The Dutch Enterprise Section surrenders its monopoly

In the Netherlands the Enterprise Section is a special part of the Amsterdam Court of Appeal which has far-reaching powers to take action within legal entities within a very short period of time. After thirty years the Enterprise Section has surrendered its monopoly to grant immediate relief. As of now, ordinary judges may also suspend directors, appoint temporary supervisory and other directors and make it mandatory for shareholders to transfer their shares to an administrator temporarily. The Enterprise Section decided this in a judgment on 7 March 2023.

For many years now it has been possible to apply to the Enterprise Section to arrange for an investigation to be conducted into mismanagement in the case of a legal entity. It was only after the introduction of immediate relief in 1993 that inquiry proceedings became more popular. There appeared to be a great demand for immediate intervention in the case of wrongdoing within legal entities, such as private and public companies with limited liability. During the period from 2008 to 2021 the Enterprise Section granted 305 applications in the case of a legal entity and appointed 257 supervisory or other directors by way of immediate relief. A recent example is Sanderink’s (a well-known businessman in the Netherlands) suspension in the case of his company, Centric, which involved the appointment of two temporary directors and him being required to place his shares under temporary administration.

‘Nevertheless, there was a loophole, according to Harke Plas, a lawyer and partner with De Advocaten van Van Riet, who elicited the ruling from the Enterprise Section. A shareholder may not be compelled to sell their shares in inquiry proceedings. Neither may a shareholder require that they be bought out in inquiry proceedings. Dispute resolution proceedings need to be conducted before an ordinary court of law for such an expulsion or buyout. It is now clear from the ruling handed down by the Enterprise Section, that an ordinary court of law can also address urgent problems in this respect, for example, by appointing a temporary director or by placing shares under administration throughout the course of any dispute resolution proceedings. According to Plas, it may be concluded from the numerous positive responses to the ruling – a LinkedIn post was viewed in the Netherlands more than 42,000 times within a brief period of time – the popularity of dispute resolution proceedings will probably increase strongly.

The decision also offers a solution in the case of small and medium-sized enterprises. The costs involved in inquiry proceedings are relatively high in the case of small and medium-sized enterprises. It is for this reason that the Enterprise Section and any officials whom it appoints often exert a great deal of pressure to reach an amicable settlement. According to Plas, there is a problem in this respect in that in many cases a shareholder finds themself in difficulty due to an unreasonable fellow shareholder who is also a director. ‘If a great deal of expenses are incurred and considerable pressure is exerted in such a situation, a shareholder who finds themself in difficulty is often disproportionately prejudiced as a result.’ Thanks to this ruling the SMEs have an alternative in the form of access to a more affordable ordinary court, thereby making it possible to create a fairer level playing field.’

Apart from these advantages, there is also a disadvantage. The Enterprise Section is renowned for its legal and business expertise. Ordinary courts of law have much less expertise. Already understaffed however, the judicial powers will need to find solutions for this at the local level.