Flex B.V. Implementation of a more flexible corporate law applicable to Dutch B.V.'s

• Netherlands

• Corporate

13-06-2012

A legislative proposal to materially change Dutch law with regard to private companies with limited liability has now been adopted by Dutch Parliament. This Act on the simplification of law applicable to private companies with limited liability ("Wet vereenvoudiging en Flexibilisering B.V.-recht") and its implementation Act will take effect on 1 October 2012.

The new legislation will abandon a number of mandatory provisions, as a consequence whereof the articles of association of a B.V. can be made much more tailor made in accordance with the wishes of the stakeholders of a B.V. Hereinafter the most important changes with regard to this amendment of Dutch law are being pointed out. Without being exhaustive on the background of the various amendments, at least the following changes are being proposed.

1.1 Share capital. Capital protection
Some of the current requirements as to share capital will be abolished. It concerns the requirement of the mandatory minimum issued share capital of EUR 18,000 at the incorporation of the B.V., and, consequently, the requirement of a bank statement that the amount to be paid in cash on shares to be issued upon incorporation is being paid before incorporation. Also the mandatory authorized share capital will become optional.

If shares are being paid up in kind, the auditor's statement will no longer be required. A description and valuation by the incorporators or, as the case may be, the board of directors of the B.V., will still be required. Furthermore, shares will remain to have a nominal value, although shares may also be denominated in a foreign currency.

Shares remain to be registered shares, although share certificates will be allowed. Another amendment is, that shares without voting rights and shares without profit rights/rights of entitlement to reserves will be possible under the new legislation.

The current provisions regarding the acquisition of assets from an incorporator or shareholder within 2 years after registration with the trade register, which includes a description and an auditor's statement which is comparable to the current requirements for contribution in kind on shares to be issued, will be amended in such a way that no auditor's statement will be required anymore. The board of directors will have to determine under which conditions such transactions may be implemented.

There will be more possibilities to repurchase shares. The provision that a repurchase is prohibited if executed after 6 months after lapsing of a financial year for which no annual accounts have been adopted, will be abolished. The possibilities to repurchase shares will be broader, provided that at least one share with voting rights will be held by another party than the respective B.V. itself. The creditor opposition period of 2 months for a reduction of share capital will be abolished.

The currently existing financial assistance provisions will be amended in such a way that some rather strict restrictions and prohibitions will be abolished. The board of directors will have to determine in a specific case whether financial assistance if provided by the B.V., is in the corporate interest of the B.V.

1.2 Share transfer restrictions.
A share transfer restriction clause in the articles of association of a B.V. will no longer be mandatory. If no provision is included in the articles of association (which provision could include an approval system or a right of first refusal or explicitly that there are no share transfer restrictions), then a right of first refusal will be applicable as included in the new law. Tailor made transfer restriction clauses, as agreed between shareholders, will be possible. Also a lock up for a certain period of time will be possible. A new element is the possibility to impose certain clearly defined obligations for shareholders in the articles of association (such as for example the obligation to provide additional funds to the B.V.). If the articles of association provide for such obligations, a new shareholder will automatically be bound thereto upon receipt of his shares.

1.3 Distributions to shareholders
A distribution of profits or distribution out of the reserves of the B.V. will be possible, provided that the B.V. continues to pay its debts due and payable within 12 months as from the moment of distribution. A resolution of the general meeting of shareholders to make a distribution will be subject to the approval of the board of directors. The board of directors may not grant its approval to a proposed distribution if and to the extent the board of directors believes or has (should have) reasons to believe that the B.V. will - if the distribution is made - no longer be able to pay its due and payable debts. If it appears - with hindsight - that the B.V. cannot pay its debts anymore, then the members of the board of directors who knew or should reasonably have foreseen the same, will be jointly and severally liable for the shortfall.

The same applies for a party (shareholder) that has received such a distribution, whilst it knew or should have reasons to believe that the B.V. would not be able to pay its debts anymore after the distribution.

1.4 Voting rights attached to shares and shareholders meetings.
As mentioned, the new legislation provides for non-voting shares and for shares which do not share in profits or reserves of the B.V. Shareholders of non-voting shares will also be entitled to attend a meeting of shareholders. In principle, shares with an equal nominal value will have equal voting rights. The articles of association however can deviate from this principle. The currently existing limitations in that respect are being abolished. Holders of a depositary receipt for shares only have the right to attend a shareholder's meeting when provided for in the articles of association.

A general meeting of shareholders can be called within 8 days (currently 15 days). In addition, it will be possible to hold general meetings of shareholders outside the Netherlands. Shareholder's resolutions may be taken outside a meeting, when all persons with rights to attend the general meeting of shareholders (i) approved such resolution taking outside a meeting and (ii) casted their vote in writing. The requirement of an unanimous resolution and the impossibility to take a resolution outside a meeting when there are persons with rights Dutch law attributes to holders of depositary receipts issued with a company's cooperation will be abolished.

1.5 Board of directors
The articles of association may provide that the meeting of holders of a certain class of shares is entitled to appoint a director, provided that each shareholder of shares with voting rights may take part in the decision making process regarding the appointment of at least one director. In addition, the articles may provide that a corporate body of the B.V. may provide directions to the board of directors.

1.6 Dispute settlement
The dispute settlement procedure will also change significantly. The new legislation stipulates that, in specific situations, shareholders have the possibility to exit from the B.V. or to squeeze out another shareholder.

Under the new rules it will no longer be necessary to wait for the court's final decisions on both (i) exit or squeeze out and (ii) price fixing to become final and irrevocable. An appeal will have no suspensive effect.

The possibilities for a shareholder to exit a B.V. will be extended. Under the new legislation a shareholder can not only demand to be bought out by his fellow-shareholders but can also initiate exit proceedings against the B.V. itself.

Furthermore, the court will not have to appoint experts to determine the price for the shares if the articles of association or a shareholders' agreement provide for clear criteria for determining the price. In such case the court itself can determine the transfer price (unless the price resulting from application of the criteria is manifestly unreasonable). Pending the proceedings, the court may grant interim relief until the shares have been transferred.

Accelerated proceedings will be possible if the shareholders of the B.V. have reached agreement on an exit of one of the shareholders but do not agree on the price to be paid for the shares.

1.7 Transitional provisions
An amendment of the articles of association of the B.V. will not be required in order to meet the criteria of the new legislation. The general rule is that the new legislation will directly become into force and may set aside provisions of the current articles of association. There are some amendments to be made mandatory once a choice is made to make an amendment in the articles of association. This regards the rights Dutch law currently attributes to holders of depositary receipts issued with a company's cooperation and the execution of the powers of the supervisory directors should one or more of them be unable to act. The holders of such depositary receipts need to be registered in the shareholders register within one year after the new legislation has become into force.

1.8 Conclusion
There will be significant changes in Dutch law applicable to the B.V. Depending on the specific demands of the shareholders and the members of the board of directors, we advise to have the articles of association reviewed and amended if required. We will be pleased to advise in more detail on the changes.