The statutory cooling-off period for listed companies

April 30, 2021 – The Dutch Senate adopted a bill on March 23, 2021 introducing (amongst others) a new protective measure for listed companies with their registered office in the Netherlands, which will enter into force as per May 1, 2021. In order to protect the company from hostile takeovers or activist shareholders, the bill provides the management board of a listed company with the possibility to invoke a statutory cooling-off period of 250 days during which the board can reflect on the situation.

Background

Dutch listed companies are characterized by the principles of the Rhineland model, which means that these companies (i) take into account the interests of a larger group of stakeholders, rather than just the interests of their shareholders, and (ii) have a focus on long-term value creation. By invoking the statutory cooling-off period, the management board can take time to weigh up the different interests of multiple stakeholders before taking a final decision.

It is, however, becoming more and more common for a company to have an activist shareholder that is only focused on short-term profits and wants to push his own agenda. A good example is the US-based paint supplier PPG Industries, which made a (hostile) takeover bid on their Dutch competitor AkzoNobel in 2017. After the initial bid was rejected, a number of minority shareholders of AkzoNobel strongly opposed the rejection of the bid and tried to replace the president of the supervisory board who blocked the takeover.

Dutch listed companies may avoid the abovementioned situation with this new measure and can use the measure to improve their focus on all their stakeholders and value creation in the long term.

Contents of the legislative proposal

One aspect of the legislative proposal is the codification of case law, which stipulates that the management board of a listed company has primacy with regard to the company’s policy and strategy. This rule will be codified in article 2:129 paragraph 1 of the Dutch Civil Code.

Another aspect of the proposal is the legal basis for the cooling-off period, which will be included in a new article 2:114b of the Dutch Civil Code. The statutory cooling-off period shall only be applicable to listed companies as defined in article 1:1 of the Financial Supervision Act. The second paragraph of said article states that the company may invoke the cooling-off period in the following circumstances:

(i) if one or more shareholders request a proposal to appoint, suspend or dismiss one or more managing directors or supervisory directors, or a proposal to amend one or more provisions of the articles of association relating to the appointment, suspension or dismissal of managing directors or supervisory directors; and

(ii) if a public offer has been announced or made for shares in the capital of the company, whereby no agreement on the offer has been reached with the company,

and the request referred to under (i) or the offer referred to under (ii) is (in the opinion of the management board) in substantial conflict with the interests of the company and its affiliated business.

Another requirement for invoking the cooling-off period is that the management board’s decision in that regard is reasoned and subject to the approval of the supervisory board (if there is one). Shareholders may, however, request the Enterprise Chamber of the Dutch High Court of Amsterdam to discontinue the cooling-off period.

Duration & consequences of the cooling-off period

  • The cooling-off period is 250 days.
  • The cooling-off period has the effect of suspending the power of the general meeting to appoint, dismiss or suspend managing directors or supervisory directors.
  • During the 250-day period, the management board should gather all the information necessary for careful policy determination. The management board is obliged to consult the shareholders representing at least 3/100th of the issued share capital and the works council.
  • The management board shall draw up a report on the policy pursued and the course of events during the cooling-off period. This report should be made available for review at the company’s office and published online on the company’s website.
  • Holders of depository receipts of shares issued by the company are to be treated as (ordinary) shareholders.

Similarities with the Corporate Governance Code

The legal cooling-off period shows similarities with the response time afforded by the Dutch Corporate Governance Code (“CGC”). The CGC is a code of conduct for listed companies with their registered office in the Netherlands. Article 4.1.7 of the CGC stipulates that if a shareholder puts an item on the agenda which could lead to a change in strategy within the company, the management board may invoke a response time with a maximum of 180 days. Shareholders cannot exercise their right to place items on the agenda of the general meeting during this response time.

Despite the similarities, there are some differences between the cooling-off period which will be included in the Dutch Civil Code and the response time as stipulated in the CGC. The response time prohibits shareholders from placing items on the agenda, whilst the cooling-off period does not affect this right but merely suspends the power of the general meeting. Furthermore, the cooling-off period is a legally binding regulation, whilst the response time arises from a code of conduct that listed companies may deviate from (if duly justified).

The advisory division of the Dutch Council of State has stated that the cooling-off period prevails over the response time, but that the two measures can continue to exist side by side. The two periods must be settled with each other, if they are invoked sequentially by the board of the company. This means that when the response time is invoked first and the cooling-off period second, the duration of the cooling-off period is offset against the duration of the response time. In short: the total period will not last for 180+250 days, but for 180+(250-180) days, so that the total duration of the combination of measures never exceeds 250 days. It’s up to the court to make a decision on this matter on a case to case basis.

Conclusion

With the new statutory cooling-off period, listed companies acquire an additional protection measure, whereby the position of the statutory board is further strengthened.

The full text of the adopted legislation (Dutch only) can be found by clicking on the link.

If you have any further questions with regard to this subject, please do not hesitate to contact us.

Martina Priekaar and Giti Navabi

Martina PriekaarGiti Navabi