Blokker's duty to publish and the role of the Enterprise Chamber

Does the so-called "Blokker construction" violate the legal principle that financial statements must be published? According to company law attorney Tom Teggelaar, the construction is a matter that lends itself to an inquiry procedure before the Enterprise Chamber of the Amsterdam Court of Appeal. After all, the interests of third parties, investors, suppliers and employees may be at stake.

HB Capital is Blokker's investment company. A November 1, 2018 publication on Accountancy Vanmorgen details how the Blokker investment company avoids filing (consolidated) financial statements. The investment company apparently does this by creatively using the so-called 403 declaration. Every two years, a new holding company is formed and used that issues the 403 statement. Then this holding company is liquidated before the publication deadline for the financial statements has passed. This, according to the article, prevents the need to file consolidated financial statements.

For the technique of this construction, I refer to the aforementioned publication on Accountancy Vanmorgen and recently published articles in the FD. In my blog I limit myself to answering the question of whether there is a role for the Enterprise Chamber of the Amsterdam Court of Appeal.

Sanctions

The obligation to publish financial statements often refers to the requirement to do so within 12 months of the end of the fiscal year. Consequence of not publishing on time is, in short, a high risk of directors' liability in case of bankruptcy. In addition, there is the Economic Offenses Act (WED), which makes it a criminal offense if financial statements are not disclosed no later than 12 months after the end of the fiscal year.

Still not publishing

Filing a 403 statement only relieves the group companies for whose benefit it was filed of their publication obligation. This does not apply to the legal entity that filed the 403 statement. The justification for this is that the legal system then does have the opportunity to take note of the consolidated annual accounts of the (403) parent company. A company may be tempted (as Blokker apparently is) to consider that the risk of bankruptcy is small, and moreover that this risk does not outweigh the perceived disadvantages of disclosing the consolidated annual accounts. The sanctions that follow from the WED are then quickly taken for granted. Is that the end of the matter?

I don't think so. What is being overlooked is that, for reasons of public interest, a request for an inquiry can be submitted to the Enterprise Chamber of the Amsterdam Court of Appeal. The possible consequences could be very far-reaching.

Survey procedure

The "Blokker construction" referred to above, and in particular the answer to the question of whether it violates the legal principle that annual accounts must be published, lends itself to an inquiry procedure before the Enterprise Chamber of the Amsterdam Court of Appeal. After all, the Enterprise Chamber has frequently ruled on the policy and course of events within companies in cases in which the financial statements play an important role. The Enterprise Chamber may come to the conclusion that there is mismanagement. This depends on the results of an investigation into the policy and course of affairs to be ordered by the Enterprise Chamber. If there is mismanagement it can have serious consequences for directors and others involved in the legal entity. In addition, the Enterprise Chamber is authorized, for example, to temporarily appoint a supervisory director or director and suspend incumbent directors. This can result in the obligation to publish still being met, because these 'OK directors' take the initiative to do so on behalf of the legal entity in question.

Responsibility of attorney general at the district attorney's office

Shareholders or holders of depositary receipts who alone or together represent at least 10% of the shareholders are authorized to submit such a request. If it is not expected that HB Capital shareholders will be inclined to file a request with the Enterprise Chamber, the board on behalf of the legal entity may also do so on its own initiative. But what if they don't? And yet there are reasons of public interest to make a request to the Enterprise Chamber?

In this case, the law provides for the possibility that the Solicitor General at the Regional Prosecutor's Office may initiate an inquiry. With respect to this power of inquiry, the attorney general in principle enjoys a large degree of freedom to determine whether or not to act in this case. It is assumed that intervention is particularly appropriate if there are interested parties who are aggrieved (e.g. creditors or contracting parties) who cannot themselves submit an inquiry request. It is up to the attorney general to make this balancing of interests.

It is not often that the Solicitor General uses this power. But there have been cases in the past where the Enterprise Chamber has taken up cases and issued critical rulings.

Mr. Bartman has already noted in a November 1, 2018, article in the Financieele Dagblad that the "Blokker construction" goes against the intent of the legislature. The same article states that according to the Chamber of Commerce, enforcement of the filing obligation lies with the tax authorities. In my opinion, in this case, it is precisely the attorney general's role.