Changes to the corporate dispute settlement regime and inquiry proceedings
On 14 April 2023, the Council of Ministers decided to submit the preliminary draft of a legal act amending the corporate dispute settlement regime and inquiry proceedings (the “Preliminary Draft”) to the Council of State for advice. Following a positive opinion from this advisory body, the Preliminary Draft may be submitted to the House of Representatives.
The corporate dispute settlement regime is a mechanism to settle conflicts between shareholders, for instance by unbundling shareholdings. Among other things, the corporate dispute settlement regime consists of the expulsion and exit mechanism.
Under the expulsion regime, a (group of) shareholder(s) can claim from another shareholder to transfer its shares. The exit scheme is an opposite figure: here, a shareholder can claim that his shares are taken over and he is thus allowed to exit. This is possible if this shareholder’s interests are harmed by his fellow shareholder(s). There are also inquiry proceedings, which focus on the course of affairs and policy within the company and the restoration of relations within the company.
The current corporate dispute settlement regime has been criticised in recent years for being insufficiently effective and efficient for resolving shareholder disputes. In this blog, we outline the proposed changes in the Preliminary Draft in relation to the existing arrangements.
Changing the criterion for expulsion of a shareholder
Under the current expulsion regime, a forced transfer of shares can be claimed if the shareholder in question, through his conduct, harms the company’s interest to such an extent that his shareholding can no longer reasonably be tolerated. This must consist of conduct in the capacity of shareholder. The Preliminary Draft puts an end to this requirement. Under the rules of the Preliminary Draft, conduct by a shareholder other than in his capacity as shareholder (for example as a director or competitor of the company) is also relevant for the expulsion procedure. Accordingly, a shareholder who competes with the company and damages the company’s interest in doing so may be forced to transfer his shares to fellow shareholders.
Changing the criterion for exit of a shareholder
The exit scheme also covers a forced transfer of shares, but at the initiative of the exiting shareholder. The exiting shareholder must have been harmed in his own rights or interests by fellow shareholders to such an extent that continuation of his shareholding can no longer be required of him. Disproportionate and unfavourable dividend policy for a minority shareholder could be an example. The Preliminary Draft links this claim to corporate reasonableness and fairness. The conduct of the co-shareholders must be so contrary to reasonableness and fairness that the resigning shareholder can no longer be required to remain a shareholder.
Streamlining the dispute resolution process with the inquiry proceedings
The inquiry proceedings always focuses on the policy and course of events within companies/legal entities. In inquiry proceedings, the Enterprise Chamber can intervene in the organisation of the company, such as by ordering a temporary transfer of shares for the purposes of management. It cannot order a definitive transfer of shares. For this purpose, the Preliminary Draft proposes a simplified procedure before the Enterprise Chamber that can lead to a definitive transfer of shares.
As soon as the Enterprise Chamber rules that there is an incorrect policy or mismanagement, parties can proceed to the simplified corporate dispute settlement regime before the Enterprise Chamber.
The Preliminary Draft thus aims to achieve an efficiency gain because the Enterprise Chamber has already studied the relevant dispute in the context of the previous inquiry proceedings. There is no appeal against the outcome of the simplified corporate dispute settlement regime.
Amendment of access requirements to the inquiry proceedings for capital providers of listed companies
Dutch law sets requirements to be admitted to the inquiry proceedings. Under the current regime, capital providers of listed companies with an issued capital exceeding €22.5 million must represent at least 1% of the issued capital to be admissible in inquiry proceedings. In practice, listed companies tend to assign their shares a very low nominal value (e.g. €0.01) that is disproportionate to the current market value. A provider of capital must then acquire a minimum of 22.5 million shares at the market value of those shares to gain access to the inquiry proceedings. The Preliminary Draft seeks to remove this artificial threshold by introducing an alternative admissibility requirement whereby capital providers must represent at least ‘€20 million market capitalisation’ of the company.
The Preliminary Draft is another step in the right direction to deploy dispute resolution as a real and effective tool to permanently unbundle fractured shareholder relations. Should you have any questions as a result of this blog, or should you wish to discuss your options for resolving your business dispute, please feel free to contact us.