The Netherlands still has relatively little experience with hospitals that are entirely in the hands of an investor; the Slotervaart hospital in Amsterdam was the first in 2006. A conflict has since arisen between shareholder and chief executive officer (CEO) Aysel Erbudak and her three children on one side, and the heirs of deceased investor Jan Schram – Erbudak's former business partner – on the other. Because the conflict threatened the stability of medical care, the Amsterdam Court of Appeal intervened. In such cases, the Netherlands' legal system allows for recourse to the Enterprise Chamber – a special section of the Court of Appeal that has far-reaching powers. This is a unique opportunity for (foreign) investors to obtain swift and practical emergency measures in takeover battles and shareholder conflicts.
Schram rescued the Slotervaart hospital from insolvency in 2006. He invested in the Slotervaart hospital through a €26 million loan. The hospital was converted into a private limited company, a new management board was appointed with Erbudak as its CEO and a supervisory board was added.
Schram died on December 28 2012. Schram's brother, Lex, was appointed executor. Lex's sons, Pim and Rob, were part of the group of heirs. Schram's death triggered a requirement under the articles of association to offer the shares he held to Erbudak and her children. They knew this and indicated their interest in acquiring these shares, but Schram's heirs refused to offer their shares.
The supervisory board suspended Erbudak as CEO.
In the ensuing unrest, principal banker ING froze all current lines of credit. The bank held discussions with all parties concerned and concluded that Erbudak's suspension had created a power struggle between the ultimate beneficiary owners. The bank wanted the parties to find a solution and wanted to have the €26 million loan subordinated before it would remove its restrictions.
The heirs diluted the company through which Erbudak and her children could acquire the late Schram's shares. In doing so, they acquired 99.64% of the subscribed share capital and voting rights. Only then did Schram's heirs offer the shares they held, which no longer reflected any control because of the dilution.
Soon thereafter, Erbudak was removed as CEO.
Erbudak and her children filed an application with the Enterprise Chamber of the Court of Appeal.
The Enterprise Chamber ruled that the course of events constituted well-founded reason to doubt that there was due management. Therefore, the Enterprise Chamber appointed its own (temporary) CEO, who had far-reaching powers. An investigation was also launched into the course of events.
Before this decision, the Schram heirs entered into a sale and purchase agreement by which they sold their 99.64% stake in the Slotervaart hospital to a well-known healthcare entrepreneur.
After her appointment, the temporary director was confronted with the sale and purchase agreement. The director had to decide whether to uphold the sale and purchase agreement or whether to invoke the cancellation option that was available.
A great deal of pressure was exerted by the hospital (including its management, supervisory board and works council) to uphold the agreement. Moreover, its insurer, Achmea, and principal banker, ING, were concerned about the hospital's continuity if the sale were cancelled. It was clear that Erbudak had run out of support from important stakeholders.
In a press conference, the temporary director stated that she had decided to leave the sale and purchase agreement in place. Erbudak and her children promptly imposed attachment on the shares to avoid execution of the sale and purchase agreement. ING imposed further limitations on its current account facility, and the bank explicitly expressed its opposition to Erbudak and her children. The bank said it no longer made sense to paper over the shareholder conflict financially when the future was uncertain, and also announced that it would consider further measures if the attachment were to continue. This statement gave the temporary director additional backing for her decision, and the attachment was lifted by court order.
The actual share transaction is completed, leaving the hospital in a more stable state. However, the battle between the shareholders is certainly not over. From a strictly legal perspective, a great deal can be said on Erbudak and her children's position.
Due to the intervention of the Enterprise Chamber, the first takeover battle for control of a private hospital in the Netherlands has been decided. The Enterprise Chamber has demonstrated that it can come up with quick and bold solutions.
This is not the first time that the Enterprise Chamber has had significant influence in a takeover fight. Many will recall the takeover fight surrounding ABN and its strategic sale of its La Salle subsidiary to Bank of America during the hostile bid.
The Enterprise Chamber once more has shown that its nickname of 'Big Bertha', after Krupp's famous howitzer, is well deserved.
For further information on this topic please contact Guido Vergouwen at AKD by telephone (+31 88 253 5000), fax (+31 88 253 5400) or email ([email protected]).The AKD website can be accessed at www.akd.nl.