Legislative developments

Dutch claw back act into force and effect 

On 1 January 2014, the Dutch claw back act came into force and effect. The act purports to authorise companies to, under circumstances, amend unpaid – or, as the case may be, claim back paid – bonuses to management to the extent such bonuses are deemed excessive or incorrectly awarded (the Bonus Claw Back). Furthermore, the act obliges companies to withhold from a director’s remuneration entitlements any share price gains earned by such director over his or her shareholdings in the company if such price gains are attributable to the announcement of (i) a take-over bid in respect of the company, (ii) a proposed resolution to significantly amend the identity and nature of the company, or (iii) a contemplated legal merger or demerger (each of them a Triggering Event) (the Price Gain Claw Back). 

Bonus Claw Back 

  • The Bonus Claw Back applies to executive and non-executive directors of Dutch (i) public companies (NV), (ii) private companies (BV) and cooperatives that operate as a bank, and (iii) financial enterprises and insurance companies. The Bonus Claw Back furthermore applies to daily policymakers, not being members of the board of directors, of Dutch financial enterprises and insurance companies.
  • The company’s general meeting of shareholders (or any other corporate body designated in the company’s articles of association) has the authority to amend unpaid bonuses. Such authority may be exercised only if payment of the unpaid bonuses would be unjustifiable by application of the Dutch legal framework of reasonableness and fairness.
  • The authority to claim back paid bonuses lies with the managing board, the supervisory board (or in case of a one-tier board: the non-executive board members) and any authorised representatives appointed by the company’s general meeting. Aforesaid authority may be exercised only if the bonus had been awarded on the basis of misrepresentation as to the underlying targets, facts or circumstances. The applicable statute of limitations is five years after the company became acquainted with the fact that the disputed bonus was based on misinformation.

Price Gain Claw Back

  • The Price Gain Claw Back applies to executive and non-executive directors of Dutch public companies (NV) whose shares are listed on a recognised stock exchange within the European Union/European Economic Area.
  • The Price Gain Claw Back is obligatory and, as such, has to be observed by the board. Aforesaid obligation arises when any of the Triggering Events has occurred and a director either has disposed of his or her shareholdings or no longer holds a position within the company.
  • The Price Gain Claw Back only applies to shareholdings acquired by (or issued to) a director as part of his or her remuneration package (ie, any shareholdings acquired by a director on the stock exchange will not be subject to the Price Gain Claw Back).
  • For the purposes of calculating the amount of the share price gain made by a director that should be withheld from such director’s remuneration (the Withheld Amount), the following reference dates apply:
    • the date that lies four weeks before the announcement of a Triggering Event (the First Reference Date);
    • the date that lies four weeks after the announcement of such Triggering Event (the Second Reference Date); and
    • the date on which the director disposes his or her shares or no longer holds a position with the company (the Third Reference Date).The Price Gain Claw Back is a temporary measure only and will automatically expire on 1 July 2017, unless so extended by the Dutch legislator. Evaluation of the Price Gain Claw Back is expected to be completed before 1 July 2016.

The Withheld Amount shall then be calculated as follows: if the share price on the Third Reference Date exceeds the share price on the First Reference Date (the Price Gain), then the director’s remuneration shall be reduced by the Price Gain up to an amount equal to the difference in share price between the Second Reference Date and the First Reference Date. For example, if the price at the First Reference Date is €1, at the Second Reference Date €3 and at the Third Reference Date €4, then the Withheld Amount would be equal to €2. If the price at the First Reference Date had been €1, at the Second Reference Date €6 and at the Third Reference Date €4 respectively, then the Withheld Amount would have been €3.

  • The Price Gain Claw Back is a temporary measure only and will automatically expire on 1 July 2017, unless so extended by the Dutch legislator. Evaluation of the Price Gain Claw Back is expected to be completed before 1 July 2016.

Legislative Proposals restricting variable renumeration of employees of financial enterprises 

