How to appoint and remove officers in a Dutch Holanda

In both limited companies (in Dutch: B.V.’s) and public limited companies (in Dutch: N.V.’s) it is mandatory to have a management board in place. A management board may consist of one or more board members. The number of members of the management board is usually determined in the articles of association of the entity.

N.V.’s and B.V.’s fulfilling the conditions as listed below and having complied with the mandatory registration of such fulfilment with the Chamber of Commerce for three subsequent years, are obliged to have a supervisory board in place under the “mandatory two-tier regime for large companies”:

• the sum of the issued capital and reserves as shown in its balance sheet and the accompanying explanatory notes amounts to at least EUR 16,000,000;
• pursuant to a statutory provision, the entity or a ‘dependant company’ (which is further defined in Dutch law) of such entity has established a works council;
• generally, more than 100 employees are working for the entity and its dependant companies.

The supervisory board under the mandatory two-tier regime for large companies should be distinguished from the supervisory board (or a one-tier board with executive and non-executive board members) the N.V. and B.V. may opt for outside this regime. The most important differences are that under the mandatory two-tier regime for large companies, the supervisory board has broader statutory tasks being the appointment and dismissal of directors and the right of approval in relation to certain board resolutions. Outside of this regime, the main task of the supervisory board is to supervise the policy pursued by the management board and the general course of affairs of the entity.

N.V.’s and B.V.’s may voluntarily opt for application of the two-tier regime for large companies (and the broader statutory tasks for the supervisory board as mentioned before), but only in case the entity or a dependant company has a works council in place.

Directors

In principle, within N.V.’s and B.V.’s, directors are appointed by the general meeting of shareholders unless there is a supervisory board in place under the two-tier regime for large companies. The articles of association may provide that certain appointments need to be based on a nomination by a corporate body or a third party.

Under the two-tier regime for large companies, the supervisory board is the authorized corporate body to appoint the directors. Constitutive requirement for such appointment is that the general meeting of shareholders must be consulted in regards to the intended appointment of a director. For companies that fall under the mandatory two-tier regime for large companies, but form – in short - part of an international group of companies a so-called mitigated two-tier regime applies (subject to certain requirements being met), in which the general meeting of shareholders remains the competent body to appoint the statutory directors.

In case a N.V. or a B.V. has a works council in place, such works council has a right of prior advice in relation to the intended appointment (and dismissal) of a director. The works council does not have a right of appeal if the advice proceedings have been correctly complied with.

Supervisory directors

Supervisory directors are appointed by the general meeting of shareholders or another body if so provided in the articles of association, as long as (within a B.V.) every shareholder with voting rights may participate in the decision-making regarding the appointment of at least one supervisory director.

As regards companies that fall under the mandatory two-tier regime for large companies, supervisory directors are appointed by the general meeting of shareholders acting on proposal from the supervisory board. The supervisory board has to consult the works council in regards to such proposal.

Directors

Directors of N.V.’s and B.V.’s may voluntarily resign from their position within the management board. The effectiveness of such resignation is not subject to the acceptance of a corporate body of the entity. Directors who have an employment agreement with the N.V. or the B.V. need to be aware that the resignation from their management board position automatically means the resignation from their employment agreement if that agreement has been concluded with the same entity.

Supervisory Directors

A member of the supervisory board may voluntarily resign from his/her position, and within the two-tier regime for large companies is obliged to resign within 4 years of his/her appointment.

Directors

Usually, directors have two separate legal relationships with the entity in which they form part of the management board: a so-called corporate relationship and a contractual relationship (a services agreement or employment agreement, which governs the employment/working conditions). Both relationships need to be terminated.

The removal of a director from his/her corporate position takes place by a dismissal resolution adopted by the corporate body authorised to do so under the company’s articles of association, which has – as a general rule - as consequence that the employment agreement or services agreement terminates automatically as well. No premature assessment by the Employee Insurance Agency (UWV) or a cantonal judge is needed for the termination of the employment agreement of a director if the corporate dismissal has been effected first and the employment agreement has been concluded with the same entity. One of the few exceptions is when a director is sick at the moment his/her corporate relationship has been terminated. In this case, a decision of the judge or UWV or a cantonal judge is necessary in order to terminate the employment relationship, unless the director calls in sick after having received formal notice in relation to the general meeting of shareholders in which his/her dismissal is on the agenda.

If the general meeting of shareholders is the competent body to dismiss the director, an extraordinary meeting of shareholders needs to be convened and all formal corporate requirements in this respect need to be complied with in order to validly resolve on the dismissal of the director.

In practice, the removal of a director is often implemented by concluding a mutual settlement agreement, on the basis of which the director voluntarily resigns from his/her directorship.

Supervisory directors

Outside of the mandatory two-tier regime for large companies, supervisory directors can be dismissed by the company body authorised to appoint the supervisory directors (general meeting of shareholders). In addition, the articles of association may provide that the supervisory director may be dismissed by the general meeting of shareholders. In addition, the contractual relationship with the supervisory director also needs to be terminated.

Within the two-tier regime for large companies, supervisory directors may only be dismissed by:

• the enterprise division of the Amsterdam Court of Appeal on a few pre-determined termination grounds;
• by the general meeting of shareholders voting for a resolution of no-confidence in the supervisory board, which has as consequence the immediate dismissal of all supervisory board members.
  

Directors

After the dismissal, the director could be entitled to several compensation payments. The first one is the transition payment. If the employment contract is ended on the employer’s initiative, the director will be entitled to a transition payment. The transition payment is intended to facilitate the transition to a new job. Nonetheless, the corporate officer could use the payment anyway he/she likes. The amount of the transition payment depends on the duration of the employment contract. The longer the corporate officer has been with the company, the higher the transition payment will be. The director is entitled to 1/3rd of his/her gross monthly salary (as defined in employment law) per year of service for the company. The maximum will be EUR 86,000 or the amount of the annual salary if it is higher than EUR 86,000.

If the employer has ended the employment contract with the corporate officer without a so-called ‘reasonable ground’ or the employer did not comply with its duty to relocate the corporate officer within the organisation, the corporate officer is entitled to a fair compensation. Another reason to grant a fair compensation is when the employer acted seriously culpable towards the employee. The amount of this fair compensation is to be determined by the judge.

Lastly, it is possible that a corporate officer is entitled to a contract-based severance pay. This contract-based severance pay will not affect the transition fee, because the transition fee is a legally determined amount. The employer cannot deviate from this. In case of a fair compensation, the text of the contract-based severance pay is decisive to determine if they can coexist. Contracting out a fair compensation is not an option. In case of a contract-based severance payment, it is recommended to agree that any transition payment and fair compensation on the basis of the law will be deducted from the contract-based severance payment.

Supervisory director

A supervisory director will in principle not be entitled to a severance payment.