Act on Management and Supervision

• Netherlands

• Corporate

01-01-2013

1. Introduction

On 31 May 2011, the Dutch Parliament adopted new legislation to amend Book 2 of the Dutch Civil Code in connection with the amendment of the rules on management and supervision within public limited liability companies (N.V.) and private limited liability companies (B.V.). The act on management and supervision entered into force on 1 January 2013. The main changes of current corporate law are described in this newsletter.

2. Amendments

2.1 One-tier board

The act provides – as an alternative to the existing two-tier system with a management board a supervisory board - a legal basis for the one-tier board system, a board of directors which includes both executive and non-executive directors. The one-tier system is optional for NVs, BVs and other companies that are subject to the so called large company regime (structuurregime).

If a NV or BV elects to adopt a one-tier board system, this needs to be included in the articles of association. The specific duties of each individual director may be allocated under or pursuant to the articles of association. The allocation of duties is subject to a number of limitations, such as:

(a) the task to supervise the performance of duties by the directors can not, pursuant to a division of tasks, be taken from the non-executive directors;

(b) the chairmanship of the board of directors cannot be assigned to an executive director;

(c) making nominations for the appointment of directors can not be assigned to an executive director;

(d) the authority to establish the remuneration of the executive directors cannot be assigned to an executive director, and

(e) executive directors shall not participate in the decision taking process in respect of the establishment of the remuneration of the executive directors.

Regardless of an allocation of tasks, all directors remain collectively responsible for the overall management. All directors will be jointly and severally liable for mismanagement by one or more co-directors. An individual director is only exempted from liability if he or she, taking into account the division of tasks between the directors, is able to prove that his or her performance as a director does not qualify as gross negligence and that he or she has not been negligent in preventing the consequences of the mismanagement.

In view of this potential liability of directors, it is important that the tasks within a one-tier board are divided precisely and documented properly.

The general meeting of shareholders stipulates whether a director is appointed as executive or as non-executive director. Only a natural person may be a non-executive director.

2.2 Limitation of board positions

The act puts limitations on the number of supervisory positions that a managing (or in a one-tier board, executive) director or a supervisory (or in a one-tier board, non-executive) director of a 'large company' may hold. A 'large company' is a NV, BV or foundation that meets at least two of the following conditions:

• The value of the assets, according to the balance sheet and explanatory notes thereto to, is higher than EUR 17,500,000;
  

• The net turn over in the last financial year is higher than EUR 35,000,000;
  
• The average number of employees is 250 or more.
  

As far as foundations are concerned, the limitation only applies if a foundation has a statutory obligation to prepare (and file) annual account; not for profit foundations are exempt.

Whether or not a legal entity qualifies as 'large company', is to be determined based on the consolidated annual accounts (if any). Furthermore, a legal entity will have to meet the mentioned criteria on 2 consecutive balance dates. The same applies - mutatis mutandis - for a 'large company' that does not meet the criteria anymore: if a 'large company' does not meet the criteria on 2 consecutive balance sheet dates, then the limitation no longer applies.

Consequences of being a 'large company'

A statutory limitation in the number of supervising positions or management board positions applies if a company qualifies as a 'large company'. The basic rules are the following:

(a) A person may not be appointed as managing (or, in a one-tier board, executive) director if (i) he or she holds more than two supervisory (or, in a one-tier board, non-executive) positions with other ‘large companies’, or (ii) if he or she is a chairman of a supervisory board or of a one-tier board of another large company.

(b) a supervisory (or, in a one-tier board, non-executive) director will be prohibited form holding more than five supervisory (or, in a one-tier board, non-executive) positions within 'large companies'. Chairmanship of a supervisory board or a one-tier board will count as two positions.

Of course, there are some exemptions from the basic rules as outlined above. For example, the limitation does not apply to a director who is temporarily appointed by the Enterprise Chamber of the Court in Amsterdam. Also, management positions within one group of companies count for 'just' one position.

2.3 Balanced division of positions among women and men

The act indicates that large companies will be required to have a balanced composition on their boards. The act indicates that a management board, supervisory board or, in a one-tier board, board of directors, will be deemed to have a balanced gender distribution if, of the seats occupied by individuals, at least 30% are occupied by women and at least 30% by men.

A balanced allocation of seats should be taken into account at the occasion of (i) the appointment or the nomination for appointment of managing or executive directors, (ii) 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 (iii) drafting the profile for the non-executive directors, as well as the nomination for appointment, the appointment and the recommendation of non-executive directors.

If the composition of a company’s management board, supervisory board or, in a one-tier board, board of directors, is not balanced according to the act on management and supervision, it is required to set out in its annual report why the positions are not allocated in a well-balanced matter and how the company aims to achieve a well balanced allocation of positions in the future.

2.4 Conflict of interest

The act amends the provisions applicable to conflict of interest situations in an NV or BV. In the past, a conflict to interest would lead to a restriction of the power to represent the company (external), while the new legislation provides that any conflict of interest will only regard the decision-making process (internal).

A managing director or a supervisory director with a direct or indirect conflict of interest may participate neither in any deliberations nor in any decision-making involving the relevant transaction. If all members of the management board have a conflict of interest, the resolution concerned will be adopted by the supervisory board. If there is no supervisory board, the resolution will be adopted by the general meeting (unless the articles of association provide otherwise). If all the members of the supervisory board have a conflict of interest, the resolution will be adopted by the general meeting (unless the articles of association provide otherwise).

2.5 Employment-law status of management board members of listed companies

The legal relationship between a director of a listed company and the listed company shall no longer be regarded as an employment contract. This means that a managing director will no longer have the protection provided under employment law.

3. Conclusion

The act has a direct impact on current situations and supersedes in certain circumstances (Balanced division of positions among women and men, conflict of interest) the current provisions of articles of association. In addition to the "Flex BV" provisions that became into force on 1 October 2012, considerable changes have been made in Dutch corporate law. Therefore, we advise, taking into account these changes, to review current articles of association and group structures in order to analyze of whether they still meet their objectives. We will be pleased to advise and to assist in implementing potential changes.