The board resolution of a Dutch company
This legal blog provides information about board resolutions of a Dutch company (BV): when do the laws of the Netherlands require a formal corporate decision and how is it taken?
Corporate decision making in the Netherlands
From our Dutch company law practice it has become clear that concluding a board resolution by Dutch companies raises questions. This mostly concerns the Dutch limited liability company (the BV) and Dutch public limited liability company (the NV, similar to the similar to the Anglo-Saxon Plc or Inc).
The legal requirements under Dutch law regarding executive board decisions are not always clear, even to Dutch lawyers. Also the reasons why such resolutions should best be concluded, are not always evident. But for Dutch corporate governance and director liability purposes, it is quite important that board members and their advisors understand the rules and that the best practices in the Netherlands are adhered to. For this reason, we have written this blog and we include a template board resolution under Dutch law (link provided below).
This blog addresses questions such as: what is a board resolution and how is it concluded for a Dutch legal entity. Which officers of a Dutch company play a role in the decision making process? In which events is a formal resolution obligated under the laws of the Netherlands and when is it advisable. What are the legal consequences when a formal decision has not been taken or not taken correctly?
What is a board resolution under Dutch law?
A board resolution is a resolution of the board of directors of a Dutch company, generally a Dutch limited liability company (Dutch acronym: BV) but it is essentially the same for all Dutch legal entities. The (executive) board consists of people or legal entities who have been appointed upon or incorporation or later by means of a resolution of the general meeting of shareholders of the BV. The decision of the board as a corporate body constitutes a board resolution and not the decision of a single board member. Such corporate decision can be taken in a physical meeting, but also through a phone or video call. An alternative can be that the board resolution is concluded ‘outside a meeting’, i.e. a written resolution that is concluded by all the board members.
Why is a board resolution for a Dutch company necessary?
Under Dutch company law, board members have a collective responsibility for the management of a company. To achieve the corporate purpose of the company, the executive board will devise a corporate strategy that translates to the numerous decisions that a company at the top lever, i.e. the board, will make. A formal decision of the management or executive board may simply be required by Dutch corporate law, the Articles of Association or director’s regulations / bylaws. Board resolutions also serve the purpose of explaining how the board is taking responsibility for achieving its tasks. Also with respect to accountability and (warding of) director’s liability under the laws of the Netherlands, board resolutions are essential for the corporate household.
When is a board resolution mandatory under Dutch law?
Under the corporate laws of the Netherlands, only few occasions exist when an executive board decision is actually required. This is for instance the case for resolutions that require the approval of the non-executive board (also called the supervisory board in the Netherlands) or of the works council. Also, the Articles of Association of a Dutch company, board regulations, governance codes and market practice may require that a (written) board decision is taken. In any case, the principle of better being safe than sorry applies here: a board of directors will generally reduce the possibility of director’s liability when its resolutions are well documented. In practice, this is generally not done at all or not properly and this is the source of (too) many conflicts in the Netherlands between -especially- the board and the shareholders.
How to conclude a board resolution of a Dutch company?
Dutch company law and the Articles of Association of the BV provide how a board resolution should be taken. Some corporate matters will require the involvement and approval of the general meeting of shareholders, the works council and / or the supervisory board.
Each board member can cast one vote. Also, a decision by the executive board needs to meet the principle of fairness and equitability and its needs to be the ‘fruit of sufficient deliberation’. This means that board members can not be excluded from the decision making process.
That said, this is different for directors who have a personal interest that conflicts with the corporate interest. Such management board members may not partake in the decision making process nor in the voting, unless the Articles of Association of the Dutch company stipulate otherwise. A board resolution does not need to be in writing, unless on the basis of the Articles or a shareholders agreement. We deem it advisable to always conclude written board decisions.
Minutes of a board meeting of a Dutch company should include the date and location of the board meeting, an attendee list, the method of voting and a clear description of what has been decided. It is sensible that the board minutes also provide context relating the decision making.
If the formal rules are not adhered to, a board resolution may be annulled or declared null and void. In order to prevent this, we refer to our template board resolution for a Dutch company (download).
Can a Dutch court overrule or annul a board decision?
A board resolution can have far reaching consequences for a Dutch enterprise and the parties involved. As an example, the board may decide to replace its workforce by self-employed staff. This has happened in the Netherlands with IT driven food delivery services. For this reason, Dutch law provides that corporate decisions need to be reached diligently after weighing the relevant interests. A board decision that has not been concluded according to the formal rules may be declared null and void by a Dutch court of law. Also, a resolution of the management board can be scrutinized by the enterprise chamber of the Amsterdam court, which is a specialized court for Dutch corporate law matters.
A board resolution that contravenes directly with Dutch company law or with the company’s Articles of Association is null and void. A Dutch corporate lawyer would consider it non-existent and, thus, the company can not execute such a decision and nobody can enforce it. An example of a resolution that Is null and void is when the articles of incorporation stipulate an increased majority of votes and such majority is not met. Such decision is deemed not be taken.
A board decision that is not concluded in accordance with certain formalities is not null and void by operation of law, but in can be declared null and void by a ruling of a Dutch court upon the request of an interested party, including the board. Until such court ruling, the decision of the board is valid. An example is a resolution that is not in accordance with board regulations / bylaws. The possibility to challenge a board decision of the executive / management board of a company in the Netherlands lapses after one year.
If there are good reasons to doubt the actions or inactions of a management board, there is the possibility to test the policies of the board before the enterprise chamber with the Amsterdam court through the so-called inquiry procedure. A court appointed specialist may scrutinize the policy and actions of the board and the court may suspend or annul the execution of board resolutions.
Checklist and template for board resolution of a Dutch company
We have drafted a template for a board resolution of a company in the Netherlands. The example board decision in can be accessed through this link. We also recommend using the following checklist to conclude a proper board resolution under Dutch corporate law:
- Who are the board members who have been appointed by the general meeting of shareholders? Which board members need to be involved in the relevant decision making process?
- Does the corporate resolution need the (prior) approval of the shareholders meeting or the supervisory board / non-executive board?
- Is there a member of the board who has a conflict of interest regarding the proposed resolution? If yes, how is this being dealt with since as a principle such board member may not partake in the decision making process? Check the Articles of Association and the board regulations on this point.
- Has the management board received specific instructions from the supervisory board or the shareholders meeting regarding the subject that is being decided on?
- Does the works council has an advisory or information right regarding the resolution’s topic?
- Did the board weigh the relevant interests and have the interests of the company been taken into account?
- Make sure that proper minutes of the board meeting are being made that reflect both the resolutions and the relevant considerations of the board.
Penrose law firm in Amsterdam, the Netherlands.
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