Shareholder disputes can have major consequences for the continuity of your business, especially if international trading activities or complex group structures are involved. The Enterprise Chamber of the Amsterdam Court of Appeal issued an important decision on 16 May 2024 (ECLI:NL:GHAMS:2024:1399) on an intra-group dispute involving dividend payments, disclosure and directors' liability. This article discusses the legal points of interest from this ruling and provides practical guidance for companies facing similar situations.
What was at stake in Shoelab.
Within the Shoelab Group, active in the international trade of shoes and clothing, a conflict arose between shareholders and directors following the payment of a large interim dividend. The group's financial position deteriorated, partly due to disagreements over the dividend payment, non-compliance with financing conditions at the bank and poor disclosure to one of the shareholders. This led to the resignation of one of the directors and eventually to an inquiry procedure at the Enterprise Chamber.
Legal key points from the ruling
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Inquiry procedure and admissibility
The inquiry procedure is a powerful tool in disputes about the policy and course of affairs within a company. The Enterprise Chamber tests whether there are valid reasons to doubt correct policy. In this case, the request for an enquiry into the policies of both the parent and subsidiary companies was declared admissible because there was a close organisational connection and central management within the group. -
Dividend payment and contractual arrangements
The payment of dividends is subject to strict legal and contractual conditions. In the Shoelab case, it appeared that the board had not sufficiently investigated whether the company could bear the distribution, partly in view of the agreements with the bank (such as a non-withdrawal statement and solvency requirements). Failure to comply with these agreements can lead to liability of directors and shareholders, especially if the company's financial position deteriorates as a result. -
Disclosure and duty of care
An important aspect in these proceedings was the provision of information to the minority shareholder after his resignation as director. The Enterprise Chamber emphasised that majority shareholders have a duty of care to provide generous and verifiable information to the minority shareholder, especially if the latter is also guarantor of obligations of the company. -
Immediate provisions
The Enterprise Chamber may, if the situation of the company so requires, make immediate provisions. In this case, an independent third party was appointed as a director with a casting vote to ensure the continuity of the company and de-escalate the dispute.
Practical lessons for your company
- Contract law and dividend policy: Ensure that agreements on dividend payments, financing terms and shareholder rights are clearly set out and strictly adhered to. If in doubt, always have a legal test carried out before making a distribution.
- Information provision: Take into account the information needs of all shareholders, especially if there are minority or international shareholders. Transparency prevents escalation of disputes.
- Director liability: Directors should take responsibility for important decisions, such as dividend payments and entering into commitments with financiers. Ignoring contractual or legal obligations can lead to personal liability.
- Inquiry procedure as a last resort: The inquiry procedure is a heavy tool that can have far-reaching consequences, such as the appointment of an external director or the launch of an investigation into the policy. Avoid this by investing in dispute resolution and mediation in good time.
Example from practice
In the Shoelab case, non-compliance with agreements on dividend payments and the non-transparent actions of the majority shareholders led to an in-depth investigation by the Enterprise Chamber. The appointment of an independent director was necessary to restore trust and safeguard the interests of all parties involved.
How to avoid problems.
- Have your contracts and shareholder agreements periodically reviewed by a specialist in contract law.
- Implement clear procedures for decision-making and information provision within your company.
- Invest in an open communication culture, especially in international or complex group structures.
- Seek timely legal assistance in the event of disputes or impending disputes to prevent escalation.
Conclusion
The Enterprise Chamber's ruling in the Shoelab case underlines the importance of careful contract law, transparent disclosure and compliance with agreements within companies, especially in international trade and group structures. Want to know how your company can reduce risks of disputes and liability? Then contact our contract law and litigation specialists for a no-obligation consultation.
More information
Want to know more about contract law, shareholder disputes or the inquiry procedure? Feel free to contact us for a no-obligation consultation. We will be happy to think along with you
