This Legal Alert outlines the principal consequences of the Bill on management and supervision.1. The Bill was adopted by the First Chamber of the Dutch Parliament on 31 May 2011 and is expected to enter into force on 1 January 2012. The Bill will be revised by two other bills pending before Dutch Parliament.2 This Legal Alert assumes that all bills will be enacted on one and the same date.
The Bill introduces statutory provisions on the one-tier board structure, a single board comprising both executive and non-executive directors. This structure is an alternative to the two-tier board structure where there is a management board and a separate supervisory board. The bill provides a one-tier board structure for a public company with limited liability (naamloze vennootschap) ("NV") and for a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) ("BV"). Similar to supervisory directors in a two-tier board, non-executive directors in a one-tier board can only be natural persons. The one-tier board structure will also be available for companies that are subject to the structure regime (structuurregime).
A one-tier board requires a basis in the articles of association. The tasks of the executive and non-executive directors in a one-tier board however, may be allocated under or pursuant to the articles of association, provided that the general meeting stipulates whether a director is appointed as executive or as non-executive director and furthermore provided that the task to supervise the performance by the directors of their duties cannot be taken away from non-executive directors. In addition, an executive director may not be allocated the tasks of (i) chairman of the board, (ii) fixing the remuneration of executive directors, or (iii) nominating directors for appointment. Nor may an executive director participate in the adoption of resolutions (including deliberations in respect of these) with regard to the remuneration of executive directors. Tasks that have not been allocated fall within the power of the board as a whole.
Regardless an allocation of tasks, all directors remain collectively responsible for proper management. All directors will be jointly and severally liable for failure of one or more co-directors. An individual director is only exempted from liability if he proves that he cannot be held seriously culpable for the mismanagement and that he has not been negligent in preventing the consequences of the mismanagement. In this regard a director may, however, refer to the allocation of tasks between the directors. In view of this potential liability of directors, especially non-executive directors for the day-to-day management, it is imperative that the tasks within the one-tier board be allocated precisely.
The requirement that a binding nomination for the appointment of a member of the management board or supervisory board of an NV or a BV consists of at least two persons for each vacancy will be abolished.
Conflicts of interest
The Bill amends the statutory provisions on conflicts of interest of members of the management board of an NV or a BV. Whereas current law provides for a restriction of the power to represent the company externally, the Bill departs from the external effect and proceeds on the principle that conflicts of interests have to be dealt with internally. It provides that a member of the management board may not participate in the adoption of resolutions (including deliberation in respect of these) if s/he has a direct or indirect personal conflict of interest with the company and its related enterprise. If all members of the management board have a conflict of interest, the resolution concerned will be adopted by the supervisory board. Failing a supervisory board, the resolution will be adopted by the general meeting, unless the articles of association provide otherwise. A similar provision applies to members of the supervisory board.
If a managing director or a supervisory director does not comply with the provisions on conflicts of interest, the resolution concerned is subject to nullification (vernietigbaar) and the managing director or supervisory director concerned may be held liable towards the company.
Once the Bill becomes law, limitations on the power of managing directors to represent the company externally in case of a conflict of interest as included in the articles of association will cease to be effective. Transactions that were entered into before the Bill became law and in which a managing director had a conflict of interest will, however, be assessed on the basis of the old rules on conflicts of interest and may be ratified by the general meeting.
Limitation on number of supervisory positions
The Bill puts limitations on the number of supervisory positions that a managing director or a supervisory director of an NV, a BV or a foundation (stichting) that qualifies as a large company ("Large Company") may hold. Other Dutch legal entities, such as the association (vereniging) and the cooperative (coöperatie), will not be affected. Foreign legal entities and their supervisory position will also not be affected. An NV, BV or foundation qualifies as a Large Company if at the end of the financial year it meets at least two of the following criteria:
the value of the assets according to the balance sheet with explanatory notes is, on the basis of acquisition and manufacturing costs, more than EUR 17.5 mln;
the net turnover is more than EUR 35 mln
the average number of employees is 250 or more.
The Minister of Public Safety and Justice announced a remedial act which clarifies that a foundation can only qualify as a Large Company if it is subject to accounting and reporting rules. Foundations that are primarily aimed at, for instance, religious, charitable or cultural objectives, will be excluded from the scope of the new rules.
The Bill provides that a person may not be managing director of a Large Company if s/he holds more than two supervisory positions with Large Companies or, if s/he acts as chairman of the supervisory board/supervisory body established by the articles of association or, in the case of a one-tier board, the management board of a Large Company. Pursuant to the explanation of the Minister of Public Safety and Justice, in the case of a one-tier board, the reference to "managing director" must be considered a reference to an executive director. The term "supervisory position" refers to the position of supervisory director, non-executive director or member of a supervisory body established by the articles of association.
