In a previous article, we discussed the various options provided by Dutch law in case of disputes between shareholders. Also in that article, we discussed the buyout arrangement of Article 2:92a/201a of the Dutch Civil Code, also known as the “squeeze-out” procedure, with which a majority shareholder has the possibility to buy out a minority shareholder.
In this blog, we discuss a recent ruling by the Dutch Supreme Court in which the buyout procedure was discussed, more specifically the pricing of the shares of the minority shareholder in question. In our previous article, we already described that the price of the shares in case of a buyout procedure is determined by the court, possibly after the appointment of one or three experts.
The ruling of the Enterprise Chamber
The procedure concerned a buyout claim, instituted by the 95% majority shareholder of a private limited company against the 5% minority shareholder of that company. The majority shareholder primarily demands that the price of the shares to be transferred be set at EUR 20.83 per share. The Enterprise Chamber holds that, given the special circumstances of the case, this is an unreasonably low price according to standards of reasonableness and fairness.
The special circumstances referred to here by the Enterprise Chamber relate to actions of the majority shareholder as a director, by which he favored himself and disadvantaged the company and the minority shareholder. The Enterprise Chamber considers it unreasonable that the minority shareholder would have to sell his shares at a price based on a valuation that is strongly influenced by detrimental actions of the majority shareholder.
Determination of the price
The Enterprise Chamber orders an expert to value the shares at the value that would have been determined if the detrimental actions had not taken place. The expert sets the price of the shares at EUR 157.94 per share. The Enterprise Chamber notes that the starting point in determining the price is that the minority shareholder has the right to a fair and reasonable compensation for his shares. This should prevent the minority shareholder from being forced to deliver his shares at a price that is largely determined by the detrimental actions of the majority shareholder, who is also a director. The Enterprise Chamber sets the price of the shares to be transferred in this case at EUR 142.10 per share.
The majority shareholder then filed a cassation appeal against this ruling of the Enterprise Chamber. The Dutch Supreme Court ruled that the Enterprise Chamber was right in abstracting the consequences of the actions of the majority shareholder that have disadvantaged from the value of the shares to the detriment of the minority shareholder and rejects the appeal.
Do you have any questions or would you like to receive more information in relation to the squeeze-out procedure? Please contact one of our lawyers from our corporate law section.