Case of the Month: Commission v. Netherlands

by Roger Alford

My vote for the most important international law case in the month of September is the ECJ decision in Commission v. Netherlands. The case is important in articulating the standard for the free movement of capital and affirming the protections guaranteed to foreign investors under the EC Treaty. It is another significant blow to government practices put in place to protect formerly state-run enterprises that provide basic public services.

As part of its privatization initiative in the early 1990s, the Dutch government privatized its state postal, telegraph and telphone enterprises. But in privatizing the undertaking, the government retained a minority interest in the company that had veto power over major corporate decisions. Pursuant to such “golden shares” the Dutch government could veto the decision to issue shares, merge, make dividend payments, amend the statutes of the company, or similar major financial or governance decisions.

The Dutch government argued that such veto power was necessary to guarantee the solvency and continuity of the provider of universal postal service. The European Commission disputed that golden shares were necessary for that objective and the ECJ agreed. The decision strongly favors the interests of foreign investors and underscores the ECJ’s commitment to the free movement of capital within the European Union. Privatized companies are now more vulnerable to foreign takeovers, including hostile ones. In my view that is a good thing, leading to greater financial health and competitiveness. The ECJ also left the door open for legitimate arguments that such government veto power may be necessary in certain circumstances, such as guaranteeing the continued provision of important services to the public.

The decision follows a handful of other ECJ cases in recent years that have restricted the use of golden shares. There is much more on this subject in this article by Stefan Grundmann and Florian Möslein at Humboldt University in Berlin. As they note, these decisions might “have much broader effects on general company law. The ECJ [has] focused on whether access to any capital investment is legally or factually prevented or merely made less attractive. Therefore, any arrangement that reduces decision making power of shareholders might be relevant…. The standard of review applied by the Court of Justice has been particularly strict where veto rights had been granted with respect to transactions influencing the shareholder structure.”

Here is an excerpt from the decision:

Comments are closed.