Trouble within the family business

Family ties can form a strong foundation for collaboration. Yet, within family businesses, serious disputes can arise. Conflicts over the shared company can tear families apart and severely harm the business. But what legal steps can you take—or expect—when tensions escalate within the company?

Protection of Minority Shareholders

When the business operates as a private limited company (BV), it’s often difficult for minority shareholders to assert legal power. In shareholder meetings, they can easily be outvoted.

However, minority shareholders are not entirely powerless. To protect their interests, a specialized court exists: the Enterprise Chamber of the Amsterdam Court of Appeal.

Filing an Inquiry Request

If a conflict escalates to the point where there are valid reasons to doubt the company’s proper management or operations, shareholders, depository receipt holders, directors, and supervisory board members can submit an inquiry request to the Enterprise Chamber. Shareholders or depository receipt holders with at least a 10% interest are eligible to file such a request. The procedure is swift—comparable to preliminary relief proceedings.

If the Enterprise Chamber finds that there are valid reasons for doubt and grants the request, it may impose far-reaching immediate measures to intervene in the company. For example, it can suspend directors and/or appoint an interim independent director to restore stability. This director may be authorized to make independent decisions and represent the company externally. In cases where a deadlock in the general meeting prevents decision-making—such as two shareholders each owning 50% and unable to agree—the Enterprise Chamber can temporarily transfer the shares (including voting rights) to an independent custodian. The measures taken depend on the specific situation and are always tailored to the case.

Appointment of an Investigator

Often, immediate measures are sufficient to resolve the conflict. If not, the Enterprise Chamber may also appoint an investigator to review the company’s policy and operations. This investigator will have access to the full administration and extensive investigative powers. Upon completing the investigation, they will file a report with the Enterprise Chamber. The findings can be used to establish whether there was mismanagement and may lead to further measures. A ruling of mismanagement can also form the basis for a liability claim against directors responsible for the misconduct.

Case Study from the courts

A notable case before the Enterprise Chamber occurred in 2018. Two brothers owned a company that rented out hospitality real estate and invested in hospitality ventures. One brother, Brother A, managed the finances and owned two-thirds of the shares. The other, Brother B, was in charge of operations and held a one-third minority interest. Brother A was the sole director at the time. Just before Brother B was to be appointed as co-director, a major conflict erupted.

Prior to his appointment, Brother B instructed an accountant to audit the books from 2014 to 2016. The accountant discovered a current account receivable of €11 million owed by Brother A, relating to personal expenses and management fees paid without any formal agreement or shareholder approval. A later report concluded that, under normal circumstances, the company should have had €9.5 million in cash, but due to Brother A’s actions, the cash reserves had been drained. This prompted Brother B to seek help from the Enterprise Chamber.

The court sided with Brother B, finding valid grounds to doubt the company's proper management. It became clear that Brother A had transferred the economic ownership of his villa to the company solely to reduce his personal debt. He had also charged nearly €7 million in financing, renovation, and depreciation costs to the company, which destroyed its liquidity. The court ruled that Brother A had prioritized his personal interests over those of the business. Furthermore, he failed to involve his brother in key decisions or provide him with adequate information.

As a result, the Enterprise Chamber suspended Brother A as director, appointed an independent interim director, nullified Brother A’s management fee, and temporarily transferred Brother A’s voting rights to a custodian. Brother A was effectively sidelined, allowing the new director to restore order and, for example, recover the current account debt.

Broken Relations

Even in less extreme cases, the Enterprise Chamber can offer a solution—for instance, when a deadlock in decision-making arises or when a dissenting party threatens to destroy the business. Experience shows that an inquiry procedure can help restore broken relationships. It’s also an effective negotiation tool, often leading to one shareholder buying out the other.

If the conflict occurs within an international organization, the Enterprise Chamber can still play a role, provided the dispute involves a Dutch company, such as a holding or operating company.

In the example above, it appears the brothers eventually reconciled. Brother B withdrew his request to establish mismanagement, and both brothers jointly asked the Enterprise Chamber to end the inquiry, suggesting a settlement was reached. The company now has a new director, according to the business registry.

Are you in a similar situation, or would you like more information about corporate litigation?

Feel free to contact one of our lawyers from the Corporate & Commercial Litigation team at act legal. We’re here to help!

[1] See Amsterdam Court of Appeal, 27 September 2018, ECLI:NL:GHAMS:2018:3411