A 50/50 shareholder dispute: how does a procedure at the Netherlands Enterprise Court look like and what can the court decide?
In a 50/50 shareholder arrangement, a conflict can quickly lead to a management deadlock: no further decisions can be taken, whilst the company must continue to operate. As the parties cannot reach an agreement, they often turn to the courts. Since the entry into force of the Act amending the dispute resolution scheme and clarifying the admissibility requirements for the inquiry procedure on 1 January 2025, the Netherlands Enterprise Court, the specialised division of the Amsterdam Court of Appeal that deals with legal disputes within companies, initiate an investigation into the conduct of a company (an ‘inquiry’) and hear a request for the removal or resignation of a director in a single combined procedure. This blog uses a recent ruling by the Netherlands Enterprise Court, to illustrate how such a shareholder dispute is dealt with procedurally.
Case summary
This case centres on a family business specialising in construction and contracting work. The business is organised as a company comprising four operating subsidiaries. The shares in the company are held on a 50/50 basis by two shareholders, both of whom have joint authority to represent the company. Behind the two shareholders are two natural persons. Over the years, relations have become severely strained. The parties had entered into an agreement to split the company, but the implementation of this agreement came to a complete standstill due to disputes over the division of property, staff and financing. Consequently, one of the shareholders decided to initiate proceedings before the Netherlands Enterprise Court.
Inquiry proceedings
A shareholder, depositary receipt holder or interested party of the company who meets the statutory conditions for doing so, or the company itself, may request the Netherlands Enterprise Court to conduct an investigation into the conduct of business within a company (the ‘inquiry procedure’). If, in the Court’s view, there are ‘reasonable grounds to doubt the soundness of the policy’, it will launch an investigation. An investigator will be appointed to examine the affairs of the company and draw up a report. Furthermore, the Netherlands Enterprise Court is authorised at this stage to take immediate provisions such as suspending or dismissing directors or supervisory board members, temporarily appointing directors or supervisory board members, suspending decisions taken by the board of directors, temporarily deviating from the articles of association, and temporarily transferring shares. This is referred to as the first phase of the inquiry procedure.
In the second phase of the inquiry procedure, the Netherlands Enterprise Court determines, on the basis of the investigator’s report, whether there has been mismanagement within the company. Based on the investigator’s findings, the Court may take far-reaching measures, such as dismissing directors, depriving shareholders of their voting rights, appointing a temporary director and, in exceptional cases, even dissolving the legal entity.
What did the Netherlands Enterprise Court decide in this case?
In this case, Shareholder 1 asked the Supervisory Board to launch an investigation. Shareholder 2, in a counterpetition, requested the expulsion of Shareholder 1. In this case, the Netherlands Enterprise Court ruled that there were valid grounds for doubting the soundness of the company’s policy and, by way of an interim order, decided to appoint an independent director who is independently authorised to represent the company, who has a casting vote in decision-making and without whom the company may not be represented. The Court instructed the director to work with the parties, in the interests of the company, to explore how to achieve an acceptable and financially viable demerger of the company. The Court also decided to stay the appointment of the investigator and the application for removal so that the temporary director could attempt to resolve the shareholder dispute.
Practical conclusion
For (50/50) shareholders and directors within a company where a conflict is ongoing, the Netherlands Enterprise Court can work towards a practical solution. Using its powers, the Court can, in addition to launching an investigation, appoint a temporary director with the aim of exploring an amicable settlement and keeping the company running. If the parties cannot reach an agreement, the Netherlands Enterprise Court can always take more far-reaching measures, such as the removal of a director, once the investigator has established that there has been mismanagement.
Our Litigation team will be happy to advise you on any questions you may have regarding disputes and disagreements between shareholders, directors and other stakeholders within the company,
