Drag-along rights may be validly created

On January 1, 2009 the new Aruba Ordinance on companies with limited liability (vennootschap met beperkte aansprakelijkheid; VBA) became effective.

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 (VBA). Generally, 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 Aruban law is whether the articles of association of a VBA may contain drag-along provisions.

Article 25(1) of the Ordinance reads basically as follows: the articles of a VBA may provide that, in cases to be precisely described in the articles, the shareholder must offer and transfer his shares to interested parties according to the terms provided in the articles or, for instance, determined pursuant to the articles by independent experts. This provision in the Aruba Ordinance will be triggered if the articles of association provide for a drag-along right. However, this provision will not be triggered if an ordinary shareholders’ agreement provides for a drag-along provision.

However, a shareholders’ agreement may contain a drag-along provision. Suppose the articles of association make reference to a shareholders’ agreement. Would that trigger the statutory provision? No, although the mere fact that the shareholders’ agreement contains a drag-along provision, does not mean that such a provision is in conflict with Article 25(1) of the Ordinance. This is also in line with the general principle of “freedom”, which governs the Ordinance. The main object of the Aruban legislator was flexibility and maximum freedom of organization and presentation. Accordingly, the Ordinance contains few mandatory provisions, such as provisions relating to the interests of creditors and minority shareholders.

Karel Frielink
Attorney (Lawyer) / Partner

(16 January 2010)


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