Summary and conclusions

The right of inquiry as incorporated in Section 2, Title 8, Book 2 of the Dutch Civil Code is a heavy weapon. It makes it possible to conduct an investigation (here: inquiry) into the policies and course of events of a legal entity such as a public or private limited company (NV or BV). The Enterprise Court may order an inquiry if there are serious reservations about the company’s policy or day-to-day affairs. So there must be indications that ‘something is wrong’ at the company. The Enterprise Court has substantial liberty in its assessment of the situation. If it approves the request for an inquiry, it can intervene in the company and its operations by taking immediate relief measures. The possibilities that the Enterprise Court has in this regard are extensive. It can take any measure that it considers necessary to address the situation at the company or to facilitate the inquiry. In practice, these immediate remedies can likewise have far-reaching and even permanent consequences. The Enterprise Court can even order immediate relief before the request for an inquiry is decided on. In case of proven mismanagement, it can furthermore intervene by taking specific final remedies that are identified in the law. The ultimate measure is the dissolution of the legal entity (Art. 2:356 sub f of the Civil Code).

Since the right of inquiry is such a heavy measure, not every person who is associated with the company has the right to request an inquiry. Ever since the introduction of the right of inquiry in 1928 there has been a link between the far-reaching consequences of an inquiry and the limited access to the right of inquiry. The explanatory memorandum to the legislative amendment of 1971 acknowledges that an inquiry is onerous as it can discredit or compromise the company involved. Aside from the consequences in terms of bad publicity, there are the costs, the time involved, and the impact on the decision-making process and business operations. The idea that access to the right of inquiry must not be too easy is reiterated in the changes to the right of inquiry in 1994 and 2013. In the legal amendment of 2013 this led to adjustment of the capital requirements for ‘large’ companies. The legislature considered a 10% threshold for such companies too high and the threshold of €225,000 nominal capital too low. The limited access also serves as starting point in court decisions. It is established case law that Article 2:346 of the Civil Code contains a full list of the parties that are authorised to request inquiry proceedings. Nonetheless the Enterprise Court and the Supreme Court have widened the doors to the right of inquiry. Recently it has been accepted that inquiry proceedings are open for two groups that, according to the law, are no longer or not all authorised to request an inquiry. The amendments in the context of revision of the right of inquiry in 2013 have also contributed to greater access to the procedure. Since that time the company itself, represented by its executive or supervisory board, or the trustee in bankruptcy, can submit a request for an inquiry.

The history of the right of inquiry shows a substantial increase over the years in the number of investigations. This can be attributed to the generous and expeditious way in which the Enterprise Court administers justice in procedural and substantive respect. Along with this, the right of inquiry has developed in the hands of the Enterprise Court into a procedure with broad scope, which is used to solve a wide range of disputes that occur within companies and their various units, including disputes that previously were submitted to a regular civil-law judge, sometimes in interim relief proceedings. As investigative actions gained growing importance in the past several decades in company law, the procedural aspect of the inquiry tool received growing attention. This is not surprising. Whoever obtains a right of inquiry has a strong tool to exert influence on the policy and course of events within a legal entity. Furthermore, once an inquiry applicant approaches the Enterprise Court, the parties in the right of inquiry lose grip on their affairs. This is especially due to the fact that inquiry proceedings constitute application proceedings, where the interest of the company has priority. During inquiry proceedings the Enterprise Court and the officials it has appointed in effect exercise control over the company.

The change in the law in 2013 leads to various legal questions. Aside from this, the case law of the Enterprise Court and the Supreme Court regarding access to the right of inquiry is not always clear. Against this background the question of who has access to the right of inquiry and who should have such access becomes eminent. All of this justifies analysis of the access to the right of inquiry with a view to its purpose and intent.

This study focuses on the requirements for access to the right of inquiry, and on the related bottlenecks, obscurities, pros and cons and possible gaps. It includes a full analysis of the access to the right of inquiry under current and desired law.

The study was concluded on or around 15 June 2018.

In its Ogem ruling the Supreme Court identified, with an appeal to legislative history and in line with the opinion of Advocate-General Mok, three objectives of the right of inquiry: (i) restructuring, (ii) disclosure of the course of events, and (iii) determination of who is responsible for possible mismanagement. These are the explicit objectives of the right of inquiry. This list of objectives has, in my opinion, not grown in recent case law. The preventive effect is not an objective of the right of inquiry per se but a possible consequence of the right of inquiry that the legislators were happy with.

‘The essence of the right of inquiry’ as a concept pertains to the question what interests the right of inquiry is meant to (or better: should) protect. This protection consists of obtaining insight into the course of events, restructuring of the relations and establishing who is responsible for possible mismanagement (the objectives). The essence of the right of inquiry I therefore describe as protection of the interests of capital providers and employees, as well as of the company itself, against improper entrepreneurship (mismanagement). The right of inquiry is intended to promote the principles of good entrepreneurship. This comes to light in the inquiry authority of the Advocate-General (hereafter: A-G) at the court of appeal, who can request an investigation if the public interest calls for this (Art. 2:345, section 2, Civil Code). Where necessary, the right of inquiry can serve as a medicine to heal malpractices within the company. The heaviest drug that can be prescribed would be the winding down of the company (Art. 2:356 sub f, Civil Code).

The objectives and the essence of the right of inquiry are the general starting point of this study. In addition, I address in detail by chapter the legislative history of a party with right of inquiry, to gain insight into the intentions of the lawmakers. Together with the objectives and the essence of the right of inquiry, this represents the context within which I analyse the access to the right of inquiry of a specific party. In this analysis I consistently address the interest of the company not to be burdened by inquiry proceedings because of the consequences in terms of publicity, the costs and time involved, and the impact on the decision-making process and the business operations.

