Setting aside a decision validly taken on the basis of the articles. An appeal to reasonableness and fairness

Articles of a legal entity

The articles of a legal entity, such as a private limited company, public limited company, foundation or association, contain the main rules underlying the existence and the structure of that legal entity. The articles are laid down for the first time in the deed of formation of the legal person. They record, amongst other things, the objects of the legal entity, as well as the composition and powers of its bodies.

It is extremely important that the provisions in the articles are complied with. If a body of a legal entity performs a legal act that is contrary to the articles, such as adopting an invalid resolution, that legal act is in principle void. In that case, the resolution will be deemed never to have been effected. But what if the consequences of a resolution adopted validly in accordance with the articles are unacceptable in a particular situation?

Reasonableness and fairness 

In that case, an appeal can be made to reasonableness and fairness. Under the law, a legal act by a body of a legal entity, which could be performed on the grounds of a provision in the articles, can nevertheless be declared void if the consequences of this legal act are contrary to reasonableness and fairness.

A practical example

For example, the district court held in the ‘Secmatix’[1] case that three resolutions adopted by the General Meeting of Shareholders (hereinafter: ‘AGM’) of Secmatix B.V. (hereinafter: ‘Secmatix’) were unacceptable as they were contrary to reasonableness and fairness.

In this case, the minority shareholder of Secmatix (hereinafter: ‘Radboud’) had given Secmatix a licence for a hydrogen gel. At a certain moment, Secmatix found itself in financial difficulties. In order to attract finance, the majority shareholder of Secmatix, named AcuBlue B.V. (hereinafter: ‘AcuBlue’), proposed on two occasions at the AGM that shares could be issued to attract working capital for Secmatix. Then AcuBlue proposed in the AGM that AcuBlue would grant a convertible loan to Secmatix. AcuBlue voted in favour of all resolutions in the AGM. Radboud voted against the resolutions, because it had already lent a large sum of money to Secmatix in the past. If Radboud were not to pay up again on new shares to be issued, its shareholding in Secmatix would be diluted to 0.02%.

The three resolutions could be adopted because the articles of Secmatix lay down that in order to table a motion for a share issue, the management board requires the approval of an absolute majority of the AGM. AcuBlue, as the majority shareholder, could therefore adopt resolutions at the AGM that merely required a majority of votes. In response to this, Radboud instituted interim relief proceedings which ended in proceedings on the merits.

Despite the fact that the resolutions has been adopted in accordance with the proper procedure under the articles, both the court in interim relief proceedings and the court hearing the case on the merits held that the three resolutions were void as they were contrary to reasonableness and fairness. Reasonableness and fairness also means that a legal entity must exercise due care with regard to the interests of all its shareholders. Where it concerns majority shareholders versus minority shareholders, the possibility of a mixing of interests between the company and some of these persons may arise sooner than in other cases, so that due care must be taken to avoid an unacceptable conflict of interests.

It was clear, according to the courts, that Secmatix urgently needed financial resources. For this reason, in itself it is not contrary to reasonableness and fairness that Secmatix and AcuBlue went in search of options to obtain working capital for Secmatix by means of internal funding. On the contrary, as a minority shareholder, Radboud, too, was obliged on the grounds of reasonableness and fairness to cooperate in seeking reasonable solutions to obtain working capital. In choosing from the various options to obtain working capital, however, according to the courts the boards of Secmatix and AcuBlue should have taken account of the interests of Radboud as a minority shareholder.

If Radboud were not to purchase any of the new shares to be issued, its shareholding would be diluted. Pressing for a course of action that would dilute a minority shareholder’s interest was contrary to reasonableness and fairness, because the licence Radboud granted free of charge to Secmatix formed the backbone of Secmatix, and because Radboud had already kept Secmatix afloat in the past by granting it a substantial loan. The two resolutions to issue shares in fact meant that Radboud was forced to take on a proportion of the new working capital. If it did not do so, it would be practically excluded from any form of control or influence in Secmatix. In view of the licence and the loan provided in the past, such a dilution was unreasonable and unacceptable.

With the AGM choosing for a share issue, and not alternative forms of financing which would take account of the interests of the minority shareholder, the courts held that AcuBlue had acted contrary to reasonableness and fairness. In addition, the courts held that Secmatix itself had acted contrary to reasonableness and fairness by wanting to effect two share issues to the disadvantage of Radboud as minority shareholder and to the advantage of AcuBlue. Pressing for such a course of action that would dilute the shareholding was contrary to reasonableness and fairness.

In addition, the courts held that the third resolution actually had the same disadvantages for Radboud as the two resolutions to issue shares. If Radboud would not give a loan to Secmatix, AcuBlue would then have the opportunity to convert its loan into shares at any moment it chose, which would also dilute Radboud’s shareholding. Since AcuBlue and Secmatix did not take account of Radboud’s interests, the third resolution was also contrary to reasonableness and fairness. The court therefore set aside the three resolutions on the grounds of conflict with reasonableness and fairness, and banned Secmatix from implementing these three resolutions.

Finally, besides demanding that the resolutions be set aside, Radboud demanded that Secmatix be banned from implementing any new resolution of shareholders that would directly involve the issue of shares, or indirectly via a convertible loan or otherwise. The court held that this claim was not admissible, because on the grounds of reasonableness and fairness both shareholders were obliged to cooperate in seeking reasonable forms of internal financing. It was therefore for the parties themselves to find an appropriate solution to this.


Despite the fact that legal acts are performed in a company that are in accordance with that laid down in the articles, a legal act performed lawfully can nevertheless be declared void if its consequences are unacceptable by standards of reasonableness and fairness.

Apart from complying with the rules contained in the articles, it is therefore very important to examine whether the legal act performed on the basis of the articles will meet the requirements of reasonableness and fairness. Since reasonableness and fairness do not have a fixed definition, it must be examined on a case-by-case basis what is reasonable and fair.

If you find yourself in a situation where the outcome of legal acts, which in themselves are not contrary to the articles, nevertheless has unreasonable consequences, Conseiller will be pleased to assist you with reliable advice.

[1] District Court of East Brabant 31 July 2019, ECLI:NL:RBOBR:2019:4456.