THE BOTTOM LINE
- Drag-along clauses are not absolute. A Dutch court refused to enforce a drag-along right where the majority shareholders secured post-sale management roles, ruling that the sale conditions were not truly equal for all parties.
- A preliminary offer is insufficient. To trigger a drag-along clause, the offer presented to minority shareholders must be concrete and final. An initial term sheet that requires significant further negotiation will not meet this standard.
- Courts are reluctant to compel negotiations. Even when a party’s conduct is deemed obstructive, a court is unlikely to force them back to the negotiating table unless there was a justified reliance that a final agreement was imminent.
THE DETAILS
This case involved a classic shareholder deadlock. Two of three shareholders in a holding company, [eiser sub 1] and [eiser sub 2], sought to sell 100% of the company’s shares to a third-party buyer, Yellow Hive. When the third shareholder, [gedaagde] B.V., resisted, the majority attempted to invoke the drag-along clause in their shareholders’ agreement. This common M&A provision is designed to allow a majority to force a minority to sell their shares under the same terms. The plaintiffs asked the court for a preliminary injunction to compel the defendant to cooperate with the sale.
The court rejected the primary claim, providing a crucial lesson on the limits of drag-along rights. It found that the initial offer presented to the defendant in December 2022 was not a final, binding proposal. The fact that extensive negotiations and a substantially revised term sheet followed nearly a year later demonstrated that the original terms were not concrete enough to legally compel the minority shareholder to sell. More significantly, the court highlighted that the sellers were not being treated equally. The plaintiffs had arranged to stay on in management roles post-acquisition, a benefit not extended to the defendant. The court reasoned that a drag-along clause presumes a sale on identical terms for all shareholders and that using it to secure a preferential outcome could be viewed as a misuse of that right in a full proceeding.
The plaintiffs’ secondary claim—to force the defendant to continue negotiating in good faith—also failed. The court acknowledged that the defendant’s behaviour appeared to frustrate the deal, noting a pattern of raising new blockades and taking contradictory positions that led to the buyer’s withdrawal. However, the legal standard for compelling negotiations is high. It requires the party seeking the order to have had a “justified reliance” that a final agreement was almost certain. Here, the court concluded that since the parties were still far from an agreement on key points, such reliance could not be established. Despite denying the injunction, the court issued a stern warning that the ongoing deadlock was detrimental to the business and urged the parties to find a commercial solution.
SOURCE
Rechtbank Noord-Nederland
