This Corporate Update is our semi-annual newsletter on recent developments in Dutch corporate law. A limited amount of amendments to corporate legislation entered into force as per 1 July 2012. There has been a delay in a number of important legislation projects. Contrary to the long expectation that the Flex-BV Act and the Management and Supervision Act would enter into force as per 1 July 2012, it was announced mid-June that the Flex-BV Act will enter into force as per 1 October 2012. The effective date of the Management and Supervision Act is not yet known, as the related Remedial Bill, which will provide for certain changes to said Act, is still under further discussion in the Dutch Upper House.
This Corporate Alert highlights the most important amendments in corporate legislation as per 1 July 2012 and provides a status overview of the Flex-BV Act, the Management and Supervision Act and the related Remedial Bill, as well as certain other pending bills. For more amendments in the field of financial law, we refer to our Finance/Regulatory Update of 16 July 2012.
Finally, we will address some potential issues regarding partial bids, following the recent partial bid for KPN by América Móvil.
- New legislation as per 1 July 2012
Amendments to Bidding Rules
As per 1 July 2012, a number of amendments entered into force regarding the rules on public takeover bids, mainly amending the Decree on Public Takeover Bids (het Besluit openbare biedingen Wft) and the Exemption Decree Takeover Bids (Vrijstellingsbesluit overnamebiedingen Wft). For further information, please refer to our Corporate Alerts of 26 March 2012 and 8 May 2012. In summary:
- Put Up or Shut Up. An important change is the introduction of the "put up or shut up" rule: a target company may request that the Dutch regulator AFM (Autoriteit Financiële Markten) instruct a potential bidder who publishes – or causes the publication of – information that may give the impression that he is considering to prepare a public offer for a target company, to make a public announcement within six weeks, either announcing a public offer for that target company (to put up), or stating that he has no intention to do so (to shut up). If the person announces that he has no intention to make a public offer for the target company, he and any persons acting in concert with him are prohibited from announcing or making a public offer for that target company during the next six months. The same applies if the person does not comply with the obligation to make a public announcement within six weeks, except that in such case the period of the prohibition is nine months starting from the end of the six-week period within which the announcement should have been made.
- Increase of Offer Price. The rule that the offer price may only be increased once, has ceased to apply: the number of times that the offer price may be increased is now in principle unlimited.
- Amendment Mandatory Bid Exemption for "Whitewash Procedure". The voting percentage required for a "whitewash procedure", whereby the general meeting of shareholders of the target company consents to an exemption from the mandatory bid obligation, has been lowered to 90 percent of the votes cast by those others than the person who would be required to make the bid and persons acting in concert with him, since the former requirement of 95 percent has proved in practice to be an almost prohibitively high percentage.
- New Mandatory Bid Exemptions. There are new exemptions (i) for underwriters, (ii) in relation to "irrevocable undertakings", and (iii) for "concert parties" acceding to forms of cooperation that were in existence when the mandatory bid was introduced in 2007.
Some additional amendments to the bidding rules are proposed in the legislative proposal for the Financial Markets Amendment Act 2013. We refer to Chapter 3 of this Update.
"Annual Information Update" Ceases to Apply
Due to the implementation of the amended Prospectus Directive, the obligation for companies listed on NYSE Euronext Amsterdam to publish a document at least once a year which includes or refers to information published by the company during the preceding year, has ceased to apply per 1 July 2012.
Please refer to the Finance/Regulatory Update of 16 July 2012 for more information on the other changes that result from the Prospectus Directive Implementation Act.
