RIGHTS OF MINORITY SHAREHOLDERS INTHENETHERLANDS The relevant section of Dutch com pany law with regard to the principle of equalit section 2: 201(92) subsection 2)(see no. 7)is a direct result of the C s second company law directive. 5 This directive is limited to subjects related to capital rotectionand is also only applicable to public companies. This means that the Dutch beyond the subject. ligation to extend the range of the principle of equa lity legislator is under no obl pital protection. Examining the Dutch text however, it gives no indication that its scope is limited to capital protection issues. The conclusion that section 2: 201(92)subsection 2 is not limited to capital protection becomes even stronger when we exam ine the Memorandum of Reply. b It states explicitly that the principle ofequality extends beyond issues of capital protection. Two mportant rules followng on from the prncple of equality as def ned in section 2: 201(92)can be found in sections 2: 206a(96a)and 208(99). These sections indicate that n princple, exsting shareholders have a pre-emption right on amy issue of shares pro mta t the aggregate amount of their shares. Section 2-206a(96a) subsection 6 states that the general meeting of shareholders can decide to pass off the pre-emption night Nevertheless, the principle of equality overrides such a decis ion. Section 2 208(99)subsection 4 states that a partial repayment on shares or a release from the obligation to pay up must be made pro at to all the shares unless, in respect of the issue of ertan class of shares, the artcles prow ide that a repaymentmay be made or a releasemay be given exclusively in respect of suchshares The principle of equality is of the utmost im portance for the protection of minority shareholders. The Dutch Supreme Court does not regard section 2: 201(92) subsection 2 as a provision from which no departure is allowed. It interprets the rule of section 2: 201(92)flexibly. First of all, it is important to realise that, as Van Schilfgaarde mentions, the equality defined in subsection 2 is not an absolute equality but rather relative one; equality in proportion to the amount of capital the shareholder in question provides However, the exact content of the principle of equality i n our opnion dependent on the nature of the subject in queston. With regard to certan rights, for example, the right to vote in a general meeting of shareholders and the right to receive a dividend, equality i indeed relative; there it is proportional to the number of shares the shareholder hols. With regard to certan other right however, mainly infomation relatedright, theequality has adifferent nature, there it is absolute, for It is based on section 42 of the directive of the European Council 13 December 1976, P L 26/1, 31 January 1977 See Memorandum of Reply, TK 1978-1979, no. 15 304, no. 3, p. 18( the treatment shareholders with regard to the subjects of the second directive and moreover every other form of treatment oftheshareholders by thecompany See again the case of Van den bergey. Verenigde bootlieden, HR3 1 December 1993, NJ1994 436( section 2 201 subsection 2 contains a mandatory prov sion and s not overridden by the avision ofsection 2: 206a 8. See P. van Schilfgaarde in Corporate govemance woor juristen( Corporate govemance for layers). Khwer Deventer, 1998, p. 19-28. Even when there is a princple, it is not the princple of equality, not even the princple of democracy, but the principle of plutocracy. The equality b a
RIGHTS OF MINORITY SHAREHOLDERS IN THE NETHERLANDS 11 The relevant section of Dutch company law with regard to the principle of equality (section 2:201(92) subsection 2) (see no. 7) is a direct result of the EC s second company law directive.5 This directive is limited to subjects related to capital protection and is also only applicable to public companies. This means that the Dutch legislator is under no obligation to extend the range of the principle of equa lity beyond the subject of capital protection. Examining the Dutch text however, it gives no indication that its scope is limited to capital protection issues. The conclusion that section 2:201(92) subsection 2 is not limited to capital protection becomes even stronger when we examine the Memorandum of Reply.6 It states explicitly that the principle of equality extends beyond issues of capital protection. Two important rules following on from the principle of equality as defined in section 2:201(92) can be found in sections 2:206a(96a) and 208(99). These sections indicate that, in principle, existing shareholders have a pre-emption right on any issue of shares pro rata to the aggregate amount of their shares. Section 2:206a(96a) subsection 6 states that the general meeting of shareholders can decide to pass off the pre-emption right. Nevertheless, the principle of equality overrides such a decision7 . Section 2:208(99) subsection 4 states that a partial repayment on shares or a release from the obligation to pay up must be made pro rata to all the shares unless, in respect of the issue of a certain class of shares, the articles provide that a repayment may be made or a release may be given exclusively in respect of such shares. The principle of equality is of the utmost importance for the protection of minority shareholders. The Dutch Supreme Court does not regard section 2:201(92) subsection 2 as a provision from which no departure is allowed. It interprets the rule of section 2:201(92) flexibly. First of all, it is important to realise that, as Van Schilfgaarde mentions8 , the equality defined in subsection 2 is not an absolute equality but rather a relative one; equality in proportion to the amount of capital the shareholder in question provides. However, the exact content of the principle of equality is in our opinion dependent on the nature of the subject in question. With regard to certain rights, for example, the right to vote in a general meeting of shareholders and the right to receive a dividend, equality is indeed relative; there it is proportional to the number of shares the shareholder holds. With regard to certain other rights however, mainly information related rights, the equality has a different nature; there it is absolute, for 5. It is based on section 42 of the directive of the European Council, 13 December 1976, Pb L 26/1, 31 January 1977. 6. See Memorandum of Reply, TK 1978-1979, no. 15 304, no. 3, p. 18 ( the treatment of shareholders with regard to the subjects of the second directive and moreover every other form of treatment of the shareholders by the company ). 7. See again the case of Van den Berge v. Verenigde Bootlieden, HR 31 December 1993, NJ 1994, 436 ( section 2:201 subsection 2 contains a mandatory provision and is not overridden by the provision of section 2:206a ). 8. See P. van Schilfgaarde in Corporate governance voor juristen (Corporate governance for lawyers), Kluwer Deventer, 1998, p. 19-28. Even when there is a principle, it is not the principle of equality, not even the principle of democracy, but the principle of plutocracy . The equality is a relative one
