NEW LEGISLATION
Easing of reporting and documentation requirements for certain mergers and divisions
A bill easing a number of reporting and documentation requirements for certain mergers and divisions came into force on 1 July 2011. The bill implements EU Directive 2009/10/EC.
Another bill, also aimed at reducing the administrative burden on companies, came into effect on the same date. Companies can now place a merger or division proposal on the website of the Chamber of Commerce as an alternative to filing documents with the Trade Register of the Chamber of Commerce.
PENDING BILLS
Bill amending corporate inquiry law – access tightened
A bill has been submitted to the Second Chamber of the Dutch Parliament amending the corporate inquiry procedure before the Enterprise Chamber of the Amsterdam Court of Appeal.
Changing access
- Where the request for a corporate inquiry concerns a large company with an issued share capital of more than EUR 22.5 million, the bill sets out tighter criteria – the requesting shareholder would need to hold 1% of the issued share capital or a EUR 20 million interest in the company. Where the company has an issued share capital of EUR 22.5 million or less, the existing criteria continue to apply – the requesting shareholder must hold 10% of the issued share capital or a EUR 225,000 interest in the company
- Under the bill, the company itself can request that a corporate inquiry be held. A representative of the company must file the request.
- Bankruptcy trustees would also have the right to request an inquiry.
Safeguarding the inquiry phase of the procedure
- A supervising judge of the Amsterdam Court of Appeal would supervise the manner in which the inquiry is conducted.
Regulating liability of the investigators and interim managing or supervisory directors
- Investigators or other persons appointed by the Enterprise Chamber (such as an interim director) who are held liable for their work in that capacity will be able to recover the costs of their defence from the company which is the subject of the inquiry.
Proposed notification requirements for cash-settled instruments – mandatory public offer
The pending Bill on notification of certain cash-settled instruments introduces notification requirements for holders of financial instruments where the increase in value of the instruments is partly dependent on the increase in value of the underlying shares or related dividends. Examples are contracts for difference and total equity return swaps.
During the discussion in parliament about the Bill the question arose whether the Dutch rules on mandatory public offers also extend to the cash-settled instruments referred to in the Bill. Under Dutch law, a mandatory public offer must be made if at least 30% of the voting rights at the AGM can be exercised.
In his response, the Minister of Finance indicated that the financial instruments referred to in the Bill concern potential voting rights, which do not fall within the scope of the mandatory public offer rules. The Minister did, however, say that potential voting rights will be incorporated into the transparency provisions of the FMSA Decree on Public Offers, so that an insight can be obtained into the (potential) stakes held by the bidder and the target. Under the planned amendments, the bidder and target company will both have to periodically notify their stakes in certain cash-settled instruments.
Bill on revision and claw back of bonuses - value increase of executive shares during takeovers
This pending Bill has been amended to include a provision on freezing the value of executive shares or options during takeovers. When a listed company is being taken over, an assessment must be made whether the value of company shares or options held by an executive director has risen. If this is the case, the director will have to pay the increase in value to the company.
For takeover situations the Bill already provided for revision by the supervisory board of executive bonuses (to an appropriate level) and claw back of a bonus if payment took place on the basis of incorrect information.
Government withdraws Bill on Dutch partnerships
The Minister of Security and Justice recently informed the First Chamber of the Dutch parliament of his intention to withdraw the Bill on partnerships. The Bill was approved by the Second Chamber at the end of 2009.
The decision to withdraw the Bill followed a critical report by a First Chamber committee and comments made by business organisations that the new regime for partnerships would not offer sufficient flexibility to existing (general) partnerships and lead to unnecessary expenses. According to the Minister, the Bill falls short of fulfilling its principal objective of facilitating business.
Second Chamber approves implementation of Bill aimed at simplifying and extending flexibility of private company law
In addition to transitional and tax provisions, the proposed implementation bill also makes a few substantive changes to the original bill on simplification and greater flexibility of private company law.
One of these changes concerns payment of interim dividend, for example in the situation of a group company. In the original bill, the decision to pay dividend payments was linked to the most recently adopted annual accounts. This link has now been removed. The company can decide which document will form the basis for considering the dividend payment.
The debate on the implementation bill has also addressed the managing board's assessment when paying dividends. The key is what the managing board knows or ought to know at the time of payment; the managing board can be expected to look no more than one year ahead where it concerns information that should be part of its decision to pay dividend. If the company decides that the books show sufficient shareholders' equity for a dividend payment, the dividend test has been met and no external experts need to be involved
The bill will next be discussed in the First Chamber.
Bill submitted implementing amended Prospectus Directive
A bill implementing the amended Prospectus Directive has been submitted to the Second Chamber. The bill contains changes which will reduce unnecessary burdens and offer greater consumer protection. The bill tightens the requirements for the prospectus summary. Furthermore, the prospectus will have to be made available in hard copy as well as in digital format on a website.
