Introduction
The annual accounts procedure is the least-used instrument before the Enterprise Chamber (Ondernemingskamer, OK), but it is a sharp one. Where annual accounts conflict with the law, the Enterprise Chamber can order their annulment and restatement. In practice everything turns on three questions: who may bring the petition, when are annual accounts unlawful, and what precisely does the Enterprise Chamber then order? The substantive decisions show which patterns the Enterprise Chamber applies.
Who may complain about the annual accounts?
The class of interested parties in the annual accounts procedure is broad, but not unlimited. In the Steinhoff case the Enterprise Chamber stated the rule clearly: a shareholder is presumed to have an interest in the correct preparation of the annual accounts. It is then for the opposing party to prove that the requested change causes no disadvantage whatsoever. Steinhoff failed to do so: although the petitioners held only 1,000 shares, as a co-shareholder in POCO they had a concrete interest in how that participating interest was accounted for.
That broad line applies not only to direct shareholders. A pledgee with a financing interest qualified as an interested party in the SportCity case, and an indirect depositary receipt holder was admitted in the Dubbel F case. The boundary lies where the interest becomes purely idealistic: the SOBI foundation was declared inadmissible in its petition against a pension fund, because it could not demonstrate any concrete and specific disadvantage (a decision on purely idealistic interested parties (2022)). Anyone pursuing a general public interest in correct reporting, without any own involvement in the legal entity, is not admitted.
A separate category is the regulator. Since the Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving, Wtfv), the Netherlands Authority for the Financial Markets (AFM) may commence annual accounts proceedings without a prior recommendation where the interest of the securities markets so requires. In the Spyker case, the first AFM procedure under that Act, admissibility was confirmed, although all substantive objections were ultimately rejected. The AFM need not first exhaust consultation: its right to petition is autonomous.
The Enterprise Chamber is also strict on time limits. Section 2:449 DCC allows two months after filing. That period is not extended: in the same Dubbel F case the petition ultimately failed on that ground, despite the fact that the petitioner was recognised as an interested party in its capacity as an indirect depositary receipt holder. The admissibility ruling therefore also yields useful case law where the petition ultimately founders.
The materiality test as the first filter
The central question in every annual accounts procedure is whether the annual accounts conflict with the law, specifically, with Title 9 of Book 2 DCC and the true and fair view requirement of Section 2:362 DCC. But not every error counts. The first filter is always the materiality test: only errors that materially impair the insight into the financial position and result justify intervention.
That test is decisive in practice. In the mezzanine case the Enterprise Chamber found that the treatment of a management fee was not entirely correct, but the amount was not material enough for restatement. In the second SportCity case the classification of an exclusivity fee was substantively incorrect, not an intangible fixed asset, because the legal entity had no power of disposal within the meaning of the Dutch Accounting Standards (RJ 210.112), yet here too the amount did not reach the materiality threshold. And in the Field Goal/VCG case four objections successively failed the materiality test: USD 396,000 against a result of USD 17 million was not material, and the annual accounts are intended for a broad range of users, not for the specific information needs of an individual shareholder.
How concrete that test is appears from the LDMA/VRC case: the dismissed director-shareholder raised seven objections, but the errors identified amounted to €49,913 against equity of €1.3 million. The Enterprise Chamber worked it through and concluded: not material. In the Spyker case the same applied to twelve disclosure objections raised by the AFM: none was material enough to deprive the annual accounts as a whole of the required insight.
That broad range of users is a recurring theme. The Enterprise Chamber assesses the annual accounts not from the perspective of the petitioner, but from that of the addressee: society at large. This makes it harder for petitioners to render material any defects that are relevant mainly to themselves. In addition, the petitioner bears the burden of assertion: in the Croppings case the petitioner could not substantiate the value and ownership of a licence, and the Enterprise Chamber does not go looking for defects of its own accord.
The notes as an independent ground
Where an error does reach the materiality threshold, the notes are the most common defective component. In several cases the Enterprise Chamber held that inadequate notes in themselves constitute a serious lack of insight, even where the balance sheet items are themselves defensible.
