On 7 December 2018, the Dutch Department of Justice launched a consultation on a Draft Bill on a Cooling-off Period for Listed Companies. The proposed Bill is intended to allow the management board of a listed Dutch public limited company, when confronted with a hostile takeover bid or shareholder activism, to fend off such insurgent parties for a period of up to 250 days.
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During this period, it is argued, the management board will have more time and composure to consider the merits of the bid or shareholder proposal and weigh up these merits against the possible harm to the company and stakeholders. It is expected that the Bill, if enacted, will prove of decisive importance for the future development of the Dutch market with regard to takeovers and shareholder activism.
When can the cooling-off period be invoked?
As per the Draft Bill, the cooling-off period can be invoked by a listed Dutch public limited company (N.V.), if:
(a) a shareholder proposal is tabled for an ordinary or extraordinary general meeting, holding:
- the appointment, suspension or dismissal of one or more members of the management board or the supervisory board, or
- the amendment of the articles of association insofar as they relate to the appointment, suspension or dismissal of one or more members of the management board or the supervisory board
(b) a hostile takeover bid is announced or made.
In these situations, the company, represented by the management board, may only invoke the response time if it deems the shareholder proposal or hostile takeover bid to materially and negatively affect the interest of the company. Also, the management board requires the approval of the supervisory board for invoking the cooling-off period.
What does the cooling-off period entail?
The Draft Bill does not strip the company's shareholders of all rights in case the cooling-off period is invoked. However, during the cooling-off period, shareholders may not table binding resolutions relating to the grounds upon which the cooling-off period can be invoked (as discussed above). The general meeting may resolve on these matters during the cooling-off period, but only based on a proposal by the management board or the supervisory board. Also, shareholders may table proposals to discuss the matters on which they may not table resolutions.
The management board is under the obligation to use the cooling-off period to gather the necessary information to respond to the proposal or takeover bid. As part of this procedure, the board must at least consult shareholders representing at least of 3% of the share capital, the supervisory board, and the works council. In so doing, the management board must weigh the effects of the proposal or bid and decide the extent to which it aligns with the interest of the company.
How does the proposed bill aim to protect shareholders?
Shareholders solely or collectively representing at least 3% of the share capital have the right to appeal the invocation of the cooling-off period at the Enterprise Chamber of the Amsterdam Court of Appeals. Also, the management board is obliged to report to the general meeting on the policy it has pursued during the cooling-off period. This report must be published on the website of the company and must also be discussed at the first general meeting after the end of the cooling-off period.
What is the relevance of the cooling-off period for the Dutch market?
The Draft Bill aims to provide management boards of listed Dutch public limited companies with a statutory defence against hostile takeover bids and proposals tabled by (activist) shareholders. Previously, such defensive measures required the approval of the general meeting and therefore the approval of the shareholders themselves. If enacted, the Draft Bill will remove the latter requirement and will therefore place the management board in a more powerful position as opposed to shareholders and bidders. However, the Draft Bill does entail certain hurdles for the management board, which may provide shareholders and bidders with opportunities to legally challenge the invocation of the cooling-off period as well as the policies pursued during the cooling-off period.
Given that in our view, the cooling-off period is likely to become a relevant factor in the Dutch market, Van Doorne has provided advice on the Draft Bill and the changes we deem necessary, were it to be enacted. These recommendations can be found in in the document below.
Aside from the proposed cooling-off period, both the European and the Dutch legislator have announced, enacted or are in the process of enacting new legislation relating to listed companies. Amongst these legislative initiatives are a bill allowing the government to block takeovers of companies active in the telecommunications market if the public interest so requires, a bill allowing for class action procedures for damages, the implementation of a new shareholders' rights directive dealing with, inter alia, increasing shareholder voice on executive remuneration ('say on pay'), and a bill requiring supermajority approval in the general meeting for increases in executive remuneration.
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