- Update on other legislation and bills
Flexibilisation of Dutch BV Law as per 1 October 2012
On 1 October 2012, the Flex-BV Act will enter into force. The introduction of the Flex-BV Act will result in major changes to Dutch law applicable to private companies with limited liability (besloten vennootschappen or BV's). The new Act will ease a large number of corporate provisions, and some will even be deleted entirely. Furthermore, the Flex-BV Act introduces increased possibilities to deviate from statutory provisions in the articles of association and the possibilities of diversification among the shareholders. Please refer to our Corporate Alert of 12 June 2012 and our Flex-BV webtool (Dutch only). This webtool provides practical information about the legislative amendments and indicates the major differences between old and new legislation per subject. The webtool also contains the Management and Supervision Act. Furthermore, the webtool contains the new text of book 2 of the Dutch Civil Code (Dutch only), highlighting all amendments as a result of the Flex-BV Act and the Management and Supervision Act.
Status of Management and Supervision Act
The Management and Supervision Act, as amended by a pending Remedial Bill (Reparatiewet), was expected to enter into force simultaneously with the Flex-BV Act. However, the Management and Supervision Act and the Flex BV Act are no longer interrelated. For more information regarding the Management and Supervision Act and the Remedial Bill, please refer to our Corporate Alerts of 31 May 2011, 4 October 2011 (Dutch only) and 5 January 2012 (Dutch only).
On 5 July 2012, the Dutch Lower House adopted the Remedial Bill. Despite a number of proposed amendments to this Bill, only one – rather technical – amendment was adopted. The Bill now lies with the Dutch Upper House. The preliminary inquiry will take place on 11 September 2012. It is unclear when the Management and Supervision Act will enter into force. Although it is still possible that this Act will enter into force simultaneously with the Flex-BV Act on 1 October 2012, entry into force as per 1 January 2013 seems more likely.
Corporate Governance Bill Adopted by the Dutch Lower House
On 5 July 2012, the Corporate Governance Bill, as well as certain amendments to this Bill, was adopted by the Dutch Lower House. The Corporate Governance Bill contains certain rules and regulation for issuers. For more information regarding the Corporate Governance Bill, please refer to our Corporate Alert of 4 October 2011 (Dutch only).
During the first stage of the parliamentary hearing in April of this year, it appeared that there were still numerous objections against certain elements of the Corporate Governance Bill. These objections were particularly aimed at the obligation for shareholders acquiring three percent or more of the shares or voting rights in an issuer, to inform the AFM whether or not such shareholder has objections to the publicly announced strategy of the company. Meanwhile, the amendment pursuant to which this rule will be removed has been adopted.
One of the amendments to the Bill provides that, in addition to long-positions of three percent or more, also gross short-positions of equal size must be disclosed. Furthermore, the new rules with respect to the identification of shareholders and the right of shareholders to submit a request regarding the exchange of information have been amended. The Dutch Lower House has not adopted the proposed amendment to increase the threshold for the right of shareholders to have items placed on the agenda of a company's general meeting from one percent to three percent.
The Bill now lies with the Dutch Upper House. The preliminary inquiry will take place on 25 September 2012.
Amended Right of Inquiry Rules per 1 January 2013
The Act to amend the Right of Inquiry (Wet tot wijziging van het enquêterecht) will enter into force on 1 January 2013. The Act entails some substantive changes in law and incorporates several judgments on the right of inquiry rendered bij the Supreme Court over the past couple of years. In essence, the Act concerns (i) an amendment of the thresholds with respect to the competency to invoke the right of inquiry, (ii) the extension of this competency towards the legal entity itself – whereby the request can be initiated on behalf of the legal entity by both the management board and/or the supervisory board (in case of one tier boards the non-executive board members) – as well as the liquidator in the event of a bankruptcy, (iii) a number of procedural amendments and (iv) expense reimbursement provisions regarding examiners and temporarily appointed officers that are held liable.
Amendments in the Accounting Bill
In February 2012, the Accounting Bill (Wet op het Accountantsberoep) was adopted by the Dutch Lower House. Initially, this Bill aimed to merge the Royal Netherlands Institute of Registered Accountants (Nederlands Instituut van Registeraccountants, NIVRA) and the Netherlands Organisation of Accounting Consultants (Nederlandse Orde van Accountants-Administratieconsulenten, NOvAA) into one professional organisation: the Netherlands Institute of Chartered Accountants (Nederlandse Beroepsorganisatie van Accountants, NBA).
