TIMMERMAN DOORMAN company has to provide to the public. It contains the general obligation to make vaila ble all the facilities and information necessary for the shareholders to be able to exercise their rights. The most important, more specific, obligation can be found in section 28h. This provision conta ins the obligation to immediately make a vailable a publication on every fact or event concerning the issuing company that can be expected to significantly influence the price of the company sstock 2. 10Corporate Governance in the Netherlands, report by the Peters Committee In 1996 and 1997, the Corporate Govemance Comm ittee(also called the Peters Comm ittee after its cha irman) presented two reports(a draft and a final version) Among other things, these reports conta ined 40 recommendations conceming corporate governance in the Netherlands. The report mainly focuses on the relationship between the board of directors, the supervisors and the shareholders. It pleads for a strengthening of the position of shareholders and urges them to participate more actively in the affairs of the company. The report is an example of a code of best practice in the sense that it is not legally binding, it merely makes recommendations. However, it does try to improve the position of the shareholder in a direct way. Examples include recommendation 26, which asks companies and investors to reassess the role played by shareholders, based on the principle that capital and control should be in line, and recommendation 29 which asks management to assess the desirability of an increased influence of investors and how to achieve this Recommendation 27, the general meeting of shareholders should be the forum to which the supervisory board and the board of directors report and are accountable, recommendation 28, the board of directors and the supervisory board recommendation 30, requests made by investors who represent 1%or m, and capital or NLG 500,000 in shares to have items placed on the agenda should n nciple be honoured, are more detailed It was left to companies t voluntarily adopt the recommendations. Evalation showed that only a small percentage of Dutch firms made significant changes to their corporate govemance poliy and that conformation was particularly weak with regard to those recommendatons concemng increased shareholder power. Therefore, the Dutch govemmenthas started to translate someof these recommendations nto legslation. A god example is the proposal for anewsection 2: 1 14a that will give shareholders who hol I percent of the issued capital or shares with a market value ion(this concems listed companies) the right to place an item on the agenda of the general meeting of shareholders. Ths s a direct legal translation of recommendation 30 of the Peters Committee. Another example s the new provision n Book 2 that adoption/approval of the annual accounts does not imply a discharge for the board members from liability for their management Under thi new rule, both have to be separate items on the agenda of the general meeting of Commissie Corporate Governance, Corporate Govemance in Nederland: Een aanzet bt reranderng en een uitnodigmg tot discussie( Corporate Govemance n the Netherlands: An initial impetus for change and an invitation for dscussion ) 28 October 1996 and Commissie Corporate Govemance, Coporate Govemance in Nedertand: Veertig aanbenelingen( Coporate goleman in the Netherlands: Fortyrecowmmendations ), 25 June 1997
TIMMERMAN/DOORMAN 6 company has to provide to the public. It contains the general obligation to make available all the facilities and information necessary for the shareholders to be able to exercise their rights. The most important, more specific, obligation can be found in section 28h. This provision contains the obligation to immediately make available a publication on every fact or event concerning the issuing company that can be expected to significantly influence the price of the company s stock. 2.10Corporate Governance in the Netherlands; report by the Peters Committee In 1996 and 1997, the Corporate Governance Committee (also called the Peters Committee after its chairman) presented two reports4 (a draft and a final version). Among other things, these reports contained 40 recommendations concerning corporate governance in the Netherlands. The report mainly focuses on the relationship between the board of directors, the supervisors and the shareholders. It pleads for a strengthening of the position of shareholders and urges them to participate more actively in the affairs of the company. The report is an example of a code of best practice in the sense that it is not legally binding; it merely makes recommendations. However, it does try to improve the position of the shareholder in a direct way. Examples include recommendation 26, which asks companies and investors to reassess the role played by shareholders, based on the principle that capital and control should be in line, and recommendation 29 which asks management to assess the desirability