Since 1928, when the first inquiry regulation was adopted, shareholders have the right to call for an inquiry. They provide the venture capital of a company and thus have the possibility to protect that interest through insight into the course of events, determination of who is responsible for possible mismanagement, restructuring of relations and the preventive effect of the right of inquiry. Holders of depositary receipts provide venture capital, same as the shareholders. This equality in terms of capital is the reason why depositary receipt holders have the right to inquiry, same as shareholders, since 1971. What I write in § 3.1 about shareholders applies correspondingly to depositary receipt holders and is thus discussed jointly below. In § 3.2I discuss various subjects that pertain to the relation between holders of depositary receipts and the trust office.

In general it is clear who qualifies as a shareholder or a holder of depositary receipts and thus meets the capital requirements. Nonetheless, questions arise in certain situations regarding their access to the right of inquiry.

Not every shareholder can ask for an inquiry. In Art. 2:346 section 1 (b and c) of the Civil Code, it is determined that a shareholder must provide a certain minimum of the issued capital to have a cause of action. In the most recent revision of the right of inquiry, in 2013, the capital requirements were changed. The intention is that only shareholders who have a sufficiently substantial equity interest in the company may request an inquiry. For the admissibility of shareholders a distinction is therefore made between companies with issued share capital of €22.5 million or less and companies with issued share capital of more than €22.5 million. This distinction also applies for listed companies.

For shareholders of listed companies the above means that the market value threshold of €20 million only applies if the issued capital of their company has a nominal value of more than €22.5 million. In practice, however, the issued capital of more than half of all listed companies is less than €22.5 million, meaning that shareholders of these listed companies cannot make use of the (lower) 1% threshold or the €20 million market value threshold. For access to the right of inquiry they are dependent on the (higher) 10% threshold and the €225,000 nominal capital threshold capital of Art. 2:346 section 1 (b) of the Civil Code. Access to the right of inquiry is thus quite limited for the shareholders of more than half of the listed companies. This outcome clearly impairs the rationale behind the capital requirements. The amount of issued capital is, in my opinion, not a useful criterion for access to the right of inquiry for listed companies. My recommendation would be to include in Art. 2:346 of the Civil Code an ‘own’ admissibility basis for listed companies, where the 1% threshold and the €20 million market value threshold would apply for all listed companies.4

When shares (or depositary receipts) constitute part of a community, then each beneficiary is separately authorised to submit a request for an inquiry. Whether the beneficiary acts in the capacity of holder of the shares or depositary receipts that constitute part of the community is not relevant, but instead whether the holder qualifies as beneficial owner of the shares or depositary receipts. It has been noted that a beneficiary in an estate or (dissolved) matrimonial property which the shares or depositary receipts constitute part of, meets this qualification.5

For shares or depositary receipts that constitute part of a community under the Securities (Bank Giro Transactions) Act, the Act prescribes that the right of inquiry is accorded to every beneficiary, provided that the beneficiary’s interest in the collective deposit meets the capital requirements of Art. 2:346 section 1 (b or c) of the Civil Code. This starting point links up with the fact that beneficiaries are individually or jointly entitled to the shares or depositary receipts. If the shares are included in a foreign bank giro transactions system, then the Act does not apply. The Enterprise Court must then assess whether the holders of these shares qualify as beneficial owners. Whether this is the case depends on the law that applies for the specific foreign bank giro transactions system.6

For holders of foreign instruments such as depositary receipts (ADRs and GDRs) I consider it quite arguable that their interest can be considered equal to that of Dutch depositary receipt holders; as such they have the right of inquiry.7

If a corporate shareholder (parent company) is bankrupt, then the right of inquiry regarding a subsidiary lies strictly with the trustee of the parent company. Submitting a request to hold an inquiry represents an act of management with regard to an asset of the insolvent estate of the parent company (the shares in the subsidiary), which authority only the trustee has. The parent company itself (represented by its executive board) is not authorised thereto. Nonetheless there are various ways to circumvent the trustee’s exclusive right of inquiry at a bankrupt parent company with regard to the subsidiary.8

The circumstance that a shareholder (or depositary receipt holder) has committed, at the time of submission of the request for an inquiry, to transfer his shares (or depositary receipts) or is ordered to do so does not affect his right to request an inquiry. In the special case that the applicant transfers his interest after the submission of the request for an inquiry, the Enterprise Court should in my opinion take into account the reduction of the interest when assessing the interest that the applicant has in the request for an inquiry as defined by Art. 3:303 of the Civil Code and in the weighing of interests when assessing the sustainability of the request for an inquiry.9 The moment of submission of the request for an inquiry is therefore, in my opinion, the only reference moment for admissibility. I will come back on this in my discussion of the reference moment for admissibility.

An adjoining category involves situations where the applicant does not meet the capital requirement before the submission of the request for an inquiry, as a result of dilution of the applicant’s equity interest. An issue of shares prior to the inquiry request, which results in the interest of the applicant falling below the capital requirement, does not lead to inadmissibility provided that the request also relates to the issue and that the applicant asserts that there are clear reasons to question whether the issue is based on correct policy. The initial cause of the dilution of the equity interest must then, in my opinion, lie outside the sphere of influence of the request for there to be a right of inquiry. The essence of the right of inquiry then implies that a minority shareholder (or depositary receipt holder) is authorised to ask for an inquiry. Otherwise, application of the right of inquiry would become illusory in these situations. In short, if there is serious reason to doubt the rationale for a share issue, then dilution of the equity interest below the capital requirement does not obstruct the right to call for an inquiry.10

Analogous to this approach, the right of inquiry accrues to dispossessed shareholders.11 This does not mean that the door to the right of inquiry is wide open to former shareholders. Here the same two restrictions apply. The initial cause of the loss of shareholdership must lie outside the sphere of influence of the requesting former shareholder. In addition, the request to hold an inquiry must pertain to the policy and course of events that led, directly or indirectly, to the capital requirement no longer being met. After all, involuntary loss of shareholdership does not happen just like that. Usually it results from problems within the company. The request must therefore logically relate, among other things, to those issues. The Enterprise Court must consistently apply these two restrictive conditions, while considering the specific circumstances of the case in question.12

Generally speaking, the above means that, when a capital provider no longer meets the access threshold due to a specific event, this does not obstruct his admissibility so long as his request also applies to that event, and so long as the applicant claims that there are sound reasons to doubt the correctness of policy pertaining to the event. The applicant must furthermore make it plausible that the event lies outside his sphere of influence. The Enterprise Court will need to examine during the oral hearing of the request for an inquiry whether these two restrictive conditions have been met. This applies all the more when they are argued against. If it turns out that there is no reasonable ground for the correctness of these assertions, then the Enterprise Court cannot honour these, so that it will declare the request to hold an inquiry inadmissible. In such case the Enterprise Court cannot attend to the rest of the improperly submitted request for an inquiry. If the weighted obligation to furnish facts has been met in the opinion of the Enterprise Court, then the applicant does have a case.