In the last phase of the parliamentary hearing regarding this Bill, four amendments were adopted that significantly impact firms auditing public interest organisations, i.e. the so-called "OOBs", which include listed companies as well as non-listed banks and insurers, as well as the supervision of financial reporting by issuers. These amendments are as follows:
- Compulsory Rotation of Accountancy Firms. Starting 1 January 2014, OOBs will have to rotate their auditors every eight years. After a two-year cooling-off period, the same firm may perform the statutory audits again for the relevant OOB.
- Separation Audit Function and Professional Advice. Accountancy firms that audit public interest organisations may no longer perform other services for those organisations. Only the following services qualify as audit services: auditing the interim financial statements, auditing the semi-annually and quarterly reports, certifying the monthly statements for the regulators, providing assurance with regard to the managing board's report, the corporate governance report, the risk management report, and the corporate social responsibility report.
- Compulsory Notification to the AFM. OOBs must notify the AFM of an intended selection of an auditor.
- No Chinese Walls. The so-called Chinese walls within the AFM between the supervision of accountancy firms and the supervision of financial reporting by issuers will be abolished.
- Supervision of Financial Reporting. The AFM's authority to ask for more information from issuers, in the context of the AFM's supervision of the financial reporting process, is extended.
The amendments are yet to be discussed in the Dutch Upper House.
Simplification WCAM Procedure
In December 2011, a Bill to amend the Collection of Mass Claims Bill (Wet collectieve afwikkeling massaschade, the "WCAM") was submitted in order to simplify the settlement procedures of mass claims.
Pursuant to the WCAM, the parties to a settlement agreement may request the Amsterdam Court of Appeal to declare the settlement agreement binding on all persons to which it applies according to its terms. This posibility is unique in Europe. There is an exception for aggrieved civil parties that submit a so-called opt-out notice within the time limit that was determined by judicial decision. Examples of cases in which the Court has declared a settlement agreement binding are DES, Dexia, Vie d’Or, Shell, Vedior and Converium. More specific, in the Converium judgment, it was determined that the WCAM procedure can also be used in cases that involve almost only non-Dutch aggrieved civil parties. This demonstrates that the WCAM procedure can be attractive to foreign parties and can be used as a Dutch legal export product.
The Bill introduces a pre-procedural hearing that fosters collective settlements. Consequently, parties that did not agree on a WCAM settlement can rely upon judicial support to still achieve a collective settlement.
The personal appearance of parties may be requested by foundations or associations that are authorised to declare the WCAM agreement binding on all parties, or by the potentially liable party.
Furthermore, the Bill approves the opportunities to use the WCAM in insolvency proceedings. This is the result of DSB Bank's bankruptcy. Under the Dutch Bankruptcy Act, creditors must submit their claims to the liquidator. The verification of these numerous, relatively small claims is administratively burdensome. Moreover, the costs that these creditors have to incur in the verification phase are often not proportional to the value of their claims. In such cases, the WCAM procedure is a suitable procedure to replace the costly and time-consuming verification phase for mass claims.
It is unclear when the WCAM Bill will be discussed in parliament.
Financial Markets Amendment Bill 2013
The legislative proposal regarding the Financial Markets Amendment Bill 2013 (Wijzigingswet financiële markten 2013) forms part of the annual amendment cycle of domestic rules and regulations within the field of finance. The Financial Markets Amendment Bill 2013 contains both technical- and substantive amendments of, amongst others, the Dutch Financial Supervision Act (Wet of het financieel toezicht), including amendments regarding the commission schemes and the public bid rules and regulations. The intended date that the Act will enter into force is 1 January 2013.
