UPPER HOUSE ADOPTS THE BILL ON THE MANAGEMENT AND SUPERVISON OF LEGAL ENTITIES
On 10 November 2020, the Upper House of Dutch Parliament adopted the proposal to amend the Dutch Civil Code in connection with the standardization and clarification of certain provisions concerning the management board and the supervisory board of legal entities (Management and Supervision of Legal Entities Act or the Act). It is still to be determined when the Act will enter into force.
We hereby provide a short overview of the most significant changes for associations, cooperatives, mutual societies and foundations.
The Management and Supervision of Legal Entities Act provides a legal basis for the establishment of a supervisory board for associations, cooperatives, mutual societies and foundations. The establishment should be included in the articles of association. The main task of the supervisory board is to supervise the policy pursued by the management board and the general course of affairs in the legal entity and its business. The new provisions concerning the supervisory board of associations, cooperatives, mutual societies and foundations will be in line with the current provisions concerning the supervisory board of the Dutch limited liability company (BV) and the Dutch public limited company (NV).
One tier board
As a result of the entry into force of the Act, it will be possible to establish a one tier board at the association, cooperative, mutual guarantee society and foundation, i.e. with a board of directors or management board consisting of both executive and non-executive directors.
The liability of managing directors and supervisory directors of NVs and BVs as meant in section 2:9 of the Dutch Civil Code (DCC) will also apply to managing directors and supervisory directors of associations, cooperatives, mutual societies and foundations.
Furthermore, the criteria concerning mismanagement in the event of bankruptcy as set out in articles 2:138 par 1 and par 2 up to including 10 DCC, will also become applicable to supervisory directors and managing directors of all associations and foundations, including informal associations and non-commercial foundations. The provisions concerning the statutory presumption that mismanagement has been a significant cause for the company’s bankruptcy, will only apply to managing directors and supervisory directors of a semi-public association or foundation. An association or foundation which must, under or pursuant to the law, draw up financial accounts equal to the annual accounts as meant in Title 9 Book 2 DCC, or foundations that are subject to corporate income tax will be considered a semi-public association or foundation.
Conflict of interest
Currently, a managing director of a BV or an NV having a conflict of interest may not participate in the discussion and decision-making of the management board on the matter giving rise to the conflict. The same legislation will apply for other legal entities once the Management and Supervision of Legal Entities Act enters into force whereby it is noted that the provisions applying to foundations are slightly different owing to the fact that a foundation has no general meeting.
Absence and inability to act
The Act prescribes that the articles of association of all legal entities must contain rules concerning the way in which the management or supervision is provided for in the event of the absence or inability to act of all directors or supervisory directors.
Restriction of multiple voting rights
After the introduction of the Act, all legal entities will be subject to the rule that a director or supervisory director cannot cast more votes than the other directors or supervisory directors combined. This limitation of multiple voting rights already applies to managing directors and supervisory directors of BVs and NVs.
Tim B. Schreuders