2.3.1 Winter Committee

In 2002, the reports of the High Level Group of Company Law Experts, chaired by Jaap Winter (hereafter referred to as the Winter Committee) were published.1 The Winter Committee was appointed by the European Commission to provide independent advice on issues related to takeover bids and on key priorities for modemizing company law in the European Union.2 Both reports inter alia address the issue of appraisal rights, which are referred to as sell-out rights in the reports.

In its first report, the Winter Committee focused on the appraisal right in the situation after a (public) takeover bid. The report reveals that half of the Member States of the EU are already familiar with a sell-out right in the situation that a majority shareholder holds almost all of the shares. Throughout the Member States, these appraisal rights show a great diversity in circumstances in which these are conferred and in the thresholds triggering these appraisal rights.3 Mostly, thresholds between 90% and 95% of share capital or voting rights are found. It appeared that appraisal rights are often allocated regardless of the situation of a takeover bid. Frequently, their scope is restricted to public limited companies, as the Committee found out. Only in some Member States is the appraisal right available to shareholders in all limited liability companies.

The Winter Committee held that there are several grounds to justify an appraisal right if a majority shareholder holds a large majority of the shares after a takeover bid. It held that:

The first argument used by the Committee is that, after a takeover bid, there is an increased risk that the majority shareholder will abuse his dominant position. In some Member States, a small minority shareholder may even be more vulnerable in this situation, while rules that may protect him do not apply when certain thresholds are not met. For instance, in the Netherlands the minority shareholder may be protected by the inquiry proceedings.4 These proceedings can only be instituted by the shareholder(s) holding (jointly) at least 10% of the issued share capital of the company, or shares with a joint nominal value of at least €225,000.5A shareholder who does not qualify for this threshold, cannot invoke the inquiry proceedings. But even when the minority shareholder is protected by rules, a continuous appeal on these rules causes practical difficulties.

Secondly, after a takeover bid a minority shareholder can often no longer sell his shares at an appropriate price, because the takeover bid may lead to an illiquid market for the remaining shares, whereas the market was liquid before.

Thirdly, an appraisal right may counter the pressure to tender for a takeover bid, while it offers the minority shareholder a longer period to reflect on the conditions of the takeover bid.

Fourthly, the appraisal right can be considered the für counterpart to the squeeze-out right, its quid pro quo. The availability of the appraisal right may strengthen the proportionality of the squeeze-out right.

The Winter Committee rejected the view that an appraisal right causes an insurmountable financial burden for the majority shareholder. It noted that the majority shareholder is not forced, by way of the appraisal right, to acquire more shares than he was already willing to buy when he made the takeover bid. In view of these justifications, the Winter Committee recommended to introduce an appraisal right as well as a squeeze-out right in the situation of a takeover bid.6 As a final point, the Winter Committee stated that its second report would address the issues of appraisal rights outside the context of takeover bids.

Before its second report was published, the Winter Committee initiated a broad consultation on several topics.7 As became evident from the consultation, there is widespread support in Europe for the introduction of a squeeze-out right and appraisal right, irrespective of the situation of a takeover bid and irrespective of the fact that the company is a listed, non-listed, open or closed company. As some respondents indicated, an appraisal right outside the context of a takeover bid presents difficulties, such as uncertainty due to the unlimited period in which the rights could be effectuated and difficulties in providing a für value in the absence of an accepted takeover offer. All the same, the Winter Committee recommended introducing both rights applying to listed and open companies and regardless of the situation of a takeover bid.8

With regard to appraisal rights in closed companies,9 the Winter Committee took a more reserved stance: