7.4.2 Rationale

As appears from the legislative history of Art. 2:333h DCC, the appraisal right was introduced following the recommendation of the Company Law Committee.

The legislator took into regard the vulnerable position of minority shareholders in the situation of a cross-border. It was considered that an appraisal right is justified, because as a result of the cross-border merger, the shareholder in a disappearing Dutch company would no longer be protected by, among others things, the inquiry proceedings, but would be confronted with the applicability of rules of another country after the merger has been accomplished.

The Council of State criticized the justification of the appraisal right, but did not advise against its introduction.1 The Council held that the single reference to the inquiry proceedings does not justify a different treatment of opposing shareholders involved in a cross-border merger in comparison with shareholders involved in a national merger. According to the Council of State, the inquiry proceedings will only play a role if the correctness of the policy of the company is doubted. The appraisal right would not necessarily be applied in a situation in which the correctness of the policy would be doubted, as the question of whether or not to use the appraisal right would usually form a clean economie consideration. Moreover, the Council of State questioned why an opposing shareholder involved in a national merger should not be granted this opportunity. Therefore, the Council of State requested the Minister of Justice for a more material argumentation.

To start with, the Minister of Justice considered that in principle the majority rule binds the minority shareholder.2 He stressed that, in general, appraisal rights are not required, as, in his view, Dutch law offers an appropriate level of protection for minority shareholders.

The Minister contended that after a cross-border merger several rules aimed at the protection of minority shareholders no longer apply to, or at least different rules apply to the shareholder of a disappearing company. These Dutch rules protecting minority shareholders are increased thresholds for the adoption of certain important resolutions (such as a resolution for conversion), obligations with respect to the provision of information to shareholders, the inquiry proceedings, and the proceedings for the settlement of disputes.3

The Minister of Justice held that it is very difficult comparing the Dutch rights and obligations of a shareholder of a disappearing company before the merger with foreign rights and obligations of the shareholder after the merger. Nonetheless, somewhat ambiguously the Minister stressed that the conclusion that applicable rules differ from country to country does not lead to the conclusion that the level of protection differs from country to country.

Moreover, the Minister held that further to the statutory rules on mergers, the Dutch auditor will investigate the merger documents and will state whether the exchange ratio will be reasonable (Art. 2:328 paragraph 1 DCC), but will not state whether the exchange ratio will be correct.4 And even if the auditor states that the exchange ratio is unreasonable, the majority of shareholders may resolve to legal merger.

More particular, in the situation of a cross-border merger, several rules protecting minority shareholders no longer apply, such as the inquiry proceedings and the right to annul a merger pursuant to the limited grounds of Art. 2:323 DCC.5 The Minister considered that, as practice shows, the inquiry proceedings have sometimes been used in order to receive a judgment with respect to the exchange ratio used in a merger. Nonetheless, the Minister held that the inquiry proceedings consider costly and time-consuming proceedings. The Minister held that an appraisal right provides more efficient means to protect the minority shareholder than the inquiry proceedings:

In addition, when the disappearing company ceases to exist, the inquiry proceedings can no longer be applied, and consequently the possibility to have the OK ordering remedies is blocked.

In a national merger, according to Art. 2:323 paragraph 1 DCC, the court can annul a legal merger amongst others if the notarial deed of legal merger lacks authenticity, if the resolution for legal merger is null and void or can be annulled, or if creditors have objected to the merger within the objection period. These rights are not found in the Tenth EC Directive. On the contrary, the directive does not contain grounds to annul a cross-border merger, but prohibits nullification of the cross-border merger.7 Accordingly, Art. 2:3331 DCC stipulates that a cross-border merger cannot be null and void, prohibits the nullification of the cross-border merger and excludes application of Art. 2:323 DCC.

Because of these differences between national and cross-border mergers in tules of protection of minority shareholder, the Company Law Committee recommended the introduction of the appraisal right of Art. 2:333h DCC. The legislator followed this advice. The legislator thought that the appraisal right would be in line with Art. 4 paragraph 2 of the Tenth EC Directive, second sentence, and considered that the appraisal right would not contravene the principles laid down in recital 3 of the Tenth EC Directive.8

I subscribe to the justification given by the Minister.9 Because of the cross-border merger, shareholders of the disappearing BV will become shareholders in a foreign company. These shareholders will be faced with a fundamentally different company law system. Whether this specific foreign law provides for a similar, or maybe higher level of protection can hardly be determined beforehand. It is even harder if not impossible to determine this for all law systems of the Members States EU and EEA in general. This would also differ from time to time, as law is never statie. Especially in the area of private limited companies, the differences in law can be considerable, as in contrast to the law on public companies up to a large extent the rules on private limited companies have not been harmonized within the EU and EEA.10 More particular, the rules on the protection of shareholders have not been harmonized, a fact that this comparative study and many other comparative studies are proof of.11

In addition to the justification given by the Minister of Justice, I would also like to draw attention to Art. 2:323 paragraph 5 DCC. This provision enables the court — instead of annulling the merger — to order the company to pay damages to the shareholders for any losses they incurred relating to the merger. This provision does not apply in the situation of a cross-border merger. Art. 2:3331 DCC closes the door to these claims for damages. Claims for damages based on other grounds may reach a dead end as soon as the disappearing company ceases to exist upon the merger. It could be doubted whether the law applicable to the acquiring company entitles the shareholders of the disappearing company to claim any damages.