Chapter 3 also addressed the question when a beneficial owner of shares or depositary receipts has a right to call for an inquiry. The conditions for access to the right of inquiry of a beneficial owner are summarised there.13 The right of inquiry is accorded to a provider of venture capital, in other words the party at whose risk and expense the shares or depositary receipts are held, if and insofar as such party’s interest can be equated with the interest of a shareholder or depositary receipt holder. To this end the applicant must demonstrate (1) that the shares or depositary receipts of the company as to which a petition is filed are held for his risk and expense, and (2) that he has a right of action or proprietary right with regard to the proceeds and/or the share or depositary receipt. These two elements ensure that the shareholder and depositary receipt holder as referred to in Art. 2:346 of the Civil Code remain sufficiently in sight.14 In that way the two elements also serve to restrict any substantial increase of access to the right of inquiry for holders of beneficial interests who cannot be regarded as providers of venture capital. The elements thus ensure that the balance does not tilt too far to the detriment of the company. Any party whose beneficial interest does not meet the above two elements has in my opinion – considering the essence of the right of inquiry – no right to disclosure of the course of events, determination of responsibility for possible mismanagement and restructure of relations.

The above raises the question whether it would be better to replace the terms shareholder and depositary receipt holder in Art. 2:346 of the Civil Code with the term “the party with an interest in the company as capital provider”. I believe that this question should be answered negatively, in the first place because the terms shareholder and depositary receipt holder are clear and easy to apply in practice. After all, in most cases venture capital is provided by holding shares or depositary receipts. If this term were to be incorporated in the law, then shareholders or depositary receipt holders would unnecessarily need to substantiate their beneficial interest when claiming the right of inquiry. Secondly, amendment of the law would not change or clarify the test that the Enterprise Court needs to make. The Enterprise Court must in that case still examine whether the interest of the applicant is identical to the interest of the provider of venture capital, which depends on the circumstances. Lastly, a trust office – eminently a shareholder who in a material sense does not provide venture capital – would not be entitled to the right of inquiry.

We have noted that shareholders and depositary receipt holders without a beneficial interest retain their right of inquiry. This does not alter the fact that they do not have sufficient interest in their request to hold an inquiry in the sense of Art. 3:303 of the Civil Code.15 The disadvantages that the company experiences from the fact that different parties can derive a right of inquiry from the same equity interest are limited.16

According to the regulation for usufruct and right of pledge in Book 2 of the Civil Code, pledgees and usufructuaries with voting rights, and in certain cases pledgees and usufructuaries without voting rights, have the right of inquiry. After all, they possess the rights that are granted by law to holders of depositary receipts issued with the company’s cooperation (for public limited companies) or the rights that are granted by law to holders of depositary receipts that provide meeting rights (for private limited companies). The right of inquiry held by pledgees and usufructuaries of shares thus has a clear legal basis (assuming that the capital requirements of Art. 2:346 of the Civil Code are met).17

For pledgees and usufructuaries of shares without depositary receipt holder rights and pledgees of usufructuaries of depositary receipts, the right of inquiry is not directly obvious. Nonetheless they may have a right of inquiry depending on the circumstances. It must be determined for them whether they are providers of venture capital, in other words whether their interest can be equated with that of a shareholder or depositary receipt holder within the meaning of Art. 2:346 of the Civil Code. Pledgees and usufructuaries of shares without depositary receipt holder rights and pledgees and usufructuaries of depositary receipts can, in my opinion, be regarded to have a right of inquiry if the shares or depositary receipts are held for their risk and expense. The circumstance that a pledgee or usufructuary has a full or partial interest in the shares or depositary receipts is always considered in that regard. The right of pledge or usufruct includes in addition a right of claim or proprietary right with regard to the proceeds and/or the underlying share or depositary receipt.

Lenders do not have a legal right of inquiry. Nor can they be regarded on the basis of case law on economic justice as beneficial owners of shares or depositary receipts. I see no need to give lenders their personal legal right of inquiry. A lender, as provider of loan capital, already possesses enough possibilities to gain access to the right of inquiry. For example, a lender who has a right of pledge to shares, who can also exercise the voting right, has by definition a right of inquiry. In addition, a lender with a right of pledge to shares or depositary receipts who does not have depositary receipt holder rights may under specific circumstances have the right of inquiry on the basis of case law regarding economic justice. Furthermore, the right of inquiry may be directly granted to providers of loan capital under the articles of association of the company or by agreement with the company (Art. 2:346 section 1 sub e, Civil Code). Based on this article, a credit provider may include the right of inquiry on a standard basis in term sheets, loan agreements, general terms and conditions, and deeds of pledge so long as the borrowing company is party to this.20 Lastly, a lender can exert influence even without the right of inquiry on inquiry proceedings that are already ongoing if he can be regarded as stakeholder.

Shareholders and depositary receipt holders, beneficial owners of shares or depositary receipts, and pledgees or usufructuaries of shares or depositary receipts must meet the capital requirements of Art. 2:346 section 1 (b or c) of the Civil Code at least at the time of submission of the request. This does not, however, mean that circumstances occurring after the request are disregarded. In such case there are two situations to consider.

