Legislative bill to amend shareholder dispute resolution procedure

On 21 April 2023, the legislative bill on the amendment of the dispute resolution procedure for shareholders and clarification of admissibility requirements for inquiry proceedings (the "Wagevoe Bill") was submitted to the Council of State (Raad van State) for advice. On 28 June 2023, this body issued its opinion thereon. Below, a number of important topics of the Wagevoe Bill are discussed.

Background
Conflicts among shareholders within Dutch private limited liability companies (besloten vennootschappen met beperkte aansprakelijkheid) have always been a persistent issue. The Netherlands hosts a considerable number of private limited liability companies, totalling over 435,000, engaged in diverse commercial endeavours. These companies encompass a range of stakeholders, including personnel, directors and shareholders. Notably, a significant proportion of Dutch private limited liability companies essentially operate as partnerships involving colleagues, friends and/or family members. Within private limited liability companies, the stakeholders often holds the role of director as well as shareholders. Cooperation is paramount in private limited liability companies. However, disputes may arise between shareholders for a variety of reasons. An underlying dispute between shareholders often results in a deadlock within the company, with all the possible consequences - for the continuity of the company and its affiliated business - that this entails. A typical scenario involves private limited liability companies where two shareholders each possess an equal 50% stake and also jointly constitute the management board. The deadlock situation subsequently leads to an impeded decision-making process at both the shareholder and board levels.

The (statutory) mechanism for resolving shareholder disputes (geschillenregeling) is the legally designated route to settle conflicts between shareholders. The procedure consists (among other things) of the squeeze-out procedure (uitstotingsprocedure) and the exit procedure (uittredingsprocedure). In the squeeze-out procedure, a (group of) shareholders can claim from a fellow shareholder that the latter transfers his shares. The exit procedure is an inverse figure: a shareholder can claim from his co-shareholder(s) that his shares be acquired so that he can exit.

In addition, dissenting shareholders have the option to revert to the inquiry procedure (enquêteprocedure). The inquiry procedure focuses the primary objective of reinstating harmonious relationships within the corporate framework.

Over the course of several decades, the existing (statutory) dispute resolution procedure has been criticised for being deficient in both efficiency and efficacy in addressing shareholder disputes. In essence, the general consensus is that the dispute resolution procedure takes too long and has limited applicability in cases.

The Wagevoe Bill aims to improve the effectiveness of the dispute resolution procedure so that shareholder disputes can be resolved more expeditiously, efficiently and expertly. The main amendments to the current mechanism that should lead to the said objectives are discussed below.

Application proceedings
Under current law, the squeeze-out procedure and exit procedure are conducted as summons proceedings. In summons proceedings, the plaintiff summons the defendant(s) to appear in court. The Wagevoe Bill provides that shareholder dispute resolution procedures, as per the date of enactment, should be initiated with an application instead. This adjustment achieves (among other things) that (contrary to the current situation) all relevant stakeholders have the opportunity to file a statement of defence in the proceedings. More importantly for practice, the amendment into application proceedings will allow the combination with the inquiry procedure (already currently conducted as application proceedings): a single application can then include both an inquiry request and a request for squeeze-out or exit.

One specialised substantive court
Current dispute resolution proceedings are conducted in first instance at the district court. A ruling rendered within these proceedings can be subject to subsequent appellate review within the specialized forum of the Enterprise Chamber (Ondernemingskamer), a distinct division of the Amsterdam Court of Appeal. The Wagevoe Bill introduces a notable procedural refinement by shortening the procedure into a solitary instance conducted exclusively before the well-versed panel of judges of the Enterprise Chamber. This will ensure significantly faster and more efficient resolution of shareholder disputes.

Modification of the squeeze-out standard
Under the current squeeze-out rule, the removal of a shareholder can be claimed by one or more of his co-shareholders (individually or collectively contributing at least one-third of the issued capital), provided that the shareholder in question, by his conduct, harms the company's interests to such an extent that his shareholding can no longer be tolerated. This is subject to the so-called capacity requirement (hoedanigheidseis): only conduct carried out in the capacity of shareholder can lead to fulfilment of the squeeze-out standard. The Wagevoe Bill introduces a noteworthy amendment by extending the purview of the squeeze-out rule to encompass actions carried out by a shareholder in alternate capacities, such as that of a director or even a competitor of the company.. Consequently, such actions executed in these distinct capacities could also potentially trigger the application of the squeeze-out rule.

Recent developments
The Wagevoe Bill is set to bring about a more effective system for handling shareholder disputes. The Council of State, with a few comments aside, has given a positive evaluation of the Wagevoe Bill. However, the specific timing of its submission to the House of Representatives and eventual implementation is still unknown. To be continued.

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