TIMMERMAN DOORMAN der Dutch companmy law a company s not generally permitted to provide certain(important) information to large shareholders but not to smaller shareholders Second, departure from the principle of equality is permitted when shareholders are not in equal circumstances. Finally, departure is also permitted when there is a reasonable and objective justification for the unequal treatment. The reltionship between subsection 2 and subsection 1 is intriguing, as subsection 1 of section 2: 201 (92)opens up the possibility to provide in the articles that the rule that all shares rank pari passu in proportion to their amount is not applicable. The Dutch legislator has indicated that in his opinion a provision in the articles as mentioned in subsection can mean that the shareholders are not in equal circumstances, as mentioned in ubsection 210. However, we question the opinion that different shareholders can be said to be in different circumstances on the basis of the articles alone. The legislator has clearly indicated that in his opinion section 2: 92 subsection 2 is nothing more than an ela boration of section 2: 8, which prescribes the dictates of the reasonableness and faimess of the relation between the com pany and its shareholders. We are of the pinion that not only is subsection 2 an elaboration of section 2: 8, but that subsection I and the subsections l and 2 together cannot be understood correctly either without payingattention to the influence of reasonableness and faimess. The question, in our opinion, should therefore be do the principles of reasonableness and fairness ensure that a different treatment of shareholders solely based on a provision in the articles is reasonably and objectively justified?. We do not think that, generally speaking, the answerto this question can be in the affirmative A further question is whether a company may include provisions in its articles that draw a difference between shareholders who are in equal circumstances, if all the shareholders agree? Would such a prov ision of inequality also be used against shareholders who do not belong to the group of shareholders which voted in favour of such a provision, but became shareholders later, assum ing that the provisions in the articles are sufficiently known to these new shareholders? would it beallowed to treat shareholders unequally if all of them agreed, even if there is no explicit provision in the articles that allows this? These are all fundamental questions for which Dutch company lw, established case law and doctrine hardly provide any answers On the grounds of section 2: 201(92)subsection 1, it is undoubtedly possible to determ ine in the articles that in certain cases shares have different rights and bligations attached to them. But, as in all matters conceming company aw, the rinciples of reasonableness and fairness(section 2: 8)play a decisive role in the background. From a company law point of view, equality and freedom of contract are not principles that take precedence over the principles of reasonableness and fairness, but can and should be seen either as resulting principles (equality)or principles that may never th the demands of reasonableness and fairness (complementary therefore means freedom of contract). This point of departure December 1993, NJ 1994, 436). the court of appeal has not, when judging the question whether a justifcation as aforementioned could be found in the special circumstances of the given case, See the Memorandum of Reply 15304, no 6, p. 18
TIMMERMAN/DOORMAN 12 under Dutch company law a company is not generally permitted to provide certain (important) information to large shareholders but not to smaller shareholders. Second, departure from the principle of equality is permitted when shareholders are not in equal circumstances. Finally, departure is also permitted when there is a reasonable and objective justification for the unequal treatment9 . The relationship between subsection 2 and subsection 1 is intriguing, as subsection 1 of section 2:201 (92) opens up the possibility to provide in the articles that the rule that all shares rank pari passu in proportion to their amount is not applicable. The Dutch legislator has indicated that in his opinion a provision in the articles as mentioned in subsection 1 can mean that the shareholders are not in equal circumstances, as mentioned in subsection 210. However, we question the opinion that different shareholders can be said to be in different circumstances on the basis of the articles alone. The legislator has clearly indicated that in his opinion section 2:92 subsection 2 is nothing more than an elaboration of section 2:8, which prescribes the dictates of the reasonableness and fairness of the relation between the company and its shareholders. We are of the opinion that not only is subsection 2 an elaboration of section 2:8, but that subsection 1 and the subsections 1 and 2 together cannot be understood correctly either without paying attention to the influence of reasonableness and fairness. The question, in our opinion, should therefore be do the principles of reasonableness and fairness ensure that a different treatment of shareholders solely based on a provision in the articles is reasonably and objectively justified? . We do not think that, generally speaking, the answer to this question can be in the affirmative. A further question is whether a company may include provisions in its articles that draw a difference between shareholders who are in equal circumstances, if all the shareholders agree? Would such a provision of inequality also be used against shareholders who do not belong to the group of shareholders which voted in favour of such a provision, but became shareholders later, assuming that the provisions in the articles are sufficiently known to these new shareholders? Would it be allowed to treat shareholders unequally if all of them agreed, even if there is no explicit provision in the articles that allows this? These are all fundamental questions for which Dutch company law, established case law and doctrine hardly provide any answers. On the grounds of section 2:201(92) subsection 1, it is undoubtedly possible to determine in the articles that in certain cases shares have different rights and obligations attached to them. But, as in all matters concerning company law, the principles of reasonableness and fairness (section 2:8) play a decisive role in the background. From a company law point of view, equality and freedom of contract are not principles that take precedence over the principles of reasonableness and fairness, but can and should be seen either as resulting principles (equality) or principles that may never conflict with the demands of reasonableness and fairness (complementary therefore means freedom of contract). This point of departure 9. As decided by the Supreme Court in the case Van den Berge v. Verenigde Bootlieden (HR 31 December 1993, NJ 1994, 436). the court of appeal has not, when judging the question whether a justification as aforementioned could be found in the special circumstances of the given case, applied an incorrect criterion. 10. See the Memorandum of Reply 15 304, no. 6, p. 18