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Shoot-out clauses in joint venture deadlocks

07/03/2014

Joint venture partners can be faced with continuous differences of opinion. In case they cannot find a solution for such differences of opinion, the joint venture partners find themselves in a permanent deadlock situation. In such an event, there is only one way out: the partnership between the partners has to come to an end. If both of the partners have an interest in continuing the business of the joint venture (“JV”), a problem arises: which partner acquires the shares of the other partner and at which price?    

A shoot-out clause could provide a solution for such problem, whereby it should be noted that the JV-partners shall only be interested to continue the business of the JV in case (i) a newly acceding partner is able to take over the role of the leaving partner or (ii) the continuing partner itself is able to take over the role of the leaving partner by attracting – in the shortest term – from a third party the services and/or facilities that were previously provided by the leaving partner.

In his publication in Tijdschrift voor de Ondernemingsrechtpraktijk (TOP, February 2014), Jurriaan Hermans describes the relevant statutory framework and discusses the essential characteristics of a shoot-out clause. Then he deals with the question whether it is advisable to include a shoot-out clause in the joint venture agreement. He also represents schematically a number of variants of shoot-out clauses, whereby he analyses the relevant advantages and disadvantages of the various variants. Further, Hermans outlines a number of recommendations that could be useful in case you wish to include a shoot-out clause in the joint venture agreement.

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