1. In post No. 28, I highlighted a recent judgment by the Enterprise Chamber in an inquiry proceeding (Re Butôt O.G. Holding). In the judgment, the court referred among other things to a special duty of care owed by the - management board of the - company vis-a-vis certain interested parties. This special duty of care, that has been framed by the Enterprise Chamber in many cases, is based on section 2:8 DCC: the general requirement of reasonableness and fairness, to be observed by the company and all those involved within the organization of the company - based on statute or articles of association - towards each other. In its case law on point throughout the years, the court seems to be inspired especially by the Supreme Court's well-known right of inquiry judgment of March 1, 2002 re Zwagerman Beheer, in which it explained that the company must exercise care towards the interests of all its shareholders and that this care standard is to be applied within the circumstances of the case at hand (including whether the interests involved are those of minority shareholders). The court mentioned:
(...) de in art. 2:8 BW neergelegde regel dat de vennootschap en degenen die krachtens de wet en statuten bij haar organisatie zijn betrokken, zich zodanig jegens elkander moeten gedragen naar hetgeen door de redelijkheid en billijkheid wordt gevorderd. Uit de regel vloeit onder meer voort dat de vennootschap zorgvuldigheid moet betrachten met betrekking tot de belangen van al haar aandeelhouders. De uitwerking van de zorgvuldigheidsplicht zal mede afhankelijk zijn van de omstandigheden van het geval, waarbij zoals de Ondernemingskamer heeft gedaan, in aanmerking mag worden genomen dat het gaat om minderheidsaandeelhouders en om familierechtelijke verhoudingen tussen de bij de vennootschap betrokken personen.
2. Due to the dominant influence of the circumstances of the case at hand, this special duty of care is a bit of a 'shape shifter': there is no single, robust definition used in case law. The perspective of the company, as chosen here by the Supreme Court, is understandeable as the primary subject of an inquiry proceeding - at least from a doctrinal point of view - is the company's policy and affairs, although the discussion will often focus on what directors (either managing or supervisory) and/or shareholders have actually done. I discussed this in Judicial Review of Director Conduct - Under Dutch and Delaware Corporate Law, Deventer: Kluwer 2007, no. 24 and 26.c.
3. In another recent judgment by the Enterprise Chamber, this doctrine pops-up again. I am talking about the court's judgment of March 27, 2009 re Pine Digital Security (published in ARO 2009/58). The factual setting is a-typical, as:
- there are six shareholders, including the minority shareholder/plaintiff (SMA Beheer);
- one of the other shareholders is also the sole director; and
- four out of five of the other shareholders are also employees of the company (SMA Beheer is not).
4. SMA Beheer argues there are well founded reasons to doubt the correctness of the company, justifying an inquiry into the company's policy and affairs. The gist of SMA Beheer's complaints relates to the renumeration policy followed by the company as to the director and the employees of the company:
- the renumeration of the sole director was not set by the general meeting, as required by the company's articles of association;
- the management board of the company refused to provide adequate information as to the renumeration structure and criteria and as to the question what persons received the employee benefits as known from the 2005, 2006 and 2007 annual accounts (that show a sharp increase in payment regarding employee benefits); and
- in relation to sub 1. and 2., there is reason to suspect that the shareholders who are also employed by the company received benefits - to the detriment of SMA Beheer as minority shareholder - through additional payments without involvement of the general meeting.
5. The company argues that it's up to its management board to decide with regard to employee renumeration/benefits, that payments by the company to its director and its employees were not excessive and that the general meeting was informed adequately. So basically: no big deal.
6. Now what did the Enterprise decide? It granted the plaintiff's request. First, the court mentioned the duty of care that follows from section 2:8 DCC, resting on "(majority)shareholder"(s)" and "managing director(s)" and requiring that they take into account the interests of the minority shareholder. Second, the court explained that a special characteristic of this case is the fact that most of the shareholders are also employees and that payments received by the shareholders in their capacity as employee (not including SMA Beheer) negatively influence the amount of payable dividend to all shareholders (including SMA Beheer).
De uit het bepaalde in art. 2:8 BW voortvloeiende zorgvuldigheidseis brengt mee, dat (meerderheids)aandeelhouder(s) en bestuurder(s) rekening moeten houden met de belangen van de minderheidsaandeelhouder. Deze norm wordt in het onderhavige mede bepaald door de omstandigheid dat - met uitzondering van SMA Beheer - nagenoeg alle aandeelhouders tevens werknemers zijn van Pine Digital. De (extra) beloningen die de aandeelhouders/tevens werknemers - onder wie niet SMA Beheer - ontvangen zijn immers van invloed op de - aan alle aandeelhouders, onder wie ook SMA Beheer - uitkeerbare winst.
The focus of the Enterprise Chamber in this 'reasonableness and fairness' analysis on "(majority)shareholder"(s)" and "managing director(s)", and not also on employees, is correct. Although Dutch corporate law is based on the stakeholder system, which requires directors to take into account the interests of all those involved with the company and its enterprise - including employees - in the decision making process, the scope of section 2:8 DCC - not the same concept - is limited to the company and all those involved within the organization of company, based on statute or articles of association: and that does typically not include employees (they're normally covered by reference to the company's enterprise). By the way, this general reasonableness and fairness approach as to individual shareholders seems to differ from the Delaware system, in which only a controlling stockholder - i.e., a shareholder that (i) has 50+% of the voting power or (ii) has less but in fact actually controls the company - owe fiduciary duties to the minority. See in detail my book at no. 7.e.
The Enterprise Chamber then decides it has not become sufficiently clear - i.e., it is questionable - that sufficient care was indeed exercised as to the interests of SMA Beheer, as required by section 2:8 DCC. The reason for this is, apparently, that:
1) the company was unable to explain the pretty sharp increase in payments regarding employee renumeration from 2004 (€ 251.382) through 2007 (€ 1.647.997); while
2) the paid shareholder dividend amounted to € 261.502 in 2005, € 138.087 in 2006 and € 239.811 in 2007;
3) the 2006 and 2007 accounts did not make contain a 'special payments' section (unlike the 2005 accounts), which did not help in making things transparent;
4) the increase in director renumeration was not set by the general meeting, as required by the company's articles of association, but the general meeting was only informed of this increase afterwards; and
5) this course of events raised questions, that have not been answered in the general meetings of 2006, 2007 and 2008.
According to the court, this taken together justifies the conclusion that there are well founded reasons to doubt the correctness of the company's policy, so that an inquiry is warranted. In all fairness, I see no reason to doubt this conclusion.
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