Reduction in the value of my shares: am I entitled to compensation?
A third party may act in a way that is harmful to the company in which you hold shares. As a result of these actions, your shares may decrease in value. This blog discusses the possibility of a shareholder claiming compensation in the event of unlawful conduct by a third party. You can read whether you are entitled to compensation for a loss in value of shares below.
The basic principle is as follows: the company must claim compensation for its loss from the party that caused it. In exceptional circumstances, a shareholder may also make such a claim. An example of this is the ruling of the Court of Rotterdam of 9 March 2022.
The main rule
In principle, shareholders cannot recover any loss in value of their shares from a third party that has caused damage to the company’s assets. It is up to the company itself to hold this third party liable. After all, the company is an independent bearer of rights and obligations. And is considered capable of standing up for those rights itself. This is called the ‘Poot/ABP doctrine’. The loss in value of shares is therefore only ‘derivative loss’.
Exception to the standard of due care
There are circumstances under which a shareholder can still hold a third party liable for this derivative loss. Does a third party violate a specific standard of due care towards the shareholder? Then the third party can be held liable successfully. In other words, a shareholder must be able to hold the third party personally accountable. This is the case, for example, if there is intent to harm the shareholder.
In addition, the fact that the loss is permanent may be taken into account when granting a claim for derivative loss. This means that the court can award derivative loss more readily if it is no longer possible for the company to claim compensation.
Circumstances considered by the Court of Rotterdam
In the case before the Court of Rotterdam, there were various circumstances at play that allowed the shareholder to hold a third party personally accountable. The plaintiff in this case owned all the shares in the company, a fashion chain. The third party was his sister, who was a fellow shareholder in the company until 2005. After transferring all her shares to her brother, the sister remained an employee of the company until 2013.
In late 2012, the sister started a competing business, using clothing designs, suppliers and customer lists from the fashion chain. The sister also expressed negative views about the fashion chain of the brother. Moreover, the sister arranged for key personnel of the fashion chain to terminate their employment contracts to enter into employment with her. These key personnel were responsible for the development and sale of the clothing lines, and as such they performed a key role at the fashion chain. Many years of expertise and knowledge were lost by the fashion chain due to the departure of these key personnel and the sister. A short time later, the fashion chain of the brother went bankrupt.
The court ruled that the sister had misused her knowledge by starting the competing business. In doing so, the sister not only acted unlawfully towards her brother, but she also violated a personal standard of due care towards her brother in his capacity as shareholder. After all, the goal of the sister was to continue the business – ‘the family business’ – itself at the expense of the company of her brother. Moreover, the fashion chain was no longer able to hold the sister liable, which is why the court allowed the brother to hold the sister liable.
Claiming loss as a shareholder?
It is by no means straightforward for a shareholder to claim derivative loss from a third party. But when the third party can be held personally accountable, the shareholder can invoke derivative loss. And by that still bring a claim independently. Do you, as a shareholder, have doubts about holding a third party accountable? Please do not hesitate to contact us.