Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/6.2.4:6.2.4 Deficiencies of the former proceedings

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/6.2.4

6.2.4 Deficiencies of the former proceedings

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.

Opposed to the expectations, proceedings for the settlement of disputes did not offer the desired cure for arguing shareholders. Over the years, the proceedings have rarely been used. More than a decade after its introduction, the amount of reported cases was fifteen, which amounts to about one case a year.1 The proceedings were faced with a barrage of criticism in legal literature. In legal literature,2 several deficiencies of the current proceedings for settlements of disputes are acknowledged. In short, these deficiencies are the following:

1.

A major stumbling block was the practice of almost endless proceedings, which was the result of strict procedural mies. The proceedings consisted of two stages in which a judgment is issued. In the first stage a judgment may reward (or deny) a claim for exit or expulsion. Only if the first stage judgment was irrevocable, one or three expert(s) could be appointed, which expert(s) were needed to value the shares. The judgment of the District Court rewarding the expulsion or exit was open to appeal at the OK and to cassation in the Supreme Court. During the appeal and cassation, the judgment was not irrevocable. Only if the first stage was fmalized, the experts were allowed to start the valuation. As it turned out, this could take several years. After the expert report regarding the value of the shares was presented, the District Court determined the price of the shares in a second judgment. This second judgment was also open to appeal at the OK and to cassation in the Supreme Court. None of all aforementioned judgments could be declared provisionally enforceable. Consequently, many proceedings lasted for years. A notorious example is the Hooymans case. This case was brought before the court on the 8th of November 1993. In February 2010, more than fifteen years later, the case was still pending at the OK.3Willems, former president of the OK, stated that he is personally growing old with this case, while the end of this case is still not foreseeable.4

2.

Disputes between shareholders may lead to a decrease in the companies' value and, in connection therewith, to a decrease of the value of the shares. In proceedings for the settlement of disputes, the shareholder receives a price for his shares, which value is, in principle, determined on the transfer date. The price of the shares could not be adjusted for any decrease of the value of the company due to the conflict.

3.

For damages, a shareholder had to start separate civil proceedings. Though the proceedings for damages and proceedings for settlement of disputes could be combined before the same District Court of first instance, the discerned proceedings had to be brought before different courts in appeal. With respect to claims for damages, the (regular) Court of Appeal (Gerechtshof) is the competent appeal court. For proceedings for the settlement of disputes the OK is the competent appeal court. In appeal, the OK only had jurisdiction with respect to proceedings for the settlement of disputes and not with respect to claims for damages.5 Moreover, it was doubtful whether a loss due to the decrease of the shares' value could be claimed at all, as this would represent a claim for reflective loss.

4.

In practice, it turned out that disputes between shareholders were often dealt with in the inquiry proceedings, in which the OK assesses these matters in the first and only instance.6 In proceedings for the settlement of disputes, first instance is at the District Court. A District Court is not a specialized but a general court. Because the OK is a highly specialized court, especially with respect to disputes between shareholders, it would make sense to have disputes between shareholders heard by the OK, by skipping first instance at District Court.

5.

The proceedings did not seem to offer a proper solution to disputes that affect the interests of holders of convertible bonds, options or warrants and the interests of holders of rights of usufruct or pledge on shares.

6.

The valuation date was fixed on the day of transfer of the shares. A more flexible date would be more convenient in order to overcome valuation issues in the event that the value of the shares has decreased due to prejudicial conduct.

7.

The scope of the expulsion proceedings would be too rigid, as it only regards conduct performed in the capacity of shareholder and does not regard conduct in any other capacity, such as competing activities. A broader scope would better protect both the company and its shareholders.

8.

In the event that foreign defendants are involved, the rules regarding the competency of the court were unclear.

9.

The company was not entitled to start expulsion proceedings and, vice versa, a shareholder could not start exit proceedings against the company. Moreover, a claim onder the exit proceedings could not be based on prejudicial conduct by the company itself.

Deze functie is alleen te gebruiken als je bent ingelogd.