Dutch inquiry proceedings into the mismanagement of a company

The Enterprise Chamber of the Amsterdam (EC) is a special division of the Amsterdam Court of Appeal that deals with corporate proceedings. At the request of the related company, its shareholders or trade unions they can order an investigation on the affairs of the company, the so-called “inquiry proceedings”, and take immediate measures, such as suspension of a director. How do these proceedings work, and when will such a request be granted? Dutch corporate litigator Hidde Reitsma discusses recent Dutch case law.

Case law of Dutch Enterprise Chamber

The cause for the litigation is a shareholders’ dispute. The plaintiff in this case is a director-shareholder. The defendants are the two other director-shareholders of the company. Parties have a difference of opinion about the business operations of their company. The main source of grief is the unprofessional attitude of the plaintiff. After yet another incident where the plaintiff was involved, which seriously affected the relation with a client, the defendants decided it was best for the company if the plaintiff would step down as director.

Decision to dismiss director by majority of shareholders

First defendants tried to reach an amicable agreement with the plaintiff regarding the terms of his leaving (buy-out or division of the company), but unfortunately without success. They then decide to dismiss the plaintiff in a shareholders meeting. Plaintiff, who did not agree with his dismissal, requested the EC to conduct inquiry proceedings into the firms affairs.

First phase: is inquiry necessary?

The EC only orders an investigation if there are “well founded reasons to doubt the correctness of the course of action followed by the corporation”. Plaintiff argues that he was wrongfully dismissed and that this decision is detrimental to the firm’s interests. Therefore there are reasons to doubt the correctness of the course of action. The EC, however, considers that, contrary to plaintiff’s opinion, there was sufficient reason for the termination procedure followed by the defendants. That parties are in disagreement about the way one of the directors manages the company, does not constitute “well founded” reasons to doubt the correctness of the course of action per se. The EC therefore denies plaintiffs request.

Second phase: establish mismanagement

In this case the investigation was not ordered but if the EC would have found that there were sufficient reasons, they would have appoint one or more investigators to compile a report. After the report is finished and handed over to the EC the proceedings come to an end. If the report’s conclusions give reason to, the plaintiffs can file a new request to the EC to establish mismanagement. This is called the second phase. If the EC establishes mismanagement, it can take one or more measures to put an end to this mismanagement, such as the dismissal of directors, the suspension of annulment of any decision of any body of the company. The EC can even order the dissolution of the corporation.

Dutch lawyers specialized in corporate litigation

While our corporate litigation lawyers have gained broad experience in many different procedures in this legal area, the inquiry proceedings remains one of the more important procedures. Should you have any question with respect to corporate litigation (among which deadlock situations within the board of a limited or shareholders conflicts), contact our corporate lawyers.

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