Court enforces a share transfer against the seller’s will

A recent decision of the Amsterdam Court of Appeal shows that the Dutch Court does not recoil from effecting a transfer of share The portion of registered capital of a private or public limited company
» Meer over share shares in summary proceedings. This will be useful for buyers faced with a reluctant seller. There are a few conditions though, which are explained by corporate-law attorney Onno Hennis in this blogpost.

Background

X was a director within the Doedijns Group, an internationally operating company in the hydraulic industry. 83.55% of the shares of the top holding company were held by a private equity fund. X himself (indirectly) held 4.90% of the shares. At some point, talks were initiated with another player in the industry, Verolme, regarding the sale of Logan, a subsidiary.

(Potential) competition

The sale involved that X would also be transferred to Verolme. Since this would mean that X would essentially be working for a competitor, the private equity fund stipulated, among other things, that X would have to convert his shares into depositary receipts for shares.

Conversion into depositary receipts

The parties entered into a Waiver Agreement providing that X would transfer his shares to a STAK in exchange for the issuance of depositary receipts not issued with the cooperation of the company. After all, this ensued that X would no longer have the right to be informed and meeting rights that he held as a shareholder within the Doedijns Group. The competitive risk was considerably reduced as a result.

No cooperation

However, X refused to cooperate with the conversion. He claimed that the conclusion of the Waiver Agreement was abusive and contrary to reasonableness and fairness. As a result, the Doedijns Group started summary proceedings against X.

Urgent interest

An urgent interest is required for an award in summary proceedings. The Court ruled that this was the case because of the competitive position of the Doedijns Group. After all, X was now employed by Verolme, but in the meantime – as a shareholder in the Doedijns Group – he still had the right to be informed and meeting rights. The Court furthermore considered that the Doedijns Group had a legitimate interest in a steady and untroubled organisation.

Irreversible consequences

X further argued in summary proceedings that the transfer of shares would lead to irreversible consequences. After all, the legal transfer of shares is by nature definitive. However, by referring to a Supreme Court case, the Court considered that such a provision could be made in summary proceedings if the urgency aspect was present and the requested provision was justified by the fair consideration of the parties’ interests.

Freedom of contract

The Court then argued why the provision was justified in this case. In short, the Court stated that the condition that X would convert his shares into depositary receipts was not unreasonable. Moreover, X was not obliged to agree to this. X was assisted by experienced and knowledgeable advisors (a large law firm). In addition, the loss of the right to be informed and of the meeting rights was offset by the fact that the Logan deal was proceeded with.

Pacta sunt servanda: fulfilment

The Court therefore ruled that X was to comply with the agreements made. Since he did not do so voluntarily, he was ordered to do so by the Court. And in case he should fail to comply with the court order, it was decided that the court order would replace a transfer deed.

AMS Advocaten: assistance in shareholder disputes

Have you made arrangements with a shareholder, and he/she refuses to fulfil them? AMS Advocaten can help you get the share The portion of registered capital of a private or public limited company
» Meer over share share transfer completed. A number of possibilities is available to make this work, as shown by the ruling.