of an increased influence of investors and how to achieve this. Recommendation 27, the general meeting of shareholders should be the forum to which the supervisory board and the board of directors report and are accountable, recommendation 28, the board of directors and the supervisory board should have the confidence of the general meeting of shareholders, and recommendation 30, requests made by investors who represent 1% of the issued capital or NLG 500,000 in shares to have items placed on the agenda should in principle be honoured, are more detailed. It was left to companies to voluntarily adopt the recommendations. Evaluation showed that only a small percentage of Dutch firms made significant changes to their corporate governance policy and that conformation was particularly weak with regard to those recommendations concerning increased shareholder power. Therefore, the Dutch government has started to translate some of these recommendations into legislation. A good example is the proposal for a new section 2:114a that will give shareholders who hold 1 percent of the issued capital or shares with a market value of _ 50 million (this concerns listed companies) the right to place an item on the agenda of the general meeting of shareholders. This is a direct legal translation of recommendation 30 of the Peters Committee. Another example is the new provision in Book 2 that adoption/approval of the annual accounts does not imply a discharge for the board members from liability for their management. Under this new rule, both have to be separate items on the agenda of the general meeting of 4. Commissie Corporate Governance, Corporate Governance in Nederland: Een aanzet tot verandering en een uitnodiging tot discussie (Corporate Governance in the Netherlands: An initial impetus for change and an invitation for discussion), 28 October 1996 and Commissie Corporate Governance, Corporate Governance in Nederland: Veertig aanbevelingen (Corporate Governance in the Netherlands: Forty recommendations), 25 June 1997
RIGHTS OF MINORITY SHAREHOLDERS INTHE NETHERLANDS An overview of minority rights 3.1 Overview of the thresholds for minority shareholders rights (p minority rights) Scattered throughout book 2 of the Civil Code there are several different thresholds or m inority shareholders to qualify fora right. The most im portant positive m inority shareholders rights are listed below, including the num berof shares the shareholder has to hold in order to be able to exercise the correspondingright 3.2 A single share The following rights attached to a single share are minority rights Section 2: 222(112) The right to convene a general meeting of shareholders when those who are authorised under section 2: 219(109)or thearticles have failed to do so but only after authorisation by the President of the District Court. Section 2: 222(112) Is an example of a normalising m inority right(see no 5) Section 2: 343 The right to demand in court that one s shares will be acquired by other shareholders when one s rights or interests are prejudiced by the conduct of one or more co-shareholders to such an extent that the continuation of the shareholding can no longer reasonably be expectedofone Sections 999-1002 Code of Civil Procedure The right to request the company to alter the annual accounts and annual report and to bring them into line with a legal Injunction. These sections are also an example of a normalising minority right(see 3.3 5%ofthe issued capital Section 2: 33/ The right to prevent a transferee company resolving to merge by a resolution of the board of directors Under nomal circumstances a company merges by resolution of its general meeting of shareholders(section 2: 317 subsection 1) However, the law makes an exception to this rule for the transferee company on the grounds that for such company a merger can possibly be of little importanceand does not substantally affect the position of the shareholders. If the articles do not prevent this, and if the company has sta ted its intention to do so in the published notice of the deposit of the merger proposal, a merger by a resolution of the board of directors is possible. However, subsection 3 enables a group that represents at least 5%of the ssued capital to prevent this by requesting the board of directors to convene a general meeting of shareholders to decide on the merger within one month after such Section 2: 334ff The right to prevent the transferee company resolving upon the division by a resolution of the board of directors. This right is comparable with the right to prevent a the company resolving to merge by a resolution of the board of directors
