[No. 47] Recent Developments in Right of Inquiry Proceedings

1. In post No. 25 and post No. 35 I discussed whether something like a Dutch version of business judgment review is taking place in inquiry proceeding case law, in view of the Enterprise Chamber's decisions re Lycos Europe and Nedelko Holding of February and March 2009. Now there is a third decision - re Allstar Consulting Holding of April 24, 2009 (ARO 2009, 64) - in which the court repeated the key reasoning (s. 3.9), again with some differences, but only minor ones. This again involves a case in which the plaintiff has asked for an inquiry and for preliminary measures. The court grants the requests, and rules that there are well founded reasons to doubt the correctness of the policy of Allstar Consulting Holding (s. 3.5-3.6), in view of the fact that due to a controversy between the shareholders the general meeting is deadlocked, resulting in the inability of the company to set its annual accounts and the lack of a sound formal management structure, which in turn has resulted in the company terminating its activities and reaching the zone of factual liquidation.

2. In addition, the court looks at other complaints brought forward by the plaintiff, including complaints about certain entrepreneurial choices made by the company. And that's where the key reasoning pops-up, that runs as follows (in Dutch):

De Ondernemingskamer is van oordeel dat de (...) klachten van AS Holding omtrent omtrent cijfers - omzet, kosten en resultaat - dienen te worden verworpen en niet kunnen bijdragen aan de conclusie dat aan het beleid van Allstar moet worden getwijfeld. Immers, dat de omzet in het jaar dat één van de twee feitelijke "voortrekkers" van de onderneming van de Star Groep zijn werkzaamheden voor die groep heeft gestaakt, terugloopt, kan niet anders dan als voor de hand en in de lijn der verwachtingen liggend worden geacht. Het betoog van Mipe, dat de terugval in omzet een negatief effect had op de relatie met de kosten (...) omdat gezien de structuur van de organisatie niet alle kosten - zonder meer - navenant konden worden verminderd, komt de Ondernemingskamer niet bij voorbaat onaannemelijk voor. Dat in de gegeven situatie de voorrang werd gegeven aan het in stand houden van de (contractuele) relatie met de subcontractors, die deels ook ondersteunende diensten verrichten, is vooral een kwestie 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 de (feitelijke) bestuurder van Allstar zijn taak in dit opzicht heeft verontachtzaamd of miskend dan wel die taak overigens zodanig heeft vervuld dat geen redelijk handelend bestuurder de gevolgde handelwijze had kunnen verkiezen met het oog op de belangen van de bij de (onderneming van de) Star Groep betrokkenen. (emphasis by me BFA)

I'm spotting a trend here...The most noteworthy difference is that the Enterprise Chamber doesn't limit this approach to business judgments by members of the management board, but includes de facto directors. This makes sense. Although I'm sticking to my scepticism expressed in the earlier posts as to the way the court frames the actual standard (that's still pretty vague), I'm - on a more general level - also optimistic about the course the court is taking here where it comes to judicial review of director conduct in the business judgment realm. It seems to me that, compared to case law from earlier this decade, the court seems less willing to apply objective reasonableness scrutiny when there is no sound justification to do so. And that makes me a happy man, in view of the gist of my doctoral thesis, covering the way scrutiny by the Enterpise Chamber in inquiry proceeding case law of corporate director conduct in the business judgment setting should look like.

3. Two last remarks about this decision.

1. The court notes once more (s. 3.4) that the right of inquiry does not cover non-Dutch corporations, as laid down in section 2:344 DCC. The request - for some reason - also covered the company's subsidiaries, all foreign corporations. This, however, does not mean:
   • that the inquiry by the investigators cannot cover the policy followed by Allstar Consulting Holding as to its shareholding in the subsidiaries; or
   • that, as to the inquiry by the court whether there are well founded reasons to doubt the correctness of the company's policy, things that happened at subsidiary level cannot be taken into account.
2. The court notes (s. 3.13) that, as to certain intra-group transactions entered into by the company, due to a lack of transparency in the nature, volume and other circumstances of those transactions it is impossible to check whether the price and related aspects of the transactions were at arm's length, for which reason the possibility of unfairness cannot be excluded and the inquiry should also cover this subject. Apparently the - management board of the - company did not provide the necessary information during the litigation to enable the court to verify that no funny things happened to the detriment of the company; it seems likely that if the company had done so, the court would have ruled otherwise (assuming, of course, that the information was satisfactory).

4. A few words about a second decision by the Enterprise Chamber that was rendered quite recently. Section 2:350(2) DCC provides that if a request for an inquiry is denied and this request was made on unreasonable grounds, the company that was subject of the request can file a claim for damage with the Enterprise Chamber. It is a true rarity that the court rules that a request for an inquiry lacked reasonable grounds. In its inquiry proceeding decision re La Casserole of May 4, 2009 (ARO 2009, 68), the court did so. As the plaintiff had no reason whatsoever to initiate this inquiry proceeding, as this proceeding could by definition not help him to obtain the relief he was looking for, the court ruled that the plaintiff acted without the necessary amount of care towards the company, and therefore that the request for an inquiry lacked reasonable grounds. Somewhat surprisingly, the company only requested the court to rule that reasonable grounds were lacking; apparently no section 2:350(2) DCC claim for damage was filed.

5. I will touch upon other recent inquiry proceedings case law when I'm back in early June from my hiatus to Italy. Blogging on my part will be quite light until then.