Secondly, I believe that another justification of the appraisal right with respect to private limited companies can be found in Art. 2:192 paragraph 1 and 3 DCC. Pursuant to these provisions, contractual obligations, quality requirements, a regulation for the obligatory offer of shares or a valuation clause do not bind any shareholder without his consent. These provisions are important means of protection for the minority shareholder. In my opinion, there is a risk that a shareholder of the disappearing company will be confronted with one or more of these types of obligations after a cross-border merger.12 In order to protect the minority shareholder against these perhaps far-reaching obligations, the appraisal right would be most appropriate, as it is not conceivable that rules can be created that prevent application of foreign additional obligations (unless the law is harmonized).

In this respect, I point to the legislative history of Art. 2:192 paragraph 1 DCC. In the preliminary drafts of the BV law reform, additional obligations could be included by way of amendment of the articles of association, which required two thirds of the votes cast.13 So, the majority shareholder could initiate the introduction of these obligations even without the consent of a minority shareholder. In order to protect the minority shareholder, Art. 2:343 DCC of the preliminary draft included an exit right for shareholders if the obligations render the transfer of the shares exceedingly onerous or impossible. In the final legislative proposal, both aforementioned rules were skipped, in favour of the current provision. The current provision abolishes the majority rule in favour of the rule that obligations cannot be forced upon a (minority) shareholder. The legislator was of the opinion that the current rule would offer appropriate protection, so that an exit right is not needed:

In line with this view, one could assume that in the event that Art. 2:192 DCC does not offer protection an exit right could be justified. In order to provide protection against foreign additional obligations, an exit is offered.

Although Van Veen consents with the justification given by the Minister, he pleads for an exception if a liquid market for shares exists. He holds that there would be no need for an appraisal right if the shareholder of the disappearing company receives shares in a listed acquiring company in return.15 In his opinion, the shareholder can easily sell his shares after the merger has been accomplished. On the assumption that the shares can be easily sold at the stock exchange for a reasonable price, it may present a more attractive alternative to the appraisal right. I agree with this view, though I doubt whether this situation will often occur and, consequently, whether it makes sense to include an exception in statute for this specific situation.

Koppenol-Laforce takes it a step further and questions the fundamental assumption underlying the appraisal right that there is no liquid market for the shares.16 I disagree with her, as I think that this fundamental assumption is correct in many cases; at least with respect to non-listed BVs and NVs. In this respect, I refer to § 1.1.1. In the event a liquid market exists for shares in the disappearing company, it is conceivable that the shareholder chooses the solution to sell his shares. This solution would often be easier and less timeconsuming than invoking the appraisal right, which could lead to indemnification of the shareholder quite similar to a purchase price he would receive. The appraisal right does not prohibit the shareholder transferring his shares before the cross-border merger is effected. Transfer of the shares has the effect that the appraisal right no longer can be invoked, as the new shareholder is not a shareholder who voted against the cross-border merger.

Leijten dissents from the appraisal right, as it would create unjustified differences between cross-border mergers on the one hand and national mergers and mergers that fall within the rules of mergers creating an SE on the other hand.17 He points to the fact that at the time the Dutch rules on the SE were introduced, the Minister of Justice was of the opinion that no specific protection for minority shareholders, such as an appraisal right, was needed. In his view, the appraisal right would conflict with the freedom of establishment as governed by Art. 43 and Art. 48 TEC (nowadays found in Art. 49 and Art. 54 TFEU). This would also lead to a conflict with Recital 3 of the Tenth Directive. Van Solinge takes a similar view, though solely with respect to differences between national and cross-border mergers.18 Gepken-Jager takes a more nuanced view, holding that the answer to the question whether the freedom of establishment is infringed depends on the practical impact of the Tenth EC Directive.19 She argues that if other Member States introduce appraisal rights as well, Dutch law is not more restrictive as regards the freedom of establishment than the laws of other countries.

I agree with Leijten that the differences as regards the appraisal right between a cross-border merger governed by the Tenth EC Directive and the merger creating an SE could be regarded as discriminatory. However, in my opinion, the best way to eliminate this discriminatory difference would be to introduce an appraisal right with respect to the SE merger as well.20 This appraisal right can be introduced further to Art. 24 paragraph 2 SE-CR. A similar view has to be taken as regards the situation of transfer of the registered seat of an SE. This appraisal right could be based on Art. 8 paragraph 5 SE-CR.21 For the introduction of this appraisal right, a similar justification can be given as outlined above, taking into consideration that a Dutch NV and a Dutch SE are, to a large extent, comparable. In my opinion, it would be reasonable to offer shareholders in a Dutch SE an exit if the SE is transferred abroad against their will, leading to the applicability of a foreign set of rules. A similar thought is found in Germany. The German act on the implementation of the SE-CR offers an appraisal right in the event that a German SE is transferred abroad.22

On the other hand, I do not think that the appraisal right causes discriminatory differences between national and cross-border mergers, in the sense that these form unjustified obstacles for the freedom of establishment as embodied in Art. 49 and Art. 54 TFEU. Art. 4 paragraph 2 of the Tenth EC Directive, second sentence expressly enables Member States to offer protection to minority shareholders, and a very likely way to protect minority shareholders is by way of appraisal rights.

Moreover, national mergers are not comparable to cross-border mergers, for the reasons set out above. Until the law on private limited companies is harmonized within the EU and EEA — which would not be realistic on short-term and supposed that this aim is pursued — there will be significant differences between the several types of private limited companies. I recall the Sevic Systems judgment, in which the ECJ explicitly acknowledged that the protection of minority shareholders can justify a restriction of the freedom of establishment. The ECJ held that:

A few years before, a similar view was taken by the ECJ in the Überseering case.24 In my opinion, these judgments leave sufficient scope for the introduction of the appraisal right in the situation of a cross-border merger.