In acquisition practice, when drafting transaction documents, it is important that, in addition to the (shareholders') agreement, regulations and other documents, account is also taken of statutory provisions of the BV whose shares are being acquired and its subsidiaries and/or participations (the target).
In this short article I will dwell on the nature and function of the articles of association and the consequences of (non-)compliance with the provisions of the articles of association, in particular with regard to the quality requirement.
What are articles of incorporation?
As a brief reminder, the articles of association of a BV contain all provisions regarding the organization of the BV. For example, they determine which bodies the BV has, what their powers are and what procedures must be followed in a BV. They supplement the law.
The articles of association of a BV can be viewed by third parties through the trade register. It often happens that the articles of association were drawn up before October 1, 2012 and have not been amended since then. Please note that the articles of association must then be amended. This is because the law changed as of October 1, 2012.
(Non) compliance with the articles of association
In a takeover, the target's articles of association will logically have to be complied with, including the blocking regulations, decision-making rules and representation rules. In principle, acting in violation of the blocking regulations will result in no legally valid transfer of the shares in the target, as this restriction has the effect of property law.
Furthermore, acting in violation of the decision-making rules will result in nullity of the resolution (Article 2:14 of the Civil Code) or can be invoked voidability (Article 2:15 of the Civil Code). This is the case, for example, if the general meeting passes a resolution without giving a director the opportunity to exercise his advisory vote. Nullity and/or defeasibility of resolutions can in principle be restored through ratification (Article 3:58 BW) and confirmation (Article 3:55 BW).
However, acting contrary to the target's blocking rule cannot be easily remedied. The quality requirement forms part of the blocking arrangement and, as we will see below, will be able to create a property law block if it is not complied with.
Quality requirement
The law offers the possibility to connect a certain quality to the shareholding, such as that only certain (legal) persons can be holder of the shares. A transfer of shares in violation of this quality requirement is invalid.
If one knows in time what the articles of association contain, measures can be taken to comply with the articles of association or they can be amended in time.
In the standard judgment Nuclear Power Plant Borssele (HR 21-01-2011, ECLI:NL:HR:2011:BO5290, (Essent/Delta Energy)) the question arose whether the takeover of Essent by RWE A.G. was in conflict with the statutory quality requirement of N.V. Elektrisch Produktiemaatschappij Zuid-Nederland (EPZ), the owner of the nuclear power plant Borssele, where Essent and Delta were each 50% shareholder. The quality requirement meant that holders of EPZ shares could only be NVs or BVs held exclusively directly or indirectly by public law entities.
The shares of RWE A.G. were not fully owned by legal persons governed by public law and this was contrary to the quality requirement. Delta demanded in summary proceedings that Essent be ordered to comply with the quality requirement and that it be prohibited from cooperating in any construction whose effect would be to no longer comply with the quality requirement. Delta's claims were upheld and, as a result, the EPZ shares did not (indirectly) come into the hands of RWE A.G.
This ruling, despite being more than a decade old, still shows that it is very important to check and comply with the articles of association of the target.
Detect in time
It is fairly easy to check what is contained in articles of association. However, this must be done in a timely manner. After all, if one knows in time what the articles of association contain, measures can be taken to comply with the articles of association or, if necessary, the articles of association can be amended in time.
In acquisition processes where there is often a tight timeframe, it is better to be prepared than to have to perform actions in a hurry or to postpone the closing date.
