Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/6.5.9.8:6.5.9.8 Deadlock

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/6.5.9.8

6.5.9.8 Deadlock

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.

As appears from the legislative history of proceedings for the settlement of disputes, proceedings for the settlement of disputes inter alia aim to resolve deadlock situations.1 In the event of a deadlock, there is an irretrievable breakdown of the relationship between shareholders. As a consequence of the deadlock, the decision-making process of the company is paralyzed.

One of the notorious cases that have led to both application for proceedings for settlement of disputes and inquiry proceedings is the case of Dodo Beheer BV.2 As follows from the facts of this case, a serious dispute arose between shareholders of Dodo Beheer BV. One of the shareholders, who was one of the managing directors as well, named Jan, requested to view the annual accounts but his request was denied by the others. Moreover, the others did not involve Jan when Dodo Beheer BV completed some major acquisitions. Subsequently, Jan started exit proceedings. The District Court of Arnhem deliberately did not investigate whether the conduct complained about was also caused by the attitude of Jan towards the others, but held that an unworkable situation was present in which Jan had become isolated in an intolerable way. The District Court order therefore rewarded Jan's claim under the exit proceedings as there seemed to be no other solution to solve the situation.

Remarkably, not only a claim under the exit proceedings was rewarded in the case of Dodo Beheer BV. The court considered that the optimal performance of Dodo Beheer BV would require the joint cooperation of all of its shareholders. The court remarked that Jan kept aloof from the company for a long time, which apathy frustrated the decision-making process. For instance, it was no longer possible to resolve outside of meetings as Jan was always absent. The court therefore also rewarded expulsion proceedings started by the co-shareholders against Jan.

Nonetheless, as already mentioned above,3 regularly the exit proceedings do not provide for a desirable solution in a deadlock situation. It is conceivable that the inquiry proceedings may provide a solution in this situation. This has already been acknowledged in the legislative history, when the legislator explained the purpose of the final remedy of temporary transfer of shares to a nominee that can be ordered in the inquiry proceedings:

"This remedy can especially provide a solution in cases in which the inquiry shows that the mismanagement results from a deadlock of equal groups of shareholders. In that case, proceedings for the settlement of disputes will not always be applied. After all, both groups of shareholders will then be able to file a claim against each other to transfer the shares. By the temporary transfer of shares to a nominee an independent third party will receive a decisive vote in the general meeting of shareholders, by which such a deadlock is broken and the company can again function normally."4

I will not further enter into the issue of the deadlock situation involving two 50% shareholders, for the reason that it falls outside the scope of this study.5

Deze functie is alleen te gebruiken als je bent ingelogd.