  • Key topic of the draft bill is the bonus cap that should become applicable to the remuneration of employees of financial enterprises operating in the Netherlands. In deviation from the bonus cap(s) introduced by CRD IV (2013/36 EU 4th Capital Requirement Directive), the Dutch legislator envisages setting the bonus cap at 20 per cent of the fixed remuneration package. 
  • The 20 per cent bonus cap applies to:
    • Employees working with financial enterprises that are domiciled in the Netherlands (Dutch Financial Enterprises) and their subsidiaries.
    • Employees of Dutch branches of financial enterprises that are domiciled in non-EEA member states or that are not covered by CRD IV.
  • However, the following exemptions apply:
    • Employees of Dutch Financial Enterprises who operate mainly from other EEA member state(s), in which case his or her bonus cap is set at 100 per cent (or if lower, the bonus cap set by that EEA member state).
    • Employees of Dutch Financial Enterprises who operate mainly from outside the EEA, in which case a bonus cap of 200 per cent applies provided that (i) such bonus is determined by the respective financial enterprise’s owners (eg shareholders) and (ii) the financial enterprise has explained to the Dutch regulator the reasons for having awarded a bonus between 100 and 200 per cent.
    • Employees of Dutch branches or subsidiaries of EEA-domiciled foreign financial enterprises are subject to the bonus cap that applies in the member state where that financial enterprise is domiciled. 
    • Employees of financial enterprises that are domiciled in the Netherlands but mainly active abroad – meaning that at least 75 per cent of their employees operate outside the Netherlands measured over three separate years out of a consecutive five years’ period – in which case their bonus cap is set at 100 per cent.
    • The bonus cap does not apply to employees of the group of a financial enterprise that are domiciled in the Netherlands if the main activities of the group do not relate to the offering of financial products, financial services, investment services or performance of investment activities.
  • Up to 31 December 2015, the 20per cent  bonus cap shall not apply to variable remunerations granted before 1 January 2015, being the date upon which the draft bill is envisaged to come into force and effect.
  • An exemption is made for retention bonuses. For a bonus to qualify as a retention bonus, it is essential that (i) it is neither based on contract nor guaranteed, (ii) the bonus is being awarded due to a permanent, incidental and specific change in the company’s organisation, such as a merger or take-over. Notwithstanding the foregoing, all aggregate variable elements of an employee’s remuneration package, including any retention bonus, are capped at 100 per cent of his or her fixed remuneration. Furthermore, any retention bonus awarded shall be subject to the written consent of the Dutch regulator (to be decided upon within six weeks).
  • Besides the introduction of a bonus cap, the draft bill entails the introduction of (i) a prohibition for financial enterprises to grant ‘guaranteed’ variable rewards and (ii) a cap to severance payments of 100 per cent of the leaver’s fixed remuneration, unless the leaver resigns voluntarily, the leaver is dismissed for reasons of culpable negligence or the business fails and the leaver is responsible for its daily management in which case no severance payments may be paid out by the company at all.

Legislative proposal introducing a civil law management prohibition 

  • The draft bill – filed with Dutch parliament on 1 September 2014 – entails the right of bankruptcy trustees to submit requests to the Dutch courts to impose prohibitions on (former) executive directors and policy makers of BVs and NVs that have been declared bankrupt from being appointed as executive directors of any Dutch legal entity for a period of up to five years (the Management Board Prohibition). The aforesaid right is also given to the public prosecutor.
  • The right to request a Management Board Prohibition may only be exercised in case any of the following circumstances has occurred up to three years before the date upon which the company is declared bankrupt:
    • The relevant person has been held liable in person in relation to the bankruptcy of the company.
    • The relevant person has purposefully performed legal acts on behalf of the company in order to significantly disadvantage certain creditor(s) of the company and such acts have been declared null and void by Dutch courts.
    • The relevant person has materially failed to comply with his or her statutory obligations to inform and cooperate with the bankruptcy trustee.
    • The relevant person has been involved in the bankruptcy of at least two other companies for which he or she was to blame personally.
    • The relevant person and/or the company have been fined for non-compliance of certain statutory taxation obligations.

Any other corporate governance developments

Shareholders' participation at record high 

  • On average over 2014 almost 70 per cent of all issued shares were present or represented at the annual general meetings of the 25 largest Dutch listed companies. This percentage has been growing steadily over the past ten years from less than 35 per cent in 2005. This high level of shareholders representation at general meetings is an absolute new record within the modern history of Dutch corporate governance.
  • One of the key drivers of this increased percentage is the steep increase in the number of listed companies that has a single shareholder who has a substantial interest (10 - 30 per cent) in the company. By way of comparison, in 2010 only 19 per cent of the 25 largest Dutch listed companies had such a shareholder on-board whilst in 2014 this percentage has increased to 41 per cent. It is assumed that those major shareholders will ensure that they are being represented at general meetings to safeguard their interests.

New style auditor's report

  • Before the start of the 2014 season of annual general meetings, representative groups of investors had requested listed companies and their respective auditors to produce auditor’s reports in a more elaborate fashion than strictly required under Dutch law.
  • In particular, it was being proposed to include the following:
    • those key sections/matters of the accounts that are most susceptible to material deviations in terms of actual versus reported figures;
    • the methods applied and scope of the audit;
    • the applied materiality level; and 
    • an opinion on the continuity of the enterprise. 
  • The Dutch parliament has picked up the abovementioned request and has formally requested the government to investigate whether current legislation should be amended accordingly. 
  • According to research conducted by a reputable Dutch investors’ association (Eumedion), 36 per cent of the 25 largest Dutch listed companies (and their auditors) have already complied with the new style auditor’s report on a voluntarily basis.