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Conduct of Majority Shareholder Relevant for Determining Price in Squeeze-out Procedure

Dutch Caribbean law provides for a so-called squeeze-out procedure. Meaning, that a major shareholder holding at least 95% of the shares can enforce, through a court procedure, that the minority shareholder(s) transfer(s) his/their shares to him for a price to be determined by the court. In a judgment rendered last month, the Supreme Court ruled that, in a squeeze-out procedure, conduct of the majority shareholder, which has reduced the value of the shares to be transferred, may be taken into account in determining the purchase price of the shares.

In the case at hand the majority shareholder had favored himself, and had harmed the company and the minority shareholder, by selling subsidiaries and by granting loans (to parties affiliated with him) by the company, at non-arm’s length conditions.

It was ruled that it would be unacceptable for the minority shareholder to have to transfer his shares at a value that had been significantly adversely affected by the actions of the majority shareholder. According to the Supreme Court, it is the intention of the legislator that the bought-out minority shareholder receives realistic and reasonable compensation, and the judge in such proceedings has a large degree of freedom in determining this. Thus, when determining the price of the shares in a squeeze-out procedure, the judge may determine a higher price, i.e. higher than the current value of those shares, if and to the extent that the value of the shares has been reduced as a result of the conduct of the majority shareholder.