CASE LAW
Supreme Court ruling on admissibility of corporate inquiry request
If two parties jointly request the Enterprise Chamber to order a corporate inquiry and one subsequently withdraws, the request cannot be allowed if the remaining party does not individually meet the threshold for admissibility. The Supreme Court recently ruled on this issue on appeal. It based its ruling on the grounds that corporate inquiry proceedings place a burden on the company and its business and that there should therefore be a minimum support for the request (number of shares held).
OTHER
Ministers give views on accountancy and supervision of financial reporting
In a letter to the Second Chamber, the Minister of Finance and the Minister of Security and Justice have proposed a number of changes to improve supervision of financial reporting:
- extend the period during which the AFM can investigate before starting proceedings for revision of annual accounts from six to nine months after adoption of the annual accounts. This change took effect on 1 July 2011 as part of the Financial Markets Amendment Act 2010.
- enable the AFM to enforce a recommendation via the Enterprise Chamber if it is insufficiently implemented by a company
- for exceptional situations, allow exchange of information between different supervisory departments within the AFM
The letter also addresses developments in the supervision of accountancy firms. The AFM has responded positively to the Ministers' views.
AFM publishes considerations for financial reporting 2011
The AFM has started a number of regular reviews of the annual reporting by listed companies for 2010. A number of items for consideration have emerged from these reviews:
- in the valuation of financial instruments of companies and business segments, there should be more attention to assumptions why the application of going concern is justified and how the fair value of investments has been determined
- key assumptions about the future and other major sources of uncertainties about estimates should be disclosed
- the methods and key assumptions used in determining the fair value of investment properties should be disclosed
Eumedion evaluates shareholder engagement
Representative organisation Eumedion has reported in its annual review of shareholders voting behaviour that the number of votes exercised at AGMs of listed companies has risen from 50% to 60%. For the first time since 2009, shareholders also exercised their right to have items placed on the agenda. The review also shows that auditors are becoming more critical; more than in previous years, they comment on the annual accounts in the auditor's statement.
In a set of ten best practices, Eumedion has provided its participants with tools for engaged ownership of shares.
Banking Code Monitoring Commission and Dutch Central Bank report on remuneration policy
The Banking Code Monitoring Commission and the Dutch Central Bank (DNB) have reviewed the remuneration policy of financial institutions.
The Commission has published an interim report on implementation of the Banking Code remuneration principles. As part of its report on implementation of the entire Banking Code to be published in December 2011, the Commission will address the relationship between remuneration policy and both risk management and the customer's position.
In the interim report the Commission concludes that with regard to remuneration there is a good level of implementation of the Banking Code, particularly at larger Dutch banks. Areas of improvement are compliance with the Code by subsidiaries of smaller foreign banks and the fairly large group of 600 people worldwide in non-executive positions at larger Dutch banks who are paid more in variable remuneration than the "100% standard" (100% of the annual fixed income).
DNB's review was focused on variable pay at large banks and insurers. DNB's assessment is based on the DNB Regulation on Controlled Remuneration Policy, which took effect on 1 January 2011. In contrast with the Banking Code (and Insurance Code), which allow derogation subject to comply or explain, the Regulation is binding. DNB concludes that considerable progress has been made in the degree of compliance by banks and insurers compared to a review carried out early 2011.
Interim report on implementation of the Banking Code remuneration principles
EUROPE
Response to consultation concerning European corporate governance framework
The Dutch government and various market parties have responded to the European Commission's consultation on a European corporate governance framework. The consultation closed on 22 July 2011.
In its response, the Dutch government underlines that as long as corporate governance issues can be addressed at member state level, this should remain the basic principle. European rules are more appropriate where cross-border issues are involved, such as provision of information to foreign shareholders, cross-border merger and transfer of registered office. The main elements of the Dutch government's response are:
European regulation or further investigation is necessary
- for identification of shareholders
- for cross-border transfer of registered office
- into whether European initiatives on the position of proxy advisers are needed
- into the concept of "acting in concert" with regard to public offers
No European rules are necessary for
- corporate governance of non-listed companies
- diversity on the supervisory board
- employee ownership of shares
Several market parties such as EuropeanIssuers, Eumedion and VEUO have also submitted their positions. The European Commission expects to report on the outcome of the consultation in the autumn of 2011.
ESMA calls for evidence on empty voting
The European Securities and Markets Authority has asked market parties to collect information and evidence on the extent to which empty voting practices exist in practice and the effect of such practices. On the basis of these findings, ESMA will assess whether there is a need for further action on empty voting. The closing date for submissions is 25 November 2011.
ESMA call for evidence on empty voting
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