RIGHTS OF MINORITY SHAREHOLDERS IN THE NETHERLANDS 7 shareholders. 3 An overview of minority rights 3.1 Overview of the thresholds for minority shareholders rights (positive minority rights) Scattered throughout Book 2 of the Civil Code, there are several different thresholds for minority shareholders to qualify for a right. The most important positive minority shareholders rights are listed below, including the number of shares the shareholder has to hold in order to be able to exercise the corresponding right. 3.2 A single share The following rights attached to a single share are minority rights. Section 2:222(112) The right to convene a general meeting of shareholders when those who are authorised under section 2:219(109) or the articles have failed to do so, but only after authorisation by the President of the District Court. Section 2:222(112) is an example of a normalising minority right (see no. 5). Section 2:343 The right to demand in court that one s shares will be acquired by other shareholders when one s rights or interests are prejudiced by the conduct of one or more co-shareholders to such an extent that the continuation of the shareholding can no longer reasonably be expected of one. Sections 999-1002 Code of Civil Procedure The right to request the company to alter the annual accounts and annual report and to bring them into line with a legal injunction. These sections are also an example of a normalising minority right (see no. 5). 3.3 5% of the issued capital Section 2:331 The right to prevent a transferee company resolving to merge by a resolution of the board of directors. Under normal circumstances a company merges by resolution of its general meeting of shareholders (section 2:317 subsection 1). However, the law makes an exception to this rule for the transferee company on the grounds that for such company a merger can possibly be of little importance and does not substantially affect the position of the shareholders. If the articles do not prevent this, and if the company has stated its intention to do so in the published notice of the deposit of the merger proposal, a merger by a resolution of the board of directors is possible. However, subsection 3 enables a group that represents a t least 5% of the issued capital to prevent this by requesting the board of directors to convene a general meeting of shareholders to decide on the merger within one month after such publication. Section 2:334ff The right to prevent the transferee company resolving upon the division by a resolution of the board of directors. This right is comparable with the right to prevent a the company resolving to merge by a resolution of the board of directors
TIMMERMAN DOORMAN 3.4 10%of the issued capito Section 2: 220(110) The right to convene a general meeting of shareholders. This right is restricted in several ways because convening a general meeting of shareholders without the consent of the board of directors amounts materially to a deed of mistrust and can thereby harm the interests of the company Section 2: 346 The right to ask for an inquiry. This right will be discussed in more detail in nos 30-31 3.5 173 ofthe issued capital Sections 2: 336 and 2 342 The right to demand in court that a shareholder usufructuary or pledgee of a share who has the right to vote transfers his shares or his voting right should his conduct prejudice the interests of the company to such an extent that continuation of his shareholding or of his exercise of the voting right asonably be tolerated 3.6 Analysis ofthe above-mentioned thresholds The rights of shareholders or a group of shareholders who have reached a certain threshold refer to four different criteria: a single share, 5%, 10% and 33 1/3%. First It is interesting to note the low threshold for asking for an inquiry. Even though the initial hurdle seems rather high, 10%of the issued capital, it is significantly lowered by stating that it also suffices to hold shares with a nom inal value of 225,000 Especially for large companies, this 225, 000 threshold is much lower than the 10% of the issued capital hurdle. This cannot but reflect the fact that the Dutch legislator ide adequate protection to(smaller) minority shareholders. A second interesting point is that Dutch company law conta ins four different hurdles for exercising minority rights However, there does not seem to be any coherent thought behind this division into four categories. There seems to be no reason why, for example shareholder should require only 5% before being able to exercise the right to prevent a transferee company resolving to merge by a resolution of the board of directors, but 10%before he is a ble to exercise the right to convene a meeting of shareholders 3.7 Negative minority rights In the following nos. an overview of qualified quorums and ma jorities is geven which Book 2 prescribes 3.8 Blocking power fora single shareholder Section 2: 15 The right to ask for nullification of a resolution if the shareholder who requests nullification has a reasonable interest in the due performance of the obligation which has not been perfomed. This right can be exercised with regard to a resolution by any constituent body of the legal person Section 2: 231(121) Subsections I and 3 lim it the amendment of the articles of
TIMMERMAN/DOORMAN 8 3.4 10% of the issued capital Section 2:220(110) The right to convene a general meeting of shareholders. This right is restricted in several ways because convening a general meeting of shareholders without the consent of the board of directors amounts materially to a deed of mistrust and can thereby harm the interests of the company. Section 2:346 The right to ask for an inquiry. This right will be discussed in more detail in nos. 30-31. 3.5 1/3 of the issued capital Sections 2:336 and 2:342 The right to demand in court that a shareholder, usufructuary or pledgee of a share who has the right to vote transfers his shares or his voting right should his conduct prejudice the interests of the company to such an extent that continuation of his shareholding or of his exercise of the voting right cannot reasonably be tolerated. 3.6 Analysis of the above-mentioned thresholds. The rights of shareholders or a group of shareholders who have reached a certain threshold refer to four different criteria: a single share, 5%, 10% and 33 1/3%. First, it is interesting to note the low threshold for asking for an inquiry. Even though the initial hurdle seems rather high, 10% of the issued capital, it is significantly lowered by stating that it also suffices to hold shares with a nominal value of _ 225,000. Especially for large companies, this _ 225,000 threshold is much lower than the 10% of the issued capital hurdle. This cannot but reflect the fact that the Dutch legislator has considered it necessary for the inquiry proceedings to provide adequate protection to (smaller) minority shareholders. A second interesting point is that Dutch company law contains four different hurdles for exercising minority rights. However, there does not seem to be any coherent thought behind this division into four categories. There seems to be no reason why, for example, a minority shareholder should require only 5% before being able to exercise the right to prevent a transferee company resolving to merge by a resolution of the board of directors, but 10% before he is able to exercise the right to convene a meeting of shareholders. 3.7 Negative minority rights In the following nos. an overview of qualified quorums and majorities is geven which Book 2 prescribes. 3.8 Blocking power for a single shareholder. Section 2:15 The right to ask for nullification of a resolution if the shareholder who requests nullification has a reasonable interest in the due performance of the obligation which has not been performed. This right can be exercised with regard to a resolution by any constituent body of the legal person. Section 2:231(121) Subsections 1 and 3 limit the amendment of the articles of
RIGHTS OF MINORITY SHAREHOLDERS INTHENETHERLANDS association. They state that if the articles exclude the power to amend certain provisions in the articles from the general meeting of shareholders or even completely exclude the power to amend the articles, such is nevertheless possible by a unanimous vote at a general meeting of shareholders at which the entire issued capital is represented. Section 2: 323 The right to ask for avoidance of a legal merger if the requesting shareholder has a reasonable interest. This section lists four grounds for avoidance of a legal merger. For the protection of minority shareholders, the right to declare voidance of the merger on the grounds of avoidance of a resolution of the general meetingof shareholders required for the merger is particularly relevant Section 2: 334u The right to ask for avoidance of a division of the legal person if the requesting shareholder has a reasonable interest. Generally speaking, the division of a legal person can be declared void forthe same reasons as apply to a legalmerger Section 2: 238(128)The articles of assocation may contain a provision that allows for the passing of resolutions by shareholders outside the context of a general meeting of shareholders. Relevant in this context is that even should the articles explicitly provide this option, resolutions may only be passed by a unanimous written vote of the shareholders entitled to vote 3.9 90% of the issued capital(blocking power when the minority group possesses more than 10%of the issued capital) Section 2: 18 A resolution to convert, passed in accordance with the requirements for a resolution foran amendment of the articles, and a 9/10 majority of the votes cast at the general meeting of shareholders are needed fora conversion from one legal entity into another. Section 2: 181(71)subsection 2 These sections give an additional right to minority shareholders. This right can be characterised as a positive right but will be discussed here because it is attached to the right embedded in section 2: 18. When a public or a private limited com pany is converted into an association, a co-operative oran insurance guarantee company one loses the quality of shareholder and becomes a member. Because this conversion fundamentally changes one s proprietary rights position, section 2: 181(71)offers any shareholder who has not consented to the conversion resolution the right to request that the company indemnify him for the loss of his shares 3. 