In the first situation the inquiry applicants submit the inquiry application jointly, but one of them withdraws his application (or part thereof) before it is considered by the Enterprise Court. The other applicant does not meet the capital requirements. From the Emba verdict by the Supreme Court it can be concluded that the remaining applicant has no cause of action. This strikes me as correct. The date of submission of the application applies as the reference date for admissibility, but this is separate from the question who the reference moment applies to. The Enterprise Court must therefore determine whether the parties whose inquiry application must be assessed meet the capital requirements. The withdrawing applicant does not play any role as applicant anymore at the time when the Enterprise Court decides regarding the admissibility of all relevant applicants. The Enterprise Court can thus only examine the equity interest of the remaining applicant at the time of submission. The reference date for admissibility does not therefore change. All this applies, in my opinion, also for others as defined by Art. 2:355 section 1 of the Civil Code, who jointly submit a second-phase petition.22 Joint action in inquiry proceedings is thus not without risk, which is good. After all, if joint action were to have no consequences, then this possibility could be abused since it would be all too easy to gain access to the right of inquiry.

The second situation involves a decrease of the interest after submission of the application to conduct an inquiry. In its Emba verdict, the Supreme Court seemed to expand the scope of the capital requirement for this type of situation in general versus previous case law. The moment of submission of the inquiry application is no longer the only relevant criterion, but also the period thereafter. The reference date for admissibility is expanded as it were. If external causes lead to decrease of the applicant’s interest after the inquiry application has been submitted, then the applicant continues to have cause of action. The question when a cause is sufficiently external to justify the right of inquiry will need to be determined by the Enterprise Court for each individual case, based on the relevant facts and circumstances.

Contrary to what the Supreme Court appears to indicate, I prefer not to expand the reference date. In the special case that the interest of the applicant decreases after submission of the inquiry application, the Enterprise Court can in my opinion consider the decrease of the interest in its assessment of the interest that the applicant has within the meaning of Art. 3:303 of the Civil Code and in the balancing of interests when judging the admissibility of the request to hold an inquiry. This also serves to satisfy the (undesirable) consequences in terms of judicial procedure described in this study, which expansion of the reference date would involve. The date of submission of the inquiry application must, in my opinion, serve as the only reference date. This also applies for the reference date in the second phase. If others as defined by Art. 2:355 section 1 of the Civil Code submit a second-phase petition, and their interest drops below the capital requirements of Art. 2:346after the submission, then the Enterprise Court can base its rejection of the application on Art. 3:303.24

Shareholders and depositary receipt holders of a parent company can ensure that an investigation of the parent company also covers its policy with regard to its subsidiaries if such is necessary and justified to gain a proper view of the policy and course of events at the parent company and of its policy for the entire group. In such an inquiry only the policy of the bodies of the company as referred to Art. 2:345 section 1 of the Civil Code is examined. This may include the parent company’s policy with regard to a domestic or foreign subsidiary. The inquiry of the parent company then only takes place within the organic scope of the parent company. The subsidiary itself is thus not subject to inquiry. The policy of the subsidiary as such cannot be examined. Therefore, no provisions can be taken with respect to the subsidiary.

Since 2005, shareholders and depositary receipt holders of the parent company are not only authorised to request inquiry into the policy of the parent company with regard to its subsidiaries, but also into the policies and course of events of the subsidiaries themselves. According to the Landis verdict of the Supreme Court, a downward inquiry is possible if the parent company and the subsidiary are so interrelated that (i) an independently determined and conducted management policy of the subsidiary towards the parent company is lacking, so that (2) the policy and course of events of the subsidiary affect the interests of the shareholders (or depositary receipt holders) of the parent company just as much and in equal ways as the policy and course of events of the parent company itself. The decisions by the Enterprise Court after Landis give evidence that there is still little clarity regarding these requirements. The answer to the question under what circumstances a corporate inquiry is possible remains uncertain. This uncertainty is socially undesirable. In my opinion, the legislature must provide clarity in this matter.

In the meantime, in assessing whether an inquiry of a corporate group should be allowed, the greatest weight must in my opinion be assigned to the first circumstance identified by the Supreme Court: the management policy, whether or not this is determined and conducted independent from the parent company. This follows not only from the phrasing used by the Supreme Court itself, but also from the considerations of the Enterprise Court regarding its admission and refusal of corporate inquiries after Landis. What matters in my opinion is that independently determined and conducted management policy is missing at the subsidiary, so that the policy and course of events of such subsidiary impact the interests of the shareholders or depositary receipt holders (beneficial owners) of the parent company just as much and in equal ways as the policy and course of events of the parent company itself. If the parent company fully determines the challenged policy of its subsidiary so that the subsidiary has no independently determined and conducted management policy of its own, then as a result in my opinion the impact requirement is thereby met. In that case the essence of the right of inquiry implies, in my opinion, that a parent company shareholder is also authorised to submit an application for inquiry at the subsidiary.

The right of inquiry is intended to protect the capital provider by promoting the principles of good entrepreneurship. This protection of the capital provider, as the intent of the right of inquiry, is reflected in aspects such as openness, restructure, determination of the responsibility for possible mismanagement, and prevention at the level of the parent company itself and of the subsidiary. Not the impact requirement, but the element that precedes this is, in my opinion, the decisive factor: the management policy that is or is not determined and conducted independently from the parent company.

Right now, the minority shareholders or depositary receipt holders of the subsidiary may only request an inquiry of a subsidiary in which they hold shares or depositary receipts, but not of the parent company. The policy of the parent company in its capacity of shareholder can, however, be object of the inquiry at the subsidiary. However, that does not make the parent company an object of the inquiry. An upward inquiry, where also the parent company is subjected to inquiry, I consider possible when considering the legislative history and the equal treatment of capital providers and employees by the Supreme Court in its Landis verdict. Upward corporate inquiries upon request by trade unions are already a fact, and I see no reason to conclude from these statements that such inquiry is restricted to trade unions. In my opinion, the reverse Landis measure must apply for upward corporate inquiries of trade unions.27 This reverse measure also applies for an upward corporate inquiry of shareholders: parent company and subsidiary must be so intertwined that independently determined and conducted management policy with regard to the parent company is lacking within the subsidiary. If the parent company fully determines the challenged policy of its subsidiary, then the policy and the course of events of the parent company affect the interests of the minority shareholder of the subsidiary as a result just the same and in equal manner as the policy of the subsidiary itself. The policy of the parent company and the subsidiary is after all one and the same. A breakthrough of the right of inquiry to the parent company is then justified, considering the essence of the right of inquiry.

