Real estate sector knows way to Enterprise Chamber for inquiry proceedings

What to do if things no longer work out between the shareholders, management or Supervisory Board? What if one of the directors or shareholders does not comply with statutory agreements? If a director or a shareholder puts the company in competition or passes on so-called corporate opportunities to other parties?

The law offers a shareholder or director several options for intervention. In practice, the vast majority of such disputes are filed with the Enterprise Chamber. The Enterprise Chamber is part of the Amsterdam Court of Appeal, and focuses specifically on disputes in and around legal entities. In almost all cases, this involves B.V.'s or N.V.'s. It is striking that in the real estate sector - compared to other sectors - most inquiries are requested.

How can the increasing influence of the business chamber as a dispute resolution body within companies be explained? After all, what director or shareholder wants the company to invest time, cost and energy in an inquiry procedure? The most obvious explanation is that all the alternatives offered by the law are less attractive. Alternatives are simply more time-consuming, costly and are often less effective.

In many cases, a shareholder does not want an investigation at all, but uses the inquiry procedure as leverage to force an exit, for example. A minority shareholder who, for example, watches with sorrow how a director deals with conflicts of interest, for example when paying out bonuses, engaging in competitive activities or manipulating figures, has in practice only one real possibility to expose this, and that is by means of an inquiry procedure with the Enterprise Chamber. This is not surprising considering that decisions of the Enterprise Chamber show that in about 40% of cases a settlement is reached. It should be kept in mind that an unknown but undoubtedly significant number of cases are settled before the Enterprise Chamber issues a decision, so the actual proportion of cases that are settled is probably much higher.

Over the years, the business chamber has developed a reputation for having a sensitive ear for directors who take a dim view of the interests of (minority) shareholders. Common topics submitted to the Enterprise Chamber are:

• Violation of law or statutes;
• Conflict of interest;
• Impasse in decision-making;
• Competition;
• Dividend policy.

Research by the University of Groningen that has given rise to a number of legislative changes in the law of inquiry provides an interesting picture of the effectiveness of the Enterprise Chamber. For example, it appears that the Enterprise Chamber grants an inquiry into non-listed companies in more than 75% of the cases in which alleged conflicts of interest are at issue. For conflicts between majority and minority shareholders, that allocation percentage is 65%. For violation of law and/or bylaws 66%.

The purpose of an inquiry is to investigate the policy and the course of affairs within a company in order to determine whether there has been mismanagement, who is responsible for it, and whether structural measures need to be taken, for example in the form of dismissing a director. It is important to realize that after an inquiry request has been granted (the investigation has yet to start), the Enterprise Chamber can take very far-reaching measures at the company in question. The Enterprise Chamber will not hesitate to suspend directors, appoint other (independent) directors or supervisory directors, or even transfer shares (by way of management) to an independent third party. Moreover, the Enterprise Chamber can do so at very short notice (the Enterprise Chamber usually decides within 10 to 12 weeks after a request is submitted, and sometimes faster).

The other side of this coin is that shareholders thus have a powerful tool in their hands to put pressure on the management of a company even in cases where there is actually not that much going on. Consider, for example, cases in which a shareholder wishes to sell his shares to the other shareholders, but is in danger of not receiving a fair price. A conflict between the shareholders or with the board then quickly arises. Directors in particular are then faced with the challenge of continuing to deal carefully with all the interests involved.