Court ruling on dispute over shareholder powers in aviation company

On 17 January 2007, the enterprise section of the Amsterdam Court of Appeal ruled on a dispute between two hedge funds and the company Stork, which is active in the areas of aerospace, food systems and technical services. Stork’s works council and the trade unions sided with the management in defending the company against a takeover. Neither of the two main parties to the dispute achieved a complete victory; the proceedings were regarded as a test case in relation to the increased rights of company shareholders.

Stork NV is mainly active in the area of aviation and space travel, as well as food systems and technical services. The company is listed on the Amsterdam stock exchange and employs approximately 12,400 people, of whom 9,000 work in the Netherlands. The activities of Stork are currently spread across four divisions.

Pressure to split company

In the course of 2004, two hedge funds, Centaurus and Paulson, gained a participating interest in Stork. During the period that followed, both funds pushed for the group to be split up. It was considered that Stork should concentrate more on its aerospace operations, while selling off the remaining divisions.

The management board and the supervisory board of Stork, along with the works council and trade unions, opposed the strategy aimed at splitting up the group. In response, an extraordinary general meeting of shareholders was convened on 12 October 2006 at the initiative of the aforementioned hedge funds. At the meeting, a large majority of the shareholders present rejected the policy adopted by the management of Stork to refrain from selling one or more divisions for the time being.

Attempt to dismiss supervisory board

Further consultations between Stork and the hedge funds failed to bring the parties any closer to agreement. In response, Centaurus and Paulson called for another extraordinary general meeting of shareholders, specifying that one of the points on the agenda would be a vote of no confidence in the supervisory board. This prompted Stork to decide to issue new, preferential shares to a foundation with the primary objective of promoting the independence and continuity of the company.

Centaurus and Paulson then launched a survey procedure. Their demands included reversing the issue of new shares or at least that a ban be put in place preventing any voting rights from being awarded on the basis of the new shares. They also requested the courts to dismiss the supervisory board.

Court case ruling

The court case was held on 17 January 2007. Stork’s central works council and the two trade unions involved – the Allied Unions (FNV Bondgenoten) and the Industry, Food and Transport Workers’ Union (CNV BedrijvenBond) – sided with Stork’s management as one interested party, while the two hedge funds represented the opposing interest. In the end, the competent court, the enterprise section of the Amsterdam Court of Appeal, did not rule in complete favour of either Stork or the hedge funds. As such, the request submitted by the hedge funds to reverse the share issue was granted. However, the demand to release the supervisory board was rejected.

Instead, the enterprise section of the Amsterdam Court of Appeal appointed three additional supervisory directors with a deciding vote in relation to decisions affecting the strategy of Stork. The three individuals in question are former prime minister Wim Kok, former Akzo chief executive Cees van Lede, and former member of the Philips management board Dudley Eustache. They have been assigned the task of bringing the parties closer together through negotiation.

Strengthened powers of shareholders

Stork is governed by the rules applicable to statutory two-tier entities. This means, among other things, that the company’s management is appointed or dismissed by the supervisory board. While in the last instance the supervisory board is appointed by the general meeting of shareholders, the current supervisory directors play a significant role in the appointment process, and the works council also has influence over the appointment of supervisory directors.

The rules applicable to statutory two-tier entities were amended with effect from 1 October 2004 (NL0410102N). Since that date, the position of the general meeting of shareholders was strengthened by, for example, being awarded the right to dismiss the supervisory board. However, with this ruling, the Enterprise Section of the Amsterdam Court of Appeal has made it clear that such authority may not be exercised in all cases.

The dispute at Stork is seen by many people in the Netherlands as a test case around the issue of who actually holds the final say within shareholder companies in the country. The question is whether the company is primarily a vehicle for the interests of shareholders, or whether the interests of other interested parties, including the workforce, have to be taken into account as well.

Robert van het Kaar, Hugo Sinzheimer Institute (HSI)

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