International Law

DECLARING DIVIDENDS IN THE DUTCH CARIBBEAN

By Karel.Frielink

Resolutions only marginally examined by the court

Directly connected with the approval of the annual accounts, the general meeting of the NV (or BV, as the case may be) or any other body designated in the articles of incorporation shall resolve as to the distribution or reservation of the profit according to such annual accounts and as to the paying of any other distributions to the charge of the equity capital as appearing from such annual accounts. The general meeting or any other body designated in the articles may resolve to pay interim distributions to the charge of a current financial year or to the charge of a closed financial year for which the annual accounts have not yet been approved.

However, distributions to shareholders and other parties entitled to distributions may not be made if the company?s equity capital is negative or would become negative due to the said distribution. A resolution to make any such distribution shall have no legal effect whatsoever (Section 2:118 (5) Netherlands Antilles Civil Code; NACC).

Every minority shareholder may request to annul a decision of a corporate body (section 2:21 par 3 NACC), for example because the decision is in conflict with the principles of reasonableness and fairness (Section 2:7 NACC). It is possible that the general meeting of shareholders, without justification, adopts a resolution that is not in the interest of the minority shareholders.

For example, without justification the general meeting of shareholders decides not to pay dividend but to reserve the profits of the preceding financial year. Whether or not such a resolution is justified depends on the facts and circumstances of the particular case. For instance, a resolution to the effect that no dividend be paid in a particular year can be based on a sound business decision, e.g. that the company actually needs the money for necessary investment purposes. Basically, the court will review whether such a decision is reasonable and fair given the facts and circumstances. The decision by the majority shareholder will only be marginally examined by the court.

Karel Frielink
Attorney (Lawyer) / Partner

Full post as published by Karel's Legal Blog on September 20, 2008 (boomark / email).