The Enterprise Chamber is a special division of the Amsterdam Court of Appeal. It has exclusive jurisdiction in a number of corporate proceedings. The most important proceedings that are conducted before the Enterprise Chamber are the so-called “Inquiry proceedings” (in Dutch: enquêteprocedure).
The right of inquiry entitles shareholders (a group of at least 10% of the shareholders in a B.V. or an N.V., or the holder(s) of shares or depositary receipts with a total nominal value of at least € 225.000,-) and trade unions, to request the Enterprise Chamber of the Amsterdam Court of Appeal (“EC”) to investigate the affairs of the company. These proceedings are divided in two phases.
In first phase of inquiry proceedings, the Enterprise Chamber decides whether an investigation (inquiry) shall be held. The EC can order such investigation is there are ‘well founded reasons to doubt the correctness of the course of action followed by the corporation‘. If the EC, having balanced the involved interests, including that of the corporation, orders an investigation, it shall appoint one or more investigators. The company shall (in first instance, at least) bear the costs of the investigation. The investigators are very free in how to conduct the investigation. They may hear the parties involved, and can require access to the administration of the company. The first phase ends when the investigators file their report with the court.
The proceedings therewith come to an end, unless the plaintiffs are of the opinion that the report shows mismanagement (incorrect course of action). Usually, management board and/or the supervisory board are held responsible for misconduct. In order to have determined that misconduct has taken place, the plaintiffs have to file a new request, initiating 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 annulation of any decision of any body of the company. The EC can even order the dissolution of the corporation.
Inquiry proceedings can both be held regarding a healthy and active company, and with regard to a company that has already ceased its activities or that even has become insolvent. If mismanagement is established in a going concern situation, the responsible parties involved (usually: the management and/or the supervisory board) are dismissed. Although the establishment of mismanagement does not by itself establish civil liability of the parties involved, the practice is that these parties shall in the vast majority of the cases be liable (against the company). In separate proceedings on their (director’s) liability that have to follow – the EC can not establish this liability, nor can the EC order the responsible parties involved to pay damages – the judgment of the EC in which mismanagement was established shall have a major authority.
The EC has, within the inquiry proceedings as mentioned above, a very powerful instrument in order to act in any corporate dispute in which the EC has jurisdiction. The EC can, at the request of the parties that requested for the inquiry, also order immediate relief measures. These measures are always temporarily by nature – they are active for the duration of the proceedings – but in practice, in many cases before the EC (very) radical immediate relief measures are ordered, resulting in a final and irreversible solution of the case.
Examples of such immediate relief measures are: the suspension of a director, the appointment of a director or supervisory director with special authorities, the suspension of certain authorities of any body of the company, and the (temporarily) transfer of shares. As a result of these measures, the EC can create a corporate environment in which a healthy balance within the company and its bodies can be restored.
In practice, many inquiry proceedings are started only in order to be able to request for immediately relief measures, since these measures are very useful. The EC therefore frequently handles the request to order immediate relief measures before the inquiry application itself is being handled. In line with this practice, a proposal was recently filed to allow the EC to (also) handle a request for
Litigation before the Enterprise Chamber may take place in many situations. It is not uncommon that two (groups of) 50% shareholders are in a deep conflict, resulting in the impossibility to make decisions. The EC can take measures in order to restore a healthy balance, for instance by ways of the dismissal of one of the fighting director’s involved, or by ways of appointing a third “super” director.
Another situation, in which litigation before the EC is very common, is that of shareholders activism. Activist shareholders use their stake in the (either listed or private held) company to put public pressure on its management. This activism can have various goals, varying from financial reasons – increase of shareholder value through changes in corporate policy, the corporate or financial structure, cost cutting, etc. – to non-financial (such as disinvestment, or social or environmental policies). The attraction of shareholder activism lies in its comparative cheapness; as mentioned above, in The Netherlands, a 10% shareholder can initiate inquiry proceedings that may have radical consequences for the (other) stakeholders involved. Since the proceedings are relatively quick and informal (as most proceedings in The Netherlands are), and the Company (in first instance) pays the costs of the investigation, starting a campaign in order change the corporate policy can be relatively cheap in relation to the effect it may have.
Hidde Reitsma, a Dutch litigation lawyer and partner at AMS attorneys, is a specialist in corporate litigation. He has successfully conducted many proceedings before the Enterprise Chamber, in which he has acted for all parties involved (the company, its management, and for (activist) groups of shareholders. Should you have any question with respect to corporate litigation or any related issue, please feel free to contact our corporate lawyers.