On 7 July 2017 Elliott rang the bell for the second round of its fight with AkzoNobel. The first round ended when the Enterprise Chamber of the Amsterdam Court of Appeals (“Enterprise Chamber”) dismissed Elliott’s request to order AkzoNobel to call an extraordinary general meeting of shareholders (“EGM”), more specifically an EGM to vote on the dismissal of the chairman of the supervisory board (the “Agenda Proposal” and the “Chairman”). In the second round Elliott will request the Interim Relief Court (“IRM”) for authorization to convene such an EGM itself. The Enterprise Chamber explicitly left open this possibility.
Elliott’s new request also sparked a new round of speculation over the outcome in the Dutch media. Here are my thoughts.
The commentary on the Elliott/AkzoNobel-matter reflects a wider Dutch discussion on the right of shareholders to place items on the agenda of the general meeting:
- The old school approach is rather skeptical about this right, particularly if the shareholders challenge the status quo. The adherents of this approach assume that the courts can thoroughly review any request of shareholders to place items on the agenda. They also assume that such a request can be denied on the basis of a weighing of interest, in which they tend to give more weight to continuity than to the wish of shareholders to shake things up. Such views were on offer in a 7 July 2017 article in Financieel Dagblad. A Dutch lawyer was quoted arguing that the dismissal of the Chairman had such far reaching consequences that a vote on this matter should only be allowed for compelling reasons. He even considered it insufficient that that Elliott was dissatisfied by the way AkzoNobel had brushed-off PPG’s € 29 billion take-over bid. This approach echoes the Stork-decision of 17 January 2007 in which the Enterprise Chamber enjoined two hedge fund’s efforts to force Stork to change its strategy by putting the dismissal of the supervisory board on the agenda, because the current strategy was considered successful and the alternative was insufficiently clear.
- Others – including me – argue that this approach is antiquated by the EU Shareholders’ Rights Directive of 11 July 2007 (the “Directive”). Article 6 obliges the EU’s member states to ensure that shareholders have to right to put items on the agenda and to table draft resolutions. Article 6 does not provide any room to limit these rights on the basis of a weighting of interest. The Directive’s preamble explains that “holders of shares carrying voting rights should be able to exercise those rights given that they are reflected in the price that has to be paid at the acquisition of the shares” and that “effective shareholder control is a prerequisite to sound corporate governance and should, therefore, be facilitated and encouraged.” Therefore the pre-existing possibility to deny a request to put an item on the agenda for the reason that there is a serious conflicting interest of the company was deleted from article 2:114a Dutch Civil Code when the Directive was implemented by the Dutch legislator. The Dutch legislator explained that a request to put an item on the agenda could only be refused in case of abuse of rights. This should be understood as a reference to the Court of Justice of the European Union’s case law with regard to abuse of rights conferred by EU law. Such abuse only exists if it is apparent from a combination of objective circumstances that (i), despite formal observance of the conditions laid down by EU rules, the purpose of those rules has not been achieved and (ii) the essential aim of the person invoking the concerned right is to obtain an undue advantage. In this approach there is almost no room to review or deny a request of shareholders to place items on the agenda.
I note, however, that Directive does not provide a explicit right to convene an EGM. The Directive therefore leaves room for the IRM to find that the Agenda Proposal can wait until the next annual general meeting of shareholders in 2018 and that Elliott has insufficient interest to convene an EGM earlier. Yet such a finding would hardly be convincing, considering that the trust of the shareholders or the lack thereof in the Chairman is not a matter that should be allowed to simmer for months.
It should, furthermore, be noted that a quirk of procedural law may have profound consequences for Elliott’s request to the IRM: no judicial remedy is possible against the decision of the IRM in this particular matter1 (article 2:111 (3) Dutch Civil Code).
- The first consequence is that the IRM needs to consider whether article 267 of the Treaty on the Functioning of the European Union obliges it to ask a preliminary question to the CoJEU. If so the Chairman may well have stepped down before the CoJEU has answered the preliminary question. Since the Chairman reportedly steps down in April 2018 Elliott will need to convince the IRM that there is nothing for the CoJEU to clarify, since it is clear enough how article 6 of the Directive should be interpreted (acte clair) and the CoJEU has already clarified how much room the national courts have to deviate from EU law (acte eclaire).
- The second consequence is that the Dutch State may be liable to Elliott in case the IRM incorrectly applies article 6 of the Directive. That would require that article 6 is intended to confer rights on shareholders; the breach of article 6 is sufficiently serious; and that there is a direct causal link between that breach and the loss or damage sustained by Elliott. In order to determine whether the breach is sufficiently serious, it is necessary to take account of all the factors which characterize the situation brought before the national court, including the degree of clarity and precision of article 6, the scope of the room for assessment that article 6 allows for the IRM, whether the infringement and the damage caused were intentional or involuntary, whether any error of law was excusable or inexcusable, whether the position taken by an EU institution may have contributed to the adoption or maintenance of national measures or practices contrary to EU law, and whether the IRM was under an obligation to make a reference for a preliminary ruling but failed to honor this obligation.
As an aside, I note that the Directive is obviously not to the taste of the Dutch Minister for Economic Affairs who recently made several firm statements about the need to provide more “protection” to Dutch public companies (i.e. protection against shareholder influence). It should, however, be kept in mind that the Directive was recently revised and amended. The revision process was pending during the period that the Netherlands held the rotating Presidency of the Council of the European Union and hence could determine the EU’s agenda. It is striking that the concerned Minister did not use this opportunity to amend the Directive in order to allow for the denial of a request of a shareholder to put an item on the agenda on the basis of a weighting of interest.
There is must more to be said about this matter, but I leave it here for now. For further reading I refer to chapter 7 of my Ph.D.-thesis and the series of articles Frank Peters and I have published on the right to put items on the agenda (‘Vrijheid van meningsuiting – Over de Europeesrechtelijke verplichting om aandeelhouders aan het woord te laten’ in published in Makkink and others, Ik ben niet overtuigd, liber amicorum voor Peter Ingelse ter gelegenheid van zijn afscheid als voorzitter van de Ondernemingskamer; ‘De strijd over het agenderingsrecht tussen Boskalis en Fugro’, published in WPNR, 2015/7061; and ‘De strijd over het agenderingsrecht tussen Elliott en Akzo’, published in WPNR, 2017/156).
1 Except for cassation in the interest of the law, but the decision in such proceedings can have no consequences for the parties to the proceedings (article 78 (6) of the Dutch Judiciary Organization Act).