Practice areas: Business and Commercial Law, Corporate Law and Business Structuring, Restructuring and Insolvency
Minority shareholders often find themselves in a vulnerable position. They have limited control, are dependent on the board for information, and cannot adjust policy on their own. This raises the question: is there a duty of care towards minority shareholders, and if so, how far does it extend?
Article 2:8 of the Dutch Civil Code as the basis
The main source of protection for minority shareholders is based on the principles of reasonableness and fairness set out in Article 2:8 of the Dutch Civil Code. This article stipulates that a legal entity and those involved in its organisation by virtue of the law and the articles of association must conduct themselves towards one another in accordance with the principles of reasonableness and fairness. In the case law of the Enterprise Chamber, a duty of care towards minority shareholders has been developed on the basis of this standard.
It is important to note that the mere fact that a party is a minority shareholder does not in itself mean that a duty of care must be observed towards it. There must be more to it than that.
When does a duty of care arise?
The Enterprise Chamber tends to assume a duty of care in the case of private arrangements (joint ventures or family businesses) and in so-called ‘uneven relationships’. Examples include situations involving information asymmetry or where the majority shareholder is also a director, whilst the minority shareholder is left in the dark and is unsure of what is going on.
The duty of care may carry greater weight if the minority shareholder and the majority shareholder are in direct opposition to one another, or if there is a genuine risk of a conflict of interest on the part of the board.
Transparency as a core obligation
As a general rule, the company must always maintain a high degree of transparency towards minority shareholders, so that they are able to ascertain their legal position.
In the case of family-owned companies or joint ventures where there is a blurred distinction between capital and management, the company may, under exceptional circumstances, be obliged to ensure transparency both on its own initiative and in response to requests from minority shareholders. In addition, the company must provide ‘uninformed’ shareholders with generous and adequate factual and verifiable information, particularly where there are conflicts of interest.
An important limitation is that, in the absence of a reasonable interest (or where the company has an overriding interest), there is no right to information.
The impact of a shareholders’ agreement
The duty of care may be further defined by the terms of a shareholders’ agreement or a resolution. Although Article 2:8 of the Dutch Civil Code is mandatory, the Enterprise Chamber respects the corporate governance structure chosen by the parties, even if it is not necessarily favourable to minority shareholders.
A negative impact (a restriction on the duty of care) may arise where the parties have agreed on information rights at a detailed level. In such cases, it may be more difficult for a professional minority shareholder to argue why they are entitled to more information than they have contractually agreed to. In the Novero ruling, the Enterprise Chamber held that the minority shareholder had sought such extensive and detailed information that this reasonably exceeded her rights as a shareholder.
Five practical lessons
The foregoing gives rise to five specific points for consideration. Firstly, the mere fact that a person is a minority shareholder does not give rise to a duty of care; there must be asymmetry or close relationships. Secondly, transparency obligations can be far-reaching, a factor which must be taken into account when making and recording decisions. Thirdly, the duty of care may be shaped by a shareholders’ agreement, so this must be borne in mind when drafting such an agreement. Fourthly, the minority shareholder must always have a reasonable interest in order to be entitled to protection. Fifthly, provided that the board and the majority shareholder correctly observe the rules on the duty of care, the minority shareholder is not entitled to any additional protection.
The duty of care towards minority shareholders is not a static concept: its scope depends on the specific circumstances within your company, the arrangements set out in a shareholders’ agreement and the degree of transparency practised by the board. Whether you are a minority shareholder wondering whether you are being kept sufficiently informed, or a majority shareholder wishing to know what obligations you are subject to, it is important to assess your legal position in good time.
Would you like to know where you stand? Please feel free to contact us. We would be happy to help you find the right solution.
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