On 24 August 2015, members of the Dutch Parliament Henk Nijboer, financial spokesman for the Dutch Labour Party (Partij van de Arbeid), and Ed Groot, fiscal spokesman for the Dutch Labour Party, presented an initiative policy document (initiatiefnota) containing a proposal for measures aimed at the protection of Dutch companies against "harmful" private equity firms that invest in target companies for the sole purpose of extracting as much money as possible therefrom. The proposed measures consist of changes to tax treatment of acquisition debt as well as changes to existing corporate legislation.
Initiative Policy Document Private Equity: a halt to excesses (Parliament II 34267, no. 2)
According to the authors of the policy document a significant number of private equity firms acquire businesses for the sole purpose of realizing as much profit as possible within a short timeframe. As a result, such companies, bereft of their (liquid) assets coupled with external factors, such as market circumstances, have little chance of survival on their own. HEMA, NRC Media, Van Gansewinkel, Atteró, Estro and V&D are portrayed as examples. The extraction of assets from target companies, the making of super dividends to their new shareholders and the invoicing of high, opaque (management) costs are identified by the authors as excesses which must be brought to a halt. In addition, the authors point out that Dutch tax payers, as a result of interest deductibility constructions, end up paying for risks that should be borne by the investors. The policy document provides a proposal for a number of measures, including the following.
- Tax deductibility of interest on acquisition debt should be further limited.
- Financial indebtedness assumed by target companies for purposes of the acquisition should not be eligible for tax deductibility of interest.
- Target companies should be prohibited from creating security over their assets as security for the acquisition debt.
- Target companies should be prohibited from providing loans to their new shareholders if the proceeds of such loans are applied towards repayment of the acquisition debt.
- Reinforcement of the position of works councils in order to provide them with greater insight in the acquisition financing and the potential to verify whether its advice in connection with the acquisition is implemented in the acquisition plans.
- Works councils must be entitled to directly request information from the target company's external auditor.
- Parliament should request the government for its opinion on the adequacy of existing rules on directors' and officers' liability and whether it believes that additional groups should be entitled to request an investigation into a company's policy in order to protect the interests of employees and society as a whole.
According to the authors, the main purpose of the policy document is the protection and reinforcement of the Rhineland stakeholders model by means of implementing the proposed measures, as a result of which:
- the investors instead of the tax payer bear the risk of high acquisition debt interest;
- the potential to obtain "excessive" debt financing and to weaken a target company's balance sheet will be limited;
- the influence of employees will be strengthened; and
- the costs and the earnings model of private equity firms will be made transparent.
It is noted that some of the proposed measures are contrary to recent legislative amendments, such as the 2012 abolition of the former financial assistance prohibition for Dutch private companies with limited liability (besloten vennootschappen met beperkte aansprakelijkheid) within the context of the so-called "flex-BV" legislation. As such, implementation of the proposed measures would seem inconsistent with previous policy.
In a meeting of the Permanent Parliamentary Committee of Finance (Vaste Commissie Financiën) with the Dutch Minister of Finance Mr Dijsselbloem held on 7 September 2015, Mr Dijsselbloem confirmed that the government will respond to the initiative policy document prior to the end of this year.