Dutch act on management and supervision
Friday 4 January 2013
As of 1 January 2013, new legislation has come into effect changing the rules on management and supervision of Dutch private companies with limited liability (besloten vennootschappen met beperkte aansprakelijkheid, "B.V.s") and public companies (naamloze vennootschappen, "N.V.s")
One of the major consequences of the new legislation is that the treatment of a conflict of interest between a managing director and the company has been modified changed. Whereas previously, a conflict of interests could affect the representative authority of such a managing director, the new rules prevent the managing director from participating in the deliberation and decision-making process with respect to the relevant topic altogether.
One other important change is the introduction of the one-tier board system, whereby a single board may comprise of both executive directors and non-executive directors. Previously, Dutch law only allowed for a two-tier board system, whereby the board of managing directors and the board of supervisory directors form two separate corporate bodies.
On a one-tier board, executive and non-executive directors are jointly responsible for the general policy of the company. Whereas the board of supervisory directors is confronted with a strategy devised by the board of managing directors and is left with the mere possibility to supervise such policy and advise the board of managing directors, non-executive directors are already involved in the phase in which the strategy is drawn up. As a result, they are more likely to address board decisions at an earlier stage and more effectively.
The articles of association of a company may include a division of duties among the executive and non-executive directors. However, the duty to supervise the performance of directors' duties, the presidency of the board, the nomination of directors for appointment and the determination of the remuneration of executive directors, are all duties that are reserved for non-executive directors. Any duties that have not been divided, will be deemed to be part of every director's duty.
The downside to the closer involvement and more extensive range of duties of the non-executive directors is that, compared to supervisory directors, their liability will be more easily assumed. Just like executive directors, non-executive directors are, in principle, liable for the whole in the case of mismanagement of one or more directors. However, every director who, in the light of the division of duties that has been made, cannot be the subject of serious blame and who has not been negligent in taking measures to affect the consequences of mismanagement, can escape such liability. This shows the importance of clearly describing the duties and competences of the board and the individual directors in the articles of association or board regulations and clearly documenting the working procedure of the board.
Although the legislative changes do not require an urgent change to the articles of association of a B.V. or N.V., this would be a good moment to closely review them and adjust where desired.
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