Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55Esmée advises on corporate law, contracts and corporate litigation.
esmee.bootsman@russell.nl +31 20 301 55 55Before the Enterprise Chamber can grant a request for an inquiry, there must be well-founded reasons to doubt the correct policy or course of events within a company. When is this the case?
Anyone wishing to submit a request for an inquiry must not only check beforehand whether he is authorized to do so, but also whether such a request has a chance of success. This is the case when the Enterprise Chamber sees reason to doubt a correct policy or course of business within the company.
When is there reason to doubt a correct policy or course of business? The doubt must concern the conduct of the management of the legal entity, such as the board of directors or the supervisory board. But it also includes the conduct of other bodies such as the general meeting. This doubt does not only have to concern the conduct within the legal entity, but can also concern conduct outside the legal entity. An example is a shareholder starting a competing business.
Whether there is indeed reason to doubt the policy or course of business within the company depends on the circumstances of the case. Each time, the Enterprise Chamber will have to assess whether these are such that there is reason for doubt. There are, however, several situations in which a request for an inquiry will usually be granted.
Shareholders are entitled to information from the board. If shareholders are also directors, they have an aggravated information obligation towards the other shareholders. The director-shareholders know more about the state of the company and therefore must share more with the other shareholders, so that there remains a level playing field between shareholders. If this is not done or information is withheld, this often provides grounds for doubting proper policy or course of business. A classic example of violation of the duty to inform is the director-shareholder who transfers the company’s assets to another company without informing the other shareholders.
A minority shareholder usually has a weaker position within a company. Decisions can be made without the minority shareholder’s consent. Because the minority shareholder has a weaker position, the majority shareholder has a duty of care towards him. This duty of care can be fulfilled in several ways, e.g. by bringing in a third party to assess a proposed transaction or by providing the minority shareholder with information on one’s own accord, outside the general meeting.
Legal entities are required to hold an annual general meeting (in the case of NVs and BVs: shareholders’ meeting). At this meeting, the board gives an account of the policy pursued and the current state of affairs, and the annual accounts are adopted, among other things. Both the failure to hold the general meeting and the failure to adopt and/or file the annual accounts are in themselves grounds for doubting the proper course of affairs. After all, these are legal obligations that must be complied with by the legal entity.
Disrupted relations can also cause major problems, especially if private problems continue to affect the company, as can happen in family businesses. For example, directors can no longer or do not want to talk to each other, the Supervisory Board or the shareholders because of quarrels. Such disturbed relationships can lead to ‘islands’ within the company, decision-making without consultation, pursuing one’s own interests, etc., whereby the interests of the company are lost sight of. This can jeopardize the survival of the company.
In addition, disturbed relations within the general meeting can lead to deadlock. Shareholders no longer want to talk to each other or vote against all proposals of the other shareholders. The general meeting can no longer take decisions because they are blocked each time by part of the shareholders. Because no decision-making is possible, there is a risk that the company cannot continue. Because of the danger to the company, the Enterprise Chamber usually assumes that in the event of an impasse, there is good reason to doubt the proper course of affairs within the company.
The introduction of competition to the company by one of its directors or shareholders may provide a valid reason for the Enterprise Chamber to doubt a correct policy or course of business. After all, it is not wanted that directors or shareholders themselves compete with the company through another legal entity.
Directors and supervisory directors must focus their activities on the long-term success of the company associated with the legal entity. However, it may be the case that a director or supervisory director has a different interest than the affiliated company. If this is the case, it may provide grounds for doubting the proper course of business. After all, a director is not supposed to let himself be guided by another (personal) interest during his work.
The Enterprise Chamber will only grant a request for an inquiry if there is good reason to doubt the correct policy or course of affairs. Such circumstances include a deadlock in the general meeting and or the withholding of information from shareholders. In the next blog in this series, we will discuss the measures the Enterprise Chamber can take.
Do you have a conflict within a company and want to know what your options are? Do you have questions about the right of inquiry or other forms of corporate litigation? Our specialists will be happy to assist you. Please contact us:
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