When does a shareholder not have information rights
This blog addresses the question of when a shareholder of a Dutch private limited company is not entitled to information under the laws of the Netherlands.
Rights of shareholders of a Dutch BVs to financial and other information are a legal grey area. Dutch legal provisions when a company must -or may not- provide information to an owner of shares are simply not fully clear. In practice, the different types of courts, such as the Enterprise Court, rule differently on shareholder information rules. In the Netherlands, a lot has been written and blogged about this subject, but that is generally always from the perspective of the minority shareholder whom -either justified or not- information is withheld by the Dutch company.
What if, as a private company in the Netherlands, you have a good reason to give a shareholder as little information as possible? What are the possibilities? That is what this legal blog addresses.
Firstly, it is important whether a shareholders’ agreement has been concluded. This does not always happen. But especially for regulating data and information rights for shareholders, such an agreement (or an investment agreement) is of great importance. A fairly standard provision is that a shareholder has a broad right to information from the Dutch company, even outside a shareholders’ meeting. If the board has good reasons not to want this, such information clause would have to be amended or deleted.
If there is no shareholders’ agreement regulating the right to information, the general rules of Dutch corporate law apply. Just to make sure, also review the Articles of Association of the Netherlands limited liability company. That said, in practice the Articles generally never say anything useful about the right to data for shareholders.
Right to information at a shareholders’ meeting
According to the Dutch legal system, there is a different situation for a shareholder who wants to obtain info within or outside the scope of the shareholders’ meeting of the Dutch enterprise. The laws of the Netherlands do not make a distinction between Dutch based and non-domestic shareholders. During a general meeting of shareholders, a majority and any minority shareholder can ask questions to the board. This follows from Article 2:217(2) of the Dutch Civil Code:
´The management board and the supervisory board shall provide the general meeting with all the information requested, unless a considerable interest of the company opposes this.´
Main rule: provide all the information requested
I have already underlined the exception and I will come back to that in a moment. The main rule refers to ‘all the information requested’. That is a broad concept and case law reflects the same view. The first limitation is the any information request must be about the matters that really concern the Dutch company. A minority shareholder can therefore not use his right to obtain information to find out something about the majority shareholder itself, even if that majority shareholder is on the board. A majority stockholder must also be able to defend its own interests, from its position of a holder of shares in such business enterprise in the Netherlands.
The shareholder-director of a Dutch company must be vigilant regarding his or her position as member of the board. A director-majority shareholder has a special duty of care. A director must therefore pay close attention to what he or she does and does not communicate about the company and its business affairs. The starting point is that questions from an owner of shares about the company must be answered thoroughly during a general or a special shareholders’ meeting. But please note the limits of the shareholder information right as mentioned hereafter.
A holder of stock in a Dutch company even with a small minority can ask questions during a GM about, for example, the dividend policy, the annual accounts, the commercial policy of the company and current financial figures. Of course, this also applies to the majority shareholder, who can ask the same questions.
If the Dutch BV (i.e. the board) does not comply with the obligation to provide information, this may entail mismanagement and possibly directors’ liability. So if there is a conflict between the company and a minority shareholder, it is important for the board to seek legal advice.
First limitation: reasonableness and fairness
The right of a shareholder to request ‘all required information’ is not unlimited: a shareholder must continue to behave in a businesslike manner. In other words, a minority shareholder must also observe the limits of reasonableness and fairness. The board cannot rely on this too quickly, but it could be a compelling argument in court if there are good reasons to withhold business-sensitive information from an unreasonable shareholder.
Second limitation: considerable interest of the BV
The board is not obliged to provide information to a shareholder (or to the general meeting as such) if there is a considerable (or: substantial) interest of the company not to do so. The word ‘considerable’ (zwaarwegend in Dutch) means that the interest of the company has to -very clearly- take precedence over that of the shareholder(s). A BV would have a good reason not to give a minority shareholder business-sensitive information if that data is surely to be leaked to a competitor and thereby the competitive position of the business of the Dutch company is harmed. This example comes from my own legal practice.
A considerable interest can also exist if the internal relationships within the company are to be unnecessarily seriously damaged.
At the general meeting of stockholders, it is the board who will consider whether there is a serious interest of the BV not to share information. This is not a point on which the shareholders can vote. If a shareholder finds that there was no valid reason to withhold information, he will have to go to court for a judgment on this.
Right to information outside a shareholders’ meeting
The aforementioned provision of the Dutch Civil Code only concerns the information rights within the shareholders’ meeting. A minority shareholder may therefore have an interest in having many EGM’s issued, but of course that is not always feasible.
The question is therefore for what information a shareholder is entitled to demand from the board. Dutch law does not say anything about this, but there is a lot of case law about it. The regular courts and the Enterprise Chamber are not always on the same page. For example, the Enterprise Chamber assumes that there is a special duty of care for a major shareholder vis-à-vis a minority shareholder who is not on the board. Broad transparency is key in such case.
If the board does not provide sufficient information, this may be reason for the Enterprise Chamber to doubt a correct course of board affairs and order an investigation by a third party into mismanagement, possibly with additional measures such as appointing a temporary director. However, this does not mean that the minority shareholder itself will receive all the requested information. This is a commonly made mistake.
The Enterprise Chamber is often seen as a ‘cannon’ of a procedure and it is generally not initiated lightly. In the ordinary Dutch courts, however, it is difficult for a shareholder to enforce an entitlement to information outside the scope of a general meeting of stockholders (especially if such right has not been agreed on in a shareholders’ agreement). Strictly speaking, there is no legal basis for this. The more shareholder-friendly jurisprudence of the Enterprise Chamber does not give a 1-to-1 right to an owner of shares to receive information itself.
Alternatively, if a minority shareholder has a claim against the company itself, or believes it has, the shareholder can seize evidence. This is also possible in the case of directors’ liability. Lawyers usually call this an 843a procedure, referring to the relevant article in the Netherlands Code of Civil Procedure. And board members should be aware that files and records, also digital, may be seized on the grounds of a court order about which they will not be notified beforehand.
So what to do if you -as a (board of a) Dutch company- do not want to provide information to a minority shareholder:
- check whether there is a shareholders’ agreement and what it says about rights to data and information;
- check whether the information is requested within or outside the context of a meeting of shareholders;
- find out exactly what information is being requested. It must really concern the company / its business;
- keep a close eye on the main rule: the board must provide all the information requested during a shareholders’ meeting;
- then assess whether the request for information falls within the limits of reasonableness and fairness (secondary question: is it really a professional request from a business point of view?);
- consider whether the company has a considerable interest vis-à-vis the holder of shares in not providing any – or all – information;
- choose a litigation strategy: if the conflict with the shareholder escalates, where will you likely end up and what does this mean for any mismanagement claims and/or directors’ liability; and
- get legal advice!
That last point appears of course somewhat inane in a legal blog, but this post intents making clear that the right to information for shareholders is a gray area and there are possibilities for the board: not providing information is possible under certain circumstances, but it is not entirely without risk. Sound legal advice from a Dutch corporate lawyer helps to minimize that risk.
Law firm Penrose, Amsterdam.
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