The second episode in the AkzoNobel saga: activist shareholders lose again in Dutch court, but reach settlement

In its decision of 10 August 2017, the Dutch court of Amsterdam in summary proceedings (‘voorzieningenrechter’) denied the request of two activist shareholders of AkzoNobel, Elliott and York, to convene an extraordinary general meeting (‘EGM’) to dismiss Akzo’s supervisory board chairman. The reason for the shareholders’ request was the decision of Akzo’s board not to engage in negotiations with PPG concerning its takeover bid on Akzo. The Dutch court, however, held that the shareholders failed to show a ‘reasonable interest’ and should await the general meeting of 8 September 2017, where Akzo’s board will provide further explanations on this topic. Shortly after this decision, on 16 August 2017, Elliott and Akzo reached a standstill agreement, where Elliott agreed to suspend further litigation for at least three months.

These developments are the second step in the AkzoNobel saga, after an earlier decision of the Dutch Enterprise Chamber already denied the requests of Akzo’s activist shareholder (discussed in an earlier blogpost here). 

Previously in the AkzoNobel saga 

Previously, PPG Industries, an American paint and coatings company, had made an unsolicited takeover bid for its Dutch rival, AkzoNobel. Akzo’s supervisory board and management board refused to negotiate with PPG, even after the latter upped its bid twice. Activist shareholder Elliott, together with other disgruntled shareholders, did not agree with the board’s approach and requested the supervisory board to convene an EGM to oust Akzo’s chairman, Antony Burgmans. The board denied this request and Elliott’s challenge to this decision failed before the Enterprise Chamber. (see a previous blogpost for a thorough analysis). After the decision of the Enterprise Chamber, PPG retracted its takeover bid, which implies that it could not launch a takeover bid for at least six months.

But Elliott did not give up…

Nevertheless, Elliott tried a second time. On 7 July 2017, shareholders Elliot (owning 9,50% of the shares in AkzoNobel) and York (owning 0,58%) joined forces and filed for summary proceedings with the court of Amsterdam in order to convene an EGM with the goal of dismissing Akzo’s chairman. Akzo responded by announcing on 25 July 2017 that it will convene an EGM on 8 September 2017, but without adding the dismissal of its chairman to the agenda. Indeed, the only agenda items for the announced EGM are the approval of Akzo’s new CEO, Thierry Vanlancker (Akzo’s old CEO, Ton Büchner, stepped down due to health reasons), as well as the explanation by Akzo’s board of its decisions concerning the PPG bid. 

In addition, because the announcement was made only 45 days before the EGM (in accordance with article 115 of the Dutch Civil Code), shareholders could not add items to the agenda, as this should be done 60 days before a general meeting (article 114 of the Dutch Civil Code). After this, Elliot and York’s only hope to oust Akzo’s chair was the court procedure.

The decision of the court in summary proceedings

In the summary proceedings, Elliot and York argued that the conditions under Dutch law for shareholders to convene an EGM were fulfilled: they owned 10% of the share capital (article 2:110 of the Dutch Civil Code) and they had a ‘reasonable interest’ (article 2:111 of the Dutch Civil Code). 

It is the latter concept that is the central element in the dispute. The supervisory board and Akzo stated that the dismissal of its chairman was ‘irresponsible, disproportionate, harmful and not in the best interest of AkzoNobel’. They argued that the shareholders should wait before convening an EGM until after the general meeting of 8 September 2017, where the supervisory board will explain its behavior concerning the PPG bid. 

Elliot and York, on the other hand, stated that the legislative intent behind this requirement was solely to avoid ‘bullying’ and that a rejection of a shareholder’s request to convene an EGM can only be justified in exceptional circumstances. They argued that they have a reasonable interest in convening an EGM, because they (and a large number of other shareholders) have lost all trust in Akzo’s chairman, and that the explanation given by the board will not be able to alleviate their concerns.  

The court did not follow Elliot and York, however. It held that the principle of reasonableness and fairness implies that if the power to dismiss directors is used by shareholders as an instrument for punishing them for a certain policy, directors should be given the possibility to explain themselves during a shareholders’ meeting before the one requested. The court decided that the request of Elliot and York was premature and that they should wait for the explanation given by the board during the general meeting of 8 September 2017. Elliot and York can file for a new request afterwards. 

Should the decision in the AkzoNobel case come as a surprise?

While this decision might come as a surprise for company lawyers outside the Netherlands, it is not surprising from a Dutch perspective, as it is consistent with the Dutch stakeholder model and with previous case law in the Netherlands. 

For example in the Cryo-Save case, the Dutch Enterprise Chamber held that the board of Cryo-Save was right to refuse to convene a general meeting to appoint a new CEO and could invoke the ‘response delay’ of 180 days from the Dutch Corporate Governance Code. According to the Court, this time period follows from the principle of ‘reasonableness and fairness’ in article 2:8 of the Dutch Civil Code, even though the Corporate Governance Code is only a non-binding self-regulatory document and even though this time period contradicts the statutory period to add items to the agenda or to convene a general meeting (respectively 60 and 42 days before the general meeting). 

It seems clear that Dutch case law has restricted the rights of shareholders to convene a general meeting and add items to its agenda to a considerable extent. One can question whether this is consistent with the Shareholder Rights Directive. Article 7(1) of this directive stipulates that member states shall ensure that shareholders have the right to put items on the agenda of the general meeting, but that member states have the possibility to restrict this right to the annual general meeting, provided that shareholders have the right to call a general meeting with an agenda including at least all the items requested by them.

However, in the AkzoNobel case, Elliott and York had neither of these options: they could neither add items to the agenda of the general meeting because the period was set too short, nor convene an EGM, because the court did not consider the requirement of ‘legitimate interest’ fulfilled. Does this mean that Dutch law violates the Shareholder Rights Directive? Some Dutch scholars (eg Peters and Eikelboom) have argued exactly this, and they seem to have a point.

The conclusion of the AkzoNobel case 

After it bit the dust for the second time, Elliott concluded a standstill agreement with AkzoNobel, where it agreed to suspend all ongoing litigation for three months. While AkzoNobel and Elliot seem to have made peace, the decisions in the AkzoNobel case don’t provide a rosy outlook for shareholder rights in the Netherlands, as they seem to follow the trend in Dutch corporate law to reinforce the autonomy of corporate boards. 

Symbolic for this trend is also the proposal by the Dutch Minister of Economic Affairs, Henk Kamp, to give boards of Dutch companies one year of ‘reflection time’ when they receive an unsolicited takeover bid. Whether this trend is a good thing is up for debate, and this blogpost is not the place to settle this debate. Still, it is clear that Dutch law goes further in this trend than many other European countries and that it is probably the most ardent supporter of the ‘stakeholder model’ in company law. The decision discussed in this blogpost nicely illustrates this fact. 

Another version of this blogpost appeared earlier in Corporate Finance Lab. 

Tom Vos is a PhD Candidate at the Jan Ronse Institute of Company and Financial Law at the University of Leuven.