SIMPLIFICATION AND FLEXIBILIZATION OF DUTCH CORPORATE LAW CONCERNING BV’S

On 12 June 2012 the Senate (Eerste Kamer) of the Dutch Parliament finally adopted the bill for the simplification and flexibilization of the rules on Dutch private limited liability companies (“Wet vereenvoudiging en Flexibilisering B.V.-recht”) and the bill relating to the implementation of these rules, the Implementation Act (“Invoeringswet”), hereinafter together referred to as the Flex BV Act. The former bill has been before the Senate since 15 December 2009, the latter was submitted about a year later. The laws will become effective on October 1, 2012.

Corporate law aspects
The Flex BV Act will make important changes to the Dutch law governing private limited liability companies  (“Besloten Vennootschap met beperkte aansprakelijkheid or BV”) as laid down in Book 2 of the Dutch Civil Code. It will simplify the rules, remove unnecessary impediments and abolish a number of mandatory provisions. The amendments fit in with the needs of the current practice and will give more flexibility and freedom to tailor the articles of association in accordance to the wishes of the shareholders of a BV.

Flex BV
Examples of the simplification and flexibilization of the rules, as further elaborated below, are that it will no longer be necessary to lay down elaborate regulations in the articles of association, the articles of association for a standard BV may even cover only one page; the incorporator may deviate from the legal provisions in the law, e.g. by allowing each shareholder or group of shareholders to appoint his/its own director; it will be possible to issue shares without voting rights and there are more opportunities to adopt resolutions outside general meetings. Therefore, the BV with articles of association under these new rules is already being referred to as the “Flex BV”.

Main changes
The main changes are as follows:

  1. The rules on capital protection and the protection of creditors will become more flexible.
  2. Payments to shareholders will be subject to approval of the board of managing directors.
  3. The private character of the BV will become less strict as share transfer restrictions will no longer be mandatory.
  4. The rules on decision making within BV’s will be relaxed.
  5. The dispute settlement procedure will become more flexible.

1. The rules on capital protection and the protection of creditors

The most important changes to the rules on capital protection and the protection of creditors are the following:

  • The requirement of a minimum issued share capital of € 18,000 at the incorporation of the BV will be abolished. The requirement that at least 20% of the authorised capital be issued will also be abolished. Under the new rules at least one share with voting rights should be held by a party other than the BV or (if any) a subsidiary of the BV.
  • The requirement that prior to incorporation a bank statement will be submitted to the notary confirming that shares are paid-up in cash will be abolished.
  • Shares remain to be registered shares, although share certificates will be allowed.
  • Shares will remain to have a nominal value, but the nominal value of the shares may be denominated in a currency other than the euro.
  • Shares without voting rights and shares without profit rights/rights of entitlement to reserves will be possible.
  • It will no longer be required to stipulate in its articles of association the authorized capital, i.e. the maximum amount of share capital that the BV could issue under its current articles of association.
  • The requirement to provide an auditor’s statement when shares are paid for in kind upon incorporation is no longer required. However, a description of the contributed assets will still have to be provided by the board members or the incorporators.
  • The rules pertaining to the acquisition by the BV of assets from an incorporator or shareholder within two years after the BV's initial registration in the trade register, the so-called “Nachgründung” will be abolished.
  • The rules on financial assistance to third parties for the purchase of shares in the company's own capital will be abolished.
  • The possibilities to repurchase shares will be broader, provided that at least one share with voting rights will be held by another party than the respective B.V. itself.
  • The procedural requirements that currently must be met to reduce a BV's capital will be abolished.

2. Payments to shareholders

Currently, it is the discretion of the shareholders to resolve payments to shareholders.

Under the new rules the starting point is that a decision to distribute profits or reserves must be made by the shareholders. This authorization can be limited or attributed to another body. Distributions, whether profit, reserves or capital, can be made to the extent that the shareholders' equity exceeds the reserves that must be maintained by law or under the articles of association.

The basic new rule is that the BV’s board of directors has to approve payments made to shareholders, including the purchase of own shares and capital reductions. Thus a resolution of the general meeting of shareholders to make a distribution will be subject to the approval of the board of directors. The board must refuse to grant its approval if it knows or should reasonably foresee that, after making the distribution and within a period of 12 months, the BV will be unable to continue paying its due and payable debts. For BV’s under management by ITPS such an approval will generally be subject to receipt of an indemnity for any liability.

If it appears – with hindsight – that the B.V. cannot pay its debts anymore, then the members of the board of directors who knew or should reasonably have foreseen the same, will be jointly and severally liable for the shortfall plus interest at the statutory rate as from the date of payment.

The same applies to shareholders receiving the payments, whilst it knew or should have reasons to believe that the B.V. would not be able to pay its debts anymore after the distribution, however with a maximum of the amount that the pertinent shareholder has received plus the statutory interest as from the date of payment.