Furthermore, the Bill provides that a person may not be a supervisory director or, in the case of a foundation, a member of the supervisory body of a Large Company if s/he holds five or more supervisory positions with Large Companies. Acting as chairman of the supervisory board/supervisory body established by the articles of association or, in case of a one-tier board, chairman of the management board will count twice. Pursuant to the explanation of the Minister of Public Safety and Justice, in case of a one-tier board, the reference to "supervisory director" must be considered a reference to a non-executive director.
Supervisory positions in Large Companies that are part of the same group will be counted as one supervisory position.
A transitional regime is provided for. A person may continue in his/her position who, at the time of the act entering into force, holds more positions than is allowed. The new rule will apply, however, to re-appointment or new appointments.
Annex A to this Legal Alert provides a list of Q&As on the topic "Limitation on number of supervisory positions".
No employment agreement
Under current law, usually a double legal relationship exists between a managing director and a Dutch (listed) company3: a company law relationship and an employment agreement. According to the Bill, the legal relationship between a managing director and a Dutch listed company will no longer be considered an employment agreement. This does not mean that there will be no agreement between the managing director and the Dutch listed company concerned. What the nature of such agreement will be, however, does not follow from the Bill. There are various potential scenarios, one of which is an agreement sui generis, or an agreement of assignment (overeenkomst van opdracht). The new rules apply to new situations only; existing employment agreements will be grandfathered.
Annex B to this Legal Alert provides a list of Q&As on the topic "No employment agreement".
The Bill includes provisions on well-balanced participation of men and women in the management boards and supervisory boards of NVs and BVs that qualify as Large Companies. The Bill provides that NVs and BVs that qualify as Large Companies should pursue that at least 30% of the seats be held by men and at least 30% of the seats be held by women, insofar as these seats are allocated to natural persons. If an NV or BV acts as managing director ("Managing Director Legal Entity") of an NV or BV that qualifies as a Large Company, the above also applies to the Managing Director Legal Entity as well as to each NV and BV that acts as managing director of such Managing Director Legal Entity.
A well-balanced allocation of seats should be taken into account at the occasion of:
the appointment or the nomination for appointment of managing directors;
drafting the profile for the supervisory board's size and composition, as well as the designation, the appointment, the recommendation and the nomination for appointment of supervisory directors; and
drafting the profile for the non-executive directors, as well as the (nomination for) appointment and the recommendation of non-executive directors.
If a Large Company does not comply with the rules on gender diversity, it is required to set out in its annual report (i) why the seats are not allocated in a well-balanced manner, (ii) how the company has attempted to achieve a well-balanced allocation and (iii) how the company aims to achieve a well-balanced allocation in the future.
The provisions on gender diversity will apply for a limited period only; they will cease to be effective as per 1 January 2016.
The Minister of Public Safety and Justice promised to evaluate the act three years after the act's entry into force.
ANNEX A - Q&As Limitation number of supervisory positions
How many supervisory positions may I hold after the implementation of the new rules?
The maximum is 5 for a supervisory director/non-executive
director of an NV or BV or a member of the supervisory body of a
foundation and 2 for a(n) (executive) member of the management
board of an NV, BV or foundation. Two elements are important when
determining the maximum. First and foremost, the limitation applies
only to an NV, BV or foundation that qualifies as a Large Company.
In addition, this maximum is in effect when it concerns supervisory
positions with an NV, BV or foundation that qualifies as a Large
Company. Supervisory positions with other Dutch or foreign legal
entities will not be counted. A person who holds 5 supervisory
positions as described above may not be a supervisory director/
non-executive director of an NV or BV nor a member of the
supervisory body of a foundation that qualifies as a Large
What is meant by a supervisory position?
A relevant supervisory position is being a supervisory director in a two-tier system or being a non-executive director in a one-tier system with an NV or BV or a member of the supervisory body of a foundation that qualifies as a Large Company. A position in a supervisory body established by the articles of association of a legal entity is considered equivalent to a position as a supervisory director.
I am a supervisory director of a foreign legal entity. Will this be counted?
No, only supervisory positions with an NV, BV, or foundation that qualifies as a Large Company are relevant.
I am a supervisory director of 3 Large Companies and also a managing director of a Large Company. My re-appointment as managing director is coming up. Will the rules have an impact on this?
Yes, although the bill provides for a transitional regime with no retroactive effect on existing situations, in the event of (re-)appointments the new rules apply.
I am a supervisory director of 2 Large Companies and have been invited to become a member of the management board of a foundation administration office (Stichting Administratiekantoor). May I accept this invitation?
Assuming that the foundation does not qualify as a Large Company, you may be appointed to the management board of the foundation.