In the first SportCity case the classification of a COVID debt as a current liability was acceptable, but the notes fell seriously short: no explanation of the nature of the debt and no mention of events after the balance sheet date as required by RJ 160.404. The Arkelhof case came unstuck on the same point: the notes on irregularities and a potential impairment of €14.2 million were insufficient. And in Steinhoff the mention of the dispute concerning POCO in the notes was so cryptic that users of the annual accounts could not understand what risks Steinhoff was running.
The pattern is clear: the Enterprise Chamber accepts a margin of judgment in the presentation of balance sheet items, but expects the notes to provide the insight that the law requires. Those who prepare defensible figures but neglect the notes run a risk.
Impairment: undiscounted cash flows are not enough
The KPN case is the landmark case on impairment testing. SOBI sought restatement of the 2000 annual accounts, the year in which KPN carried billions in goodwill and licences in E-Plus on its balance sheet. The Enterprise Chamber held that, in the impairment test, KPN had wrongly used the sum of undiscounted cash flows over twenty years. Section 2:387(4) DCC requires that, in an assessment based on expected cash flows, a time factor be taken into account, that means DCF. On the basis of discounted cash flows, the value came out below the carrying amount of €27.5 billion.
Nevertheless, the Enterprise Chamber ultimately held that there was insufficient ground to conclude that KPN should have written down. Management enjoys a wide margin of judgment: only where no reasonably minded management could have refrained from an impairment is a write-down mandatory. The success of capital-market issues and the recent NTT Docomo transaction gave KPN sufficient 'comfort' to maintain the carrying amount. The Enterprise Chamber did, however, order restatement of the notes on three points, including the obligation to give insight into the reconsideration that had led to the impairment being omitted. The Supreme Court upheld the decision (the Supreme Court on appeal in cassation).
Change of accounting policy: tax-based principles require explanation
Another theme that the Enterprise Chamber assesses strictly is the change of accounting policy. In the Brink Pluimveeprodukten case there had been a switch from commercial to tax-based valuation principles under Section 2:396(6) DCC. That choice is in itself permitted, but the notes fell seriously short on four points: the reason for the change of accounting policy was absent, its significance for equity had not been made clear, the uncertainty surrounding a reinvestment reserve had not been explained, and a provision for employee options was not permissible for tax purposes. The Enterprise Chamber annulled the adoption resolution and ordered restatement. Those who switch to tax-based principles must not only adjust the figures, but also explain why and what the effect is.
A related but legally distinct point is the difference between a change of accounting policy and a change of accounting estimate. In the Reed Elsevier case the group extended the depreciation period for goodwill and intangible assets from twenty to forty years. SOBI argued that this was a change of accounting policy that should have been accounted for in accordance with Section 2:384(6) DCC. The Enterprise Chamber held otherwise: the extension was a change of accounting estimate, based on a factual reassessment of seven characteristics by the accountant. That the maximum period changed as a normative framework was subordinate to the fact that the revision arose from 'advancing insight' into the remaining useful life of specific assets. The Enterprise Chamber also rejected SOBI's remaining objections, goodwill was being amortised, and the dividend-cover concept had been sufficiently explained. The judgment is the most fully reasoned Enterprise Chamber decision on the boundary between a change of accounting policy and a change of accounting estimate (Reed Elsevier judgment (2003)).
Valuation and classification: the MEFI case
Another recurring theme is the question of when the Enterprise Chamber intervenes in the valuation and classification of balance sheet items. The MEFI case is illustrative. Momentum Capital sought restatement of the annual accounts of MEFI, an investment company. The Enterprise Chamber held that the write-down of investments to nil without any explanation conflicted with RJ 145.304 and RJ 110.129: where the value of an asset changes substantially, the notes must give insight into the underlying facts.
In addition, MEFI had wrongly recognised a provision. A provision requires, under Section 2:374 DCC, a probable obligation; there was none. The Enterprise Chamber did, however, leave intact the classification of the items as investments rather than as participating interests, because the holding was not held on a lasting basis and an exit strategy existed. This shows that the Enterprise Chamber does indeed allow the legal entity a margin of judgment in classification, provided that the choice is defensible and is explained.
