NETHERLANDS Trends and Developments Contributed by: Gianluca Kreuze, Ruben den Hollander, Anne van Geen and Sanne van Esterik, Loyens & Loeff
of the fund has ended and liquidity is needed for distribution to investors, or to make additional investments or to support the financial stability of distressed portfolio companies. NAV facilities have proved to be a strategic tool for investment funds, bridging the gap when securing portfolio company financing becomes complicated. Considerations for board members during LBOs Another interesting development has been the increased awareness of the responsibilities of directors and supervisory board members within the context of leveraged buyouts, or LBOs. This can be linked to a recent judgment handed down by the Enterprise Chamber ( Ondernemingskam- er ) of the Amsterdam Court of Appeal relating to the childcare organisation Estro Group (formerly Catalpa) acquired by the private equity investor Providence in 2010 via an LBO. As is customary in LBOs, the target group assumes, guarantees and/or secures the acquisition financing pro- vided by third-party creditors. In this case, to avoid financial assistance rules, a legal merger between the bid company (as acquiring entity) and Estro (as the disappearing entity) was set up, resulting, de facto, in both the bank financ- ing and the shareholder loan becoming liabilities at the level of the target company (Estro). Estro went bankrupt in 2014 following revenue losses due, partly, to the government cutting back on subsidies. The bankruptcy trustee filed a peti- tion for an inquiry into the policies and affairs of Estro in relation to the acquisition. Based on the results of the investigation, the Enterprise Chamber has determined that there was mis - management at Estro. An important aspect in the Enterprise Chamber judgment was the disclosure of information to the works council. The directors are responsi- ble for keeping the works council correctly and
fully informed during the advisory process. If it turns out that the information used by the works council is not correct, it should be rectified and, if appropriate, the works council should be given the opportunity to issue further advice. If certain deal aspects only become clear at a later stage in the transaction process, the works council should be updated. The judgment also demonstrates that directors must carefully consider the (financial) pros and cons of LBOs, since they often place a significant financial burden on the target company. The cor- porate interest analysis should not only consider the continuity of the target company following the LBO, but also whether the LBO contributes to the sustainable success and execution of the strategy of the target company after it has taken place. During the entire process, the board must consider whether the LBO and its conditions can still be aligned with the interests of the target company, or whether these conditions require adjustment. The target company’s management board must adopt a proactive approach and, where necessary, challenge the parties involved in the process, including the private equity inves- tor. Directors should provide for an accessible paper trail to ensure transparency on decision- making processes. In carrying out the corporate benefit analysis, directors should seek assistance from inde- pendent experts to determine any issues and risks associated with the LBO. Any red flags should be quantified by the board, with neces- sary measures taken to address any possible consequences. If recommendations for further investigation are made, the board should con- sider whether any these are necessary. Directors should keep in mind that a higher duty of care may apply on account of personal finan-
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