claim for damages);
- the shareholder can request provisional measures from the court, including the provisional transfer of shares;
- in case of a takeover claim, the shareholder can request the court to raise the price of the shares to be transferred as compensation for damages caused by the other shareholder. In this respect, the court will assess whether the actions of the other shareholders lowered the value of the shares and whether this decrease should apply to the claiming shareholder; and
- the shareholder with a takeover claim can also file its claim against the company, subject to statutory share buy-back requirements.
There is more room for parties to apply their own arrangements, as:
- the court is not required to appoint experts to determine a price, but will determine this price itself if the parties agree on the valuation, or if the articles of association or shareholders' agreement includes a clear and reasonable pricing mechanism. If the court appoints experts, these experts must take such pricing mechanism into account. This may also lead to obtaining a decision more quickly;
- the articles of association or shareholders' agreement can confer jurisdiction on another court or refer to arbitration; and
- if the parties agree that shares will be transferred, the court can be asked to determine the price for such shares. In such procedure, parties can request the court to give certain instructions to the experts regarding the valuation of shares.
The new dispute settlement rules may result in an increase in dispute settlement proceedings between shareholders. The amendments will considerably shorten the duration of such proceedings, improve the position of the claiming shareholder and give parties the option to agree alternative solutions. One of the most important amendments seems to be that the claiming shareholder in a takeover claim can claim damages related to the decreased value of the shares resulting from the damaging actions of other shareholders by requesting an increase of the share price. The claiming shareholder need not institute separate proceedings to claim compensation for such damages. Although it remains to be seen how the new dispute settlement rules will work in practice, they are now better equipped to act as an effective instrument for disputing shareholders.
For further information on this topic please contact Joost Heurkens or Leonore Bruining at Clifford Chance LLP by telephone (+31 20 711 9000), fax (+31 20 711 9999) or email (email@example.com or firstname.lastname@example.org).