The Financial Markets Amendment Bill 2013 provides that the current exemption of the obligation to make a public takeover bid in the event that a controlling interest has been acquired in the context of a voluntary bid, will only apply if the bidder, as a result of declaring the offer that was voluntarily made unconditional, can exercise more than 50 per cent of the voting rights in the general meeting of the target company. Furthermore, a person acquiring a controlling interest shall be required to issue a public announcement to that effect, which announcement must be issued promptly and without delay.
Public announcements shall also be required in the event that: (i) the controlling interest is lost or reduced during the 30 days grace period, (ii) a request is filed with the Enterprise Chamber of the Amsterdam Court of Appeal (the "Enterprise Chamber"), to be released from the obligation to make a mandatory offer, or (iii) the Enterprise Chamber has issued its judgment in relation to said request.
Reinforcement Governance Pension Funds
The legislative proposal regarding the reinforcement of governance in pension funds was submitted to the Dutch Lower House in February 2012 (the "Pension Funds Governance Amendment Bill"). The Pension Funds Governance Amendment Bill provides for a revision of the applicable rules for the management of pension funds, the supervision and the participation in the decision-making process of participants and pensioners in such funds. The Pension Funds Governance Amendment Bill contains measures aimed at the reinforcement of the expertise and independence of the internal supervision and intends to streamline the functions and bodies within the pension funds. As a result of these intended changes the articles of association of pension funds will have to be amended. The most important amendments are as follows:
- Two Governance Models. The Pension Funds Governance Amendment Bill provides for two governance models: (i) the joint model and (ii) the independent model. With the joint model, representatives of employers, employees/trade unions and pensioners are all part of the board. Additionally, a maximum number of two independent professional board members can be added to the board. The composition of the board (employers/employees) in terms of percentage depends on the answer to the question whether the pension fund is an industry wide pension fund or a company pension fund and whether the pension contributions are subject to a maximum or not. With the independent model, the board consists of members who are not representatives of any interested parties. The social partners can opt for the joint model if they wish to assume responsibility for the full execution of the pension scheme. If they wish to stay involved in the decision-making in relation to the deployment of instruments of the pension scheme, but do not wish to assume responsibility for the full execution of the pension scheme, they can opt for an independent model.
- Internal Supervision. Both management structures provide that the internal supervision of the industry wide pension fund will be performed by a supervisory council. If the industry wide pension fund is fully insured, the supervision can also be performed by a so-called visitation committee. The company pension funds have the possibility to opt for either a supervisory council or a visitation committee. The internal supervisory bodies keep all responsibilities that such bodies already should have pursuant to the principles for good governance in pension funds. In addition, certain approval rights are vested in the supervisory council. Furthermore, a new element is that the supervisory council is required to report on the inadequate performance of the board to, amongst others, the participants- and pension beneficiaries' council and the body for interested parties (see also below).
- Reinforcement Expertise Test and Possibility to Refuse Prospective Board Member. The Pension Funds Governance Amendment Bill introduces an eligibility test for all policymakers and co-policymakers within pension funds. Besides the members of the supervisory council and the visitation committee, the members of the body for interested parties are also the subject matter of the eligibility test. The Pension Funds Governance Amendment Bill latches on to the new expertise test that applies to members of financial enterprises, which has been extended to supervisory board members of these enterprises as of 1 July 2012. Apart from the external eligibility test, the board itself shall be given the possibility to refuse a prospective board member if such candidate, in the opinion of the board, does not meet the requirements in terms of expertise.
- Participants- and Pension Beneficiaries Council (the "PBC") or Body of Interested Parties (the "BIP"). If the pension fund has opted for the joint model, then the pension fund shall install a PBC. In the PBC, participants, pension beneficiaries and possibly former participants are represented. The PBC is given the right to be consulted and the right to render its opinion in relation to a number of issues, including the acts performed by the board. Pension funds with an independent model shall install a BIP. In addition to the aforementioned powers of the PBC, the BIP has more extensive rights to render its opinion and certain rights of approval. The composition of the BIP is equal to that of a joint board. The board will be held accountable to the BIP and the PBC respectively for its policies, as well as the manner in which such policies have been carried out. The supervisory council, the PBC and the BIP respectively shall be given the right to initiate inquiry proceedings with the Enterprise Chamber.
