With effect from 1 July 2011, the present system of preventive supervision and the related requirement of a declaration of no objection will be abolished. In practice this means that it will no longer be necessary to obtain what is known as a "declaration of no objection" from the Ministry of Security and Justice when incorporating a private limited liability company (BV), public limited liability company (NV) or European Company (SE) or amending its articles of association, or in the event of a conversion into one of these three corporate forms. This will substantially reduce the period of time necessary to complete these operations. On the same date, however, a new system of permanent supervision of legal entities will take effect.
This memo briefly examines the new system of permanent supervision and the entities covered by the new system.
On 9 June 2010 the upper house of the Dutch parliament approved the "Bill amending, among other things, Book 2 of the Dutch Civil Code and the Companies (Documentation) Act". Besides abolishing the present system of preventive supervision and the related requirement of a declaration of no objection, the amendments provide for the introduction of a new system of permanent supervision of legal entities. The amendments also extend the scope of the supervision: the new system covers not only BVs, NVs and SEs but also other legal entities, as well as the Dutch branches of foreign legal entities. Because the new system is so complex, it could not be introduced before 1 July 2011.
The new system of supervision is a form of scrutiny that applies throughout the life of a legal entity, the aim being to prevent and combat the misuse of such entities and their businesses. To this end, the authorities will draw up a number of risk profiles. If a legal entity fits one of these profiles, this means that there is a heightened risk of misuse for illicit purposes and is called a risk alert. The risk profiles will be based on data that make it possible to identify misuse of, for example, a financial nature.
The data to be compared with the risk profiles will be obtained by the authorities from both closed and public sources in the Netherlands. The main source will be the system of national registers such as the trade register and the municipal personal records database. In addition, the Ministry of Security and Justice will obtain data from the tax authorities, the Judicial Information Service, the Central Insolvency Register and the National Police Services Agency. The scrutiny of a legal entity will start immediately after its incorporation is registered in the trade register. In the case of a Dutch branch of a foreign legal entity, the scrutiny will start immediately after the branch is registered in the trade register.
The permanent scrutiny will be carried out by the Scrutiny, Integrity and Screening Agency of the Ministry of Security and Justice. A risk analysis computer program will be used to compare key data of legal entities with the risk profiles prepared by the Agency. The key data will include the names and addresses of directors of the entity and data from the Central Insolvency Register. The statutory basis for the registration and use of this data has been laid down in the Legal Entities (Scrutiny) Act.
Whenever a legal entity undergoes a change in the course of its life – for example, a transfer of shares or a change of management – this will be recorded and the modified data will be compared with the risk profiles again in order to determine whether there is a heightened risk of misuse of or by the entity. If there is no such risk, the data obtained will be automatically removed from the system. Information on changes such as share transfers and management changes will be obtained by the authorities directly or indirectly from data which the legal entities and their directors are already obliged to supply to the trade registry or the tax authorities. Therefore, no extra administrative burden will be placed on legal entities as a result of the new system.
If the computer system reveals a heightened risk, the Scrutiny, Integrity and Screening Agency will carry out a more in-depth analysis of whether this risk does indeed exist. If the analysis confirms that there is a heightened risk, a risk alert will be sent to a group of law enforcement authorities. These include the Public Prosecution Service, the tax authorities, the Dutch Central Bank (DNB), the Authority for the Financial Markets and the police, as well as special agencies such as the Fiscal Intelligence and Investigation Service/Economic Investigation Service (FIOD/ECD) and the Social Security Information and Investigation Service (SIOD). A risk alert may also be issued at the request of any of these authorities. Whether follow-up action is necessary is decided by the authorities themselves after they receive the risk alert. They have two forms of intervention which they can take.
The first form of intervention involves action under the criminal law. One possibility is to ban particular individuals from acting as company directors. Such a measure can be used, for example, to prevent someone with a history of fraud from setting up a company in the future or becoming a board member of another company. The second form of intervention is of a preventive nature. If the risk alert shows that there is a possibility of misuse of or by a legal entity, the authorities can take preventive action, for example by intensifying the level of scrutiny and thereby identifying possible infringements at an earlier stage.
Besides BVs, NVs and SEs, other forms of entity that will also be subject to the system of permanent supervision by the authorities are cooperatives, mutual insurance associations, associations having legal personality, foundations and European Cooperative Societies (SCEs) which have their seat in the Netherlands under their articles of association. This supervision will also apply to the Dutch activities of a foreign legal entity which has a principal or subsidiary place of business in the Netherlands. An exception has been made for partnerships acting under a common name (openbare vennootschappen) with legal personality to be set up under the future Title 7.13 of the Civil Code. As the partners in such partnerships will be jointly and severally liable, the relevant partnership will be exempted from supervision.
Use of data by the authorities
The information obtained from a risk alert may be used by the law enforcement authorities only to prevent and combat misuse of and by legal entities. Under the Legal Entities (Scrutiny) Act, a risk alert may be used for prosecution purposes for a maximum of two years, which is also the period for which the data may be kept. The Scrutiny, Integrity and Screening Agency is responsible for the data and may supply them to law enforcement authorities only on condition of strict confidentiality. The Agency is not obliged to disclose whether it is processing a risk alert concerning a legal entity or an individual connected with that entity. Under the Personal Data Protection Act an interested party may apply for this information, but the application will almost always be refused in the interests of any ongoing investigation (criminal or otherwise).
When a legal entity is registered at the trade register, the entity's directors (or other office holders) are informed that their data will be screened. Under the Personal Data Protection Act, the Scrutiny, Integrity and Screening Agency – as the body responsible for the management and use of the data – is obliged to notify the relevant individuals that their private data are being used.