1. 
Further to post No. 25, in which I paid attention to the Enterprise Chamber's judgment in the inquiry proceeding re Lycos Europe (ARO 2009/44), this post highlighs two other Enterprise Chamber decisions in inquiry proceedings from February 2009: re Butôt O.G. Holding (ARO 2009/45) and re KPNQwest (ARO 2009/46).
2. Re Butôt O.G. Holding
This case, decided on February 17, 2009, is basically a family affair. All issued shares of Butôt O.G. Holding are held by an administrative office. The certificates of these shares, issued by the administration office, are part of the undivided right to the estate of the deceased holder of these certificates. His four children are the joint holders of the undivided right to the estate. Two of them argue before the court that the fourth one, who indirectly manages the company, is benefitting himself to the detriment of the company and thereby indirectly of these family members (the third family member is not a plaintiff), through certain dubious transactions. The Enterprise Chamber decides that there are 'well founded reasons to doubt the correctness of the company's policy' and orders an inquriy, but denies the request for preliminary measures (i.e., suspension of the managing director).
In doing so, the court makes some noteworthy decisions.
- Pursuant to section 2:346 DCC, holders of shares or certificates of shares have the power to request for an inquiry, provided they meet the quantitative threshold laid down in statute. Although plaintiffs do not hold shares or certificates of shares in the company, the court rules they do have the power to request for an inquiry, as (50% of) the economic interest of the certificates lies with the plaintiffs and therefore the purpose of the right of inquiry implies that the protection afforded by the right of inquiry to providers of capital can be invoked by them also; for pursoses of the right of inquiry, they should be equated with actual holders of certificates of shares. This approach makes sense, in view of economic reality, and is in line with Supreme Court precedent (especially its ruling of June 6, 2003 re Scheipar).
- Especially in a case like this one in which plaintiffs are not also managing director of the company, the management board of the company owes a special duty of care vis-a-vis these capital providers and has to be fully transparant, notwithstanding the fact that plaintiffs are temporarily only joint holders of the undivided right to the estate. The Enterprise Chamber nuances this pretty broad ruling by continuing with the caveat that this 'right to be informed' does not imply that the management board is duty-bound, also outside the setting of the general meeting of shareholders, to always and unreservedly provide all requested information; such a right only exists in special circumstances. According to the court, a situation like the one in the case at hand, in which (a) plaintiffs have become joint holders of the undivided right to the estate and (b) they want to inform themselves as to the financial position of the company they have become - de facto - capital provider of, can qualify as a special circumstance in which the management board in principal has to provide all requested information, also outside the setting of the general meeting of shareholders. In the end, the court decides no duty was violated in this respect. Although this doctrinal ruling is in line with Enterprise Chamber precedent about essentially a special duty of care owed by - the management board of - the company to certain shareholders (not also managing directors), and seems to be based on Supreme Court case law clarifying that the company owes a general duty of care to all its shareholders, based on the general requirement of reasonableness and fairness laid down in section 2:8 DCC and depending on the circumstances of the case at hand (especially its decision of March 1, 2002 re Zwagerman Beheer), this ruling is still far-reaching. For example, the court refers not just to a director duty of disclosure towards the shareholders that is based on a materiality standard, but to a director duty to be fully transparant (i.e., to provide all information requested for) towards the shareholders, without any policy based carve-out. Does that make sense? It is in any event not in keeping with section 2:217 DCC, pursuant to which the general meeting of a company - like the one in this case - has the right to receive from the management board and supervisory board (if there is one) all requested information, unless a significant interest of the company would justify a different outcome.
- In a situation like this one, in which the management board has a conflict of interests, the management board owes a special duty of care towards the capital providers and has to provide full information on transactions that possibly involve self-dealing; it is then of great importance that the separate interests are carefully kept apart (i.e., that they do not become intertwined), a safeguard for which is being fully transparant, while it may be prudent and sometimes necessary to involve expert third parties; in addition, and compared to normal transactions, these type of transactions - that are tainted by self-interest - require a higher level of care as to the preparation, decision making and execution. In view of all this, the court decides there are 'well founded reasons to doubt the correctness of the company's policy', as it is doubtful whether the management board acted properly in this respect (i.e., whether the company's policy was 'right' in this respect), also in view of the management board's 'thin' explanation for the rationale of the transactions. This comprehensive approach is reflected - in a more 'bare essence' form - in quite some Enterprise Chamber decisions of recent years (also see the Supreme Court's decision of May 3, 2002 re Joral Management), but this decision reaches back to certain fundamental statements made by the court in well-known cases from the 1980s, and fits rather nicely in the approach I advocated in detail in Judicial Review of Director Conduct - Under Dutch and Delaware Corporate Law, Deventer: Kluwer 2007, no. 38.e. (in which I also included those earlier cases), although the court does not illustrate how exactly the presence of a conflict of interests impacts the level of judicial scrutiny of director conduct.
3. Re KPNQwest
The subject of this inquiry proceeding is KPNQwest, that is in state of bankruptcy. An inquiry was ordered by the Enterprise Chamber in its ruling of December 28, 2006. Several decisions followed (see, e.g., here, concerning the costs of the inquiry) and Supreme Court litigation is still pending.
The particular aspect of the case that is of interest to me, as decided by the chaiman of the Enterprise Chamber on February 27, 2009, focuses on the right of the investigators - laid down in section 2:351 DCC - to access the books, records and other information carriers of the company as the investigators see fit. The trustees in bankruptcy had taken the position that it's up to the management board of the company to provide the investigators with the requested access and that the trustees in bankruptcy cannot do so, as this would not be in the interest of the estate. The chairman rules that section 2:351 DCC is worded in general terms, without any proviso, and does not specify who is obliged to provide the access; also in view of the obligation of current and former managing and supervisory directors/current and former employees of the company to provide all information necessary for the execution of the investigation, the conclusion can only be that in the setting of an inquiry proceeding (i) it is up to the investigators to decide what access/information they like to receive and (ii) that the company, those who are in possession of the aforementioned books/records/information carriers and the aforementioned directors/employees have to cooperate without any restriction in providing that access/information (so that a balancing of interests does not enter the equation). The fact that the company is bankrupt does not make this any different, while (a) a different outcome would also be inconsistent with case law clarifying that an inquiry can also be ordered as to a bankrupt company and (b) of importance is also:
- that a company does not cease to exist when it's declared bankrupt;
- that its bankruptcy does not result in the company losing ownership of its books, records and information carriers, but only that the company cannot dispose of them at its discretion;
- that providing the aforementioned access by a trustee in bankruptcy does not involve in any way performing an obligation to the detriment of the estate; and
- that also otherwise there is no reason why such an act by a trustee in bankruptcy would interfere with the task assigned to him by the Dutch Bankruptcy Act, especially section 68(1) thereof (stating that the trustee's duty is to administrate and liquidate the estate).
As in this case the trustees in bankruptcy are in possession of the company's books, records and information carriers, and are - de facto - the only ones who can provide the access contemplated by section 2:351 DCC, the chairman orders them to provide such access.
This is one of very few cases in which the chairman actually had to order persons involved to provide the access requested by the investigators.
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