Implementation AIFM Directive
The Alternative Investment Fund Managers Directive (the "AIFMD") contains rules and regulations for the authorisation, ongoing operation and transparency of the managers of alternative investment funds (the "AIFM"), excluding collective investment undertakings ("CIUs"). The AIFMD came into force on 21 July 2011 and will have to be implemented into domestic rules and regulations by the member states by 22 July 2013.
- Scope AIFMD. The starting point is that each manager of an investment institution, with the exception of CIUs, falls within the scope of the AIFMD. As a result, there are - paraphrased - two categories of investment managers: (i) investment managers to whom the AIFMD applies; and (ii) investment managers to whom the Directive on Undertakings for Collective Investment in Transferable Securities applies, i.e. investment managers of CIUs.
The AIFMD will result in a number of substantial changes with respect to the regulatory regime for collective investment undertakings that do not qualify as CIUs, such as private equity funds, hedge funds, property funds and other types of collective investment undertakings. As a result of the AIFMD entering into force, a large number of investment institutions, as well as their managers, that have not been subject to any form of regulatory supervision to date will become subject to regulatory supervision and will have to comply with the obligation to obtain a permit.
- Substance AIFMD. In addition to the regulatory framework, such as the permit requirement in order to act as an investment manager and the rules in relation to the provision of information to the regulatory authority, the AIFMD imposes certain substantive and/or operational requirements on investment managers with respect to the financing of an investment institution, the remuneration policy and the valuation of the investment portfolio. The AIFMD also provides for additional rules for investment managers aquiring control over listed or unlisted companies. In addition, the AIFMD contains specific measures in order to prevent asset stripping.
- Acquiring Control. The AIFMD contains specific obligations for managers of investment institutions, not being a CIU, in relation to the companies in respect of which a controlling interest is obtained. Both listed and unlisted companies fall within the scope of these rules.
A Dutch manager of an investment institution, not being CIUs, that obtains a controlling interest in a listed company, having its statutory seat in the Netherlands or in another member state, meaning a state within the European Economic Area, is required to hold certain information available for the AFM, the shareholders and the issuer. This concerns information regarding the identity of the investment manager, the policy with respect to the prevention and the management of conflicts of interest and the communication policy relating to the respective issuer, particularly with respect to the employees of such issuer. In this respect, it should be noted that "control" shall be deemed to have been obtained if the relevant investment institution holds 30 percent of the voting rights in the respective issuer. Furthermore, it should be noted that it is unclear how such information should be kept available and how an investment institution should act in the event there is concurrence with the mandatory bid rules.
Also in a scenario where an investment institution, not being a CIU, obtains control in an unlisted company, there are certain information obligations that the managers of such institution shall have to comply with. In this respect, the term "control" shall mean the possibility to exercise more than fifty percent of the voting rights in the general meeting of such an unlisted company. In that case, the investment manager must provide certain information to the unlisted company, the shareholders of the unlisted company, the member state of origin of the investment manager and the employees of the unlisted company. In this manner, the aforementioned parties are able to assess the impact of the investment institution having obtained control on the position of an unlisted issuer. Having said that, it should be noted that these provisions shall only apply to companies with 250 or more employees, an annual turnover of 50 million Euro or more and a balance sheet total of 43 million Euro or more.
The AIFMD furthermore imposes an obligation on Dutch managers of investment institutions holding shares in an unlisted company, to notify the AFM if the percentage of voting rights held by such person, either actively or passively, exceeds or falls below one of the following thresholds: 10, 20, 30, 50 and 75 percent.
- Asset stripping. The prohibition on asset stripping basically means that for a period of two years following the date on which control has been obtained in a "large" company, the manager of an investment institution, not being a CIU, shall not be allowed to cooperate with acts as a result of which the company's equity is reduced in a certain manner, e.g. by making distributions, or carrying out capital reductions, share redemptions or share buybacks.
