New flexible Dutch private company law
On 15 December 2009 the Dutch Second Chamber (Tweede Kamer) voted to accept the draft bill for the Act on the simplification of the laws applicable to private companies (Wet vereenvoudiging en flexibilisering van het B.V.-recht). The Dutch First Chamber (Eerste Kamer) has not dealt with the bill yet. It is therefore unclear at this stage when the new act will come into force. It is expected to be somewhere in 2011 (1 July) or later.
Amendments
In a number of European countries a flexible form of private company has already been introduced or legislation has been amended to that effect. The Netherlands brings up the rear in that respect. Many statutory provisions relating to Dutch private companies (BVs) are still lacking flexibility. At present more flexibility is seen as an important step to ensuring the Netherlands remains an appealing place in which to do business. The bill intends to increase the freedom in how to structure a BV while at the same time ensuring that creditors are protected. Under the new law there will be more options in what may be included in a BV’s articles of association.
A. Capital/capital protection/protection of creditors
The most important changes relate to capital, capital protection and the protection of creditors. The following elements in current Dutch company law will be abolished:
- the statutory mandatory minimum capital (presently € 18,000);
- the bank statement in case the payment on shares is in cash;
- the requirement for an auditor's report in the event of a non-cash contribution to shares;
- rules on financial assistance by the BV on acquiring shares in its capital;
- a BV will have more opportunity to repurchase its own shares, but at least one voting share will have to be held by a party other than the BV or a subsidiary;
- the authorized capital (the maximum number of shares that may be issued under the articles of association) will no longer be mandatory;
- it will be possible for the nominal value of the shares to be denominated in a currency other than euros; and
- the requirements applicable if a BV effects a transaction with a founder or a shareholder within two years after the trade register filing (the so-called "Nachgründung") will cease to apply.
B. Transfer of shares
Several major aspects of the share transfer restrictions, a fundamental aspect of the BV form, will be amended:
- the share transfer restrictions will no longer be mandatory;
- transferability may be entirely excluded in the articles of association for a specific period of time; and
- the new rules provide for more freedom to determine the price of the shares.
C. Distributions
The rules for making a dividend payment or a distribution from a reserve will be fundamentally changed. The basic principle will be that a BV is allowed to make a distribution under certain conditions.
A resolution of the general shareholdersmeeting to make a distribution from a reserve will require the approval of the management board. The management board will have to refuse the requested approval if it knows, or should reasonably have anticipated, that the company will not be able to continue paying its due and payable debts after a distribution.
If the company is unable to continue paying its payable debts after a distribution, the managing directors who knew this when the distribution was made, or should reasonably have anticipated it, will be jointly and severally liable towards the company for the shortfall resulting from the distribution.
A party receiving a distribution that knew, or should reasonably have anticipated, that the company would not be able to continue paying its due and payable debts after a distribution will be liable to the company to compensate the shortfall resulting from the distribution.
D. Voting rights and rights to profit
The rules on BV decision-making will be made more flexible. There will also be more flexibility with regard to the allocation of rights to specific classes of shares.
The holder(s) of a specific kind of shares (not just the general meeting) will be able to appoint managing directors.
It will become possible for different voting rights to be attached to classes of shares (even when the nominal values of the various classes are the equal). Non-voting shares and shares without profit rights will be introduced. This is supplying long-felt wants of those working with company law on a daily basis.
E. Dispute settlement/miscellaneous
Furthermore the dispute settlement procedure (Geschillenregeling) within the articles of association will be drastically changed. The dispute resolution procedure will offer shareholders the options of retiring from the company in specific situations or squeezing out another shareholder.
Currently, a court judgment ordering the resignation or expulsion of a shareholder is required, after which experts are appointed to decide the share price for the transfer. In practice, this dispute resolution procedure is unpopular because it takes an average of over 5 years to complete. The new procedure is expected to cut the process to 12-18 months.
No appeal against the first judgment (regarding resignation/squeeze-out decision) will be possible until the same time as the second (final) judgment on price fixing. The final judgment will be provisionally enforceable. An appeal will therefore not have suspensive effect.
The parties will have the option of agreeing on a provision in the articles or in contract that would in principle prevail over the statutory provision.
It will be possible to submit a resignation request to the company. As a result, the company can be obliged to purchase the shares of the retiring shareholder.
When shareholders agree on a clear valuation standard, the appointment of an expert will be dispensed with and the court itself will determine the transfer price, unless the resulting price is manifestly unreasonable. The court giving the judgment may simultaneously assess any additional claims for damages. The court may grant provisional relief until the moment of the transfer of the shares, as a result of which no separate procedure for something with virtually the If the shareholders have reached agreement on the retirement of one of shareholders, but still disagree about the value of the shares to be transferred, accelerated and simple application proceedings will be possible.
The right to convene meetings is extended. One or more shareholders representing at least 1% of the issued share capital may submit a written request to convene a meeting to the managing or supervisory board, specifiying the items that they wish to discuss.
Conclusion
Acceptance of the bill by the Dutch First Chamber will fundamentally change Dutch private company law. With the introduction of the bill The Netherlands will have modernized its law at one time. We will keep you informed on the developments concerning the bill.
