Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55In the event of a conflict, shareholders may demand that a co-shareholder be compulsorily required to transfer his shares, also referred to as a buy-out. When is this forced transfer of shares allowed and how should it be arranged?
In the event of a conflict, a shareholder may significantly impede the company by blocking the adoption of decisions by the shareholders’ meeting, for instance, on a takeover or applying for a major loan necessary for the continuation or expansion of the company. In such cases the other shareholders can claim in court that the shareholder blocking the decision-making process has to transfer his shares. Shareholders can only institute such proceedings if they hold at least one third of the company shares.
The functioning of the company must be jeopardized if there is to be a good reason for a forced transfer of shares. There does not need to be a risk of the company going under. However, there must be a structural deadlock in the company’s decision-making process. Such as, for instance, a shareholder who deliberately obstructs decisions, which may have major consequences for the company. If the articles of association of a company contain a regulation for the resolution of conflicts between shareholders, this path has to be followed first.
Misconduct on the part of the shareholder which has nothing to do with the performance of his function as a shareholder cannot result in a forced transfer of shares in the squeeze-out procedure. Even if the conduct is detrimental to the reputation of the company, but not directly related to the functioning of the shareholder within the company, it will usually not result in a successful squeeze-out procedure.
If the court grants the claim to forced sale of the shares, the price of the shares must be determined. The starting point here is the value at the time the decision becomes irrevocable. The court will be advised by experts with regard to the determination of the price. This may take some time. A squeeze-out procedure does therefore not offer a quick solution to a conflict, but is a big stick in negotiations with shareholders.
Do you have a conflict with one of your co-shareholders? Does the co-shareholder act detrimental to the company? We will be happy to assist you with legal advice and, if necessary, legal proceedings to achieve a transfer of shares. Please contact us:
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