Status Claw Back Bill
The Claw Back Bill provides the supervisory board with the statutory power to adjust the bonuses that are awarded to members of the management board, if such bonuses are unacceptable in terms of reasonableness and fairness, the so-called "reasonableness test''. Furthermore, a bonus may be reclaimed to the extent that it was paid on the basis of incorrect information, the so-called "claw-back". For more information on this bill, we refer to our Corporate Alert dated 1 October 2010.
Due to the fall of the Dutch government in April 2012, the current status of the Bill is unclear.
- América Móvil's partial bid for KPN
First Partial Bid in the Netherlands
América Móvil's partial bid for KPN was the first partial bid that was made under the bidding rules in the Netherlands. Now that the first partial bid has been made, it cannot be ruled out that more partial and tender offers, as understood under the Dutch bidding rules, will follow. In relation to both bids it should be noted that the bidder's stake at the time the offer is declared unconditional including the shares that are already held by the bidder at that time, must not exceed 30 percent, which is the mandatory bid threshold.
In the event of a partial bid, the bidder offers a fixed price and in the event that the offer conditions are satisfied but at the same time more shares are offered than the bidder can acquire, the bidder must purchase the shares offered by the shareholders under the partial bid on a pro rata basis. In the event of a tender offer, as understood under the Dutch bidding rules, the shareholders themselves can state the price against which they are willing to sell their shares and, provided that the offer conditions are satisfied, the bidder shall be required to buy, up to the maximum number of shares the bidder is willing to acquire under the offer, all the shares that are being offered against the highest price accepted by the bidder or a lower price. Also in the event of a tender bid the bidder shall be required to purchase the shares on a pro rata basis if the number of shares offered by the shareholders under the tender offer exceeds the number of shares that the bidder can acquire.
Points of Attention
In practice it appears that partial and tender offers give rise to different issues than full public takeover bids. Below we have highlighted a number of those issues.
- As mentioned, the mandatory bid threshold is 30 percent. Given the relatively low number of shares that is usually represented in a general meeting, it could very well be that a shareholder holding slightly less than 30 percent of the shares can exercise substantial influence in the general meeting, which influence does not necessarily have to be different from the influence exercised by a 30 percent shareholder. This could be a reason for a company to pursue a more active proxy solicitation policy. The influence that could potentially be acquired by a bidder under a partial or tender offer could also be a reason for a company to consider anti-takeover measures in relation to that specific possibility in order to safeguard the interests of minority shareholders.
- A partial or tender offer could facilitate the bidder who has made a partial or tender offer to determine, at the time such bidder wishes to acquire all the shares of the company, the fair price that the bidder is required to offer pursuant to the mandatory bid rules and to prevent the bidder from having to offer a control premium.
- The maximum number of shares that can be acquired by a bidder under a partial or tender offer, in combination with the fact that a bidder is also allowed to execute open market trades during the offer period, could, compared with a full public takeover bid, to an increasing extent influence the behavior of the current shareholders. By selling their shares to a bidder via open market trades on the stock exchange, shareholders will realise in relation to all the shares that are sold under such trades the stock exchange share price which has increased as a result of the partial or tender offer having been made, whereas shareholders who choose to wait and offer their shares under the partial or tender offer run the risk that only a small portion of the shares that are offered by such shareholder under the partial or tender offer are actually purchased by the bidder. In relation to KPN, this risk materialised for shareholders offering their shares under the partial bid. Only a few percent out of the 27.7 percent of the shares that América Móvil wished to acquire in the context of its partial bid were acquired under the partial bid. The vast majority of the shares were acquired by América Móvil via open market trades on the stock exchange. The question arises whether an amendment to the bidding rules should be introduced in relation to partial and tender offers which would prevent a bidder from acquiring, after the partial or tender offer having been made, any shares in the target company other than in the context of declaring the offer unconditional.