7.4.6.7 Indemnification and pre-merger certificate

According to Dutch law, the Dutch civil-law notary is the designated authority to scrutinize the legality of the merger. Before the merger can be effectuated according to the laws of England and Wales, the Dutch civil-law notary has to deliver a pre-merger certificate in the form of a notarial deed. The prescription of a notarial deed is not expressly included in statute, but follows from the legislative history.1

The pre-merger certificate has to conclusively attest to the proper completion of the pre-merger acts and formalities. More specifically, the civil-law notary must declare that it appears that all formalities for all resolutions that are required by sections 2, 3 and 3A of Title 7 of Book 2 DCC and the articles of association in order for the disappearing company to participate in the legai merger and all other requirements contained in the aforementioned sections and articles of association of the disappearing company have been complied with (Art. 2:333i paragraph 3 DCC).

If no additional rules were included, there could be a risk that the shareholder invoking his appraisal right is not indemnified before the merger is effected and afterwards is confronted with an acquiring foreign company unwilling to pay. In particular, this could be the case if the other Member State is not familiar with the appraisal right. Article 10 of the Tenth EC Directive gives scope to EU Members States to arrange for proceedings for indemnification of minority shareholders, but only subject to the certain limitations:

Firstly, it should be noted that there is an essential difference between Art. 10 of the Tenth EC Directive and Art. 2:333h DCC. The first provision specifically seems to regard court proceedings through which minority shareholders are compensated. The Dutch appraisal right has not been shaped into court proceedings, but provides for a binding decision of one or more independent experts in the absence of agreement between parties.

As has been put forward by the Minister, without introduction of Art. 2:333i paragraph 4 DCC, it could be doubted whether the acquiring company is bound by the agreement between the shareholder and the disappearing company or by the decision of the expert.2 The stringent rules of Art. 2:333i paragraph 4 DCC were introduced in order to eliminate any risk that a minority shareholder will not be indemnified.3 This rulecomes down to the following. The civil-law notary can only issue the pre-merger certificate if it appears that no shareholder of the disappearing BV invoked his appraisal right, or if every shareholder of the disappearing BV invoking the appraisal right has been paid indemnification. The civil-law notary may draw such conclusions on the basis of the notarial records of the meeting in which it is resolved for a cross-border merger. In these notarial records, he may have concluded that no shareholders voted against the cross-border merger. Moreover, the disappearing BV may provide evidence to the civil-law notary by means of waivers of the minority shareholders with respect to the appraisal right or agreements concluded by the BV and the shareholders together with proof of payment of the indemnification.4

There is an exception to the aforementioned mies, which is also contained in Art. 2:333i paragraph 4 DCC. The civil-law notary can also issue the pre-merger certificate if the other companies involved in the merger resolved that the acquiring company must provide the indemnification. In line with Art. 10 of the Tenth EC Directive, this resolution must be adopted by each of the merging companies, except the disappearing BV (which is bound anyhow).5 According to the Minister of Justice, the ruleof Art. 2:333i paragraph 4 DCC has the advantage that on the one hand the appraisal right of the shareholder is secured and on the other hand the appraisal right does not necessarily block the cross-border merger.6

To the opinion of the Minister of Justice, once applied, Art. 2:333i paragraph 4 DCC itself entitles the shareholder to a claim for indemnification against the acquiring company, and the same provision binds the acquiring company to pay the indemnification.7 I doubt this view, as, in principle, Dutch law will not be binding on the foreign acquiring company, whereas the agreement between the acquiring company and the shareholder will.

In my opinion, in order to achieve the objection of the legislator, the resolutions adopted by the other merging companies have to be directed to the shareholder using his appraisal right, so they would require external effect, and need to be accepted by the shareholder. If the resolutions only have interaal effect, the shareholder is not sure that the resolutions are eventually carried out. The resolutions must include an irrevocable offer of the other merging companies to the shareholder invoking the appraisal right. This irrevocable must be aimed at complying with the outcome of the binding decision of the independent expert(s). In my opinion, the irrevocable offer together with acceptance by the minority shareholder forms a binding agreement. A comparable view seems to be adhered in the legislative history:

Unfortunately, the legislative history of Art. 2:333i paragraph 4 DCC is quite confusing in this respect, as on the one hand it refers to a binding agreement,9 but on the other hand refers to resolutions with only interaal effect.10 As follows from Art. 10 of the Tenth EC Directive, the acceptance of the outcome of the procedure for indemnification requires a separate resolution of each of the other companies involved in the merger. It requires explicit acceptance. Merely approving the draft terms of cross-border merger does not seem to be sufficient. It is justified to request the explicit acceptance of each merging company, as indemnification paid by the acquiring company will affect its estate and indirectly the interests of its shareholders.

Art. 2:333i paragraph 4 DCC merely prescribes the adoption of resolutions and does not prescribe the essential external effect. Therefore, it could be doubted whether it provides enough comfort for the minority shareholder. I would recommend amending the provision in order to align it with the intentions revealed by the legislator.11

In addition, I would like to point to the helpful suggestion of Koppenol-Laforce in this context.12 She suggests that the binding agreement could be embodied in a notarial deed. The advantage of a notarial deed would be that the agreement could easily be executed further to Art. 57 of the Brussels I Convention. Such notarial deed could provide further comfort for the minority shareholder. It could be questioned, however, whether in addition to the resolutions adopted the merging companies would at all times cooperate with this notarial deed. Amendment of Art. 2:333i paragraph 4 DCC is therefore most favourable.

As a consequence of the stringent rules of Art. 2:333i paragraph 4 DCC, one of the merging companies may block the merger by rejecting the resolution involving that the acquiring company takes over the obligation to provide indemnification. Consequently, the civil-law notary will not be authorized to issue the pre-merger certificate.