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The position of managing directors

The position of managing directors

As we informed you earlier, new legislation regarding the simplification and flexibilization of the rules on Dutch private companies with limited liability (Wet vereenvoudiging en flexibilisering bv-recht: the “Flex BV Act”), came into effect. on October 1, 2012. The Flex BV Act is applicable to all existing private companies with limited liability (besloten vennootschappen met beperkte aansprakelijkheid:  the “BV”) in the Netherlands and is meant to simplify company rules for BVs; it also makes the rules more flexible. However, as a consequence of the flexibilization and simplification of several provisions, the (potential) liability of the managing directors for certain (juristic) acts has increased.

Furthermore, the Act on the management and supervision (Wet bestuur en toezicht: the “AMS”) of BVs and companies limited by shares (naamloze vennootschappen: the “NV”) came into effect on January 1, 2013.

This new legislation allows BVs and NVs to choose for either a “one-tier board” or the (already existing) system with a Management Board (with executive powers) and a Supervisory Board (the “two-tier board”). Furthermore, new rules on conflicts of interest and absence/inability to act have been introduced. I will address these subjects in separate contributions to these international knowledge pages in the near future.

As the new legislation also brought changes to the position of a managing director, in the last few months we received a lot of questions from managing directors, asking for
general guidelines. Therefore I will give a description of his position in a BV with a two-tier system: in general from a legal perspective -therefore not limited to the recent changes under the AMS. 

Under Dutch law a BV is required to have a Management Board, while a Supervisory Board is in most cases optional. Membership of the Management Board is incompatible with membership of the Supervisory Board and vice versa.

The Management Board of a BV is composed of one or more natural or legal persons. Its members are collectively responsible for the management of the company. The Management Board and/or its individual members represent the company towards third parties. The daily management includes, inter alia, policy-making and implementation, coordination, financial management, registration of relevant data at the Trade Register and last but not least, the preparation and publication of the annual accounts.

The Articles of Association may restrict the powers of the Management Board by submitting certain acts of management to the approval of another body of the company, such as the general meeting.

In cases where there is a division of duties within the Management Board, all important decisions falling under the management task must be taken jointly by the Management Board as a whole. A company’s financial policy is always the responsibility of the entire Management Board.

The (general) duties and liabilities of a managing director:

a)             To act responsibly and in the interest of the BV and/or the enterprise connected to it.
b)             To duly observe the BV’s objects (not only in day-to-day business but also strategically).
c)             If the Articles stipulate so: to follow the general instructions of the general meeting, unless these are in conflict with any interest of the BV and/or the enterprise connected to it.
d)             In case of a conflict of interest: the managing director shall not take part in the deliberations and the decision-making if he has any direct or indirect personal interest therein that is in  conflict with any interest of the BV and/or the enterprise connected to it. If as a result thereof no resolution can be adopted by the Management Board, the resolution shall be adopted by the general meeting.
e)             In case of absence or impediment of a managing director, the other managing directors -or the only remaining managing director- shall temporarily be charged with the management of the BV. In case of absence or impediment of all managing directors -or of the only managing director-, the person who is or has been designated for that purpose by the general meeting shall temporarily be charged with the management of the BV. The provisions set forth in the Articles regarding the Management Board and a managing director shall apply to that person mutatis mutandis. Furthermore he shall be held as soon as possible to convene a general meeting in which a resolution can be adopted regarding the appointment of one or more managing directors.
f)              More general:
–            to keep record of all important resolutions adopted by the Management Board and keep a record of all resolutions adopted by the general meeting;
–            to administer the financial condition of the BV (i.e. among others: to prepare and keep financial books and records and a sound and reliable administration;
–            to keep all records available for inspection by the authorities;
–            to publish the annual accounts in time;
–            to be well informed on the (financial) position of the BV -on all important management matters and on all matters within the scope of his responsibility-;
–            to comply with the regulations of the law and Articles; and
–            to pay any taxes, duties or contributions in time and to keep the (tax) authorities informed in time if he becomes aware of inability of the BV to pay any of these.

As a result of acting in conflict with these duties, a managing director may be held personally liable:
–                 if the managing director can be seriously blamed for the shortcomings in his duties (case law);
–                 if the BV has improperly been managed by any of the managing directors (irrespective of which managing director: a collective liability). One may exonerate himself if he is not to be blamed personally: if he has taken measures to avoid the improper management, taking into account which specific tasks have been assigned to that managing director; or
–                 if he co-operated with the shareholder(s) to make a distribution of profits and/or reserves although he should have refused to grant its approval.

Possible steps to limit the liability risks 

Hereinafter I propose some actions to be taken in order to limit the possibility for managing directors to be held personally liable in relation to their professional duties. The list is -of course- not exhaustive:
–                 to take care of a sound and reliable administration, to ensure that the rights and obligations of the company can be ascertained at any time;
–                 to keep all records available for inspection by the authorities during at least seven years (for certain VAT-purposes: nine years);
–                 to take care of the preparation of the annual accounts and deposit these within thirteen months from the end of the financial year, even if the annual accounts have not yet been adopted and/or approved;
–                 to pay taxes and social premiums in time and in case of inability to pay, make notification hereof in time and in writing to the tax authorities, Industrial Insurance Board and Company Pension Fund;
–                 not to commit the company to obligations which it can most probably not fulfill;
–                 to be well informed on the financial position of the company, on all important management matters and on all matters within the scope of your responsibility;
–                 to take all reasonable measures to prevent (further) damage to the company and/or to third parties which may result from any matter connected with the company and within the scope of its responsibility;
–                 to keep a record of important resolutions adopted by the Management;
–                 to keep a record of resolutions adopted by the general meeting of shareholders;
–                 to promote the discharge by the general meeting, of the Management Board and its members for the management conducted by them, upon adoption of the annual accounts and in case of dismissal.

At your request, if you need more info: we can provide you with a more detailed overview of the duties and internal/external liability of managing directors.

Anne Claire Sillevis Smitt, candidate civil-law notary
at Dirkzwager advocaten & notarissen

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