AkzoNobel vs. Elliott: shareholders’ wishes vs. management authority

A group of shareholders, including Elliott Advisors, was not satisfied that the Dutch AkzoNobel rejected the takeover proposals from PPG. Elliott Advisors tried to get a foot in the door through the Amsterdam Enterprise Chamber [Ondernemingskamer]. What was going on here exactly?

It has recently been reported that AkzoNobel won the case against Elliott International before the Amsterdam Enterprise Chamber. The lawsuit was based on the takeover proposals from PPG, which were rejected by AkzoNobel’s board of directors. A number of shareholders, including Elliott International, were not happy about that.

This is why Elliott Advisors initially asked to convene an extraordinary meeting of shareholders to vote on the dismissal of chairman Mr Burgmans. When this meeting was not convened, Elliott Advisors asked the Amsterdam Enterprise Chamber to compel AkzoNobel to convene the extraordinary meeting and to appoint a ‘super-commissioner’ holding the casting vote in order to supervise the procedure with regard to this extraordinary meeting.

Order of the Amsterdam Enterprise Chamber
The law prescribes that in an NV, one or more shareholders holding jointly at least 10 percent of the shares may request that an extraordinary meeting of shareholders is convened. In a BV, this is 1 percent. Lower thresholds may be laid down in the articles of association. If a convening is requested, an extraordinary meeting must in principle be convened. For the BV, however, the law prescribes that no extraordinary meeting needs to be convened if there is a compelling reason of the company for not doing so.

If no extraordinary meeting is convened in time (in the case of the BV in such a way that the extraordinary meeting takes place within four weeks after the request, and with the NV within six weeks, or eight weeks if a listed NV is concerned), a substitute authorization may be requested from the provisional relief court. In its ruling, the Amsterdam Enterprise Chamber also advised this possibility. The provisional relief court will allow the request if the said conditions are met and the applicant has a reasonable interest.

Not enough shares
It is striking that on 10 April 2017, Elliott International requested the convening of an extraordinary meeting, but subsequently did not request a substitute authorization from the provisional relief court. Instead, Elliott International requested the Amsterdam Enterprise Chamber, in the context of an application for an investigation, to compel AkzoNobel to convene an extraordinary meeting as an immediate measure.

The reason for this seems to be that Elliott International does not hold enough shares to apply to the provisional relief court (according to the ruling of the Amsterdam Enterprise Chamber, Elliott International holds approximately 4.89 percent of the shares in AkzoNobel), but together with The Liverpool Limited Partnership it holds enough shares to apply for an investigation. It follows from the ruling of the Amsterdam Enterprise Chamber that the alternative route chosen by Elliott International is possible, if at least the conditions for taking immediate measures are met.

An interesting question is for that matter why Elliott International has requested an order to convene an extraordinary meeting, having as item on the agenda the dismissal of chairman Mr Burgmans. If the Amsterdam Enterprise Chamber believes that “in view of the interests of the legal entity and those being involved in its organization under the law and the articles of association”, immediate measures are necessary, it may take all these measures if it finds these necessary “in connection with the situation of the legal entity or the interest of the investigation”. Even if the legal relationships in force within the company are therewith infringed or temporarily infringed. Therefore, Elliott International could have simply requested a suspension of chairman Mr Burgmans, without the interim step of an extraordinary meeting.

The board of directors manages the company
In its ruling, the Amsterdam Enterprise Chamber did not take a position on whether in its opinion, there were reasons to doubt “a correct policy or a correct course of affairs” in AkzoNobel, which would be necessary to order an application for an investigation. When assessing the requested immediate measures, however, it considered the allocation of duties within the company.

Hardly surprisingly, the Amsterdam Enterprise Chamber stated first and foremost that the board of directors manages the company, under the supervision of the supervisory board. In principle, the board of directors and the supervisory board are only accountable to the general meeting. More specifically, the Amsterdam Enterprise Chamber considered that assessing PPG’s proposals was a decision of the board of directors and that it has not appeared that the board did not do so carefully.

By extension, the Amsterdam Enterprise Chamber ruled that no extraordinary meeting needed to be convened, which was obviously meant to put the accountability forward and to control AkzoNobel’s strategy. The Amsterdam Enterprise Chamber was obviously of the opinion that Elliott International did not have a “reasonable interest” in this. This is also relevant for B.V.s and non –listed N.V.s which are confronted with shareholders wanting to interfere too much with the company’s policy.

Should the above give rise to any questions, please contact mr. J.A.J. (Joop) Werner.

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