In the near future some significant changes will be made to Dutch corporate law, with the chief aim of achieving greater simplicity and reducing the burden for businesses.
This article will discuss several expected changes that will specifically affect private companies with limited liability (BVs) and public companies with limited liability (NVs). Some of these changes will take effect in the near future.
First, two legislative amendments that have already been passed and are about to become law will be discussed. In addition, several proposed changes to Dutch corporate law that are still in legislative bill form will be discussed.
ELIMINATION OF THE REQUIRED MINISTERIAL CERTIFICATE OF NO OBJECTION
For the incorporation of a BV or NV in the Netherlands, a certificate of no objection from the Minister of Justice is required. The application for this certificate must include information for the Ministry concerning the company to be incorporated, such as its name, objects and capital. Information must also be submitted regarding the incorporators, initial shareholders and managing directors of the company. Personal data is required, and in case a legal entity is involved, the financial details of this legal entity is required as well. If one of the natural persons or legal entities owns a substantial interest in another Dutch company, or holds a managing director position at a Dutch company, various financial details about these Dutch companies must also, in principle, be provided.
Before a certificate is issued, the Ministry conducts an investigation into the intentions, financial history and criminal records of those in the company with responsibility for determining policy. The certificate may only be denied if there is a risk that the company will be used for impermissable objectives or that its activities will prejudice the creditors.
In some cases an expedited procedure may be requested or a diminished duty to provide information applies. However, the application procedure for the certificate, which can take several days to several weeks, slows down the incorporation of a BV or NV. A certificate is also required to amend a BV’s or NV’s articles of association, although less information needs to be provided.
From 1 July 2011, however, the mandatory certificate of no objection for the incorporation of a BV or NV, or amendment of its articles, no longer applied. Hence, furnishing data or awaiting the Ministry’s response has become a thing of the past, reducing the administrative burden and saving time. It will therefore now be possible to incorporate a BV or NV faster. The former system has been replaced by a system of continuous monitoring during the BV’s or NV’s existence, with the Ministry of Justice’s JUSTIS Department (Integrity and Screening Department) performing a risk analysis in response to compiled data.
SIMPLIFICATION OF THE MERGER AND DIVESTITURE RULES
Directive 2009/109/EC (the directive) was enacted on 16 September 2009. The directive aims to ease the reporting and documentation obligations for national and cross-border mergers and national divestitures. It is an attempt to strengthen the competitiveness of EU companies. Since the same merger and divestiture rules apply to BVs and NVs in the Netherlands, both legal forms will benefit from the reduction in the administrative burden.
As a result of Directive 2007/63/EC, Dutch corporate law already included a provision that the compulsory audit by an independent expert (auditor) regarding the exchange ratio for a merger or divestiture is no longer necessary if all the shareholders consent to this.
The changes that will be made to Dutch corporate law, based on the directive, may be sub-divided into two categories: changes concerning disclosure and information obligations, and changes concerning reporting and documentation obligations.
The first category can afford the opportunity to provide merger and divestiture documents electronically, besides depositing them with the Trade Register. The idea is that the Chamber of Commerce’s internet site will function as a central electronic platform that allows for the viewing of documents.
For the merging and divesting BVs and NVs, the proposed merger or divestiture implies an obligation to deposit the documents at the company’s offices. It will also now be possible to make the relevant documents accessible electronically through the company’s website. The shareholders must be able to download and print the documents. Because a company might not want everyone to be able to consult merger and divestiture documents on the website, the documents can be placed on a separate part of the website that is only accessible to the shareholders.
Regarding the second category of changes, the following can be pointed out. Under the current law, if a merger or divestiture proposal is made, the management boards of the BVs or NVs must draw up a written explanation of the expected consequences of the proposed action, with additional information about the exchange ratio being explained as well. If the most recent financial year ended more than six months before the proposal was filed, an interim statement of assets and liabilities must also be drawn up. After the new regulations take effect, it will no longer be necessary to draw up an explanation by the management board or an interim statement of assets and liabilities for a merger, if the shareholders provide their consent.
In addition, under the current law, only a company’s general meeting can decide on a merger or divestiture. The exception is a merger decision by the acquiring company, which, in principle, can be taken by the management board. The new legislation provides that, if there is a merger between a company and its wholly-owned subsidiary, the company ceasing to exist can decide on the merger by management board resolution. In the case of a divestiture, the acquiring company can decide on the divestiture by management board resolution if it holds all the shares in the divesting company. The directive also mandates this easing of the rules.
The acquiring company’s articles of association will often be amended by the merger. A new company may be set up when a divestiture occurs. As described above, the previously required certificate of no objection will no longer be necessary, which will simplify the process.
The legislative bills simplifying and relaxing the rules for mergers and divestitures have now been passed by the Dutch legislature and will take effect on 1 July 2011.
GREATER FLEXIBILITY IN BV LAW
The pending legislative bill to increase flexibility in BV law also includes changes relating to simplification and a reduction of the burden for BVs.
The minimum capital requirement of €18,000 for BVs will be eliminated, as well as the related bank’s statement, attached to the notarial deed of incorporation, proving that the initial issued share capital has actually been paid. A few capital protection rules, which were mainly regarded as ineffective and cost increasing, will also disappear from the law. These rules include a prohibition on giving assistance to third parties to acquire shares in a BV’s capital, as well as the capital reduction procedure, which provides for an objection period of two months.
Additionally, a BV’s articles of association will be able to limit the power to make distributions or to grant this power to another body besides the general meeting. Profits, distributable reserves and other assets may be distributed, provided the management board agrees to this. This will also hold true for the purchase of shares or the reduction of capital. The management board must perform a ‘distribution test’, meaning that it cannot agree to a distribution if the BV will consequently no longer be able to pay its exigible debts. The managing directors will run the risk of liability if they provide consent ‘imprudently’. The shareholders may be held liable for at most the amount received by them if they could have foreseen that the BV would no longer be able to pay its debts after the distribution.
The ‘nachgründung‘ will also be deleted from the law. This means that a shareholders’ resolution, a description and an audit opinion will not be needed anymore for legal acts to acquire property that belonged to an incorporator or shareholder one year before the BV was established or afterwards, and which were performed within two years after the BV was registered in the Trade Register.
Additionally, a share transfer restriction clause will no longer have to be included in the articles of association. Thus, the shares in a BV may be transferred freely. Furthermore, the articles of association may also state that additional votes may be cast in respect of certain shares or that certain shares may be debarred from voting or excluded from profit-sharing. Another innovation is that certain shareholders will be able to directly appoint one or more managing directors of a BV. The somewhat cumbersome procedure of appointment by the general meeting after a recommendation will no longer have to be followed.
The legislative bill providing for greater flexibility in BV law is expected to be passed quickly and to take effect on 1 January 2012.
The changes in Dutch corporate law mentioned in this article will help simplify matters and reduce the burden for BVs and NVs. Moreover, the notion is that, once these changes have been incorporated into Dutch corporate law, it will become more consistent with foreign legal systems, making the Netherlands more attractive for international commerce.