The statutory rules governing Dutch private limited liability companies (BVs) are being simplified and there will be more flexibility in the governance structure of this type of company. On 15 December 2009, the bill for the Private Company Law (Simplification and Flexibilisation) Act (Wet vereenvoudiging en flexibilisering van het bv-recht) was passed by the lower chamber of the Dutch Parliament. The bill, which was first submitted on 31 May 2007, must still be approved by the upper chamber.
The new rules, which will make extensive changes in the law governing BVs, are expected to enter into force on 1 July 2010. This newsletter gives a general summary of the changes provided for in the bill as passed by the lower chamber.
CAPITAL PROTECTION AND PROTECTION OF CREDITORS
The rules on capital protection and the protection of creditors will be entirely revised:
- The requirement of a minimum share capital of EUR 18,000 will be abolished. It will be sufficient if at least one share with voting rights is held by a party other than the BV or (if any) a subsidiary of the BV.
- The requirement that a bank statement be submitted when shares are paid for in cash upon a BV's incorporation will be abolished.
- In the event of a non-cash contribution for shares, it will no longer be necessary to submit an auditor's statement. However, where such a contribution is made by a founder or director of the BV, a description of the contribution will still have to be provided. The second memorandum of amendment (nota van wijziging) to the bill introduced an amendment to the rules on such descriptions: the requirement that the value of the contribution be established using generally accepted valuation methods will be abolished. The directors will still be obliged, under Article 2:9 of the Netherlands Civil Code (NCC), to ascertain that the value of the contribution is at least equal to the payment obligation.
- BVs will be allowed to denominate their share capital in a currency other than the euro.
- It will no longer be necessary to specify the company's authorised capital (the maximum amount of share capital that can be issued without requiring an amendment of the articles of association) in the articles of association. The requirement that at least one-fifth of the authorised capital be issued will also be abolished.
- There will be more freedom to make agreements on when the share capital must be paid up.
- The "nachgründungsregeling" in Article 2:204c NCC (which imposes additional requirements on transactions entered into between a BV and a founder or shareholder within two years of the BV's initial registration in the trade register) will disappear.
- The current rules on the provision by a BV of financial assistance to third parties for the purchase of shares in the company's own capital (Art. 2:207c NCC) will be abolished.
- Various restrictions on a BV's ability to buy its own shares will be abolished.
- The procedural requirements that must now be met to reduce a BV's capital (and which take more than two months to complete) will be abolished.
- Certain restrictions on the payment of dividends and the distribution of reserves will be lifted.
DISTRIBUTIONS BY A BV
While the current statutory restrictions on the purchase by a BV of its own shares, the reduction of its capital and the payment of dividends or distribution of reserves will be repealed, new rules will be introduced under which the parties involved will be liable if, through their culpable conduct, the rights of the BV's creditors are harmed.
The new rules will be as follows:
- The basic principle is that decisions to make a distribution must be approved by the management board, which must refuse to grant its approval if it knows or should reasonably foresee that, after making the distribution, the BV will be unable to continue paying its due and payable debts.
- If, after making a distribution, the BV is unable to continue paying its due and payable debts, the managing directors who at the time of the distribution knew or should reasonably have anticipated this will be jointly and severally liable towards the BV for compensation of the shortfall resulting from the distribution, plus interest at the statutory rate calculated as from the date of the distribution.
- A party that receives a distribution when he/it knows or ought to anticipate that the BV will be unable to continue paying its due and payable debts after making the distribution will be liable towards the BV for compensation of the shortfall resulting from the distribution.
- The maximum compensation payable by the recipient will be the amount or value of the distribution received by him/it, plus interest at the statutory rate calculated as from the date of the distribution.
- If the managing directors have already compensated the BV for a shortfall, the compensation paid by the recipients of the distribution will be given to the managing directors in proportion to the amount of compensation paid by each.
VOTING RIGHTS AND RIGHT TO SHARE IN PROFITS
The rules on decision making within a BV will be significantly relaxed:
- It will be easier to pass resolutions without a meeting being held.
- It will be possible to hold shareholder meetings outside the Netherlands.
- It will be considerably easier to tailor the allocation of voting rights to individual shareholders. The company will be able to issue shares bearing multiple votes, which could be particularly useful in the case of joint ventures and family-owned companies. The bill originally provided that BVs would be allowed to issue shares with different numbers of voting rights depending on the decision in question, but this was dropped under the first memorandum of amendment to the bill.
- It will be possible to issue shares without voting rights.
- It will also be possible to issue shares without a right to share in the profits.
TRANSFER OF SHARES
The private character of the BV will take a different form:
- It will no longer be mandatory to include share transfer restrictions in the articles of association.
- If a BV opts to include such restrictions in its articles of association, it will also be able to include detailed rules on how the price of the shares will be determined.
- The articles of association may include a lock-up clause prohibiting the transfer of shares for a specific period.
- There will be greater scope to include provisions in the articles of association imposing additional obligations on shareholders, e.g. the obligation to extend a loan to the BV or to supply products to it.
There will be greater flexibility with regard to the resolution of disputes.
- Under the current rules, it is possible for a shareholder who prejudices the BV's interests to be expelled and for an aggrieved shareholder to demand that he/it be bought out of the company. This will continue to apply. The first memorandum of amendment introduces additional grounds for the initiation of expulsion proceedings: it will be possible to expel a shareholder by reason of his/its past conduct.
- A BV and its shareholders will be given greater scope to adopt dispute resolution mechanisms, either in the articles of association or by agreement, which depart from the statutory rules. It will be possible to deviate from all or some of the statutory rules, unless the mechanism chosen would make the transfer of shares impossible or extremely onerous.
- It will be possible to opt to have disputes settled by the Enterprise Chamber of the Amsterdam Court of Appeal or by arbitration.
- The statutory procedure itself, which is now very time-consuming, will be faster and more efficient for all parties concerned. For example, it will no longer be necessary to wait for the court's decision to become final and irrevocable before the price of the shares can be established and the shares transferred.
- Furthermore, the court will not have to appoint experts to determine the price for the shares if it feels it can do so itself, either because the parties agree on the price of the shares or because clear criteria for determining the shares' value are laid down in the articles of association or in an agreement.
- Pending the proceedings, any of the parties will be entitled to request interim relief until such time as the shares have been transferred.
- A shareholder will have greater scope to initiate exit proceedings (i.e. to demand that he/it be bought out of the BV). It will be possible to initiate such proceedings not only against other shareholders of the BV but also against the company itself. The first memorandum of amendment also provides that a shareholder that is a defendant in exit proceedings will be entitled to implead the BV if he/it is of the opinion that the company should be a joint defendant or the sole defendant in the proceedings.
- An exiting shareholder will be entitled to request the court to take into account a depreciation in the value of the shares if it is the result of the actions of the other shareholders or of the company itself. In such a case, the shareholder will be able secure a higher price for his/its shares.
These amendments go a long way towards meeting the needs of current practice.