Same as with the downward inquiry, the focus must therefore not lie on the impact requirement, but on the management policy, regardless of whether this is independently determined and conducted with regard to the parent company or not.

An application for an inquiry may be submitted on behalf of the company by its executive or supervisory board or by its non-executive directors in a one-tier board. I have examined under what conditions such application may be submitted. I focused in particular on the question whether the submission of the application for an inquiry involved decision-making or representation.

Parliamentary history makes clear that the Minister of Justice regards the submission of an application for inquiry on behalf of the company as an act of representation. Strict application of the rules for representation (the directive system) has, in my opinion, several unwanted procedural effects. When the executive board or an executive director submits a request for an inquiry on behalf of the company, it is inappropriate to see this strictly as an act of representation. An inquiry application should be based on a board decision. This consideration ties in with Art. 2:15 section 3 (b) of the Civil Code, which requires a board decision for institution of a claim for nullification of a decision by the legal entity. The Enterprise Court must therefore require, before considering an inquiry application, that it is based on a board decision. The board decision ensures that a company that submits an inquiry application against itself actually wants this. This decision must constitute an admissibility requirement. The requirement of a board decision is intended to prevent the right of inquiry of the company from providing ‘total access’ for executive directors who have independent representative authority. An executive board decision furthermore has the benefit that different directors who are authorised to represent the company cannot perform conflicting legally valid procedural actions or submit separate inquiry applications that differ from each other in terms of content. As to the required board decision, an exception is possible if the board cannot reach a decision regarding submission of an application for inquiry due to a malpractice in the company, where this malpractice is the reason for the inquiry petition. The essence of the right of inquiry entails that an individual director is authorised to submit an inquiry application. In case of abuse of its power by a majority of the board, playing down the required board decision is definitely quite useful.

A request for an inquiry by the supervisory board must likewise be based on a decision thereto. This decision is a requirement for admissibility. In principle, an individual supervisory board member (meaning: without involving the supervisory board as a whole) does not have authority to call for an inquiry. An exception to this criterion can be accepted if, due to a malpractice in the company, the supervisory board is unable to come to a decision as to whether to submit an application for an inquiry, where this malpractice is the reason for the inquiry application.30 What I have written above regarding the required executive board decision applies here by analogy. For non-executive directors in a one-tier board the same principle applies as for the supervisory board.31A uniform decision is therefore the basis for a petition for an inquiry submitted by the supervisory authorities on behalf of the company.

The non-executive directors as such and the executive directors as such can decide separately from each other to submit a petition for an inquiry.32 After all, in a two-tier board the supervisory board can also decide separately from the executive board to submit an inquiry application.

The above makes clear that an individual (non-executive) director or supervisory board member can be authorised to call for an inquiry. Suspension of such director or supervisory board member prior to the submission of the application, intended to prevent the inquiry, does not in my opinion obstruct the right of inquiry. The nature of the right of inquiry and the legal system would be violated if, specifically in such a case, no inquiry application could be submitted. The purpose of the right of inquiry brings with it that a suspended director or supervisory board member is authorised to ask for an inquiry, provided that such request also pertains to an investigation of the suspension and that the suspended director or supervisory board member asserts that there are solid reasons to doubt the correctness of policy or the course of events in connection with the suspension. The suspended director or supervisory board member must in my opinion come up with sound and detailed reasons with regard to his suspension, since it would appear in first instance that he mainly serves his personal interest when challenging his suspension. Here too we see the consideration that when someone who seeks an inquiry no longer meets the access requirements as a result of a specific event, this does not prevent such person’s admissibility, provided that the request also pertains to that event and that the applicant asserts that there are solid reasons to have doubts about the correctness of policy regarding that event.34

The rule that inquiry applicants must make their objections known in advance to the executive and supervisory boards does not apply if the request is made by a legal entity. In that case the supervisory board or the executive board and the works council, respectively, are notified as soon as possible of the intention to submit a request for an inquiry or of the actual submission of a request thereto. The current regulation governing inquiries does not mention inadmissibility of the legal entity if the executive and supervisory boards do not inform each other and the works council as soon as possible. This entails the risk that it is easier for a legal entity to initiate inquiry proceedings than for other parties who have a right of inquiry. I consider this an unwanted development. The starting point, in my opinion, must be that a request to hold an inquiry must at all costs be prevented, even if the company itself asks for the inquiry. Art. 2:349 section 1 of the Civil Code should therefore be amended.36

The power of the trustee to request an inquiry arose five years ago. However, no trustee has used this power since then. As far as I am concerned, there is no need to regret this.

