On 12 December 2007, the District Court of Utrecht ruled that Hagemeyer N.V. ("Hagemeyer") and the members of the management and supervisory boards of its former subsidiary Ceteco N.V. ("Ceteco") are jointly and severally liable for the damages incurred by Ceteco's creditors and Ceteco as a result of Ceteco's bankruptcy. The exact amount of the damages will be determined in separate proceedings.
Introduction
Since 1990, Ceteco's core business consisted of the sale of electrical appliances in Latin America. Ambitious growth strategy and the economic decline in the region eventually led to the bankruptcy of Ceteco on 17 May 2000. Hagemeyer has held approximately 65% of the outstanding shares in the capital of Ceteco since 1995, while three of the six supervisory board members of Ceteco were members of the management board of Hagemeyer at the time. Both Ceteco and Hagemeyer are listed at the Amsterdam Stock Exchange.
In 2003, the trustees of Ceteco lodged a claim against Hagemeyer for infringing its duty of care (zorgplicht) towards both the creditors of Ceteco and the company itself. According to the trustees this infringement resulted in a wrongful act (onrechtmatige daad) and thus in Hagemeyer's liability for the damages.
The trustees also lodged claims against the executive and non-executive directors of Ceteco, but these are irrelevant for the purpose of this newsflash.
Liability of the shareholder
The court has awarded the trustees' claims by ruling that Hagemeyer has indeed infringed its duty of care and is thus liable vis-à-vis Ceteco and its creditors. The court has established that Hagemeyer, through its representatives in Ceteco's supervisory board:
(a) was in the possession of vital and detailed information concerning Ceteco's business and policy, which was unavailable to Ceteco's other supervisory directors; and
(b) was able to impose its will upon Ceteco without exercising its rights as majority shareholder.
As a result, Hagemeyer knew or should have known that continuation of Ceteco's management and business policy would prejudice creditors' rights and had therefore the obligation to interfere in Ceteco's management in order to avoid these consequences.
Extension of shareholder's liability
The court's ruling is another example of the increased emphasis in Dutch case law on the role of shareholders vis-à-vis their subsidiaries and of the further tightening of their obligation to interfere in the management of a subsidiary for the benefit of its creditors. While previously the shareholder's duty of care required that the shareholder shall use its authority to instruct management or inform the creditors of the subsidiary concerned of the company's inability to perform its obligations, this ruling clearly requires the shareholder to step up and take appropriate action to ensure a change of policy.
Also, this is the first ruling whereby the duty of care is attributed to a majority shareholder as opposed to a sole shareholder.
Hagemeyer has announced that it will appeal this ruling.
