THE BOTTOM LINE
- In a crisis, a board’s non-conflicted directors can exclude conflicted colleagues from key decisions to save the company, even if those directors are founders with significant shareholdings.
- A director is deemed conflicted if their personal financial interest in a prior deal creates reasonable doubt about their ability to objectively evaluate a new, urgent proposal vital for the company’s survival.
- Contractual disputes between shareholders, such as the enforcement of a term sheet, cannot be litigated through the Dutch Enterprise Chamber’s corporate inquiry proceedings; they must be resolved in the contractually designated forum.
THE DETAILS
The case revolves around the rapid-growth delivery company Getir. Facing imminent financial collapse, the company’s primary financier, Mubadala, proposed a last-ditch debt-for-assets transaction to prevent bankruptcy. This new deal, however, directly contradicted an earlier “Term Sheet” that would have seen the company’s founders acquire a portion of the business. Faced with a choice between accepting Mubadala’s new offer or certain insolvency, Getir’s independent executive directors took decisive action. They determined that the founder-directors, due to their personal stake in the now-defunct Term Sheet, had a conflict of interest under Dutch law (Art. 2:239(6) of the Civil Code) and could not participate in the decision.
Acting alone, the executive directors approved the new transaction with Mubadala, effectively wiping out the founders’ previous deal but saving the company from liquidation. The founders challenged this exclusion in the Dutch Enterprise Chamber, arguing they were improperly sidelined and that the executive directors themselves were conflicted. The Chamber, however, rejected their claims, and the Advocate General (AG) at the Dutch Supreme Court has now advised the Supreme Court to uphold this decision. The AG affirmed that the founders’ direct personal interest in the prior Term Sheet created a clear conflict, making it reasonable to doubt their ability to act solely in the company’s best interest. Their exclusion from the vote was therefore justified.
This advisory opinion reinforces two critical principles for corporate governance in the Netherlands. First, it confirms that a board is empowered—and indeed obligated—to manage conflicts of interest internally by excluding conflicted members from deliberations, without needing to seek a court order first. This is a crucial tool for independent directors navigating high-stakes crises. Second, the court clearly ring-fenced the scope of the inquiry proceeding. While it assessed the board’s actions from a corporate governance perspective, it deemed the underlying dispute over the non-enforcement of the Term Sheet to be a purely contractual matter between shareholders. This confirms that the Enterprise Chamber is not a forum for litigating shareholder agreements, which must be heard in their contractually agreed jurisdiction.
SOURCE
Source: Parket bij de Hoge Raad (Advocate General’s Office at the Supreme Court of the Netherlands)