Equity or debt: the GGN series
The most pronounced line in the recent annual accounts proceedings concerns the classification of equity and debt in the case of withdrawing participants. In three related cases involving the GGN group, the Enterprise Chamber developed a clear doctrine.
The GGN Brabant case (2018) concerned the annual accounts of a regional holding company within the GGN group. Following a participant's withdrawal, his claim to the buy-back price had been accounted for as a debt or provision, whereas it should have been recognised as a reduction of equity. Moreover, the change had not been designated as a change of accounting policy or as an error correction. The Enterprise Chamber annulled the adoption resolution and ordered restatement.
In the GGN Holding case (2019) the classification question arose at the level of the top holding company. In the company-only accounts, the claims of withdrawn participants were recognised as a share premium reserve, equity. The Enterprise Chamber held that 'legal form' within the meaning of RJ 240.207 may not be interpreted in purely proprietary terms: where a company has a contractual obligation to buy back shares and to pay the purchase price, the provider is, in substance and economic terms, no longer a shareholder, and the item must be accounted for as debt. The Enterprise Chamber rejected the defence that there was a reciprocal agreement that could remain off balance sheet (RJ 115.113/RJ 254.109): the withdrawing party's performance had already taken place in the past through the contribution of the business. The Supreme Court upheld this decision in its 2020 judgment.
The third case in the series, Eneri/VPGG (2021), built on this with an additional ruling on the going-concern assumption. VPGG asserted that equity was positive 'on a commercial basis'. The Enterprise Chamber held that this statement was factually incorrect and misleading: subordinated share premium obligations are obligations too. Because VPGG would cease to exist in 2025 and would be unable to meet its debts, the annual accounts had to be prepared on the basis of unavoidable non-going-concern within the meaning of RJ 170, not on the going-concern assumption. In addition, there were strong indications of an impairment of the participating interest in GGN MC: the carrying amount was just over €17 million, whereas the transaction with new shareholders implied a value of at most €2.4 million.
The spectrum of measures
The Enterprise Chamber has a differentiated arsenal at its disposal. The heaviest measure is annulment of the adoption resolution combined with an order for full restatement, as in the GGN cases and the Arkelhof case. This occurs where serious shortcomings materially impair the insight into the financial position.
A step lighter is an order for additional notes under Section 2:362(6) DCC: the legal entity files a statement with the commercial register. The Enterprise Chamber took that route in the first SportCity case, where the defect was confined to the notes.
A special variant is an order for restatement without annulment of the adoption resolution. In the KPN case, annulment was not possible under Section 1002(4) DCCP, but the Enterprise Chamber did order the notes to be amended on three points.
For items that are substantively incorrect but not material, the Enterprise Chamber opts for a direction affecting only future annual accounts, under Section 2:451(3) DCC. It did so with the exclusivity fee in the second SportCity case, with the management fee in the mezzanine case, and with the write-down of investment property to nil in the Fuikebrug case. The signal: the Enterprise Chamber corrects the course for the future without reopening the existing annual accounts.
Review by the Supreme Court: annual accounts proceedings
The only annual accounts procedure to reach the Supreme Court was disposed of under Section 81 of the Judiciary (Organisation) Act (RO), without substantive reasoning. The limited cassation case law in this field suggests that the Enterprise Chamber's rulings on annual accounts disputes are rarely challenged in practice.
What does this mean in practice?
The annual accounts procedure is not an instrument for shareholder disputes, that is the inquiry proceedings regime. It is an instrument for the integrity of financial reporting. The Enterprise Chamber applies a high threshold: only material errors that impair the statutory insight requirement justify intervention. But where that threshold is met, the Enterprise Chamber intervenes in detail, with concrete directions for both the current and future annual accounts.
For directors and supervisory directors: the notes are not a side issue. Defensible balance sheet items with defective notes are the most common stumbling block. Pay particular attention to the classification of equity and debt in complex investment structures, to the impairment test for goodwill, and to the notes on changes of accounting policy. The Enterprise Chamber has set out a clear and strict line in each of these areas, confirmed on several occasions by the Supreme Court.
Further references: KPN interim decision (impairment); Field Goal cross-petition (amendment of the petition).