The second phase, mismanagement and final measures

If the applicant or other entitled parties under the right of inquiry believe that the investigation report shows that mismanagement has occurred, they may, within two months after the report is filed with the court registry, request the Enterprise Chamber to determine that the report does indeed reveal mismanagement. If the Enterprise Chamber finds that mismanagement has occurred, it can impose a number of (far-reaching) measures, such as annulling a resolution, dismissing a board member, or even dissolving the company.

Second phase petition

The second phase begins with filing a petition to determine that mismanagement has occurred (Article 2:355(2) BW). This must be done no later than two months after the investigation report has been filed with the registry of the Enterprise Chamber. If no petition is filed, the procedure ends and the measures ordered lapse by operation of law.

The petition must clearly indicate which facts and circumstances from the investigation report underpin the request to determine mismanagement. A mere reference to the contents of the report is insufficient.

Mismanagement

The investigation report must provide grounds for concluding that mismanagement has occurred. The interpretation of the term ‘mismanagement’ derives from case law of the Enterprise Chamber and the Supreme Court. Mismanagement may be found where the investigation report shows that one or more acts of the legal entity, individually or collectively, and taking into account the nature of the legal entity and the nature and field of its activities, qualify as conduct so careless or improper that it must be concluded that the legal entity has acted in breach of fundamental principles of sound business practice.

Not every policy error, nor any incidental error, can be characterised as mismanagement. Mismanagement need not be structural, but may also consist of a single act, for example if it has had very adverse consequences for the company. For mismanagement, it is not necessary that board members and/or supervisory board members can personally be blamed for mismanagement or that damage has resulted.

In practice, mismanagement often involves conflicts of interest, loans to third parties and shareholders, inadequate provision of information, breaches of minority shareholder rights, disrupted relations, poor financial policy, or defective corporate governance.

Who may apply

Article 2:355(1) BW specifies who may file a petition in the second phase. In all cases, the request may be made by those who filed the original inquiry request. A decrease in interest in the second phase is irrelevant (‘once in, always in’). Multiple shareholders who together met the 10% threshold may not, however, individually file a second-phase request if they hold less than 10% each. Others who have access to the investigation report and who meet the requirements of Article 2:346 BW or Article 2:347 BW may also request the Enterprise Chamber to determine mismanagement. In bankruptcy, the trustee is also authorised (for a so-called inquisitorial inquiry).

Final measures

Only when the Enterprise Chamber finds that mismanagement has occurred may it impose final measures. The purpose of the final measures is always to bring the mismanagement to an end.

The final measures are exhaustively listed in Article 2:356 BW. They comprise:

1. suspension or annulment of a resolution of the board, of the supervisory board, of the general meeting, or of any other body of the legal entity;
2. suspension or dismissal of one or more board members or supervisory board members;
3. temporary appointment of one or more board members or supervisory board members;
4. temporary derogation from provisions of the articles of association indicated by the Enterprise Chamber;
5. temporary transfer of shares for management purposes;
6. dissolution of the legal entity.

Mismanagement is not liability

If the Enterprise Chamber finds mismanagement, this finding is also binding in other proceedings for those who appeared in the present proceedings and who either argued for granting the request or opposed it. However, this does not mean that it has also been determined that, and to what extent, each individual respondent can be blamed for the mismanagement and therefore held liable for it. In practice, the finding of mismanagement, combined with the investigation report as a source of evidence, is often a stepping stone to liability proceedings against the board members concerned.