9.2.2 Which are the legal standards governing the relationship between the provider of capital without the right to vote and the company, its management board and the company’s providers of capital with voting rights?

In Chapter 7, I answered the question which legal standards govern the relationship between the provider of capital without the right to vote and the company, its management board and the company’s providers of capital with voting rights. In addition to the law and the articles of association, these internal relationships within the BV are also governed by the open standard of corporate reasonableness and fairness. Corporate reasonableness and fairness can for instance complement or correct these internal relationships.

This open standard derives its substance from general principles distilled from jurisdiction. Koelemeijer1 outlines eight factors which may influence the judge’s balancing of interests and which may play a role in defining the requirements for reasonableness and fairness in concrete cases, namely (i) the capacity of the party (parties) involved in a conflict of interests, (ii) the influence of the party (parties) involved in a conflict of interests, (iii) dual roles or contrary interest of the party (parties) involved in a conflict of interests, (iv) the nature and content of the decision, (v) the consequences of the decision or the behaviour of the party (parties) involved, (vi) the compensation for the consequences of a decision to the party (parties) involved, (vii) the nature of the company, and (viii) the agreement between the party (parties) involved. The prevailing sentiment in the literature is that testing against reasonableness and fairness is marginal. I do not regard holders of depositary receipts of shares without the right to attend general meetings as belonging to the circle of stakeholders, because the will of the company is not aimed at this type of involvement. The articles of association do not attach the right to attend general meetings to such depositary receipts.

Several themes in corporate reasonableness and fairness are of particular importance to the provider of capital without voting rights who belongs to the circle of stakeholders. These themes are: (i) the principle of equality, (ii) the protection of minority shareholders, (iii) resolutions affecting the rights to profits and/or reserves, (iv) the mutual relations between shareholders, (v) the duty of care by (the management board of) the company towards the provider of capital without voting rights, (vi) the right to information of the provider of capital without voting rights, and (vii) the duty of care by the provider of capital with (decisive) voting rights towards the provider of capital without voting rights. It is evident from jurisdiction that these themes are often intermixed.

As far as the principle of equality is concerned, a distinction between shares of different classes or indications is allowed, which also holds true for shares without voting rights. If such distinction exists, then there is no breach of the principle of equality as referred to in Article 2:201, paragraph 1 CC. Making a distinction between holders of shares of the same class or indication is not permitted. The principle of equality as referred to in Article 2:201, paragraph 2 CC in my opinion also applies to holders of depositary receipts with and without the right to attend general meetings and to holders of participation certificates. For the latter, the basis therefor is Article 2:8 CC.

The jurisdiction states that depending on the circumstances of the case, there can be a duty of care by holders of majority shares towards holders of minority shares. Relevant circumstances are the nature of the cooperation, the closed or private nature of the BV and family relations. The interests of all shareholders and the company will have to be taken into account. The question is whether these interests are not affected proportionately. If such relevant circumstances occur, there may rather be a case of conflict of interest. In that case, there is a higher duty of care. In answering the question whether there is an inadmissible conflict of interests and disproportionate breach of interests, the extent of openness and supply of information is relevant. These rules to protect holders of minority shares to my mind apply equally to the providers of capital without voting rights belonging to the circle of stakeholders. In addition to said relevant circumstances, for the interpretation of the duty of care the corporate structure should be considered, the extent to which the provider of capital without voting rights provides capital and the extent to which such provider of capital has control in the company, despite the absence of voting rights, such as the right to appoint managing director(s) or supervisory board member(s).

As far as the decisions affecting the rights to profits and/or reserves are concerned, three relevant themes can be distinguished for the providers of capital without voting rights belonging to the circle of stakeholders: (i) reserving of profits, (ii) resolutions on the remuneration of managing directors and supervisory board members, and (iii) other resolutions affecting the rights to profits and/or reserves. For the decision making regarding profit reservation, I would like to follow the rules formulated by Bier2 in respect thereof for the providers of capital without voting rights as well, insofar as the nature of the legal concept without voting rights is not contrary to it.3 Case law stipulates that the general meeting must observe reasonableness and fairness towards those with rights to profits in establishing the remuneration of managing directors and supervisory board members. It is my opinion that in said rule ‘those with rights to profits’ may also be read as providers of capital without voting rights, provided that they belong the circle of stakeholders. Insofar as no specific protection provision is applicable, the providers of capital without voting rights belonging to the circle of stakeholders may derive protection from corporate reasonableness and fairness in case of resolutions by the general meeting affecting their rights to profits and/or reserves (distributions).

As far as the mutual relations between shareholders are concerned, and more specifically the relationship between holders of minority and majority shares, on the one hand the position of the holder of minority shares implies that he has to accept resolutions that are disagreeable to him. On the other hand, the holder of majority shares may not abuse his power. The majority shareholder must also take the reasonable interests of the minority shareholder into account when casting his vote in the general meeting. The foregoing also applies to the relationship between shareholders and other providers of capital without voting rights belonging to the circle of stakeholders.

I think that the duty of care developed in case law by (the management board of) the company towards minority shareholders and holders of depositary receipts also applies to the providers of capital without voting rights belonging to the circle of stakeholders. The interpretation of such duty of care depends on the circumstances of the case and the nature of the legal concept without voting rights.

The right to information pursuant to Article 2:217, paragraph 2 CC in my opinion belongs to the shareholder without voting rights, the holder of depositary receipts with the right to attend general meetings and the shareholder who has no voting rights because they have been transferred to the usufructuary or pledgee. This does not apply to the holder of depositary receipts without the right to attend general meetings. After all, he has no right to attend general meetings. Nor can the holder of a participation certificate derive rights from Article 2:217, paragraph 2 CC, unless the participation provisions provide otherwise.

It seems to me that the provider of capital without voting rights belonging to the circle of stakeholders, in exception to the main rule of Article 2:217, paragraph 2 CC, due to special circumstances has a right to information (outside the general meeting), based on corporate reasonableness and fairness. In my opinion, the ASMI ruling leaves some scope for discussion. However, because of the provisions of Article 2:201, paragraph 2 CC this will have to be treated with reservation. The special circumstances are mainly to be found in transactions (i) with a potential contrary interest or a conflict of interests, (ii) contrary to corporate interests, and (iii) entered into under circumstances that do not speak for themselves at first sight. The special circumstances are all the more consequential in case of a family company.

The provider of capital with (potentially) decisive voting rights may be required to inform himself adequately prior to the general meeting. In exercising his right to cast his (decisive) vote, he will have to inform hiself adequately on (i) the knowable consequences of his voting behaviour to the company, and (ii) the knowable consequences to and the legitimate interests of the providers of capital without voting rights belonging to the circle of stakeholders as referred to in Article 2:8 CC.

The provider of capital with (decisive) voting rights will have to be particularly watchful in the presence of a personal interest conflicting with the interests of the company and of the providers of capital without voting rights belonging to the circle of stakeholders. The provider of capital with (decisive) voting rights is encumbered with a special duty of care, namely that he must not put his own interest before that of the company and of the providers of capital without voting rights. The provider of capital with (decisive) voting rights exceeds the bounds of the admissible if, in exercising his right to vote, he damages the interests of the company and/or of the providers of capital without voting rights belonging to the circle of stakeholders disproportionately.