3. The transfer of shares

Under the current rules, the articles of association of a Dutch BV should include a share transfer restriction clause which may be an approval system or a right of first refusal.

Under the new rules tailor made transfer restriction clauses, as agreed between shareholders, will be possible. The most important changes to the transfer of shares are the following:

  • It will no longer be required to include a transfer restriction in the articles of association of a BV.
  • If no provision is included in the articles of association, then a right of first refusal will be applicable.
  • Tailor made transfer restriction clauses as agreed between the shareholders may be included in the articles including detailed rules on how the price of the shares will be determined.
  • It is possible to include a lock-up clause in the articles of association prohibiting the transfer of shares for a specific period.
  • It will be possible impose certain clearly defined obligations for shareholders in the articles of association (such as the obligation to grant a loan to the BV).

For BV’s under it’s management, ITPS will generally require a transfer restriction in the articles of association as it is required to screen the shareholders of a BV.

4. Decision making

As mentioned above, under the new rules a Dutch BV may issue shares without voting rights and shares without profit rights/rights of entitlement to reserves. Other changes include:

  • The statutory term for convening shareholders’ meetings is reduced (from fifteen) to eight days.
  • It will be possible to hold shareholders’ meetings outside the Netherlands.
  • Shareholder’s resolutions may be taken outside a meeting if all persons with rights to attend the general meeting of shareholders approved such resolution taking outside a meeting and casted their vote in writing. The requirements of a unanimous resolution and to record such decision-making in writing is abolished.
  • Shareholders of non-voting shares will also be entitled to attend a meeting of shareholders.
  • In principle, shares with an equal nominal value will have equal voting rights unless stipulated otherwise in the articles of association.
  • Holders of a depositary receipt for shares only have the right to attend a shareholder’s meeting when provided for in the articles of association.
  • The BV may issue shares bearing multiple votes, which could be particularly useful in the case of joint ventures and family-owned companies.
  • The BV’s articles of association should state whether or not holders of depositary receipts have rights to attend meetings.
  • The shareholders (and other bodies, if any) will be given wider powers to instruct the board.
  • The articles of association may provide that the meeting of holders of a certain class of shares is entitled to appoint a director, provided that each shareholder of shares with voting rights may take part in the decision making process regarding the appointment of at least one director. In addition, the articles may provide that a corporate body of the B.V. may provide directions to the board of directors.

5. The dispute settlement procedure (also applicable to NV’s)

The present dispute settlement procedure is cumbersome, time-consuming and rigid and is therefore rarely followed in practice. The intention is for the procedure to become faster and more efficient for all parties concerned.

Under the current rules the shareholders may demand in court to expel a co-shareholder whose actions are damaging the company’s interest to such an extent that the company cannot reasonably be required to keep him on as a shareholder. These rules also make it possible for a shareholder to demand of his co-shareholders that they take over his shares if his rights and interests are being damaged by actions of his co-shareholders to such an extent that he can no longer be required to continue to act as a shareholder.

There will be greater flexibility with regard to the statutory mechanism for the resolution of disputes. Contrary to the other new rules, these will also apply to Dutch public limited liability companies (“Naamloze Vennootschap or NV”).

A number of procedural changes have been included to shorten the procedure, such as the possibility of having a judgment declared enforceable at once, regardless of appeal, so that a court order to transfer shares can immediately be enforced. The new rules also offer the possibility of departing from all or some of the statutory dispute settlement rules, for instance by electing to have disputes settled by means of arbitration.

Tax consequences
According to the Minister the new legislation will have very few tax consequences. However, many of the current tax rules were written for the traditional forms of legal entity and it is uncertain how the existing rules may affect the Flex BV.

It is important to note that whilst the new law enables the BV to hold meetings of shareholders outside the Netherlands, these meetings - like directors’ meetings - should still be held in the Netherlands from a substance point of view.

Transitional rules/ required action in relation to the Flex-BV Act
The Flex BV Act does not require BVs to amend the current articles of association of BVs in order to make them compliant with the new rules. Effective October 1, 2012 the new legislation will directly become into force and may set aside provisions of the current articles of association.

It goes without saying that in order to take advantage of the new flexibility, the company's existing articles may have to be amended.

There are some amendments to be made mandatory once the articles of association will be amended:

  1. If the articles of association provide for a supervisory board, the amendments must include the addition of provisions on how the board's duties and authority will be exercised if one or more board members are unable to perform their duties or cease to hold office.,
  2. If the BV co-operated in the issue of depositary receipts before the entry into effect of the new rules, the amendment must include provisions granting meeting rights to the holders of these receipts. In addition, such BVs must enter the names and addresses of the receipt holders, as well as the dates on which the meeting rights were granted and the dates of acknowledgement or service, in the shareholders' register before October 1, 2013.

It should be noted that, an amendment of the articles of association of a BV under the new law can only prejudice the current rights of a shareholder to the extent that the shareholder has committed himself/ herself to such an amendment.
 


 

 

 

 


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