102/3 of the wotes cast(blocking power when the minority group pe than 1/3 ofthe votes cast) Section 2: 206a(96a)subsection 7 In the event of a capital increase, there is in general a pre-emption right for the existing shareholders. However, section 2: 206a(96a) subsection 6 states that this pre-emption right may be restricted or excluded and that the general meeting of shareholders can transfer its powers in this matter to another onstituent body. Subsection 7 then states that for these decisions, a 2/3 majority of the votes cast is required if less than half of the issued capital is represented Section 2: 209(99) subsection 6 A reduction of the capital is possible by a resolution of the general meeting of shareholders. For the Nv, this resolution approval of 2/3 of the votes cast if less than ha lf of the issued capital is represented at
RIGHTS OF MINORITY SHAREHOLDERS IN THE NETHERLANDS 9 association. They state that if the articles exclude the power to amend certain provisions in the articles from the general meeting of shareholders or even completely exclude the power to amend the articles, such is nevertheless possible by a unanimous vote at a general meeting of shareholders at which the entire issued capital is represented. Section 2:323 The right to ask for avoidance of a legal merger if the requesting shareholder has a reasonable interest. This section lists four grounds for avoidance of a legal merger. For the protection of minority shareholders, the right to declare avoidance of the merger on the grounds of avoidance of a resolution of the general meeting of shareholders required for the merger is particularly relevant. Section 2:334u The right to ask for avoidance of a division of the legal person if the requesting shareholder has a reasonable interest. Generally speaking, the division of a legal person can be declared void for the same reasons as apply to a legal merger. Section 2:238(128) The articles of association may contain a provision that allows for the passing of resolutions by shareholders outside the context of a general meeting of shareholders. Relevant in this context is that even should the articles explicitly provide this option, resolutions may only be passed by a unanimous written vote of the shareholders entitled to vote. 3.9 90% of the issued capital (blocking power when the minority group possesses more than 10% of the issued capital). Section 2:18 A resolution to convert, passed in accordance with the requirements for a resolution for an amendment of the articles, and a 9/10 majority of the votes cast at the general meeting of shareholders are needed for a conversion from one legal entity into another. Section 2:181(71) subsection 2 These sections give an additional right to minority shareholders. This right can be characterised as a positive right but will be discussed here because it is attached to the right embedded in section 2:18. When a public or a private limited company is converted into an association, a co-operative or an insurance guarantee company one loses the quality of shareholder and becomes a member. Because this conversion fundamentally changes one s proprietary rights position, section 2:181(71) offers any shareholder who has not consented to the conversion resolution the right to request that the company indemnify him for the loss of his shares. 3.102/3 of the votes cast (blocking power when the minority group possesses more than 1/3 of the votes cast). Section 2:206a(96a) subsection 7 In the event of a capital increase, there is in general a pre-emption right for the existing shareholders. However, section 2:206a(96a) subsection 6 states that this pre-emption right may be restricted or excluded and that the general meeting of shareholders can transfer its powers in this matter to another constituent body. Subsection 7 then states that for these decisions, a 2/3 majority of the votes cast is required if less than half of the issued capital is represented. Section 2:209(99) subsection 6 A reduction of the capital is possible by a resolution of the general meeting of shareholders. For the NV, this resolution requires the approval of 2/3 of the votes cast if less than half of the issued capital is represented at
TIMMERMAN DOORMAN the meeting. There is no corresponding section for the BV, mainly due to the fact that this prov ision serves to protect the shareholders not present at the meeting. The underly ing view was that shareholders in a bv have closer links with the affairs of the company and that they will sooner apparat a meeting should they disagree with a proposed resolution Section 2: 330 This section conta ins a provision conceming the majority required for Section 2: 334ee Analogous to the legal merger, in the case of a legal division of a ompany, a resolution to divide an NV or a BV requires 2/3 of the votes cast should less than half of the issued capital be represented at the general meeting of shareholders 3.11173 of the votes cast(blocking power when the ity group possesses moi 2/3 