Former system of preventive supervision
Present system of permanent supervision

On June 9 2010 the Dutch Parliament approved the bill amending, among other things, Book 2 of the Dutch Civil Code and the Companies (Documentation) Act. The amendments came into effect on July 1. As a result, the system of preventive supervision and the related requirement for a declaration of no objection have been abolished and replaced by a system of permanent supervision of legal entities. This update examines the former system of preventive supervision and then discusses the new system of permanent supervision.

Former system of preventive supervision

Under the former system of preventive supervision, when a private company with limited liability (BV), a public limited company (NV) or a European public limited liability company (SE) was to be incorporated or its articles of association were to be amended, or in the event of a conversion into one of the aforementioned legal forms, the relevant persons or directors were required to apply to the Ministry of Public Safety and Justice for a declaration of no objection. In case of the incorporation of a new company, the application for a declaration of no objection enabled the authorities to check (based on the company's articles of association) whether the company was intended to be used for illicit purposes or whether its operations would prejudice creditors. Furthermore, it could be verified whether the incorporator or the intended managers were involved in criminal investigations. In the event of a conversion or amendment of the articles of association, the authorities checked whether the company would be used for illicit purposes or whether it had a prohibited character. If a company did not pass this check, a declaration of no objection would not be granted and the civil law notary involved was not permitted to proceed with the execution of the relevant notarial deed.

Present system of permanent supervision

The new system of permanent supervision is a form of scrutiny that applies throughout the life of a legal entity. It covers not only BVs, NVs and SEs, but also cooperatives, mutual insurance associations, associations with legal personality, foundations and European cooperative societies which have their seat in the Netherlands under their articles of association. The aim of the system of permanent supervision is to prevent and combat the misuse of such entities and their businesses. The supervision will be carried out by the Scrutiny, Integrity and Screening Agency of the Ministry of Public Safety and Justice. It will begin immediately once the legal entity has been registered in the Trade Register after its incorporation. In case of a Dutch branch of a foreign legal entity, supervision will begin immediately after the branch has been registered in the Trade Register.

The agency will draw up a number of risk profiles, which will be compared against data regarding the legal entity. The agency will obtain this data from both non-public and public sources in the Netherlands. The main source will be national databases such as the Trade Register and the municipal personal records database. In addition, the agency will obtain data from the tax authorities in the Netherlands, the Judicial Information Services, the Central Insolvency Register and the National Police Services Agency.

A risk analysis computer program will be used to compare the data obtained from both non-public and public sources against the risk profiles drawn up by the agency. If the results reveal an increased risk, the agency will carry out an in-depth analysis to assess whether there is indeed an increased risk. If this analysis confirms that there is an increased risk, a risk alert will be sent to the following law enforcement authorities:

  • the Public Prosecution Service;
  • the tax authorities;
  • the Dutch Central Bank;
  • the Authority for the Financial Markets;
  • the police;
  • the Fiscal Intelligence and Investigation Service/Economic Investigation Service; and
  • the Social Security Information and Investigation Service.

A risk alert may also be issued at the request of one of the aforementioned law enforcement authorities.

The law enforcement authorities may use data obtained from a risk alert only to prevent and combat misuse of and by legal entities. A risk alert may be used for prosecution purposes for a maximum period of two years, which is also the period for which the data may be stored by the law enforcement authorities. Once a legal entity has been registered with the Trade Register, the entity's directors or other office holders will be informed that their data will be screened. The agency is not obliged to disclose to legal entities or individuals connected with such entities that it is processing a risk alert. Under the Personal Data Act, any party involved may submit a request to receive information in respect of a risk alert. However, this request is likely to be refused in the interest of any ongoing investigation (criminal or otherwise).

After receipt of a risk alert by the agency, the law enforcement authorities decide whether they want to start a follow-up action. There are two forms of possible intervention. The first is of a preventive nature: the law enforcement authorities can take actions such as intensifying the level of supervision and thereby indentifying possible infringements at an earlier stage. The second is the initiation of a criminal investigation by (one of) the law enforcement agencies, possibly followed by criminal proceedings against the legal entity and/or natural persons involved by the Public Prosecution Service. An additional penalty that can be imposed is the disqualification of a director (eg, particular individuals can be banned from acting as a managing director).

The objective of this new bill is to strengthen the control of legal entities and prevent the (criminal) abuse of legal entities. Its success will depend on the amount of time and manpower that the authorities are prepared to invest in enforcing it.

For further information on this topic please contact Silvia Hubers or Rob Van der Hoeven at NautaDutilh by telephone (+31 10 224 0000), fax (+31 10 414 8444) or email ([email protected] or [email protected]).