NETHERLANDS Law and Practice Contributed by: Maarten de Boorder, Rutger Sterk, Bas Vletter and Samuel Garcia Nelen, Greenberg Traurig, LLP
transaction or employment documentation, com - mission of crimes of personal bankruptcy, etc; or • a “good leaver” – generally a leaver for any reason other than those used to classify a bad leaver; or • an “early leaver”. The relevant consideration for the leaver shares will typically depend on the leaver classification (good, bad or early) and the timing of the departure (typically linked to the time at which the leaver event occurred). Good leavers will typically receive fair market value, subject to a customary vesting scheme. Bad leavers will typically receive the lower of fair market value and acquisition costs. Early leavers will receive a tailored discount. 8.4 Restrictions on Manager Shareholders In the Netherlands, restrictive covenants such as non- compete and non-solicitation restrictions are typically imposed as part of both the equity package and the employment/management contract. The enforceabil - ity of non-compete restrictions is limited by antitrust laws and the Dutch law principle of reasonableness and fairness ( redelijkheid en billijkheid ). A Dutch court can modify or nullify any overly restrictive term. 8.5 Minority Protection for Manager Shareholders Governance rights for management are usually limited to fundamental minority protection rights, including in relation to the exclusion of pre-emptive rights, other than for rescue financing or add-on acquisitions (at the discretion of the PE fund). Normally, a PE fund will not permit management to have any elaborate operational veto rights, including regarding the sus - pension, appointment or dismissal of directors. A PE fund will, in principle, not accept/discourage as far as possible any hampering of its discretionary exit rights, particularly any provision that would allow the minority shareholders to dispute the exit value. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights A PE shareholder will negotiate key rights to maintain (substantial) influence over its portfolio companies to
protect its investments and minimise associated risks. Common provisions relating to control include hire-or- fire mechanics, wherein the PE fund shareholder has the right to appoint, suspend or dismiss members of the management board. PE funds will negotiate an elaborate list of reserved matters that, for example, either require the approval of the PE fund in the gen - eral meeting of shareholders of the company or of a delegated member of the supervisory board of the company. PE shareholders require elaborate informa - tion rights, which include monthly financial reporting and the immediate reporting of key events. PE share - holders will often negotiate the discretionary right to initiate an exit process, including by means of a drag- along right. 9.2 Shareholder Liability In the Netherlands, a shareholder’s liability is, in prin - ciple, limited to its investment and its obligation to pay the nominal value of its shares. Case law shows that there are certain instances where a shareholder can be held liable in respect of the liabilities of its portfolio companies, for instance, where such share - holder has accepted distributions from its portfolio company, subsequent deficit of which results in the portfolio company’s bankruptcy. Furthermore, the corporate veil can be pierced in instances where a portfolio company breaches European or domestic competition laws. As part of the intensive monitoring of their portfolio companies, the PE sponsor should be wary if and when the portfolio company encounters financial difficulties. There are multiple exit strategies for PE funds, includ - ing private sales to other PE-backed investors or cor - porates, IPOs, management buy-outs and recapitali - sations. The most common exit strategy for PE is a private sale. Dual-track processes occur, but over the last few years have not been common. Triple-track exits – whereby the possibility of a recap is prepared in parallel – are rare. Roll-over situations where a PE seller reinvests (through a different fund under man - agement) are popular in the Netherlands. 10. Exits 10.1 Types of Exit
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