Claim of withdrawal for certificate holder

I recently wrote about the certification of shares and how such constructions can trigger change-of-control clauses, with all the consequences that entails. In this blog, I discuss the extent to which a stressed certificate holder with an exit claim may claim from his fellow certificate holder(s) that his certificates be acquired.

The exit claim

A shareholder whose rights or interests have been harmed to such an extent by conduct of his fellow shareholder(s) that he can no longer reasonably be required to remain a shareholder may claim from that fellow shareholder(s) that his shares be acquired. This is the touchstone of the statutory exit claim. The exit claim can be an effective tool for being bought out in a company. The point, however, is that the exit claim is written for shareholders. Depositary receipt holders who filed an exit claim received zero response until recently (essentially because the law does not (yet) provide a basis for depositary receipt holders). A shift seems to be taking place in this respect, as the Enterprise Chamber recently accepted that a depositary receipt holder can also successfully institute an exit claim.

Cooperation through a Foundation Trust Office

The case study. Two spouses (X and Y) ran a business together in the form of a general partnership. At a certain point in time, that enterprise was contributed to a private limited company, of which X and Y were jointly authorized statutory directors. The shares are held in a ratio of 60% (X) 40% (Y). At some point X and Y placed these shares in a Stichting Administratiekantoor (hereinafter "STAK"), which in turn issued depositary receipts to X and Y in the same proportion in which they held shares. The corporate structure was schematically as follows:

A few years after certification, the divorce between X and Y is pronounced, after which a conflictual settlement follows. The former spouses bombard each other with various proceedings, including 4 (!) summary proceedings in which, moreover, several appeals are lodged. Between the lines of the judgment it can be read that the core of the proceedings is that X has had various claims of the Company paid to himself. Thereby making use of an important statutory voting ratio in the board of the STAK: this was namely equal to the number of certificates that X and Y held. In other words, X always had the majority in decision-making within the STAK board.

Because of the design of the governance of the Company and the STAK, Y got stuck. Y therefore brought a resignation claim before the District Court, but received nothing. The court ruled - in summary - that Y's resignation claim could not be granted because of Y's capacity as depositary receipt holder. Y appealed the ruling to the Enterprise Chamber, and was successful.

Withdrawal action may also be brought by a certificate holder

Although the Enterprise Chamber expressly does not rule in a general sense on the question whether the exit claim is exclusively intended for shareholders and not also for depositary receipt holders, in this specific case it grants the exit claim. The Enterprise Chamber rules that an analogous application is permissible in this case because the position of X and Y as depositary receipt holders in this case is very similar to the position of shareholders.

Although dogmatically there is much to disagree with this judgment, the analogous application in this case is understandable. The board of a STAK exercises voting rights on the shares that the STAK holds in a company. Since the ownership ratio at depositary receipt holder level was equal to the voting ratio in the STAK board, there was in fact hardly any difference in terms of control at shareholder level of the company compared to a corporate structure in which no STAK would have intervened.

In short: a certificate holder does not stand empty-handedly

Under circumstances, a holder of depositary receipts may demand that his fellow holder of depositary receipts take over his depositary receipts. For such a claim to stand a chance, it must be argued - with the Enterprise Chamber's ruling in mind - that the situation of the holders of depositary receipts in question is very similar to that of shareholders if there were no STAK construction. This may be because holders of depositary receipts have made divergent agreements among themselves. I would be happy to check with you, based on the administration conditions of the STAK and any depositary receipt holder agreements, whether this is the case in your case.