Nexperia: court intervention by the Dutch Enterprise Chamber in Amsterdam explained

Last week the Enterprise Chamber intervened forcefully at chip maker Nexperia. The case is unique: it is the first time that the Dutch Minister of Economic Affairs issued an order based on a 1952 law, and the first time that the Enterprise Chamber granted immediate relief without a prior hearing.

Background

Nexperia is a Dutch semiconductor manufacturer originated from Philips/NXP. In 2019, Nexperia was acquired by Wingtech, a Chinese investment vehicle owned by entrepreneur Zhang Xuezheng (nicknamed ‘Wing’). Wingtech’s share The portion of registered capital of a private or public limited company
» Meer over share shares are listed on the Shanghai share The portion of registered capital of a private or public limited company
» Meer over share Stock Exchange and Wing owns 15%, making him a controlling shareholder. A 30% stake in Wingtech is held (indirectly) by the Chinese government. Wing is managing director and acting CEO of Nexperia.

Government concerns

There have long been concerns from several Western governments about Nexperia transferring knowledge around sensitive chip technologies to China. Hence, the UK demanded in 2021 that Nexperia sell its stake in a plant there. At the end of September, the United States imposed strict export restrictions on Nexperia.

Order from minister

At the start of October, the Dutch Minister of Economic Affairs intervened by issuing an order under the Wet beschikbaarheid goederen (Goods Availability Act)(Wbg). The aim of the order was to prevent the transfer of components, knowledge and capital from Nexperia to China. The minister justified invoking this 1952 law in his letter yesterday. It is unusual for the Dutch government to use an administrative instrument to intervene at a private company.

Request for enquiry

Almost simultaneously, some of Wing’s co-directors submitted arequest to the Enterprise Chamber on behalf of Nexperia to (i) suspend Wing as a director and (ii) temporarily appoint an independent director. It was further requested that (iii) all of Wingtech’s shares in Nexperia be transferred in trust to an independent person appointed by the Enterprise Chamber.

‘Ex parte’ ruling

The Enterprise Chamber granted this request within hours and without the knowledge and/or hearing of Wing or Wingtech. This is highly exceptional: never before has the Enterprise Chamber granted a request for immediate relief ‘ex parte’ (i.e. without hearing those involved). Such a ruling may be considered contrary to the fundamental right to a fair hearing, especially since shares are being transferred (in trust), which in itself is contrary to Art. 1 of the First Protocol to the ECHR (right to property).

Special situation

However, in a later ruling the Enterprise Chamber justified its actions by considering that continuation of Nexperia’s business operations was in immediate danger due to export restrictions imposed by the US and the minister’s order, which would result in the loss of crucial knowledge and put Nexperia’s survival at risk. The Enterprise Chamber therefore deemed ‘ex parte’ intervention unavoidable in order to "freeze" the situation until a substantive hearing could take place within a few days, with ample opportunity for defence and discussion.

’Valid reasons for concern’

Under the relevant Dutch law the Enterprise Chamber is able to intervene in companies in an event where there are “valid reasons for concern” (gegronde redenen). In the Enterprise Chamber’s interim opinion, there were two valid reasons: a conflict of interest of Wing in his capacity as director and lack of governance within Nexperia.

Conflict of interests

With respect to the conflict of interests, the Enterprise Chamber considered that Wing had instructed Nexperia to place orders in the amount of EUR 200M with Chinese company where he had controlling interests for products that were not needed and were also unusable. According to the Enterprise Chamber thereason for that was that the other company was loss-making and Wing was trying to make up the losses that way. Consequently, the Enterprise Chamber held that Wing had not acted in the best interest of Nexperia, justifying his suspension.

Governance

Secondly, Nexperia failed to honour prior commitments made to the State of The Netherlands to set up a Supervisory Board and give it decision-making powers. Quite on the the contrary, the Enterprise Chamber concluded that by dismissing his co-director and several other key managers just before the request for enquiry, Wing strengthened his grip on the company. The Enterprise Chamber felt that these two reasons were sufficient to justify the intervention.

Secrecy and publicity

What is also striking about this case is the following. Initially, the Enterprise Chamber imposed absolute secrecy on all involved in order to allow Nexperia, Wing and the minister to quietly work on a workable solution. However, Wingtech publicised the outcome of the proceedings through its official WeChat channel shortly after the Enterprise Chamber’s intervention, after which the Enterprise Chamber felt that the ban was no longer tenable and lifted it for all parties.

Precedent

It is rare to see simultaneous intervention by a minister and the Enterprise Chamber at a private company in the Netherlands. The case underlines the Enterprise Chamber’s broad powers to take far-reaching steps in crisis situations, even without a prior hearing. This will come as a surprise to foreign managers and shareholders, such as Wing and Wingtech, but in the Netherlands the courts can intervene forcefully in the interests of a company’s survival and economic security. As rulings in recent years have shown, the Enterprise Chamber is also very willing to do so, especially when societal interests are involved.