The trustee is charged with the management and liquidation of an insolvent estate on behalf of the joint creditors. This core task is not limited to the management of the assets of the insolvent estate; it also includes reconstruction of the assets if necessary. This means that the trustee has the task of enlarging the estate as much as possible and the obligation of examining whether there is reason to initiate liability proceedings. Considering this core task, the Minister believed that the trustee might be interested in establishing whether mismanagement took place prior to the bankruptcy situation. Inquiry proceedings can, in my opinion, play an important role in liability proceedings against executive and supervisory directors.37

A trustee has numerous ways, however, to determine through personal examination the causes of bankruptcy and to assess the chance of success of a claim for liability. The interest of the trustee in the right of inquiry lies strictly in the impact of the facts from the examination report and the verdict of mismanagement by the Enterprise Court in liability proceedings. With a request to nullify a decision to grant discharge from liability or to recover costs, the trustee can furthermore ask (or force) the Enterprise Court to rule on the personal culpability of the executive and supervisory directors regarding the mismanagement.38 The examination report and the verdict of mismanagement also introduces a special liability risk with regard to grounds for liability with a legal evidentiary presumption (Art. 2:138/248 section 2, Civil Code). This leaves little room for the executive and supervisory directors to exculpate themselves, especially when the mismanagement is personalised as a result of an order to pay costs or of nullification of a discharge from liability. All of this makes the right of inquiry of the trustee in essence a pre-liability discovery, to the detriment of the executive and supervisory directors. Considering the lack of procedural assurances in the research phase and the second phase of the inquiry proceedings, that is in my opinion not desirable for the executive and supervisory directors involved.39

Since the trustee has considerable authority to determine the causes of bankruptcy through personal examination, where he is also able to maintain control over the examination and the related costs, it is preferable, in my opinion, that he uses this authority. This feeling probably also lives among trustees themselves, because to this day they have never used the right of inquiry that is contained in Art. 2:346 section 3 of the Civil Code. As such, there is little reason to maintain the right of inquiry for trustees. As far as I am concerned, this right can be taken away. If the legislature wishes to maintain the possibility of holding an inquiry with regard to a company that faces payment problems, my preference would go to granting the right of inquiry to the administrator.40

Other than with capital interests, the right of inquiry is not granted to individual employees but to a body that represents employees. Since 1971, the trade unions have the right of inquiry. The underlying idea is that company policy pertains not just to shareholders. The interest of employees is specifically affected by such policy.41 This does not imply that trade unions can only apply the right of inquiry against social or economic policy errors that harm the interests of employees. Every policy that touches on the continuity of the company and thereby the work situation of its employees gives the trade union, in my opinion, reason to seek an inquiry.42

In case law the application of the requirements contained in Art. 2:347 of the Civil Code is generally clear.43 After all, so long as the legal entity is actively engaged in business activities, applying these requirements is not a complex matter. That is not the case if the trade union, as the result of a certain event, has no members at the time of its petition for an inquiry in the category ‘persons employed in the business’. Aside from that, it is not clear how the words ‘persons employed in the business’ must be interpreted when applying the right of inquiry of trade unions in corporate relations.

If a company no longer has any employees at the time of the request for an inquiry due to a reorganisation or bankruptcy, this does not necessarily imply that the trade union loses its right of inquiry. According to the Enterprise Court, the nature and essence of the right of inquiry implies that the condition ‘employed in the business’ of Art. 2:347 is met when the trade union has members at the legal entity under examination during the time of the practices subject to investigation, and when this is no longer the case at the time of request for an inquiry due to bankruptcy of the legal entity. The point of departure is therefore that the trade union has members in the business of the legal entity during the period that is under investigation.

The circumstance that, as from a certain moment, no members are employed anymore in the business of the legal entity due to a reorganisation or bankruptcy, does not by definition result, in my opinion, in inadmissibility of the request to hold an inquiry. In that case a parallel can be drawn between the admissibility of the trade union and that of parties who have fully or practically lost their qualification as member or shareholder due to a cause that lies outside their sphere of influence. Here again we can reason that, when an applicant for an inquiry no longer meets the access requirements due to an event, this does not obstruct such applicant’s admissibility, provided that the application also relates to that event and the applicant asserts that there are solid reasons to doubt the correctness of policy regarding such event.45

A trade union normally only has members who are involved in the business of a subsidiary and not in the holding. Nonetheless, a trade union may feel the need to question the (corporate) policy of the parent and of other group entities of the company where its members are employed. However, the policy of the parent company can only be subjected to inquiry if the trade union that is active at the parent is authorised to call for an inquiry. According to Art. 2:347 of the Civil Code such authority depends on whether the trade union has among its members persons who are actively involved in the business of the legal entity. Whether trade unions in group relations can apply the right of inquiry thus depends on the meaning of the words ‘persons employed in the business’. There are two separate situations where a corporate legal explanation can be given to the empowerment of trade unions to call for an inquiry.

The first situation involves the joint running of a business. In this context the Janssen Pers verdict is especially relevant. In that case the Enterprise Court established that the legal entities involved actually constituted a single enterprise, for which a joint works council was established. The right of inquiry of a trade union which has members among the employees who work in the business is thereby established. Broadly speaking this means that, if the Enterprise Court determines in a case that a joint works council has been created for the business activities of the legal entities under investigation, then the trade union which has members among the employees who are active in that business has the right of inquiry for all legal entities.

The second situation involves the influence that the parent company exercises on the challenged policy of the subsidiary. In upward corporate group inquiries by trade unions the reverse measure of Landis should in my opinion apply: parent company and subsidiary must be intertwined such that the subsidiary does not have any independently determined and conducted policy with regard to the parent company.47If the parent company fully determines the challenged policy of its subsidiary, then the policy and course of events of the parent company affect the interests of the employees as a result thereof just as much and in equal manner as the policy of the subsidiary itself. After all, the policy of the parent company and that of the subsidiary are one and the same. Under these circumstances the parent company and the subsidiary are intertwined with each other such that one cannot speak of separate situations, and it may be assumed that the parent company maintains the business of the subsidiary as well. The essence of the right of inquiry brings with it, in my opinion, that a trade union whose members are actively employed in the subsidiary is also authorised to submit a request for an inquiry at the parent company. The right of inquiry is intended to protect the employees in promoting the principles of prudent entrepreneurship. This protection of employees, as a purpose of the right of inquiry, is expressed here in aspects such as transparency, restructure, determination of the responsibility for possible mismanagement, and prevention at the level of the subsidiary itself and of the parent company.

Same as with corporate group inquiries of shareholders, the focus should in my opinion therefore not lie on the impact requirement, but on the management policy that is or is not independently determined with regard to the parent company.

