Dispute with your co-shareholder: what to do?

A disagreement can go so far that it is no longer possible to cooperate. This can have negative consequences for the continuity of your company. For example, there may be a “deadlock” situation. This is a situation in which two 50% shareholders (who often also form the board together) are no longer able to take decisions in the event of a tie. There may also be a situation in which a majority shareholder abuses his majority interest, and you, as a minority shareholder, are not (or no longer) heard.

If the shareholders are unable to resolve their dispute, it may be appropriate or even necessary to terminate the partnership. With a listed company, the option to sell the shares offers a solution. But what if you hold shares in a private or limited liability company, and a restriction of transfer has been included in the articles of association of this company?

There are regulations on the settlement of disputes. This blog will discuss the possibilities offered by the legal dispute settlement.

The forced share transfer: squeeze-out

In certain cases, a shareholder may be compelled, at the request of another shareholder, to transfer his shares to the other shareholder (s) at a price to be determined. The court will be able to grant such a squeeze-out claim if the shareholder damages or has harmed the corporate interest by their actions or conduct to such an extent that the continuation of their shareholding can no longer reasonably be tolerated.

It depends on all the circumstances of the case whether there is damage to the corporate interest. For example, there may be damage to the corporate interest in the event that a shareholder creates an impasse in the decision-making, for example because he refuses to agree to the appointment of a new board member. Annoying behaviour only is not in itself a reason to have a right of squeeze-out.
A squeeze-out claim can be filed by a shareholder holding at least one third of the shares. The claim can also be brought jointly by several shareholders if they jointly hold at least one third of the shares.

The forced takeover of shares: resignation

It may also happen that a shareholder’s rights or interests have been harmed to such an extent by the conduct of one or more co-shareholders that retention of their shares can no longer reasonably be expected of them. In that case, they can demand from their fellow shareholders that they take over his shares.

Every shareholder (irrespective of his interest) is authorised to file a resignation. In order for a resignation claim to be successful, the interest of the individual shareholder must be damaged. This claim is not about damaging the corporate interest. The interest of the individual shareholder is damaged, for example, if the relationship between the shareholders has been disrupted because of the fact that the majority shareholders have dismissed the minority shareholder as director.

The grounds for filing an resignation claim are diverse. It is not necessary that there is misbehaviour. Nor does it have to concern conduct as a shareholder; a resignation claim may, for example, also concern conduct in the private sphere.

Continuation

In both cases, when the claim is granted, in principle there are experts appointed who will comment on the pricing of the shares. This is just different when a clear pricing criterion is included in the articles of association, or in the situation that agreements have been made in the shareholders’ agreement about the valuation of the shares. The judge then determines how many shares the defendant co-shareholder must acquire at what price. If requested, the court may also apply a fair increase in the price, insofar as it is of the opinion that the value of the shares has decreased as a result of the conduct accused.

Would you like to know more about the possibilities in which you can terminate the cooperation with your co-shareholder (s), or are you looking for legal assistance in setting up an expulsion or exit procedure? We are happy to assist you. Please do not hesitate to contact us.