The first phase and well-founded reasons

The inquiry procedure has several phases.

The first phase

In the first phase, the Enterprise Chamber must decide whether an investigation should be ordered and whether there are grounds to grant any provisional measures requested. To order an investigation, the Enterprise Chamber must conclude that there are well-founded reasons to doubt proper policy or the proper course of affairs within the legal entity. If the Enterprise Chamber so concludes, it will order an investigation (indicating the period and the specific parts of the policy to be investigated) and appoint an investigator. Only in the second phase does the Enterprise Chamber, at the request of the parties, determine whether the investigation report shows that mismanagement has occurred.

Petition and statement(s) of defence

The inquiry procedure is a petition procedure and is initiated by submitting a petition to the Enterprise Chamber, naming the legal entity as respondent and other parties involved in the legal entity (such as shareholders) as interested parties. Before the oral hearing, the Enterprise Chamber will invite the respondent and all interested parties to file a statement of defence. This statement of defence may include an independent counter-request.

The oral hearing

After the written stage, an oral hearing is held, during which the Enterprise Chamber gives the parties the opportunity to explain the petition and the statements of defence in more detail. The Enterprise Chamber consists of three specialist judges and two specialist lay members with a financial background, making it highly capable of quickly understanding the dynamics and business-economic background of the dispute at hand.

Although the interests of the company are central to the inquiry procedure, it is often used as a lever in shareholder disputes. The Enterprise Chamber is aware of this and, in such cases, uses the oral hearing to explore whether there is scope for a settlement. It actively contributes ideas and can facilitate a settlement to a considerable extent (for example by appointing or proposing a binding adviser, a valuation expert or a mediator).

Well-founded reasons to doubt proper policy or the proper course of affairs

Article 2:350 BW provides that a request for an investigation must be granted if there are well-founded reasons to doubt proper policy or the proper course of affairs. The standard of ‘well-founded reasons to doubt proper policy’ is highly fact-based. It must concern facts and circumstances which, taken together, indicate a reasonable chance that further investigation will reveal improper policy. This standard means that the Enterprise Chamber, even when assessing the facts at this stage, must respect a certain degree of managerial discretion on the part of the company. The ‘well-founded reasons to doubt proper policy’ test is less strict than the ‘mismanagement’ test. Examples from Enterprise Chamber case law of circumstances that regularly lead to a finding of well-founded reasons include:

• a deadlock or stalemate (within or between corporate bodies);
• unacceptable conflicts of interest on the part of one of the parties involved;
• defective or non-existent dividend policy;
• neglect of the interests of minority shareholders;
• breach of statutory requirements or those of the articles of association (proper administration, convening the general meeting, adoption of the annual accounts);
• inadequate provision of information (failure to provide, or late provision of, information).