The rights and equitable treatment of shareholders and employees

Shareholder powers

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

A single shareholder does not have the power to appoint or remove directors as this requires a resolution by the general meeting. However, a shareholder who meets certain criteria can request that the management board add an item to replace managing and supervisory directors on the agenda of the general meeting. The power of the general meeting to appoint and remove managing and supervisory directors can be restricted. In addition, if the item that the shareholder wants to be put on the agenda may result in a change in the company’s strategy (for example, as a result of the dismissal of managing or supervisory directors) the management board should be given the opportunity to stipulate a reasonable period in which to respond (the response time). This follows from the Dutch Corporate Governance Code, and currently, the Dutch government is preparing a bill to implement this soft law rule in the Dutch Civil Code.

The Dutch Supreme Court has consistently ruled that the adoption of policies and strategy is, in principle, a matter for the management board. By extension, the Dutch Supreme Court has recently ruled that a shareholder cannot request the management board to bring an agenda item that falls within the competence of the management board to a vote in a general meeting. Therefore, it will be difficult for shareholders to require the board to pursue a particular course of action by requesting the change in strategy to be put to a vote in a general meeting.

Most listed companies have limited the rights of the general meeting to appoint and dismiss managing and supervisory directors in such way that the resolution requires a (non-binding) nomination to be prepared by the supervisory board or, in some cases, by the meeting of holders of priority shares. A resolution to appoint a managing director or supervisory director nominated by the supervisory board must be adopted by an absolute majority of the votes cast. If a person was not nominated for appointment or removal by the supervisory board, a qualified majority may apply. Pursuant to the Dutch Corporate Governance Code, this majority may represent a given proportion of the issued capital, and this proportion may not exceed one-third of the total issued share capital.

A different appointment and removal system applies to structure regime companies. The Dutch structure regime applies to (listed) companies of which the majority of the employees are employed in the Netherlands. In these companies, the involvement of the supervisory board and the works council in the appointment of supervisory directors is greater than in other companies.

Shareholder decisions

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

The following matters, inter alia, are reserved to the general meeting:

  • the appointment, suspension and dismissal of managing directors and supervisory directors;
  • the determination of the general remuneration policy of the mana­gement board;
  • the adoption of the annual accounts;
  • the amendment of the articles of association;
  • the issuing of shares and granting of rights to subscribe for shares, unless this authority has been delegated to another corporate body for a maximum period of five years;
  • the restriction or exclusion of pre-emptive rights in relation to a share issuance, unless this authority has been delegated to another corporate body for a maximum period of five years;
  • the delegation to another corporate body of the authority to issue shares, grant rights to subscribe for shares and restrict or exclude pre-emptive rights;
  • the authorisation of the management board to repurchase shares;
  • the reduction of the issued share capital;
  • the approval for resolutions of the management board that result in changes of the identity or the character of the company or its enterprise;
  • the distribution of dividends or distributable reserves;
  • the dissolution of the company;
  • the merger or demerger of the company; and
  • the appointment of auditors.

 

Dutch law does not require matters to be subject to a non-binding shareholder vote, but the company’s articles of association may stipulate otherwise.

Disproportionate voting rights

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

The starting point is that each shareholder may cast as many votes as he or she holds shares. If the authorised share capital was divided into shares of an unequal nominal amount, the number of votes that may be cast by each shareholder is equal to the total nominal amount of his or her shares divided by the nominal amount of the smallest share. Thus, disproportionate voting rights can be created by issuing two different types of shares; for example, class A shares and class B shares, with each class of share having a different nominal value. Each class A share with a nominal value of 1 cent carries one vote for all matters, and each class B share with a nominal value of 10 cents, for example, carries 10 votes. The class B shares may be held by the founding shareholder, who, therefore, gets a controlling interest in the company, while acquisitions can be financed by the issuance of the class A shares. Disproportionate voting rights may undermine the interests of the minority shareholders and some institutional investors prefer to limit this construction as far as possible.

Shareholders’ meetings and voting

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

For each general meeting of a listed company, the statutory record date will be applied to determine the shareholders in which voting rights and meeting rights are vested. The record date is the 28th date before the date of the meeting. A shareholder who wants to attend the general meeting and who wants to vote must be a shareholder on this record date. To exercise the meeting and voting rights, a shareholder should submit at the meeting a receipt of deposit that has been issued by his or her bank. Shareholders of listed companies cannot act by written consent without holding a formal meeting as this would require the unanimous vote of all shareholders. However, shareholders of private companies usually can act by written consent.

Under Dutch law, the management board is authorised to determine that the meeting rights can be exercised by using electronic means of communication. If so decided, it will be required that each person holding meeting rights, or his or her proxy, can be identified through electronic means of communication, directly follow the discussions in the meeting and, to the extent applicable, exercise his or her voting right. The management board may determine further conditions to the use of electronic means of communication, provided that these conditions are reasonable and necessary for the identification of shareholders holding meeting rights and the reliability and safety of the communication. Pursuant to the Dutch Corporate Governance Code the company should, as far as possible, give shareholders the opportunity to vote by proxy and to communicate with all other shareholders.

Shareholders and the board

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

Shareholders who jointly represent at least 1/10th of the company’s issued capital may request the management board to convene a general meeting, stating specifically the business to be discussed. In addition, shareholders who jointly represent at least 1/10th of the issued share capital may be authorised by the provisional relief judge of a district court, upon their application, to convene a general meeting. This request will be rejected if the shareholder has not already requested the management board in writing to convene a general meeting, with a precise description of the matters to be discussed at this meeting, and the management board has not taken the necessary measures to ensure that the general meeting could be held within six weeks after the request was made to one of them.

Further, if a general meeting is convened by the company, shareholders who, alone or jointly, represent at least 3 per cent of the company’s issued share capital will have the right to request the management board to place items on the agenda of this general meeting, provided that the reasons for the request are stated therein and the request is received by the company in writing at least 60 days before the date of the general meeting.

The convocation right and the right to place items on the agenda are limited by the response time and new legislation that is being prepared regarding it.

Shareholders will be able to put resolutions and director nominations to a shareholder vote if the general meeting is authorised to resolve upon these resolutions. If the company’s articles of association state that certain resolutions by the general meeting require approval or nomination by the supervisory board, it is doubtful whether without this approval the item could be put to a vote in the general meeting.

Controlling shareholders’ duties

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

Shareholders may, in principle, be primarily guided by their own interests. However, this does not release them from the obligation to act reasonably and fairly, which could mean that they should take into account the interests of minority shareholders and the interests of other stakeholders, such as employees and creditors. As a general rule, one could argue that the bigger the stake the shareholder holds in the company, the bigger his or her responsiveness towards other shareholders will be. An enforcement action can be brought against controlling shareholders for the breach of these duties on the basis of a breach of reasonableness and fairness. In addition, the company or minority shareholders who meet certain thresholds may request the Enterprise Chamber of the Amsterdam Court of Appeal to start an inquiry into the company affairs, and the Enterprise Chamber may order immediate relief.

Shareholder responsibility

Can shareholders ever be held responsible for the acts or omissions of the company?

Under Dutch law, shareholders can, in principle, not be held responsible for acts or omissions of the company. This may be different if a shareholder was acting as a formal policymaker of the company (ie, acting as if he or she was a managing director). In this case, a shareholder can be held liable as if he or she was a managing director. Further, it is conceivable that a shareholder could be held responsible if he or she violates a statutory duty or does not act reasonably and fairly towards those who, pursuant to the law and the articles of association, are involved in the company’s organisation.

Law stated date

Correct on

Give the date on which the information above is accurate.

15 April 2020