The Enterprise Chamber is a special chamber of the Amsterdam Court of Appeal and has exclusive jurisdiction in a number of corporate proceedings. The most important proceedings conducted before the Enterprise Chamber are corporate inquiry proceedings (enquêteprocedure).
The right of inquiry entitles shareholders (a group of at least 10% of the shareholders in a Dutch 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), works councils 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 the first phase of inquiry proceedings, the Enterprise Chamber decides whether an inquiry will be held. The EC can order an inquiry if there are ‘well-founded reasons to doubt the correctness of the course of action followed by the corporation‘. If the EC, having weighed the interests involved, including the corporation’s, orders an inquiry, it will appoint one or more investigators. The company (in first instance, at least) bears the costs of the investigation. The investigators my determine 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 first phase of the proceedings then come to an end, unless the claimants are of the opinion that the report shows mismanagement. Usually, the management board and/or the supervisory board are held to be responsible for misconduct. The claimants have to file a new request, initiating the second phase of the proceedings, in order to have the court rule on mismanagement. If the EC establishes mismanagement, it can take one or more measures to put an end to this mismanagement, such as dismissing directors, suspending or nullifying any decision of any corporate body of the company. The EC can even order the corporation be dissolved.
Inquiry proceedings can be held regarding a healthy and active company, as well as a company that has already ceased its activities or that has even become insolvent. If mismanagement is established in a going concern situation, the responsible parties involved (usually the management board 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 will in the vast majority of cases be liable to the company. In separate proceedings on directors liability that have to follow – since the EC cannot establish this liability, nor can the EC order the responsible parties involved to pay damages – the EC’s judgment in which mismanagement was established will carry significant weight.
The EC has, when conducting corporate inquiry proceedings, a very powerful instrument at its disposal in any corporate dispute in which the EC has jurisdiction. The EC can, at the request of the parties that requested the inquiry, also order immediate relief measures. These measures are always temporary in nature – they are in effect for the duration of the proceedings – but in practice, in many cases before the EC far-reaching immediate relief measures are ordered, resulting in a final and irreversible solution of the case.
Examples of the EC’s immediate relief measures are: suspension of a director, the appointment of a director or supervisory director with special authorities, suspension of certain authorities of any corporate body of the company, and (temporary) 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 corporate bodies can be restored.
In practice, many inquiry proceedings are started only in order to be able to request immediate relief measures, since these measures are very useful.
Litigation may be held before the Enterprise Chamber in many situations. It is not uncommon that two shareholders or groups of shareholders holding 50% of the shares are in a serious conflict, resulting in a deadlock and the inability to make decisions. The EC may order measures to restore a healthy balance, for instance by dismissing a contentious director, or appointing a third “super” director.
Shareholder activism is also a very common situation in which litigation is conducted before the EC. Activist shareholders use their stake in the either listed or privately held company to put public pressure on 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 reasons such as divestment, or social or environmental policies. The attraction of shareholder activism lies in its comparative low expense; as mentioned above, in the Netherlands, a 10% shareholder can initiate inquiry proceedings that may have radical consequences for all 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 inquiry, starting a campaign to change corporate policy can be relatively inexpensive in relation to the effect it may have.
AMS, based in Amsterdam, the Netherlands, is conveniently located near Schiphol Airport (10 minutes by car or train). Our team of litigation lawyers provides legal services in the Netherlands for clients around the world and has in-depth advisory and litigating experience acting on behalf of Dutch and international corporates and private individuals.
AMS partner Hidde Reitsma is a specialist in corporate litigation and has successfully conducted many proceedings before the Amsterdam Enterprise Chamber. He has represented the company, or its management, or activists shareholders or groups of shareholders