Trade unions make only sporadic use of their right of inquiry. An appeal to the trade unions to make more active use of their right of inquiry has already been made in the literature, but so far without success. The limited willingness to use this right logically leads to the question that is asked fairly regularly, whether the right of inquiry should not also accrue to the works council. I believe that this question deserves to be answered affirmatively. The arguments against granting the right of inquiry to the works council do not convince me.

The most frequently recurring argument against granting the right of inquiry to the works council is the risk of frivolous use of this right and the impossibility of recovering the damage in case of rejection of a request for an inquiry. The works council has neither corporate personality nor assets of its own and would thus allow no recovery in case of liability. The constant repetition of this argument misses, in my opinion, practical relevance since a cost award has never been issued in inquiry law. The fear that the works council would make unduly frivolous use of the right of inquiry I likewise do not share. The experiences with the use of the right of recourse on the basis of the Works Councils Act are such that it is not to be expected that a works council would make frequent or too frivolous use of the right of inquiry. The abuse of authority standard (Art. 3:13 Civil Code) and the allocation requirement – the proper reasons -in my opinion offer a guarantee against improper use.

In assigning to the works council the right of inquiry, the trade union’s authority to do this must remain. The right of inquiry of trade unions and the same desired right for works councils are complementary. The right of inquiry for the works council next to that for the trade union offers a solution for those cases where a trade union lacks the right of inquiry because of declining trade union membership among employees. In my view, it is no longer realistic that, as to a company that has no trade union members, there would be no possibility for the employees to call for an inquiry. I do not foresee a competence battle between works councils and trade unions in the field of inquiry law. After all, they can employ that right independently from each other, just like other parties who have the right of inquiry. The works council must, however, allow the trade union to express its intention prior to the request for an inquiry, just like the trade union must do under Art. 2:349 section 2 of the Civil Code. The admissibility requirement ensures that trade unions and works councils are mutually aware of each other’s intention regarding submission of a request for an inquiry and that they support such request.

The Advocate-General of the Court of Appeal can only ask for an inquiry when the public interest calls for this. The original idea behind this authority was that government action should in particular be possible if the public order and the general interest call for such investigation, but also at the request of persons who do not have inquiry authority of their own since they are not closely associated with the course of events in the company. The second description constituted a residual provision as it were for parties who have no right of inquiry. However, these two principles for the authority to apply for an inquiry are not contained in the law. The authority of the A-G to call for an inquiry is limited, since the introduction of this authority in 1971, to those cases where the public interest calls for it.49

Legislative history shows that the term public interest entails a certain limitation of the A-G’s right of inquiry. The A-G may not serve private interests. Nonetheless, a multitude of private interests in a specific matter can lead to a public interest. This requires that general and compelling interests are at stake that supersede these private interests. Furthermore, a specific public interest must be involved for the A-G to take action. Case law makes clear that the assessment whether a public interest is involved in a specific case depends on assessment of numerous facts and circumstances. Relevant circumstances include, amongst others, the size of the company and the number of persons involved in some way or other in the financial position of the company, plus the position that the company holds within society at large.

I would define the concept of public interest in the right of inquiry as follows. A public interest may be at issue if there are solid reasons to have doubts about the correctness of policy or the state of events in companies that are of such size or such function in social and economic life that the possible mismanagement would affect large groups of stakeholders. In my opinion, this means that the supervision of the right of inquiry exercised by the Public Prosecution Service should in any case be directed at entities that serve the public interest. If there are indications of possible mismanagement in a public interest organisation, then the A-G may be expected to take an active approach.

To this day the Advocate-General seldom makes use of his authority to call for an inquiry. This attitude appears to be especially the result of a lack of human resources and as a consequence a lack of priority in determining the chance of success of an inquiry request and then substantiating the request. However, the alleged subsidiarity and an already ongoing criminal or parliamentary investigation can no longer be reasons for the reticent approach on the part of the A-G. The inquiry regulation itself can, in my opinion, not be the reason. After all, the A-G can exercise the authority to apply for an inquiry independently from other parties, and marginal testing with respect to the reasons of public interest should, in my opinion, take place. This implies that the Public Prosecution Service determines whether the A-G could decide in all reasonableness, considering the various interests involved, that the public interest calls for action on his part. Aside from this the A-G has the possibility to engage experts to perform the preliminary investigation. The A-G may in this context, in my opinion, also use non-governmental experts, such as civil-law attorneys, provided that their independence is assured and that they are obliged to secrecy. They could also assist the A-G with the preparation of the request for inquiries and in handling the request at the hearing. Considering all this, proposals to achieve a more active approach by the A-G under the current right of inquiry should therefore not relate to the inquiry regulation but to the organisation and operating method of the Public Prosecution Service.

The Advocate-General personally decides whether to submit a request for an inquiry. He has discretionary authority. Different from criminal prosecutions, the Public Prosecution Service does not need to account for the way it uses its discretionary latitude with respect to the right of inquiry.53 The discretionary inquiry power of the A-G is not subject to judicial supervision, and the Public Prosecution Service has no policy with regard to the right of inquiry. Considering the link with the public prosecutor’s right whether to prosecute or not and the related responsibility, it would seem appropriate that this gap be filled. This may be done by developing guidelines on how the Public Prosecution Service should execute its task with regard to the right of inquiry. In addition, the Public Prosecution Service might motivate its decisions not to honour the request of someone who does not have the right of inquiry to submit an application for an inquiry. Considering legislative history, it would also be proper to enforce this principle more actively. Development of guidelines and an obligation tostate reasons would lead to greater clarity and verifiability and thus contribute to greater legal certainty.54It is furthermore recommended to charge an A-G and at least a secretary with the powers in Book 2 of the Civil Code and the Bankruptcy Act regarding the law of legal entities. That would lead to a small specialised civil-law team that is charged with civil-law enforcement with regard to legal entities.

