Status update on the modernisation of Dutch corporate law

On 20 December 2018, the Minister of Legal Protection sent an update letter concerning the ongoing modernisation of Dutch corporate law to Parliament. In this news update we will summarize the six subjects of the update letter.

1. Evaluation of the right of inquiry and dispute resolution

Under Dutch law, shareholders and depository receipt holders have the right to request the Enterprise Chamber to order an inquiry into the company’s affairs. The Enterprise Chamber will order such investigation in case there are well founded reasons to doubt the correctness of the course of action followed by the company. Furthermore, should the Enterprise Chamber establish mismanagement after the inquiry, the Enterprise Chamber can take immediate measures such as the suspension of a director.

In the evaluation study several points of improvement with regard to the inquiry proceedings were examined. One of the conclusions of the evaluation was that certain listed companies intentionally make it difficult to exercise the right of inquiry by using a low nominal capital which makes it hard to reach the applicable thresholds under the current legislation. The Minister is of the opinion that the conditions for accessing the inquiry procedure should be improved.

Furthermore, in the evaluation study the effectiveness of the rules on dispute resolution as set out in sections 2:335-343c of the Dutch civil code was examined. Under Dutch law there is a possibility for shareholders to claim in court the squeeze-out of another shareholder who harms the interests of the company. Another possibility under the rules on dispute resolution is the possibility for a shareholder, who is harmed in his rights or interests by one or more of his co-shareholders to such an extent that his shareholdership can reasonably no longer be expected of him, to force his co-shareholders to buy his shares.

The research showed, however, that in practice these rules on dispute resolution are not functioning effectively and because of that, in practice, the expulsion or exit of a shareholder is not always possible. The Minister is of the opinion that the effectiveness of dispute resolution should be further improved and stated that this could be achieved together with an adjustment of the conditions to access the inquiry procedure.

2. Modernisation of rules on NVs

In the letter the Minister discusses several topics with regard to the modernisation of the company rules concerning public limited liability companies (NVs). Firstly, a bill for implementation of the EU Shareholders’ Rights Directive is currently pending before the lower house of Parliament. For more information about the directive, please refer to our earlier news update on this subject.

Furthermore, with regard to the possibility to call for a cooling-off period by the management board of a listed company in the event of a hostile takeover, the public consultation just ended and, according to the Minister’s schedule, a bill will be submitted in a few months. In this regard the Minister also responded to a motion by the lower house of Parliament to examine further protective measures besides a cooling-off period. The Minister, however, states that he believes a cooling-off period would provide the best balance between the shareholders and the management board.

Next the Minister is considering adjusting the clawback and recovery of directors’ bonuses. The supervisory board would then be given the right to reclaim a bonus in the event that maintaining this bonus would be unacceptable in light of reasonableness and fairness. Furthermore the Minister proposes to grant the supervisory board additional powers with regard to the adjustment of a director’s remuneration in certain major corporate events, for example in the event of a takeover.

Lastly, the Minister expressed his intention to organize a stakeholder meeting in the beginning of 2019 in order to further examine the above mentioned possibilities and other relevant topics.

3. Modernisation of rules on partnerships

In the letter the Minister expressed his intention to open a public internet consultation on the draft bill proposing a new Section 7.13 on partnerships in the Dutch Civil Code. The Minister published the draft bill and opened the internet consultation on 21 February 2019. The proposed new regulation contains an updated legal framework on partnerships. The goal of the new regulation is to provide accessible rules facilitating entrepreneurs and protecting creditors adequately. One of the main changes is the granting of legal personality to partnerships.

4. Introduction of consultation rights for the works council in BVs and foundations

The Dutch Civil Code provides for the right for the works council of public companies (NVs) to render its opinion on certain important management board decisions, the decisions of the general meeting to appoint, suspend and remove managing directors and the policy of the company with regard to the remuneration of the management board. Based on research the government has concluded that the introduction of similar rights for work councils in BVs and foundations would not provide sufficient added value.

5. Implementation European directive on the online establishment of companies

On 25 April 2018, the European Commission published a proposal for the amendment of Directive (EU) 2017/1132 with regard to the use of digital tools and processes in company law. The goal of the proposal is to make it easier and more efficient to establish companies and to complete various filings. For a more elaborate summary of the proposal please refer to our earlier news update.

The proposal is currently being negotiated in the Council and the European Parliament. The date of entry into force of the proposed is yet unknown. After the new Directive has entered into force, the Netherlands will have to implement it into the Dutch legislation.

6. Implementation European directive on cross-border conversions, mergers and divisions

On 25 April 2018, the European Commission also proposed new company rules making it easier for companies to merge, divide or migrate by way of a cross-border transaction within the EU. Please see our earlier news update on this proposal. The proposal is still being negotiated and the date of entry into force is yet unknown.