Deadlock in shareholders meeting: inquiry proceedings?
In so-called inquiry proceedings before the Enterprise Chamber of the Amsterdam Court of Appeal, the Enterprise Division of the court can break a deadlock by, among others, appointing a new director or a temporary shares manager. This means that urgent decisions can be taken without delay. But sometimes the deadlock is caused by the mutual relationship within one shareholder: the problem is then at a lower level. In such cases the Enterprise Division can also act effectively. Dutch corporate lawyer Hidde Reitsma discusses a ruling where this was the case.
Shareholders’ dispute in The Netherlands
This shareholders’ dispute concerned the following. Peaxe had for 57% shares in Suncycle. A and B each had half of the shares in Peaxe and were both director of Peaxe. They had incorporated Suncycle. The other Suncycle shares were owned by minor shareholders. Suncycle urgently needs additional funding. But proposals to that effect by the minor shareholders were blocked by Peaxe.
Decision-making process blocked shareholder
One of the shareholders addressed the Enterprise Division through a Dutch lawyer and submitted a request to order an inquiry into Suncycle and to take immediate relief measures to end the deadlock in the decision-making process about financing. The Enterprise Division ordered an inquiry and appointed a director with a deciding vote and independent powers. Also, the Peaxe shares were transferred to a manager.
Enterprise Division appoints director
The temporary director decided to issue 100,000 shares to draw capital. To retain its majority, Peaxe shall have to subscribe to this issue, but shareholder A refused to acquire financing for this. The manager finds it unacceptable that, due to A’s attitude, the Peaxe share is diluted to 48%, as Suncycle is Peaxe’s only asset.
Inquiry into Peaxe policy ordered
The other Peaxe shareholder, B, again addressed the Enterprise Division. This time not for the deadlock within Suncycle, but for the deadlock within Peaxe. The Enterprise Division found that the deadlock is in fact the reason that decision-making is impossible. This is a valid reason to doubt whether Peaxe has a proper policy and process. The parties are deadlocked specifically about the choice whether or not to participate in issues.
Dutch corporate law firm (Amsterdam)
The deadlock is connected to the mutually different opinions of A and B about Suncycle’s policy. This makes it difficult to determine that it is the best interest of Peaxe to retain a majority interest. Several aspects are important to determine whether participation in the issue of Peaxe is in the best corporate interest of Peaxe. Such as what are the consequences of maintaining, respectively breaking the present balance between both shareholders and what are the financial risks. This aspects have to be investigated further. The Enterprise Division therefore finds that it is necessary to conduct an inquiry to enable the decision-making on these matters.