13 February 2015

Corporate litigation in The Netherlands

Corporate litigation in The Netherlands

Addressing mismanagement of Dutch companies in The Netherlands: inquiry proceedings

Dutch corporate law provides for a unique legal procedure that enables, inter alia, shareholders, trade unions and the Dutch Attorney General to address the (suspected) mismanagement of most types of Dutch legal entities, most importantly of the N.V. and the B.V., the two most commonly used Dutch business entities.
That procedure is the inquiry proceedings (in Dutch: “enquêteprocedure”). The inquiry proceedings are conducted exclusively before the Enterprise Chamber of the Amsterdam Court of Appeal (“EC”, in Dutch: the “Ondernemingskamer”).
In essence, the inquiry proceedings offer an opportunity to have possible mismanagement of a legal entity investigated and for action to be taken to prevent further mismanagement.

Who may request an inquiry and in respect of which entities?

The entities that can be the subject of inquiry proceedings are the cooperation, the mutual benefit association, the N.V. (public limited liability company), the B.V. (private limited liability company), the foundation and the association (provided that the association operates a business).
Most inquiry proceedings are directed at the B.V. or the N.V. The following persons may request inquiry proceedings in respect of these entities:

  • If the B.V. or N.V. has an issued share capital of no more than EUR 22,5 million: shareholders and holders of depository receipts holding (solely or jointly) at least 10% of the issued share capital or shares with a nominal value of at least EUR 225.000 (or any lower amount provided for in the articles of association).
  • If the N.V. or B.V. has an issued capital of more than EUR 22,5 million: shareholders and holders of depository receipts holding (solely or jointly) at least 1% of the issued share capital. If the shares of the company are admitted to a regulated market then shareholders and holders of depository receipts that (solely or jointly) hold shares with a value of more than 20 million may request an inquiry.
  • The company itself (in which case the request will be submitted by one or more (supervisory) directors.)
  • Any person who has been granted the right thereto in the articles of association or by agreement.
  • The bankruptcy trustee in case of bankruptcy of the company.

    The inquiry is not limited to actions of the managing board. It can focus on every corporate body and every person that serves on such a corporate body and is involved with the policies of the company. This includes individual shareholders.

Composition of the EC (the Dutch corporate litigation court)

The EC consists of five persons: three judges and two experts with (typically) an accounting or business background.

First stage

The enquiry proceedings are conducted in three stages. Before the petition can be submitted, however, the would-be petitioner will first have to inform the company about his complaints. The company must be given sufficient time to investigate the complaints and take action to remedy them. If this requirement is not observed, the petition for an inquiry will be inadmissible.
The petitioner may submit a request to the EC to investigate the policies of the company and the general course of its affairs if the company refuses to take action to remedy the complaints within a reasonable time.
The EC will order an investigation if it finds that there are “well-founded reasons to doubt the correctness of the policy or the correctness of the course of affairs of a company”.
Typical situations in which the EC deem that there are well founded reasons to doubt the correctness of the policies and/or course of affairs of a company, are the following:

  • The company acts in violation of the law or its articles of association (e.g. not holding shareholders meetings, not adopting annual accounts, not observing the justified interests of minority shareholders).
  • There is a conflict of interests between the company and one or more persons that are part of its organization.
  • The shareholders and other persons that are entitled to information are provided with incorrect or insufficient information.
  • The company is in a deadlock position.
  • Inadequate business and social policies of the company (e.g. closing down (part of) the business without looking for reasonable alternatives.

Provisional measures

If the EC agrees there are reasons to doubt a proper policy it may order provisional measures, such as:

  • Imposition on the managing board of a prohibition on taking actions that could change the status quo of the company.
  • A prohibition on the shareholders from exercising their voting rights.
  • Suspension of a certain management board or shareholder resolutions.
  • The dismissal of directors with the appointment of temporary directors.
  • Appointment of a supervisor director/supervisory board.
  • Temporary transfer of shares.

Second stage: the inquiry proceedings in The Netherlands

If the EC finds that there are grounds for an investigation, it will appoint one or more independent investigators who will investigate the policies and course of affairs of the company. The EC will budget the investigation. These costs are in principle borne by the company, but the EC may – depending on the circumstances – order the petitioners or other parties (such as an individual managing director or a shareholder) to bear the costs. The investigator may also investigate a (foreign) subsidiary of the Dutch company. The investigator files his report with the EC.

Third stage: decision on mismanagement under Dutch law

Upon conclusion of the report, the petitioner may request the EC to rule that there has been mismanagement, and to take certain measures to remedy that mismanagement. These measures that can be taken by the EC are:

  • Suspension or nullification or a resolution of the managing board, the supervisory board, the general meeting of the shareholders or any other corporate body.
  • The suspension or dismissal of one or more managing or supervisory directors.
  • The temporary appointment of one or more managing or supervisory directors.
  • The temporary deviation from certain clauses in the articles of association.
  • The temporary transfer of shares.
  • The dissolution of the company.

    The inquiry proceedings in The Netherlands offer a very swift way of obtaining full disclosure on a company’s state of affairs and are a good way to restore healthy relations within the company. They may also be very helpful in establishing who is responsible for mismanagement of a company, and can thus be a useful preliminary step in claims for damages. Another benefit of the inquiry proceedings is that practice shows that disputes are often settled in the course of inquiry proceedings.

Advice on corporate litigation in The Netherlands

Blenheim’s Dutch corporate law attorneys have extensive experience in conducting corporate litigation.
For further information on corporate litigation under Dutch law, please contact Arjen Paardekooper, Dutch corporate lawyer;