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Inquiry proceedings before the Enterprise Court

Dutch law sets out special proceedings for the settlement of disputes within companies, such as a conflict between shareholders, an impasse in the decision-making or mismanagement by managing directors, known as inquiry proceedings. The aim of inquiry proceedings is to repair relationships within companies.

The inquiry proceedings

Inquiry proceedings take their name from the inquiry on which they are based. Inquiry proceedings are conducted before the Enterprise Court at the Amsterdam Court of Appeal (known in Dutch as the Ondernemingskamer), a specialised chamber of the Court of Appeal. The Enterprise Court almost exclusively conducts inquiry proceedings.

Major inquiry proceedings, or rather inquiry proceedings involving major corporations, often attract a great deal of news coverage. A few recent examples are the fraud investigation at Ahold, the investigation of the course of events surrounding the sale of LaSalle by ABN, and more recently the TMG bidding contest between Talpa and Mediahuis.

It is less widely known – and wrongly so – that the Enterprise Court also handles many cases involving smaller businesses. Inquiry proceedings are a very effective tool, for instance in the case of disputes regarding the cooperation. The reason for this is that the Enterprise Court has extensive powers to repair and restore relationships, such as the removal from office or appointment of managing directors and the reversal of decisions. And the Enterprise Court does not shy away from exercising those powers. Inquiry proceedings and the procedure involved are addressed in more detail below.

Two phases

Inquiry proceedings consist of two phases. During the first phase a request to conduct an inquiry may be filed. If an inquiry is then performed and mismanagement is established, the Enterprise Court can be requested to take measures in the second phase.

First phase

Inquiry proceedings always relate to on the policy and course of events within a company or legal entity. They thereby differ from “ordinary” court proceedings, which usually relate to monetary claims. But the Enterprise Court does not have jurisdiction in disputes related to property law.

A request to conduct an inquiry into the policy and course of events at a legal entity may be made by certain interested parties designated by law. An inquiry at a public or private limited liability company (B.V. or N.V.), for instance, may be requested by the shareholders if they jointly hold 10% or more of the shares. Depositary receipt holders, the management board and the company itself may also request an inquiry.

If a shareholder in a public limited liability company requests the Enterprise Court to perform an inquiry (which is the customary procedure), that shareholder must first have informed the management board and the supervisory board in writing of his objections to the policy or course of events. That is known as a letter of objection. A reasonable period must be set in which to comply.

The Enterprise Court will order an inquiry if it has good reason to doubt a correct policy. In urgent cases, if it has such good reason, the Enterprise Court may also grant “immediate relief” for the duration of the proceedings, such as the suspension of managing directors and the temporary suspension of the shareholders’ voting right.

If the Enterprise Court orders an inquiry, an investigator is appointed. That investigator may inspect records and computers, etc., and has a duty of confidentiality. The costs of the inquiry are usually payable by the legal entity. The investigator files a report, which signals the end of the first phase of the inquiry proceedings.

Second phase

If the investigation report demonstrates mismanagement, the applicant (or sometimes another party) may request the Enterprise Court to grant relief, such as the reversal of decisions, the removal from office of managing directors or the setting aside of the articles of association. As an ultimate remedy, the Enterprise Court may even decide to wind up the legal entity.

Inquiry proceedings are not always conducted from beginning to end. The parties often settle during the proceedings, with the help of the Enterprise Court, for instance by one shareholder buying out the other.

For more information on the resolution of disputes within a company, please contact our Corporate Law practice group.