1. In post No. 25 I noted that the Enterprise Chamber may be shaping a review framework in the business judgment realm that is inspired - at least in part - by the Delaware business judgment rule. In the particular inquiry proceeding discussed in post No. 25, the court noted that the commercial 'soundness' or 'efficiency' of the way that sale process was executed is especially a matter of appreciation and business judgment, that is normally not second-guessed by the court when there are no indications that the management either failed to perform its tasks or performed its tasks in such a manner that 'no reasonably acting managing director' could have chosen to act that way in view of the interests of all those connected to the company and its enterprise. I also expressed some scepticism about this approach, including the following.
Although the Enterprise Chamber is not fully transparent about the actual standard of review it applies (what does the standard 'no reasonably acting managing director' actually mean?; is it a test for objective reasonableness, just irrationality or only subjective bad faith?), this approach reminds the reader of elements familiar to the Delaware business judgment rule concept. I am not a big fan of allowing the court to review whether a business decision was objectively commercially 'sound' or 'efficient' - basically: a full due care review - when the management board was not tainted by a conflict of interests. See my critique about the Delaware approach, allowing entire fairness review in case of a due care violation under the business judgment rule (i.e., that weird linkage between the business judgment rule and the entire fairness test), in Judicial Review of Director Conduct - Under Dutch and Delaware Corporate Law, Deventer: Kluwer 2007, no. 22(c). The Enterprise Chamber seems to hold otherwise, where it suggests its review would have been stricter for the management board when there had been indications that the management board had either failed to perform its tasks or acted unlike a 'reasonably acting management director' would have. I explained the better way to deal with this in no. 38-39 of said book.
2. It's noteworthy that the Enterprise Chamber repeats the outline of this review mechanism roughly one month later in its March 16, 2009 inquiry proceeding judgment re Nedelko Holding, s. 3.6, a case in which the court deals with a request for an inquiry and for preliminary measures - all denied (not published yet; D.N. 200.000.487). Compared to the key reasoning in its February 17, 2009 decision, the court changes and adds only a few words without really changing the gist of the reasoning.
In hoeverre het beleid van Nedelko Groep vanuit financieel of commercieel oogpunt overigens onjuist of inefficiënt is geweest, zoals Adfi-STO heeft gesteld, is vooral een kwestie van appreciatie en van ondernemersbeleid, in de beoordeling waarvan de Ondernemingskamer in beginsel en in casu niet zal treden nu zij noch in de gedingstukken noch in hetgeen ter terechtzitting is verhandeld enige aanwijzing heeft gevonden dat het bestuur zijn taak in dit opzicht heeft verontachtzaamd of miskend dan wel die taak overigens zodanig heeft vervuld dat geen redelijk handelend bestuurder de gevolgde werkwijze had kunnen kiezen met het oog op de belangen van de bij (de onderneming van) Nedelko Groep betrokkenen.
I believe that this apparent effort by the Enterprise Chamber to shape and continue to explain a proper standard of review as to board conduct in the business judgment setting is laudable. But I'm still sceptical about the contours of the framework, as the actual tests applied by the court remain vague. The Enterprise Chamber for example rules in this case that investments made by the director were not 'obviously irresponsible', but it doesn't explain how and why it reaches this conclusion (i.e., what the actual standard of review is). And that, of course, is the crux of the matter. The approach taken by the court is promising and shows more of a 'hands-off' attitude than some prior case law (see, e.g., here), but needs further fine-tuning. In my view, in cases like these, where the focus essentially is on the substance of the board's business decision/policy and there are no special circumstances that justify enhanced scrutiny in terms of reasonableness or even fairness (like a material conflict of interests), the court should basically stick to:
1) a subjective good faith test, in terms of loyalty (i.e., did the director honestly believe he was acting in the best interests of the company?); and
2) an objective irrationality test, in terms of care (i.e., was the business decision not clearly inexplicable/bizarre, seen from the company's best interests?).
That is what I have called the Dutch business judgment rule, as explained in more detail - as to its application in inquiry proceedings - in Judicial Review of Director Conduct - Under Dutch and Delaware Corporate Law, Deventer: Kluwer 2007, no. 38-39.
3. In following posts, I will discuss other new case law by the Enterprise Chamber in inquiry proceedings.
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