Careless consultation with the Works Council may constitute mismanagement of the company’s management
Careless conduct and mismanagement
The Enterprise Chamber ruled in a case of a company takeover via a leveraged buyout that the management of the company had acted negligently (partly) due to defects in the co-determination process. The careless conduct was classified as mismanagement, because it violated the elementary principles of proper entrepreneurship.
Request for advice from Works Council in case of company takeover (financing and provision of security)
Pursuant to Section 25 (1), opening words and under a, i and j WOR, an employee participation body must be given the opportunity to advise on any decision to transfer control of the company, to attract significant credit for the benefit of the company and to provide security for significant debts of another entrepreneur, unless this is done in the normal course of business.
Duty to correct inaccurate, incomplete or misleading information
A request for an opinion should include the essence of the proposed resolution, the board’s rationale for it and an accurate description of its likely consequences. It is the responsibility of the board that the employee participation body is correctly and fully informed in the advisory process, according to the Enterprise Chamber. According to the Enterprise Chamber, this responsibility implies that incorrect, incomplete or otherwise misleading information must be corrected as soon as possible.
Subsequent relevant information must still be provided to the works council
In this case, the management board had become aware of further relevant information after it had asked the relevant employee participation body for (an initial) advice on a proposed sale of the company under Section 25 of the WOR. This further information related to the structure of the financing of the transaction, its significance, and the associated risks for the company. These risks were significant, in part because after the acquisition, the company became liable (due to merger with the buyer) for high loans (at very high interest rates) taken out by the buyer to finance the acquisition.
The Enterprise Chamber found that the board should have informed the employee participation body about this after submitting the request for advice. However, the board failed to do so. Even when a second request for advice was submitted (about the merger after the takeover), the board failed to inform the employee participation body carefully, correctly and completely. According to the Enterprise Chamber, the board should have done so.
Failure to inform the works council correctly and/or fully qualifies as mismanagement
The ruling shows that the Enterprise Chamber regards it as a serious matter if the management board of the company does not give the Works Council, by not correctly and/or fully informing it, insufficient opportunity to do its job and therefore does not sufficiently respect the participation rights. According to the Enterprise Chamber, this qualifies as mismanagement.
An important point for attention is that relevant information must also be shared with the Works Council afterwards, as soon as the management has become aware of it, at such a time that the requested advice can still have a substantial influence on the decision to be taken. And that the Works Council must subsequently be given sufficient time to provide further advice, if necessary, on the basis of the further information obtained.
Discharge granted may be annulled
It is worth mentioning that the Enterprise Chamber has annulled the resolutions of the shareholders’ meeting granting discharge to the management board (and the supervisory board), insofar as this discharge relates to the mismanagement established by the Enterprise Chamber.
Information
If you have any questions about this article or this topic, please contact Peter Verheijden, an employment law attorney at LVH Advocaten.
