Enforcement of a pledge on shares in The Netherlands
In The Netherlands, pledged shares should be sold by a public sale. However, public sale of the share capital of a company doesn’t happen often in The Netherlands. The manner in which such a sale should take place is not described in Dutch law, and usually others ways are used to sell pledged shares. A private sale with court approval and a private sale with consent of the pledgor are more common manners to enforce a pledge on shares. Dutch lawyer corporate law Sander Schouten explains.
Public sale of pledged share capital
A public sale based on article 3:250 DCC is generally the starting point for execution of a right of pledge on shares. Dutch law does not contain a specific arrangement for the execution of a right of pledge on shares, and the execution itself. In general an auction will be organised by a notary. Because the manner in which this should take place is not described in Dutch law, the notary that’s instructed usually is cautious with such a public sale. The fact that the sale should be “public” suggests that publicity should be given to the sale. Dutch Civil Code (‘DCC’) stipulates that (unless the contrary has been stipulated or agreed on between parties) a pledgee who wants to start a foreclosure, must give notice of his intend to at least the debtor, the pledgor, the pledgee, and persons with restricted rights and/or attachments on the shares.
Notification must be given
According to article 3:249 DCC – unless excluded elsewhere – a notification must be given, as far as this is reasonably possible, at least three days before the intended day of the foreclosure sale, with announcement of the place and time of the auction and in accordance with the provisions issued to this end by order in council. Since the article includes the words: ‘as far as this is reasonably possible’ it is possible that under circumstances a notification is not necessary. The example given in literature hereby is that for example a sharp depreciation of listed merchant goods or effects good take place and immediate sale is required. In that situation a notification works to the disadvantage of the pledgor, because valuable time is lost. However, non-compliance (in an exceptional situation or not) with the notice and therefore with this article, does not lead to the annulment of the sale. It only leads to liability of the pledgee if non-confirmation results in damage for the pledgor or debtor.
Public sale of Dutch shares is not common
A public sale is intended to protect the interest of the pledgee and other creditors. In case of a public sale, ideally the pledged shares will be sold to the highest bidder and an objective and faire price should be generated. However in practice it is not common to organise a public sale/auction. Firstly because there is no open market on which shares of a BV can be traded and secondly because it creates problems with regard too due diligence (for which confidential information about the company needs to be made public in order to inform potential buyers). It is therefore questionable that a public sale will generate the highest possible proceeds.
Private sale of Dutch shares with court approval
Besides the option of a public sale of Dutch shares, the pledgor and pledgee both have a right to submit application proceedings for approval of a private sale of the pledged Dutch shares at the court in interlocutory proceedings.
Dutch corporate lawyer for enforcement of a pledge on shares
Law firm AMS is based in Amsterdam, The Netherlands. Our corporate lawyers have gained a broad experience in corporate litigation. Should you require more information on the enforcement of a pledge on the share capital of a Dutch company, or should you have any question with respect to litigation in The Netherlands, please feel free to contact our law firm.