12 October 2017

New Dutch government extends response time for listed companies

The wide public debate on the use of response measures in the Netherlands has found its way into the coalition agreement that was reached Tuesday, 10 October 2017. The coalition agreement states that the new government will take measures to shift the influence away from activist shareholders focused on short-term value creation to shareholders and other stakeholders that benefit from long-term value creation.

Two specific measures for listed companies are mentioned:

  • introducing a response time of no more than 250 days that the company can invoke when faced with activist shareholders proposing fundamental changes to the company’s strategy; and
  • if the company’s annual turnover exceeds EUR 750 million, allowing it to ask shareholders holding more than 1% to register with the Dutch Authority for the Financial Markets (AFM).

For an overview of the tax measures in the coalition agreement – including the abolition of Dutch dividend withholding tax – see yesterday’s Legal alert.

250-day response time
The coalition will create a statutory basis for the response time mechanism that is currently part of the Corporate Governance Code. Listed companies can invoke the response time when faced with shareholders proposing items for the general meeting agenda that entail fundamental changes to the company’s strategy. The company should use the response time to account to its shareholders for the current strategy and to engage with all stakeholders.

The bill to be prepared by the new government will include further details of the proposal. In addition the legislation is expected to include clarification on certain topics, including two statements in the coalition agreement:

  • The company cannot invoke the response time if this interferes with the movement of capital. The coalition agreement does not clarify this exception.
  • The response time cannot be combined with response measures that are available to the company, such as the issue of preference or priority shares. The implications of this statement require further detailing.

Registration of >1% shareholders
The coalition’s plans effectively allow listed companies to lower the current 3% registration threshold to 1%. This will enhance transparency.

Vital sectors
The coalition agreement announces specific protection for companies in vital sectors. Acquisitions of designated companies in those sectors will require approval or other appropriate safeguards. The bill to be prepared by the new government will need to provide further details.

Click here to download a pdf of this Legal alert.