Permitted transfer clauses in shareholders’ agreements:  Why careful drafting matters

The facts and Dutch law

In June 2022, the Investor and Orange Wings B.V. (Orange Wings) invested EUR 1 million for a 30% stake in a company that has been anonymised in this ruling (the Company). The remaining 70% of the Company was held by the Founder. Less than a year later, the Investor carried out a restructuring. Orange Wings transferred the shares in the Company via its subsidiary Orange Wings Investments BV to a cooperative, Orange Wings Investments Coöperatief I U.A. (OWIC). After the restructuring, OWIC was not exclusively controlled by the Investor, as a third party indirectly held a 9% economic interest in the Company. The Founder considered this as a change of control and invoked an offer obligation.

Under Dutch law, shares in a private limited company must, for a valid transfer, first be offered to the other shareholder(s) (Section 2:195 of the Dutch Civil Code) in order to safeguard the private nature of such companies. In this case, the articles of association contained a similar offer provision. In addition, the shareholders' agreement provided for mutual offer obligations in the event of a change of control within the meaning of the SER* Merger Code 2015 

(* Social and Economic Council; in Dutch: Sociaal-Economische Raad or SER).

Court ruling

The District Court of The Hague ruled that the restructuring did not breach the shareholders' agreement or the articles of association, as it fell within the agreed exceptions to the offer obligations. Had these exceptions not been agreed, the court would likely have upheld the Founder's claims. Reference was made to earlier case law in which a restructuring triggered a change of control provision despite the ultimate beneficial owner (UBO) remaining unchanged (ECLI:NL:GHARL:2018:260).

Fact is that almost every properly drafted shareholders' agreement includes a provision allowing certain share transfers ("Permitted Transfer"), for example in cases like these. Investor and Founder also agreed on such a provision. The ruling underlines the importance of clearly drafted exceptions to offer obligations.

Two key takeaways for M&A lawyers follow from this ruling: (1) the scope of legal successors in a restructuring and (2) the definition of "Control". Although the Founder argued that he was confronted with a different type of entity after the restructuring, the court attached decisive importance to the wording of the “Permitted Transfer”-clause, which allowed transfer to any entity and was not limited to private limited companies. It is arguable that the outcome might have been different had the clause been more narrowly drafted. The court also held that control within the meaning of the shareholders’ agreement had not changed. If the Founder had intended to capture changes in governance rather than ownership, this should have been explicitly stipulated.

Although the Founder argued that he was confronted with a different type of entity after the restructuring, the court attached decisive importance to the wording of the permitted transfer clause, which allowed transfer to any entity, and was not limited to private limited companies. 

It is arguable that the outcome might have been different had the clause been more narrowly drafted. The court also held that control within the meaning of the shareholders’ agreement had not changed. If the Founder had intended to capture changes in governance rather than ownership, this should have been explicitly stipulated.

Conclusion

In my experience, insufficient attention is often paid to “Permitted Transfer”-clauses in negotiations on shareholder agreements. This ruling shows that it pays to give sufficient consideration to this issue. After all, invoking a mandatory offer obligation will in practice often be precluded by a broadly drafted “Permitted Transfer”-clause.”

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Emile Sahhar advises business owners in disputes and transactions, always focused on what truly matters. Clear, direct and solution-driven, he cuts through legal complexity to deliver practical outcomes – whether in shareholder conflicts, payment disputes, or M&A opportunities.