7.6.2 Debate on introduction of appraisal rights

The debate on whether there has to be an appraisal right onder the same circumstances the majority shareholder is entitled to squeeze out the minority shareholder dates from before the enactment of Artt. 2:92a and 201a DCC. As appears from the legislative history of Artt. 2:92a and 201a DCC, the legislator held a reserved position towards the introduction of an appraisal right as mirror image of the squeeze-out right. According to the Minister, the appraisal right could have the undesired effect of repeated and costly proceedings involving the valuation of the shares.1 In addition, the Minister stressed that introduction of the exit proceedings takes away the need for an appraisal right.2

In response to this, Westbroek doubted whether the legislative proposal reflected a decent balance, allocating a squeeze-out right, yet lacking an appraisal right. Westbroek contended that adding the rule that the majority shareholder must squeeze out all minority shareholders at same time could overcome the argument used by the Minister.3 In the situation that the presence of some minority shareholders is still desired, a solution could be offered by introducing the option of waiver in statute. In Westbroek's view, the argument of the costs does not have to be decisive, as the court has the discretion to give an order with regard to the costs as it thinks flt.4 Further to this rule, the court could order an unreasonable shareholder to pay the costs of the expert(s).

The Minister of Justice countered the argument of Westbroek by stating that Westbroek's solution has the undesirable effect that a majority shareholder is factually forced to squeeze out all minority shareholders, even if just one small minority shareholder wishes to exit.5 In my opinion, this argument is not overriding, as the number of shareholders entitled to this appraisal right is small anyhow and also disregards the proposal for a statutory waiver, which could lead to the desired result.

Nevertheless, the Minister remarked that introduction of the appraisal right can be reconsidered when experience has been gained with the squeeze-out proceedings.6 Besides, I remark that up to now, no such reconsideration has taken place.

Houwen agreed with the arguments presented by Westbroek.7 Houwen held that the legislative proposal was unbalanced. He argued that an appraisal right could strengthen the proportionality of the squeeze-out right.8 He recommended the introduction of an appraisal right, but held that the squeeze-out right and the appraisal right should be restricted to the situation that a group of companies is present. To support this criticism, he refers to comparable proceedings in foreign countries, all containing both a squeeze-out right and an appraisal right in the situation of a group of companies. I am not convinced by the arguments used for this restriction and would like to stress that this leads to discriminatory and disputable differences. Houwen opposed the Minister, by stating that the exit proceedings do not always offer a desired solution, as the conditions to invoke these proceedings fundamentally differ from a (fixed) appraisal right and would not fit in with the circumstances of the situation. I agree with this view.

The discussion about the introduction of an appraisal right in the circumstances that a majority shareholder holds at least 95% of the shares of the company continued after the enactment of Artt. 2:92a and 2:201a DCC. In 2002, Bartman contended that the objection of the Minister of Justice implying that the repeated determination of the price of the shares is a burden can be removed by fixing a term in which the appraisal right can be used.9 I think this suggestion is worth considering. Similar to the rules on the appraisal right in the situation of a cross-border merger or conversion, a period of one month could be taken. Similar to the appraisal right in the situation of conversion, this period could start at the day the minority shareholder is noticed by the company of the fact that a majority shareholder or two or more group companies have reached the threshold of 95% of the issued capital. Majority shareholders or group companies have to be obliged to notice the company once they reach the threshold.

After publication of the reports of the Committee Winter and the proposed Thirteenth Company Law Directive, Hermans and I argued that the introduction of an appraisal right applying in the same circumstances as mentioned in Artt. 2:92a and 2:201a DCC should be reconsidered.10 Arguments for this reconsideration were derived from the justification for appraisal rights, as elaborated in the reports of the Winter Committee.11 For the reason that modification of the existing sections leads to badly readable sections, the Dutch legislator chose to introduce a new section implementing the appraisal right pursuant to the Thirteenth Company Law Directive.12 Currently, the legislator has not revealed any intention for modification of Artt. 2:92a and 2:201a.

In 2004, Timmerman and Doorman drew attention to the Jack of the mirror image of the right to squeeze out the minority shareholder as well.13 In 2005, Wezeman concurred that an appraisal right in the situation of a 95% majority shareholder is desired.14 Wezeman pointed out that an appraisal right can raise issues about how to finance the purchase of the shares. He put that a first step in solving this problem, would consider the (at then) upcoming BV law review, which includes less strict rules regarding the capitalization of the company.15 According to Wezeman, a key to solving the problem is to confer on the minority shareholder the right to sell his shares to the company itself. I subscribe to this suggestion, though I admit that even under the new rules it is not always possible to purchase own shares. In my opinion, the same conditions as contained in Art. 2:343 paragraph 1 DCC, sentences three and four, could govern the purchase of own shares by the company in case of the appraisal right.16

A possible complication addressed by Wezeman is worth mentioning. This regards the situation that the majority shareholder may try to prevent reaching the threshold for application of the appraisal right is reached. For instance, the majority shareholder can sell his shares to related persons. In his opinion, suitable roles have to deal with this complication as well. In my opinion, the solution for this problem is already contained in Art. 2:210a DCC. When joint group companies reach the 95% threshold, the appraisal right has to be available. I think that it would go too far to extend he scope of the appraisal rights to other related persons besides group companies, as it would make the squeeze-out and sell-out proceedings less balanced.

With respect to the appraisal right as the quid pro quo for the squeeze-out proceedings, reference can also be made to the case of Bramelid and Malmström.17 In this case, the European Commission held that the Swedish squeeze-out proceedings do not conflict with Art. 1 First Protocol ECHR. In order to reach this conclusion, the Commission amongst more points at the fact that in addition to the squeeze-out proceedings, Swedish law also provides for its counterpart the sell-out proceedings:

It is hard to say whether the Jack of an appraisal right in this situation implies a conflict with Art. 1 First Protocol ECHR, taking into regard that States have a margin of appreciation with respect to the introduction of rules regarding deprivation of possessions. In the Versatel case, A-G Timmerman submitted that no violation of Art. 1 First Protocol ECHR is present.19

Nonetheless, in my view, introducing the appraisal right in the situation that the squeeze-out proceedings can be used is desirable. An appraisal right could make the squeeze-out proceedings more balanced and would form a reasonable quid pro quo. I do not assume that this appraisal right would form an unreasonable financial burden for holders of at least 95% of the issued capital, who already succeeded in financing the overall majority of the shares. I also point to the fact that a shareholder holding less than 10% of the issued shares will not be able to start inquiry proceedings. He is therefore offered less protection than larger minority shareholders, unless he is in the unusual circumstance that he holds shares with a nominal value of at least €225,000 or is qualified to start inquiry proceedings because the articles of association of the company allow this.