Expulsion of a Co-Shareholder (Section 2:336a DCC)

Petitioning Parties

Pursuant to Section 2:336a(1) of the Dutch Civil Code (DCC), expulsion may be requested by one or more shareholders who individually or jointly hold at least one-third of the shares. Section 2:336a(2) DCC provides that neither the company itself nor its subsidiaries may submit a request for expulsion, even if they are shareholders in the company.

Requirements

For an expulsion request to be granted, it is required that the shareholder, through his conduct, harms or has harmed the interests of the company to such an extent that the continuation of his shareholding can no longer reasonably be tolerated (Section 2:336a(1) DCC). This standard consists of three elements. These elements are: (i) the conduct criterion: the matter must concern conduct of the shareholder; (ii) the prejudice criterion: there must be prejudice to the interests of the company; and (iii) the reasonableness criterion: the continuation of the shareholding can no longer reasonably be tolerated.

The conduct criterion concerns acts performed by the shareholder, whether or not in his capacity as shareholder. Omissions also fall within the scope of this criterion. The addition of the words “whether or not” constitutes an expansion compared to the previous law, under which only conduct performed in the capacity of shareholder could be taken into account. As a result, actions of the shareholder as a director (of the company itself or of another company) or in a private capacity could not play a role in expulsion proceedings, even if such actions caused serious harm to the company. For example, carrying out competing activities as a director of another company did not qualify as acting “in the capacity of shareholder”. This limitation was considered undesirable and has therefore been removed by the legislature.

The prejudice criterion expresses that the shareholder’s conduct must harm or must have harmed the interests of the company. For expulsion, it is therefore insufficient that only the interests of the co-shareholder(s) (including the petitioning co-shareholder(s)) or of other parties have been harmed. According to the legislature, troublesome or even unacceptable conduct by a shareholder does not in itself constitute a reason to expel that shareholder.

Finally, it is assessed whether the continuation of the shareholding can no longer reasonably be tolerated. In this respect, the Enterprise Chamber assesses whether the shareholder’s interest in retaining his shareholding outweighs the company’s interest in his expulsion. Only where the interests of the company carry greater weight can expulsion be justified.

Case law shows that grounds for granting an expulsion request may include that: (i) a shareholder, without reasonable grounds, consistently votes against resolutions and thereby blocks decision-making within the company, causing the continuity of the company to be endangered; (ii) decision-making within the company is paralysed by seriously disturbed relations between shareholders, where the efforts that may reasonably be expected are not made and insufficient cooperation is provided in order to reach a solution necessary for the company; (iii) a serious deadlock exists between shareholders at both board and shareholder level and external relations have also become involved in the conflict; (iv) a shareholder competes with the company; or (v) external financing necessary for the continued existence of the company will only be provided if the conflict between the shareholders is resolved.

Procedure Following Granting of the Request

In the decision in which an expulsion request is granted, or in a subsequent decision, the Enterprise Chamber usually appoints one or more experts who issue a written expert report regarding the price of the shares (Section 2:339(1) DCC). The Enterprise Chamber and the expert must, when determining the price, take into account any provisions in the articles of association or contractual arrangements between the parties regarding the determination of the price, unless those arrangements would result in a manifestly unreasonable price (Section 2:340(3) DCC). Appointment of an expert may be omitted where the parties agree on the valuation of the shares, or where the articles of association or an agreement contain a clear valuation standard and the Enterprise Chamber is able, on that basis, to determine the price without further inquiry (Section 2:339(3) DCC). After the expert has issued the report, the Enterprise Chamber determines the price of the shares in a second decision (Section 2:340(1) DCC).

In this second decision, the Enterprise Chamber orders the shareholder to be expelled to transfer the shares to the petitioner against payment of the purchase price as determined. Payment of the purchase price must in principle be made “in cash” (Section 2:340(4) DCC). This means: immediately and in money. The respondent must transfer his shares to the petitioner within two weeks after a copy of the decision referred to in Section 2:340(1) DCC has been served on him (Section 2:341 DCC). Simultaneously, the petitioner must pay for the shares at the price determined.