Immediate measures in inquiry proceedings

A key advantage of inquiry proceedings is that that these allow the court to quickly make provisions to protect the company. What measures can the Enterprise Chamber take?

In the previous blogs, we discussed what the inquiry proceedings comprise, who can initiate such proceedings and under what circumstances the Enterprise Chamber (Ondernemingskamer) grants an inquiry request. This blog discusses the potential provisions that can be taken after it has been established that there are well-founded reasons to doubt the appropriate policy (juist beleid) or appropriate course of affairs in a company (juiste gang van zaken).

In cases where the Enterprise Chamber has well-founded reasons to doubt the appropriate policy or course of affairs in a company and views that this is due to the actions of the management board or other bodies in the legal entity, it may, at the request of one of the parties, grant immediate provisions. These provisions can have far-reaching consequences for the governance of a company.

The possibility of imposing the – in some cases drastic – immediate measures results in  inquiry proceedings regularly being used because the measures may result in a solution by themselves. The Enterprise Chamber recognizes this and therefore often orders an investigation, but does not yet appoint an investigator. In this blog, we will discuss the four most common immediate provisions.

1.   Appointment of a temporary director or supervisory board member

A temporary director/supervisory board member is appointed by the Enterprise Chamber to stabilize the condition of a company. In addition, the temporary director/supervisory board member may be tasked with attempting a mutual settlement between the parties. This is often done in cases of stalemate or stalled collaborations.

Upon appointment, the temporary director is, in most cases, given a decisive vote and independent power of representation by the Enterprise Chamber. This means that the temporary director can decide on the matter in the event of a deadlock. Furthermore, the temporary director may represent the company alone, i.e. without any fellow directors. These activities and powers are essential to protect the company and ensure that the company can continue to function while an investigation into its policies and affairs is conducted.

2.   Suspension of a director/supervisory board member

Along with appointing a temporary (supervisory) director, the Enterprise Chamber frequently decides to suspend one or more directors and supervisory board members. The Enterprise Chamber decides on this provision in the event of a deadlock within the management or supervisory board. In most cases, this impasse has a negative impact on the overall health of the company. Suspending directors is an attempt to break this deadlock and restore the company to good health. Furthermore, a suspension can be imposed if it appears that the director has acted contrary to the interests of the company or failed to act at a time when it was necessary.

3.   Suspension of shareholders’ rights

The actions of shareholders can also be grounds for the Enterprise Chamber to intervene in a company. A simple but effective measure that the Enterprise Chamber can impose is the suspension of shareholder rights. Shareholder rights include attendance at meetings, voting rights and profit rights. In the event of a deadlock in the general meeting of shareholders or harmful voting behavior of a shareholder for the company, the Enterprise Chamber can decide to suspend voting rights. This breaks the deadlock and allows the company to continue to operate.

4.   Temporary transfer of shares to an administrator

Finally, the Enterprise Chamber can decide to temporarily transfer shares to an administrator. This measure was imposed in recent case law (Centric). But this measure is applied more often, several shareholders over the years have had to temporarily transfer their shares to an administrator. The imposition of this measure results in the manager exercising the voting right. The shareholder himself does retain the right to any profit distributions.

Conclusion

The Enterprise Chamber has a big toolbox containing various measures it can deploy to improve the situation in a company. The use of these measures is temporary in nature and can sometimes have far-reaching consequences.

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