I hold 5 supervisory positions with Large Companies, one of them as a chairman. I would like to accept the position of supervisory director with a Large Company while giving up 1 current supervisory position. Is that possible?
No, pursuant to being a chairman your total adds up to 6. Unless you give up the position as a chairman, you will have to give up 2 positions.
I am chairman of the supervisory board of a Large Company. I would like to accept the position of managing director of a Large Company. Is that possible?
No, a managing director of a Large Company may not hold the position of chairman of the supervisory board of a Large Company.
Following entry into force of the act I intend to accept the position of managing director of a Large Company as well as 3 positions as supervisory director. The positions as supervisory director relate to 2 NVs that qualify as Large Companies and 1 BV that does not qualify as a Large Company. After 6 months also the BV qualifies as a Large Company. Does this affect my position as managing director?
Although the text of the bill does not provide for a clear answer, pursuant to the explanation of the Minister of Public Safety and Justice a change in the qualification of the BV from small company to Large Company does not affect the position as managing director provided that a re-appointment as managing director is no longer possible.
What is the relevant date to determine whether a company qualifies as a Large Company?
The calculation should be made on the basis of the situation as per the end of the most recent financial year of the legal entity concerned.
Should the calculation be made on a stand alone basis of the legal entity concerned, or on a consolidated basis?
The bill refers specifically to section 2:397 subsection 1 Dutch Civil Code and not to subsection 2, which provides that it should be viewed on a consolidated basis. It should be assumed, however, that the consolidated basis will be the point of departure.
My management BV is a managing director of a number of Large Companies and I personally am also a supervisory director for 4 companies qualifying as Large Companies. The re-appointment of the management BV is on the agenda at one of the companies. Do the rules have an impact on me?
No, the legal rules apply solely to natural persons.
I am a supervisory director at 4 group companies qualifying as Large Companies. I intend to accept the position of managing director of an NV that is not part of the same group and qualifies as a Large Company. Is that possible?
Although the text of the bill seems to suggest that only supervisory positions with legal entities that are part of the group of the NV itself will be disregarded, a reasonable interpretation of the bill would be that all supervisory positions within one and the same group count as one supervisory position. As such it is possible to accept the position of managing director.
ANNEX B - Q&As No employment agreement
Imagine a managing director no longer has an employment agreement with the listed company. Does this mean that only a company law relationship exists?
No, an agreement will also need to be concluded under the new
act. What the nature of this agreement will be does not follow from
the bill. There are various scenarios imaginable, one of which is
an agreement "sui generis", or an agreement of assignment
(overeenkomst van opdracht).
What does the bill state concerning protection against dismissal of a managing director?
The bill does not address this issue, but a continuing performance agreement can, in principle, be terminated readily, with observance of a reasonable notice period. A prior judicial review is not required.
Under the new act, is concluding an employment agreement with another company of the group also not permitted?
The bill does not exclude this. Pursuant to the explanation to the bill an employment agreement may still be concluded with a group company.
What are the consequences of the lack of an employment agreement between the managing director and the listed company for tax purposes and for employment conditions, such as pensions and social insurances?
For income tax purposes the relationship between the managing director and the listed company is to be regarded as a notional employment relationship. As a result the current tax position of a managing director of a listed company for income tax purposes is continued. With regards to pensions, the Minister of Social Affairs and Employment has confirmed to ensure that the managing director of a listed company may still participate in a group pension insurance scheme as defined in the Pensions Act (Pensioenwet). For social insurance law purposes the relationship is in principle put on par with an employment relationship.
Does the bill prohibit entering into a termination arrangement that deviates from the Corporate Governance Code?
The present rules that permit deviation, provided it is explained, remain in existence. But it will be more difficult for a managing director who does not have an employment agreement with a group company to argue in court that he is entitled to higher or supplementary compensation. The Cantonal Court formula and the compensation deriving from apparently unreasonable dismissal will not be applicable in case of termination of an agreement of assignment, whether or not concluded with the management BV.
1. Wijziging van Boek 2 van het Burgerlijk Wetboek in verband met de aanpassing van regels over bestuur en toezicht in naamloze en besloten vennootschappen (31 763)
2. Wijziging van Boek 2 van het Burgerlijk Wetboek in verband met de aanpassing van de regeling voor besloten vennootschappen met beperkte aansprakelijkheid (Wet vereenvoudiging en flexibilisering bv-recht) (31 058) en Aanpassing van de wetgeving aan en invoering van de Wet vereenvoudiging en flexibilisering bv-recht (Invoeringswet vereenvoudiging en flexibilisering bv-recht) (32 426)
3. Dutch listed company refers to an NV whose (depository receipts for) shares are admitted to trading on a regulated market or a multilateral trading facility in the European Economic Area or to a comparable system from a State outside the European Economic Area.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.