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Management and Supervision of Legal Entities Act entered into force on 1 July 2021

On 1 July 2021, the Management and Supervision of Legal Entities Act (hereinafter referred to as: the "Act") entered into force, except for two parts which will enter into force at a later date that still needs to be determined. In November 2020, we published a news article regarding the most significant changes under the Act. Below, we will summarize certain key elements of the Act. In addition, some remarks regarding the applicable transitional law will be made.

Key elements

  • The Act provides a statutory basis for the establishment of a supervisory board for foundations, associations, cooperatives and mutual societies.
  • Foundations, associations, cooperatives and mutual societies may establish a one tier board, being a board consisting of 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 will also apply to managing directors and supervisory directors of associations, cooperatives, mutual societies and foundations.
  • The criteria for mismanagement in the event of bankruptcy as set out in section 2:138 paragraphs 1 and 3 up to and including 10 of the Dutch Civil Code (which provision applies to NVs; similar rules apply to BVs) are now also applicable to managing directors and supervisory directors of associations and foundations.
  • A conflict of interest of a managing director or supervisory director of any legal entity will have consequences for the decision-making process (i.e. internally) and not for the authority to represent the legal entity (i.e. externally).
  • The articles of association of foundations, associations, cooperatives and mutual societies must contain rules on how management or supervision is provided for in the event of absence or inability to act of all managing directors or all supervisory directors.
  • For every legal entity, a managing director or supervisory director may not cast more votes than the other managing directors or supervisory directors together (multiple voting right restriction).

Transitional law
In principle, the Act applies directly to all legal entities with effect from 1 July 2021. It is not necessary to amend a legal entity's articles of association as of 1 July 2021. However, in certain specific situations, it is required to make the articles of association compliant with the Act upon the next amendment of the articles of association. Furthermore, the transitional law contains certain additional rules. The main transitional rules are summarized below.

Restriction of multiple voting rights
Upon the next amendment of the articles of association, the voting arrangements concerning the management board and supervisory board must be made compliant with the statutory restriction that no managing director or supervisory director may cast more votes than the other managing directors or supervisory directors combined.

If the current articles of associations, cooperatives, mutual societies or foundations include provisions granting multiple voting rights in excess of the statutory limit, the existing voting arrangement will remain valid for up to five years after 1 July 2021. However, if the articles of association are amended prior to the expiration of those five years, the voting right arrangement will no longer be valid.

Absence and inability to act
Upon the next amendment of the articles of association, the articles must include rules on how the management or supervision is provided for in the event of absence or inability to act of all management directors or all supervisory directors of foundations, associations, cooperatives and mutual societies. The articles of association may further specify when an inability to act exists.

Conflict of interest
In situations of a personal conflict of interest between a managing director or supervisory director and the legal entity, the managing director or supervisory director must refrain from participating in the deliberations and decision-making. If a managing director or supervisory director violates this rule, the legal entity may have the relevant decision annulled.

With respect to the rules regarding conflict of interest, the Act contains (inter alia) the following two transitional provisions.

Firstly, in previous cases in which the legal entity has been represented by a managing director despite the existence of a conflict of interest, the act of representation can be ratified still by the general meeting.

Secondly, an outdated provision in the articles of association stipulating that the association, cooperative or mutual society will be represented by a person other than a managing director in the event of a conflict of interest with one or more managing directors or supervisory directors, can no longer be invoked. These provisions in the articles of association are to be disregarded. An amendment of the articles of association will not be necessary. However, it is recommended to remove the outdated provision from the articles of association in order to avoid any misunderstandings.

 

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