Shareholders of a Dutch entity have the right to have a shareholders meeting convened and to put items on the agenda of a shareholders meeting. There are certain restrictions, however, to these rights. This alert will summarize these rights and restrictions, also in light of the decision of August 10, 2017 of the Dutch court in the summary proceedings filed by a group of shareholders of AkzoNobel led by hedge fund Elliott.
Rights to convene a shareholders meeting in general
In Dutch companies, the right to convene a shareholders meeting is vested with the management board, as well as the supervisory board (if applicable). The right to convene a shareholders meeting can also be granted to others by the articles of association of the company.
Furthermore, in Dutch entities of the public company type (“NVs”), one or more shareholders representing at least 10% of the issued share capital, can request the management board and (if applicable) the supervisory board to convene a shareholders meeting. The request must be made in writing and must specify the items to be discussed in detail. Shareholders of Dutch private with limited liability companies (“BVs”) have the same right, with the difference that the requesting shareholders are only required to hold at least 1% of the issued share capital.
The management board and (if applicable) the supervisory board must in principle take all necessary steps to hold the shareholders meeting. The law applicable to BVs explicitly states that the management board and the supervisory board may refuse to convene a shareholders meeting, if that would contravene a severe interest of the Company.
If the request is not acceded to by the management board and the supervisory board, the requesting shareholders may request the court to authorize them to convene the shareholders meeting themselves.
Elliott vs. AkzoNobel
The recent fight between AkzoNobel (a listed NV) and its shareholder Elliott shed further light on the subject. In March 2017, AkzoNobel received an unsolicited proposal from its competitor PPG Industries to acquire AkzoNobel in a tender offer. AkzoNobel, however, rejected the proposal, claiming that the take-over is not in the interest of the company and its stakeholders.
On April 10, a group of shareholders led by Elliott submitted a letter to AkzoNobel, claiming that the company neglected its corporate governance duties towards its shareholders by refusing to negotiate with PPG. The requesting shareholders came to the conclusion that the supervisory board president should be dismissed and that a shareholders meeting must be held to this effect. In its response, AkzoNobel rejected the request to hold a shareholders meeting.
After another proposal by PPG and rejection by AkzoNobel early May 2017, Elliott initiated an enquiry procedure with The Netherlands Enterprise Court at the Amsterdam Court of Appeal (the “NEC”), and demanded as immediate measure that a shareholders meeting is held to resolve upon the dismissal of the supervisory board president. This should force AkzoNobel to enter into negotiations with PPG.
The NEC ruled that the response to PPG’s proposals must primarily be determined by AkzoNobel’s management board, under supervision by the supervisory board. The shareholders are not entitled to instruct the management board upfront as to the strategy in this matter. Since the request to hold a shareholders meeting in substance related to determining the strategy, AkzoNobel was allowed to refuse to convene the meeting. The NEC does not believe AkzoNobel has failed to seriously consider PPG’s proposals or has neglected the interests of its shareholders or other stakeholders. The immediate measure was therefore rejected, whilst the enquiry procedure is to be continued later in September.
Soon thereafter (June 1, 2017), PPG issued a press release, stating that it withdraws its proposals and will refrain from launching a tender offer.
This led Elliott to initiate summary proceedings asking the Amsterdam court to authorize Elliott to convene a shareholders meeting, in order to dismiss the supervisory board president.
AkzoNobel thereafter did convene a shareholders meeting to be held early September 2017, in order to discuss its response to the proposals from PPG. The dismissal of the supervisory board president was not put on the agenda. The relevant supervisory director, however, did announce his retirement in April 2018.
Thereupon, on August 10, 2017, the court ruled in the summary proceedings that the rejection by NEC in the enquiry procedure does not itself prevent a successful shareholders’ request under the normal company law applicable to NVs to convene the shareholders meeting. In the latter case, the requesting shareholders must have a reasonable interest to hold such meeting. The court continues that in judging whether a reasonable interest exists, it will have to weigh the interests of the requesting shareholders and the interests of the company.
Similar to the NEC, the court considered that the power to determine the company’s strategy is vested in the management board, under supervision of the supervisory board. The management board and supervisory board will afterwards be accountable to the shareholders for the policy conducted and the supervision thereon. In the shareholders meeting the shareholders have the power to dismiss the supervisory directors, and may use this power also to express its disapproval to the supervision.
The principle of reasonable and fairness, however, requires that a dismissal would only be voted on after the boards have been able to explain their policy and the explanation has been discussed at the shareholders meeting. The court then concluded that the request from Elliott must be rejected, since it would be premature to already plan another shareholders meeting to vote on the dismissal. In the court’s opinion Elliott also failed to properly explain why it had an interest in already planning such meeting.
Observations and comments
The matter of Elliott vs. AkzoNobel confirms that Dutch companies are allowed to weigh the interests of all stakeholders, and that the power to determine the strategy is primarily vested in the management board and the supervisory board. All parties involved in the company must act reasonable and must be willing to open a dialogue. This also applies to the shareholders.
Can shareholders then at least put matters on the agenda of a shareholders meeting in order to discuss the matter and to ultimately vote on it?
In principal, the agenda for a shareholders meeting is determined by the corporate body that convened the meeting (which in most cases will be the management board and/or supervisory board).
However, within an NV, one or more shareholders representing at least 3% of the issued share capital can also request the board to put a certain item on the agenda of a meeting, if they do so at least 60 days prior to the meeting. A similar provision exists with respect to a BV, with the difference that the shareholders making such request are only required to hold 1% of the issued share capital and they have to do such request only 30 days prior to the meeting. The articles of association of both NV’s and BV’s can provide for a lower quorum and provide for a shorter period of time to do the request.
For listed companies, the shareholders also need to observe the best practice rule of the Corporate Governance Code, meaning that before making a request to put a certain item on the agenda, they must hold consultations with the management board of the company. In case the object may lead to a change of strategy of the company, the Corporate Governance Code even allows the management board a response time of 180 days.
The Court of Appeal of The Hague concluded in 2016 with respect to the right of putting items on the agenda of a shareholders meeting. In the Boskalis/Furgo affair they considered that corporate bodies cannot interfere with matters that are exclusively designated to another corporate body. The shareholders meeting may therefore not interfere with management duties, if the articles of association do not grant them the right to give instructions to the management board. This means – according to the Court of Appeal – that it is allowed to put every subject as a discussion point on the agenda of a meeting, but that items which exceed the shareholders authority cannot be put up to vote. Not even to test the water.
The agenda was also at stake in Elliott vs. AkzoNobel. As described above, AkzoNobel decided to convene an extraordinary meeting but left out the agenda item Elliott wanted. When convening the shareholders meeting, AkzoNobel timed the meeting in such way that given the notice period applicable to convene the meeting and to put (additional) matters on the agenda, Elliott could not timely request to put the dismissal of the supervisory board president on the agenda.
Given this timing chosen by AkzoNobel, Elliott’s request in the summary proceedings had to be treated by the court as a request to obtain an authorization to convene a subsequent shareholders meeting with respect to the dismissal.
The dismissal of supervisory board members indisputably is within the powers of the shareholders meeting. AkzoNobel picked the date of its meeting in such way that no additional agenda items could be added. The Dutch court, however, is of the opinion that the requested authorization should nevertheless not be granted, since Elliott is improperly anticipating on the outcome of the explanation to be given by AkzoNobel. The court does confirm that Elliott is free to request an authorization to convene a meeting, after the meeting convened by AkzoNobel has taken place. We fail to understand why such authorization could not already be granted. If satisfied with the explanation by AkzoNobel, the shareholders should be deemed clever enough to vote against the proposal.
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