What to do when there is a dispute between company directors?

It happens in the best of companies: disputes between company directors. Sometimes these disputes have a business nature and do not impede efficient company management. But there are times when a company seriously suffers from a dispute between company directors. How do you escape such a deadlock and what are the legally appropriate measures to take? Dutch corporate lawyer Hidde Reitsma explains these issues based on a recent court ruling.

Dispute between company directors in The Netherlands

In recent preliminary relief proceedings two company directors who had a serious conflict faced each other. And this was not the first time. These preliminary relief proceedings would be the third time in one year alone. In each previous preliminary relief proceedings the claim had been dismissed. The core of the dispute remains the same: both directors blame each other for channelling funds transferred to the company account to their own private accounts. Each director thinks that he (and not the other director) is entitled to the money, but by now their dispute has reached the point where any money transfers only lead to more accusations against each other.

Bickering of company directors damaging to the company

Plainly speaking, the court in preliminary relief proceedings has had enough. It doesn’t matter whether one director or the other is plundering the business account. Both directors are acting in an undesirable and irresponsible manner that is very damaging to the company. If the parties want to resolve the conflict through legal proceedings they shall have to address the Enterprise Division rather than “mutually accusing each other in turn and demanding that certain acts should be prohibited of which they themselves are guilty”, according to the court. There is no reason for these new (third!) preliminary relief proceedings: there is still this bickering between two directors who don’t care about the company’s interest at all. The court therefore again dismisses the claims.

Acting contrary to the company’s interest

In the proceedings between the bickering directors, all judges in preliminary relief proceedings agree about one thing: the directors have overlooked the company’s interest. The core duty of a company director is to focus on the company’s interest. If a director has a direct or an indirect personal interest that is contrary to the interests of the company, the director should not be involved in decisions (article 2:239 of the Civil Code of The Netherlands). If this means that no decisions can be taken by the board of directors, this decision is taken by the Supervisory Board, respectively the General Meeting.

Dutch corporate lawyer in case of a shareholders deadlock

Company directors that are also shareholders of a company can institute inquiry proceedings at the Enterprise Division in case of a deadlock situation. In these proceedings the management of the company (and therefore the conduct of the company directors) is investigated. In the context of these proceedings the Enterprise Division, if there is cause for this (e.g. if it is established that one director is responsible for the mismanagement of the company because he let his own interest prevail), can take far-reaching measures, such as dismissing the directors responsible and transferring their shares to a third party against assignment, to prevent a further deadlock. For more information please contact our Enterprise Division section.