International Law

DRAG-ALONG RIGHTS UNDER THE LAWS OF THE DUTCH CARIBBEAN

By Karel.Frielink

Drag-along rights may be validly created

A drag-along right is a right that enables a majority shareholder to force a minority shareholder to join in the sale of his shares in a company (NV or BV). The majority shareholder doing the dragging must give the minority shareholder the same price, terms, and conditions that apply to him. The question with regards to Dutch Caribbean law is whether the articles of association of an NV or BV may contain drag-along provisions.

Article 2:257(1) of the Netherlands Antilles Civil Code reads as follows: ?The articles may provide that, in cases to be precisely described in the articles, the shareholder must transfer his shares to the company or to one or more co-shareholders according the terms provided in the articles or determined pursuant to the articles by independent experts.?

This provision in the Netherlands Antilles Civil Code will be triggered if the articles of association provide for a drag-along right. However, this provision will not be triggered if a shareholders? agreement provides for a drag-along provision.

A shareholders? agreement may contain a drag-along provision. Suppose the articles of association make reference to a shareholders? agreement. Would that trigger the Civil Code provision? The mere fact that the articles of association refer to the shareholder?s agreement, does not mean that a drag-along provision as provided in the shareholder?s agreement is in conflict with Article 2:257(1) of the Civil Code.

Furthermore, Article 2:257(1) of the Civil Code does not prevent parties entering into a shareholder?s agreement with provisions that deviate from Article 2:257(1) Civil Code, such as drag-along provisions in a shareholder?s agreement. This is also in line with the general principle of ?freedom?, which governs Book 2 of the Netherlands Antilles Civil Code. The main object of the legislator was flexibility and maximum freedom of organization and presentation. Accordingly, Book 2 of the Civil Code contains few mandatory provisions, such as provisions relating to the interests of creditors and minority shareholders.

Karel Frielink
Attorney (Lawyer) / Partner

Full post as published by Karel's Legal Blog on October 11, 2008 (boomark / email).