Breaking a deadlock in the board of a Dutch company? Inquiry proceedings can solve this!
A difference of opinion within the board of a company can be resolved by a vote in the Annual General Meeting of shareholders (AGM). The proposal accepted by a majority of the votes shall be executed. But if just two directors form the board and they also hold all the shares, the danger of a deadlock is imminent. The Enterprise Division can break a possible deadlock in unique Dutch inquiry proceedings. Dutch Corporate lawyer Hidde Reitsma explains a recent ruling in which a classic deadlock situation was resolved.
Shareholders each hold 50% of the shares in Dutch company
This case concerned the following. Two shareholders each hold 50% of the shares in the (private) Dutch company Cunico. The shareholders don’t see eye to eye and cannot resolve their dispute. They both want the Dutch Enterprise Division to intervene and each party starts up inquiry proceedings separately. At the urging of the Enterprise Division, the lawyers of the shareholders decided in mutual consultation to which remedies both parties would agree. This is found in the appointment of a third party as director with a deciding vote within the board and the transfer of 5% of each party’s parcel of shares to an administrator.
Inquiry when in doubt about whether the policy and the procedures of the company are right
The Enterprise Division still has to answer the question whether there is sufficient reason to order an inquiry. Both shareholders state that there is a deadlock within the board and the AGM which renders it impossible to attract (the required) additional funding. They both blame the attitude of the other shareholder/director for this.
If there is an imminent threat to the continuity of the company: inquiry
The Enterprise Division notes that the relationship between the shareholders (and also the directors) is impaired to such an extent that decisions are no longer taken and the company bodies of Cunico no longer function. Any proposal by one party is blocked by the other. There is no uniform strategy or policy and this is desperately needed because Cunico is in urgent financial trouble. This threatens the continuity of the company. These are reasonable grounds to question whether Cunico is conducting a proper policy and whether the procedures are correct. The Enterprise Division shall institute an inquiry and grants the remedies requested (jointly) by the parties.
Deadlock within the board / Danger AGM
A deadlock within a company can have serious consequences for the continuity. Sometimes it is clear that there is one party frustrating the decision-making process, but quite often the question of who is to blame is not so clear-cut. Directors and shareholders can also have differences of opinion on which course the company should take and – with good intentions – resist a policy which they think is detrimental to the company. But, as the saying goes, to stand still is to go backwards, so a deadlock should not continue for too long.
Lawyer for advice inquiry proceedings at Enterprise Division
The proceedings at the Enterprise Division can resolve this. Not only because practical remedies can be taken, such as appointing a third party as director, but also because the final goal of inquiry proceedings is to guarantee the continuity of a company. And in the end that is beneficial to most parties. Especially for a company that employs many people, such as in the case of Cunico. The AMS corporate lawyers regularly assist Dutch shareholders in inquiry proceedings. If you need advice, please contact our corporate law section.