On 8 June 2016 a bill clarifying and refining the rules on management boards and supervisory boards in foundations, associations, cooperatives and mutual insurance associations (onderlinge waarborgmaatschappijen) was submitted to the lower house of the Dutch parliament. For BVs and NVs, there will not be any substantive changes under the new rules. This bill, the Management and Supervision Legal Entities Bill, implements most of the recommendations of the Good Governance Committee (Commissie Behoorlijk Bestuur), chaired by former MP Femke Halsema. The committee was set up following several high-profile public-sector management scandals.
The most significant changes set out in the bill are as follows:
Amendments to structure of Book 2 DCC for uniformity/clarification purposes
A number of rules currently applicable only to BVs and NVs and which are at present laid down in separate parts of Book 2 of the Dutch Civil Code ("DCC") specifically dedicated to such legal entities will be moved to the part containing general provisions that also apply to foundations, associations, cooperatives and mutual insurance associations. For example, the current rules requiring managing directors of BVs and NVs to be guided by the best interests of the legal entity and the enterprise connected with it when performing their duties will be moved to the proposed new section 2:9(3) DCC and consequently apply to all legal entities. In addition, a number of rules which now apply to all commercial legal entities (but are currently still located in the entity-specific parts of Book 2) will be extended to non-commercial foundations and non-commercial associations and also moved to the general part. Finally, certain provisions already in the general part of Book 2 will be restructured in the interests of greater clarity and in some cases refined or expanded. For example, the words "towards the entity" will be added to the provision on a managing director's internal liability towards the legal entity (section 2:9(2) DCC), to avoid any doubt that the rule relates to internal liability. According to the explanatory memorandum to the bill, this change is simply a codification of existing case law.
Creation of a statutory basis for supervisory boards in foundations and associations
At present there are already foundations and associations with a supervisory body, even though there is no statutory basis for this. Under the proposed new rules, such a body can constitute a supervisory board under the Dutch Civil Code. The validity of existing bodies instituted pursuant to a legal entity's articles of association will not be affected.
Creation of a statutory basis for a one-tier board model
Under the proposed new rules, there will be statutory provisions enabling all legal entities – and not only BVs and NVs – to adopt a one-tier board model, i.e. a single board comprising both executive and non-executive directors, as an alternative to the two-tier model (management board and supervisory board). It should be noted that, under sector-specific legislation, a separate supervisory board may be required (such as for banks and insurers under the Financial Supervision Act). The bill incorporates the contents of a draft bill dating from July 2013 and providing for a one-tier board in cooperatives and mutual insurance associations.
Application of same conflict of interest rules as currently applicable to BVs and NVs
The general rule will be that a managing director or supervisory director with a conflict of interests may not participate in the relevant board's deliberations and decision-making. If it is not possible for the management board to take a decision due to conflicts of interests on the part of all the managing directors, the decision in question must be taken by the supervisory board. If there is no supervisory board or if all the supervisory directors have conflicts of interests, the decision must be taken by the general meeting (unless the articles of association provide otherwise). Because foundations do not have a general meeting, slightly different rules will apply where all managing directors have conflicts of interests. If the foundation does not have a supervisory board, the decision in question must then be taken by the management board despite its members' conflicts of interests. In such a case, the management board must record in writing the considerations on which the decision is based. If there is a supervisory board, the decision must be taken by that board even if all of its members have conflicts of interests and the requirement to record in writing the underlying considerations applies here too.
Extension of rules on directors' liability in the event of bankruptcy to non-commercial legal entities
At present, managing directors and supervisory directors of BVs, NVs, cooperatives and mutual insurance associations, as well as commercial foundations and commercial associations (i.e. those that are subject to corporate income tax), can be held jointly and severally liable towards the entity's bankruptcy estate for improper performance of their management or supervisory duties. Under the proposed new rules this will also apply in the case of non-commercial associations and non-commercial foundations, albeit in a somewhat different form where the director in question does not receive any remuneration.
Extension of rules on directors' internal liability to supervisory directors of non-commercial foundations and associations
The rules on managing directors' joint and several liability towards the relevant legal entity (laid down in the current section 2:9 of the Dutch Civil Code) will be extended to supervisory directors of non-commercial associations and non-commercial foundations under a new section 2:11b. At present, such supervisory directors are not liable to the association or foundation for the improper performance of their duties. The internal joint and several liability rules already apply to supervisory directors of all other types of legal entities, including commercial associations and commercial foundations. The director in question will be personally liable only in the event of serious personal culpability, as applies to all other directors that are subject to these rules.
General meeting: advisory vote for managing directors / power to remunerate supervisory directors
Under the proposed new rules, managing directors of associations, cooperatives and mutual insurance associations – like those of BVs and NVs – will have an advisory vote at general meetings and when resolutions of the general meeting are passed without a meeting being held. Accordingly, they must be invited to attend general meetings or, in the event that no meeting is held, must be afforded the opportunity to give their advice on the proposed resolution(s) beforehand; otherwise, the resolution(s) in question will be voidable. In addition, the power to remunerate supervisory directors of the above types of legal entities will be vested solely in the general meeting and it will not be possible to deviate from this rule by means of provisions in the articles of association (at present, cooperatives and mutual insurance associations are allowed to do so). In the case of a foundation, supervisory directors may only be remunerated as provided in the articles of association.
Expansion of grounds for removal of foundations' directors
Under the proposed new rules, it will be possible for a managing director or supervisory director/member of the supervisory body of a foundation to be removed by a court, at the request of an interested party or the Public Prosecution Service, on any of the following grounds: dereliction of duties, an important change of circumstances as a result of which the foundation cannot reasonably be expected to retain the director in that position, non-compliance with an order of the provisional relief division of a district court, or any other important reasons. These grounds largely correspond with those for the removal of supervisory directors of structure-regime companies by the Enterprise Division.
Mandatory inclusion of rules on absence/inability to act in articles of association
At present, BVs and NVs are required to include rules in their articles of association on the way in which the company will be temporarily managed if one or more managing directors are no longer in office or are unable to act. Under the proposed new rules, this will be required of all legal entities. The necessary additions will have to be made the first time the entity's articles are amended following the entry into effect of the new legislation.
Transitional rules and expected effective date
The point of departure is that the new provisions will apply immediately on the effective date and will only apply to acts occurring thereafter. A juristic act which is subject to nullification under the old rules, but not under the new rules, can no longer be nullified once the new rules apply. The new legislation will not require a legal entity's articles of association to be amended; however, in the event of a conflict between the articles and statutory rules, the latter will prevail. With regard to the effective date itself this will be on 1 January or 1 July, the dates on which new legislation in the Netherlands usually enters into effect. The Council of State (Raad van State) has advised waiting to determine the effective date until after the evaluation of the Management and Supervision (Further Measures) Act (Wet versterking bestuur en toezicht), which is expected to take place later in 2016. This is because some of the proposed rules in the bill are based on that Act, the reactions to which have been mixed. It is unclear whether the Council of State's advice will be followed.
To summarise: a number of important new statutory rules will be laid down for foundations, associations, cooperatives and mutual insurance associations, in some cases by codifying existing practice. It appears that it will be some time before the new rules enter into effect; furthermore, it is uncertain whether they will do so in their current form. Nevertheless, it is advisable for the above types of legal entities to prepare for the entry into effect of the rules by examining whether changes to their internal governance systems will be required.