Corporate opportunity: director not allowed to simply appropriate a corporate opportunity
In England and the US, the ‘corporate opportunity doctrine’ is well known. Not so much in The Netherlands. The Dutch Supreme Court is (as yet) afraid to rock the boat with regard to this doctrine, while the Enterprise Division, the Courts of Appeal and the district courts have already frequently used it. Recently, this doctrine appeared in a ruling by the Enterprise Division. Dutch corporate lawyer Martijn Kesler explains the case.
Director takes corporate opportunity in a private capacity
The corporate opportunity doctrine is about the situation where a director (or otherwise a stakeholder) of a company does not take a ‘corporate opportunity’ with the company, but appropriates this in another capacity (for his personal benefits). Whether there is in fact a ‘corporate opportunity’ depends on the circumstances of the case. In any case, the nature of the company, the tangible expectations for the future and the capacity of the ‘corporate opportunity’, shall be taken into account. This doctrine appears regularly, but we shall have to wait until it is recognized as such.
New company moves into the premises
In this case, the facts are the following. Director A is a(n) (indirect) director of Direkt Mail. This company has processed mailings for companies since 1995 and, among others, delivers packages to consumers. Director A and (indirect) holder of depository receipts for shares B jointly own the premises from which Direkt Mail operates. However, in 2008 a new company, Direkt Stock, moves into the premises. This company also belongs to director A and specializes in storing stationery, envelopes and folders.
Shadowy constructions to finance the company
In 2013 the holder of depository receipts B had a falling-out with director A about the policy of the company. Direkt Stock was positioning itself strongly on the market as part of Direkt Mail and it appeared that ‘shadowy’ constructions had been used to finance Direkt Stock. In October of 2013, the holder of depository receipts B appealed to the Enterprise Division and states, among others, that Direkt Stock is using the ‘goodwill’ of Direkt Mail without paying compensation for this and that Direkt Stock is taking away corporate opportunities from Direkt Mail.
Nature of activities fits in with company
The Enterprise Division finds that the nature of the activities of Direkt Mail fits in to such an extent with the business of Direkt Stock, that this can be considered a corporate opportunity that belonged to Direkt Mail. At the hearing, director A also stated that 90% of the stored assets was printed matter. It was not shown if director A considered, or submitted to the interested party, whether the activities should have been developed within Direkt Mail.
Submitted plan was based on other assets
Director A stated that he had submitted his plans, among others, to B, but B responded that this plan was based on other assets, and could not be fitted in at all with the Direkt Mail business. The Enterprise Division doubted whether director A, by appropriating this corporate opportunity, adequately served the interests of Direkt Mail and its allied companies, or whether he let his own interest prevail. Partially based on the appropriation of this corporate opportunity, the Enterprise Division ordered an investigation into the policy of the Direkt Mail company.
Corporate opportunity has to be submitted
A relevant aspect of this ruling is that the Enterprise Division touches on how the director should have dealt with the corporate opportunity. This is in synch with the literature on this subject and it is important for all directors. If a director has a corporate opportunity, he is obliged to submit this corporate opportunity, completely and to the fullest extent, to the other directors, or, as the case may be, shareholders of the company. Director A can only use this corporate opportunity in a private capacity if the opportunity is rejected.