The lack of activity on the part of the Public Prosecution Service with respect to the right of inquiry raises the question whether it might not be better to transfer the right of inquiry to another agency. In the literature, the Authority for the Financial Markets (AFM) has been mentioned as a possible substitute. The idea of a transfer of the authority to call for inquiries to the AFM would, in terms of efficiency, be most logical with regard to listed companies. Although the exercise and maintenance of the monitoring authority of the AFM in financial and civil-law matters entails certain overlap with corporate law, this authority is not reason, in my opinion, to recommend transfer of the right of inquiry to the AFM for reasons of public interest. Monitoring the rules of conduct that listed companies that are active in the financial markets must adhere to and monitoring policy and the course of events within these companies are two different things. A fundamental objection against transfer of the inquiry authority to the AFM is furthermore that it is not impartial. Aside from this, practical objections play a role in a transfer. At this very time the AFM must deploy all of its resources to be able to fulfil its monitoring functions properly. In my opinion, it would therefore be more effective right now to apply the current powers of the Public Prosecution Service with respect to the right of inquiry better – including through the above recommendations – than to opt for a transfer to the AFM.

Considering the fact that, in principle, only capital providers have true access to the right of inquiry, it seems more logical to me to give serious thought to the role of the A-G with respect to the right of inquiry and thus to the public interest. By analogy to the inquiry regulation of Curaçao, the law might be amended to include two principles for the right of inquiry of the A-G. What this entails is that the A-G may call for an inquiry for reasons of public interest and upon request by a stakeholder who has solid reasons to ask this. In that way a residual provision is created for stakeholders who do not have the right of inquiry but who still believe that there are ‘urgent reasons’ for an inquiry. This links up with the original idea behind the inquiry authority of the A-G, which consisted of two principles.

The idea of an ‘urgent reasons’ principle does raise the question whether the right of inquiry should not be open directly for stakeholders. The answer should in my opinion be negative. The thresholds of Art. 2:346-347 of the Civil Code prevent a heavy measure such as the right of inquiry from becoming a ‘free for all’. For this reason, I am also not in favour of granting the right of inquiry to organisations that represent collective interests, whereby they might possibly offset the inactivity of the A-G with such a private collective right of inquiry, as is argued in the literature. Individual stakeholders, such as shareholders, who together meet the thresholds, can grant a procedural power of attorney to a representative organisation, which would be efficient and effective in light of its expertise.

The possibility to grant the right of inquiry to a relevant party on the basis of Art. 2:346 section 1(e) of the Civil Code by means articles of association or by agreement with the company, has been incorporated in the inquiry regulation since 1928.56 The importance of the possibility to grant the right of inquiry by articles of association or by agreement remains, in my opinion, also after the introduction of the right of inquiry for legal entities as from 1 January 2013. In practice, this possibility continues to be used after the legal change of 2013.57

As to inclusion of the right of inquiry in the articles of association, only the shareholders’ meeting is authorised to decide thereto. The executive board of a company may, in my opinion, not refuse a request to take up in the shareholders’ meeting agenda the inclusion of the right of inquiry in the articles of association on the ground that granting such authority is part of the strategy of the company. The executive board of a listed company may for that reason also not invoke the response time based on the Corporate Governance Code with regard to such agenda item.58

The authority to grant the right of inquiry by agreement is an executive board matter and thus falls under the authority of the board. In granting the right of inquiry by agreement the balance of power within the company is not altered or impaired. A resolution by the board to grant the right of inquiry by agreement therefore does not require approval by the shareholders’ meeting.59 Just the same, the works council does not have a consultation right regarding such resolution. A resolution to grant the right of inquiry by agreement does not, in my opinion, lead to any significant change in the organisation of the company or in the division of powers within the company (Art. 25 section 1 sub e, Works Councils Act). This also applies for a board resolution by the board, actual or proposed, regarding a proposal to amend the articles of association to include the right of inquiry and for a resolution by the shareholders’ meeting to include the right of inquiry.60

Entering into an inquiry agreement constitutes a simple act of representation, which the executive board is empowered to, except in case of abuse of authority.61If the inquiry agreement was concluded prior to 1 January 2013, the external representative authority and thus the validity of the inquiry agreement can be at issue if the board, when concluding the agreement, had a conflicting interest with the company.62 With regard to conferral of a right of inquiry to the works council, that does not in my opinion constitute a works agreement within the meaning of the Works Councils Act. From the text and intention of Art. 2:346 section 1 (e) of the Civil Code it follows that only the legal entity can grant a right of inquiry by agreement, and not the ‘entrepreneur’ as referred to in the Works Councils Act. The right of inquiry can constitute part of a works agreement, but this can only be concluded by means of representation by the executive board of the company.63

Even though an inquiry agreement is not an obligatory agreement (it involves a multilateral juridical act not pertaining to property law), it nonetheless falls under the scope of application of Art. 6:216 of the Civil Code and thus under the articles of Section 1-4 of Title 6.5 of the Code. These articles are thus decisive for the creation, the establishment of content, and the authority to cancel the inquiry agreement. This may, for example, mean that an inquiry agreement may not be cancelled just like that or that, under certain circumstances, it is not subject to cancellation parallel to the case law regarding the cancellation of continuing performance contracts.64

When a company grants the right of inquiry to an interested party by articles of association or by agreement, it is free to set specific conditions for this. From the legislative history I conclude that the law views the granting of the right of inquiry as a power that the company can employ as it sees fit.65

When granting a right of inquiry by articles of association or by agreement, a listed company must be alert to the provisions regarding inside information under the Market Abuse Regulation. A shareholders’ or executive board resolution to incorporate the right of inquiry in the articles of association or in an agreement, respectively, does not in my opinion qualify in general as inside information. This may, however, be different in a conflict situation.66 In an initial public offering by a company, the existence of an inquiry agreement that was concluded less than two years immediately prior to the publication of the registration document must be reported in the prospectus.67

All things considered, the conferral of the right of inquiry by articles of association or by agreement has advantages and disadvantages. The most important difference in practice occurs, in my opinion, in repealing a right of inquiry that was conferred by articles of association or by agreement.68