Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/6.5.9.2:6.5.9.2 Dismissal of a managing director

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/6.5.9.2

6.5.9.2 Dismissal of a managing director

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

The Hooymans case brings us to the first category of cases. In several cases, courts held that the dismissal of a managing director who is also a shareholder may justify the exit of that shareholder. Therefore, this can now be seen as standing case law.1 As the below-mentioned case law shows, the courts have granted an exit in the situation that the company has only a few shareholders who are also members of the management board. This type of company can be characterized as a quasi-partnership. A parallel can be drawn with English case law, in which it recognized that the unfür prejudice remedy can be used if the shareholder of a quasi-partnership is dismissed as a director.2

In my view, in these dismissal cases, a relevant factor to be taken into account by the court is whether the shareholders entered into their cooperation on the condition that each of them also participates in the management of the company. In other words, management participation must be an essential part of the basis on which the participants cooperate within the company.3 This fundamental understanding can be proved by formal agreements, but also by the facts. As § 3.3.9.2 shows, the type of company in which this problem plays a role is usually the quasi-partnership. Whereas quasi-partnerships are mainly small and mediumsized companies, the aforementioned condition is often implicit and not included in a formal agreement. In my view, this approach is more appropriate than investigation whether the dismissed managing director is prejudiced in his rights to information about the company, as suggested by Bulten.4

In this context, it is relevant to mention that, according to Dutch law, a managing director can be dismissed at any time by the body of the company that is authorized to appoint managing directors.5Usually, managing directors are appointed by the general meeting with a majority of the votes cast. If the majority of shareholders wish to dismiss the minority shareholder as a managing directors in principle there are no obstacles to do so. Unlike in Germany, it is not possible to restrict the power to dismiss managing directors by stipulating in the articles of association that dismissal is only possible if important reasons are present.6

The following cases can be mentioned:

1.

The Hooymans case is about a group of companies in the field of construction in which three brothers were associated.7 The brothers held shares in two BVs. Each brother held about one third of the shares. Moreover, the threesome participated in the management of the companies as well. After a while, difficulties between the brothers arose and eventually led to a severe disturbed relationship. Two of the brothers holding the majority of shares dismissed the third brother as managing director of the companies. As darks clouds gathered above them, the third brother started competing activities by way of a new company. After a while, the third brother started exit proceedings against the two others.

The District Court of Den Bosch held that the structure of the companies was chosen in such way that not only the shareholdings were equally divided, but also the management was equally divided between the brothers. The dismissal of the third brother as managing director would deprive him from one of the key elements of the initial structure. Deprived from a role in the daily management of the company, there would also be the risk that he would be ignored as a shareholder or even be outvoted. The District Court held that this conduct prejudices the brother's interests to such an extent that the continuation of his shareholding could no longer reasonably be expected and ordered for the transfer of his shares to his brothers.

The OK upheld the judgment of the District Court. The OK took into regard the specific circumstances of the case, such as the troublesome relationship between the brothers, the opinion of two of the brothers that the third brother lacked the skills needed for the business, and more specifically the initial role of each brother as both shareholder and managing director.

2.

The case of R Beheersmaatschappij BV concerned a family company as well, in which four brothers equally took part as shareholders and managing directors.8 After about thirty years, the relationship between three of the brothers and the fourth one broke down leading to the dismissal of the fourth brother. The District Court of Breda considered that for many years ownership and management of the company had been equally divided between the foor brothers and that now confidence had broken down. Moreover, the court took into consideration that it already provided a judgment in earlier proceedings with respect to the dissolution of the employment contract, stating that the dismissal (from a labour law perspective) was manifestly unreasonable and, consequently, rewarded damages in that earlier judgment. Finally, the court considered that as appears from the facts, the situation prescribed by Art. 2:343 DCC was present and ordered the exit of the fourth brother.

3.

In line with the aforementioned case law, in the case of Sign Top, the District Court of Utrecht rewarded a claim under the exit proceedings.9 This case is about a company with two shareholders (not related as family), one of them holding a large majority of the shares. The minority shareholder was never appointed as a managing director, but factually took part in the management of the company. After sixteen years of being employed with the company, the minority shareholder was dismissed at the instigation of the majority shareholder. The court considered that the relationship between the shareholders was deeply troubled and, therefore, ordered the transfer of the shares of the minority shareholder.

4.

Another recent case involved a company with three shareholders, each holding one-third of the shares, which shareholders were managing directors of the company as well.10 Quite suddenly, one of the managing directors was dismissed for the reason that he was not qualified to be a managing director. The Court of The Hague drew the conclusion that the relationships between the shareholders had broken down, that continuation of the shareholding of the dismissed shareholder was not a realistic option and that this case resembled the Hooymans case. Therefore, the court rewarded the exit claim.

Deze functie is alleen te gebruiken als je bent ingelogd.