HEDGING THE HEDGE FUNDS?
How management can protect the corporation’s interests
According to the Dutch Economy Minister Joop Wijn, “Investment companies buy out a business, only to strip it bare like a plague of locusts“. He is referring to so-called hedge-funds who acquire enough shares in corporations to enable them to put some pressure on the management to sell whole divisions, the proceeds of which should be used for dividend payments. Those hedge-funds (there are other types too) are sometimes rather aggressive. As an investor one should carefully decide whether to invest in a hedge fund.
Shareholders of a Dutch corporation (as well as the trade unions) may file a petition with the Enterprise Chamber of the Amsterdam Court of Appeal if they consider certain acts of the corporation mismanagement. The Enterprise Chamber deals with many good corporate governance issues and plays an important role in the resolution of various disputes concerning the corporation. The Court can order an investigation into the affairs of the corporation (‘enquête’) and may take provisional measures as well, for example, the temporary transfer of (certain) shares to a nominee. But most shareholders support hedge-funds and trade unions seem not to be interested in initiating those proceedings.
The management itself cannot file such a petition. Thus, if management has to deal with a hedge-fund that’s only interested in stripping the corporation, there is not much they can do in legal terms. That’s why a debate is going on in the Netherlands on how to protect corporations against corporate raiders.
In an article published in the Dutch newspaper ‘Het Financieele Dagblad’ on 29 August 2006, Frank Peters and prof. Alexander Mohr of Spigthoff Attorneys and Tax Advisers argue that under current Dutch law the management of corporations already have sufficient means to deal with aggressive shareholders. They point out that according to the law a petition may also be filed by any person who, by virtue of the articles or an agreement with the corporation, have been granted this right. Therefore, the management could easily incorporate a foundation (or third parties could do so) and grant the right mentioned by virtue of an agreement. By doing so, the management creates a powerful weapon against aggressive shareholders who don’t care about the corporation’s long-term prospects.
Karel Frielink
Attorney (lawyer) / Partner
China Slips In Global Competitiveness Ranking…
The World Economic Forum out of Davos, Switzerland, just released its Global Competitiveness rankings and China has fallen from 48th last year to 54th this year. The Forum summarized China’s positioning as follows: China’s ranking has fallen from 48…