A new bill will take effect on 1 May 2021 allowing the management board of a Dutch listed company a statutory 250-day timeout (more often referred to as “statutory response time”). The bill was adopted by the Senate on 23 March 2021. In this article, we give an outline of its functionalities and impact.
The statutory response time may be invoked if shareholders request a change to the composition of the company’s boards or of corresponding provisions in the articles of association, and in the case of an unsolicited public offer. This gives the management board the time and opportunity to identify and weigh the interests of the company and its stakeholders and to decide on the way forward. The bill also codifies the management board’s authority to determine the company’s strategy.
The bill was introduced in response to the ongoing public debate in the Netherlands on protecting Dutch companies against shareholder activism and hostile takeover attempts. The issue was revived following unsolicited attempts to take over AkzoNobel and Unilever. With the bill, the Dutch government aims to give management boards more room and time to consider the effect that a fundamental strategy change brought about by shareholders or a public offer may have on the company and all of its stakeholders.
A number of parties have criticised the bill and have questioned its necessity. In their view, listed companies have sufficient instruments available to respond to shareholder activism and hostile takeovers, and the bill could have a negative impact on the business climate in the Netherlands. Despite this criticism, the bill was approved by the Dutch legislature.
The bill applies to Dutch NVs and BVs with shares or depositary receipts listed on a stock exchange or on a multilateral trading facility, in or outside the EU.
The management board can invoke the statutory response time if:
The management board may only invoke the statutory response time if it considers the shareholders’ request or the offer, to materially go against the interests of the company and its affiliated enterprises. This requires a reasoned management board decision that has been approved by the supervisory board, if there is one.
The bill equates depositary receipts holders with shareholders and stipulates that for companies with a one-tier board structure, the management board’s powers and duties vest in the board as a whole.
The statutory response time can be no more than 250 days. When it starts depends on the type of event that the management board is responding to.
In the situations under (1) and (2) above, the clock starts running:
In the case of an unsolicited public offer, the response time starts running no later than one day after the offer was made. It may start earlier if so decided by the management board. However, invoking the response time does not prevent an unsolicited offer from becoming unconditional.
The management board must invoke the statutory response time within a “reasonable timeframe”. Which timeframe is appropriate for the board will depend on the circumstances.
If the management board decides to invoke the response time at a later date than when the clock started running by law, this will shorten the response time it can use. By way of example, if the response time is invoked 30 days after the clock started running, the actual response time that the board can use is 220 days.
Invoking the response time will have the following consequences for the management board, the company and its stakeholders:
Invoking the response time as well as discussing related topics in conversations with stakeholders as mentioned above, may qualify as inside information. This should be given due and careful consideration at the time.
The response time ends once the 250 days have lapsed (see above on when the clock starts running) or earlier if the management board so decides. This latter decision requires supervisory board approval. If invoked in relation to an unsolicited public offer, the response time also ends automatically on the day after the public offer is declared unconditional.
Under the bill, shareholders that are, at the time the response time is invoked, individually or jointly entitled to request agenda items for general meetings, may initiate special court proceedings before the Dutch Enterprise Chamber to terminate the response time.
The Enterprise Chamber must honour this termination request if:
The third ground aims to avoid an accumulation of active response measures. It will ultimately be up to the court to decide what qualifies as a response measure and whether the decision to invoke another response measure is incompatible with the statutory response time.
Although the bill focuses on the right to invoke a response time, it also contains another important element for Dutch listed companies, as it codifies the management board’s authority to determine the company’s strategy. This statutory primacy is expected to allow a stronger focus by the management board on long-term value creation and leaves more room for a broader stakeholder approach.
The statutory response time widens the management board’s range of possible actions when confronted with specific shareholder activism or an unsolicited public offer. It allows boards to stabilise the situation and to take more time to weigh the interests of the company and all those concerned with it, engage with stakeholders, and explore alternatives. In practice, we expect the response time mainly to add value in situations where shareholders seek a change in the board’s composition, and to have a predominantly symbolic effect in unsolicited public offer situations. The mere option for the management board to invoke a response time may shift the actual balance of powers in discussions with active shareholders or potential bidders. All in all, the bill supports the management board in its responsibility for carrying out the company’s strategy and creating long-term value, and it adds legal certainty and a clear process.
When a new bill takes effect, this can always give rise to questions. We answer a few potential questions about the statutory response time below.
What is the difference between the statutory response time and the response time set out in best practice provisions 4.1.6 and 4.1.7 of the Dutch Corporate Governance Code (Code response time)?
Will there be a conflict of interest when invoking the statutory response time?
A board member will not automatically have a conflict of interest when invoking the response time in relation to a shareholder request to suspend or dismiss a board member. But the question does arise for each board member whether he/she can serve the company’s interests in an unbiased manner when participating in the discussions and the decision-making process (regarding the statutory response time being invoked). This will need to be carefully considered at the time that board(s) consider(s) invoking the response time.
Can a company waive the right to invoke the statutory response time?
The articles of association of a company can include the so-called “no frustration rule”, which stipulates that the boards must refrain from actions that may frustrate the successful pursuit of a public offer, unless those actions are approved by the general meeting. In such case, the company cannot invoke the statutory response time. Companies cannot include a waiver of the right to invoke the response time in their articles of association, as the response time is a mandatory power of the management board.
Will invoking the response time be the only measure a management board can take in the above situations?
The response time is additional to other statutory powers and responsibilities of the management board, and there is also the possibility of activating company-specific response measures. The best strategy to pursue requires a thorough assessment of the given situation and the response measures available.
If you have any further questions about the bill, please reach out to your De Brauw client team or to one of our corporate advisory experts.
Although not directly related to the contents of the bill, two motions were accepted during the parliamentary proceedings:
New developments in the context of these motions can be expected. We will of course keep you informed on these.
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