ofthe votes Section 2: 243(133)sub section 2 It seems strange to discuss a provision that requires 2/3 of the votes cast and also represents at least 50% of the issued capital as a right belonging to a minority. However, if we define m inority in a broad sense, not only with regard to percentages of the capital, but also with regard to the controlling position in the company(see no. 5), this right can be seen as a minority right. The rticles may contain a provision that states that the appointment of a director by the general meeting of shareholders shall be made from a list of candidates conta ining the names of at least two candidates for each vacancy. The articles may grant this binding right of nom ination to everyone. Subsection 2 then states that the genera meeting may resolve by a resolution passed by a 2/3 majority representing more than half of the votes that such a nomination list shall not be binding 3. 12 Analysis ofthe above mentioned thresholds As with the positive rights described in nos. 15-20, we can observe several thresholds before a minority shareholder obta ins the negative right to block a decision desired by the majority. However, because the exercise of the aforementioned negative right is made dependent on the size of the stake of the majority, it is unnecessary for minority shareholders to combine their holdings before being able to exercise their rights. Analogous to the positive minority rights, the allocation of negative minority rights either on an individual or on an aggregate level is not elaborately thought-out nd seems to be more or less random. It is interesting to note that Dutch company law does not prescribe any qua lified majorities for two important decisions within a company. These are the amendment of the articles(section 2: 231(121)and the winding up of the company(sections 2: 19-21 ). However, in practice, many articles of assocation conta in prov isions that prescribe a qualified majority for amendment of certain, or in some cases all, sections of the articles The principle of equality 4.1 Relation to reasonableness and fairness
TIMMERMAN/DOORMAN 10 the meeting. There is no corresponding section for the BV, mainly due to the fact that this provision serves to protect the shareholders not present at the meeting. The underlying view was that shareholders in a BV have closer links with the affairs of the company and that they will sooner appear at a meeting should they disagree with a proposed resolution. Section 2:330 This section contains a provision concerning the majority required for a legal merger. Section 2:334ee Analogous to the legal merger, in the case of a legal division of a company, a resolution to divide an NV or a BV requires 2/3 of the votes cast should less than half of the issued capital be represented at the general meeting of shareholders. 3.111/3 of the votes cast (blocking power when the minority group possesses more than 2/3 of the votes cast). Section 2:243(133) subsection 2 It seems strange to discuss a provision that requires 2/3 of the votes cast and also represents at least 50% of the issued capital as a right belonging to a minority. However, if we define minority in a broad sense, not only with regard to percentages of the capital, but also with regard to the controlling position in the company (see no. 5), this right can be seen as a minority right. The articles may contain a provision that states that the appointment of a director by the general meeting of shareholders shall be made from a list of candidates containing the names of at least two candidates for each vacancy. The articles may grant this binding right of nomination to everyone. Subsection 2 then states that the general meeting may resolve by a resolution passed by a 2/3 majority representing more than half of the votes that such a nomination list shall not be binding. 3.12Analysis of the above mentioned thresholds As with the positive rights described in nos. 15-20, we can observe several thresholds before a minority shareholder obtains the negative right to block a decision desired by the majority. However, because the exercise of the aforementioned negative right is made dependent on the size of the stake of the majority, it is unnecessary for minority shareholders to combine their holdings before being able to exercise their rights. Analogous to the positive minority rights, the allocation of negative minority rights either on an individual or on an aggregate level is not elaborately thought-out and seems to be more or less random. It is interesting to note that Dutch company law does not prescribe any qualified majorities for two important decisions within a company. These are the amendment of the articles (section 2:231(121)) and the winding up of the company (sections 2:19-21). However, in practice, many articles of association contain provisions that prescribe a qualified majority for amendment of certain, or in some cases all, sections of the articles. 4 The principle of equality 4.1 Relation to reasonableness and fairness