New Dutch legislation affecting legal entities

On July 1st, 2021 the Dutch Law on the management of legal entities (Dutch: “Wet Bestuur en Toezicht rechtspersonen, WBTR”) is in force (partly).

Supervisory Board

Now Dutch associations and Dutch foundations (Dutch: “’Verenigingen”, respectively “Stichtingen”) are by Law enabled to implement an optional supervisory board (Dutch: “Raad van Commisarissen”) who will guard the policy and the day to day affairs. Also, a so called one tier board is possible in which the directors and the supervising directors (Dutch: “niet- uitvoerende bestuurders”) are appointed. Only the supervising directors may act as chairman of the board in case of a one tier board.

If you wish to implement a supervisory board in an Association or Foundation the articles of association must be checked to see whether this is allowed or amended.
The provisions that provide a legal basis for a one or two tier board at associations and foundations will not come into effect on 1 July 2021. The entry into force of these provisions in particular has been postponed for the time being. The other provisions are in force.

Conflict of Interest

Directors and supervisory directors of a BV or NV perform their duties to serve the interests of the company. This is already incorporated in the Law.

This requirement will also apply to associations and foundations. Within associations and foundations, the different interests of the legal person and directors often conflict. This new commandment is intended to prevent abuse of associations and foundations. When there is a conflict of interest the director or the supervisory board member shall not participate in the decision making process.
If this leads to it that a board decision cannot be taken then the supervisory board then makes the decision. If there is no supervisory board, the shareholders or members make a decision.

When there is a conflict of interest within a foundation and there is no supervisory board to make a decision, then the foundation’s board can make the decision. The board must, however, record all considerations for making the decision in writing.
In case the articles of association with a conflict of interest provision does not correspond to the new rules, this old clause no longer applies since 1 July 2021. In principle, you do not need to amend the articles of association for this scheme, because the new rules apply immediately and automatically. To avoid confusion, it is advisable to remove the old provision from your articles of association via the civil-law notary.

Inability or absence of directors

Since 1 July 2021, the articles of association of inter alia associations, foundations, cooperatives must contain rules regarding the inability or absence of directors and supervisory directors. In such cases, the articles of association must indicate who may make decisions if the management board or the supervisory directors are unable to do so in order to avoid stalemate. Such regulation already applies to BV’s and NV’s.

A fourth paragraph is added to Article 2:142 of the Dutch Civil Code, which stipulates that the articles of association of the NV must contain a provision for absence or prevention, for example due to the resignation, dismissal or long-term illness of (all) members of the Supervisory Board in the event that the NV has a supervisory board.
The transitional law of the WBTR indicates that you must include this new rule about who may make decisions if directors and supervisory directors or supervisory board members are unable to do so at the latest with the next amendment to the articles of association.

Liabilities

Liability on the basis of improper performance of duties already existed for directors and supervisory directors of NVs, BVs and commercial associations and foundations. Especially for non-commercial legal entities, the extension of liability means an increase in personal risks. Since 1 July 2021, voluntary management therefore entails a higher risk if there is mismanagement.
In order to avoid liability make sure that clear agreements are drafted in the articles of association about purchases, finances and decision-making, and that the tasks within the board are properly divided. Board members are at greater risk if these things are not in order.

Dismissal board foundation

The Court is given more discretion to dismiss a director or supervisory director of a foundation if the Public Prosecution Service or an interested party so requests. This only applies to a foundation, because the members of an association or a cooperative can supervise. The Court now may also dismiss a director of the supervisory director on the grounds of: neglecting the job, major change of circumstances, other compelling reasons and/or failure to (properly) comply with an order to provide insight into the organization and finances of the foundation.

Limitation of multiple voting rights.

Under the new Law, a managing director or supervisory director cannot cast more votes than the other managing directors or supervisory directors together. This already applies to BVs and NVs and will also apply to other legal entities. Deviating articles of association must be amended at the next amendment to the articles of association after the entry into force of the law. Provisions in the articles of association that are not in line with the new regulation for multiple voting rights can no longer be invoked after 5 years.

If you have any questions about the content please contact: info@birchservices.ch


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