The incorporation of limited liability companies in The Netherlands and in Spain

24 January 2023

  • Netherlands
  • Spain
  • Corporate

Where is it more suitable to set up a new limited liability company in Europe?

I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

Spain: the “Create and Grow Law”

In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain “undercapitalized”), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

Online incorporation of a company in Spain

The “CIRCE system” (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies “over the Internet” ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

The Netherlands: The Flex BV law

The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

The Flex BV law has, among others, the following characteristics:

  • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
  • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

Online incorporation of a company in the Netherlands

 In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

What positive and negative aspects can be highlighted?

Positives aspects:

  • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
  • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
  • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
  • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
  • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

Negatives aspects:

  • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident “underfinancing” of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
  • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
  • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
  • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
  • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

Conclusions

Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

  • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
  • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
  • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

This week the Interim Injunction Judge of the Netherlands Commercial Court ruled in summary proceedings, following a video hearing, in a case on a EUR 169 million transaction where the plaintiff argued that the final transaction had been concluded and the defendant should proceed with the deal.

This in an – intended – transaction where the letter of intent stipulates that a EUR 30 million break fee is due when no final agreement is signed.

In addition to ruling on this question of construction of an agreement under Dutch law, the judge also had to rule on the break fee if no agreement was concluded and whether it should be amended or reduced because of the current Coronavirus / Covid-19 crisis.

English Language proceedings in a Dutch state court, the Netherlands Commercial Court (NCC)

The case is not just interesting because of the way contract formation is construed under Dutch law and application of concepts of force majeure, unforeseen circumstances and amendment of agreements under the concepts of reasonableness and fairness as well as mitigation of contractual penalties, but also interesting because it was ruled on by a judge of the English language chamber of the Netherlands Commercial Court (NCC).

This new (2019) Dutch state court offers a relatively fast and cost-effective alternative for international commercial litigation, and in particular arbitration, in a neutral jurisdiction with professional judges selected for both their experience in international disputes and their command of English.

The dispute regarding the construction of an M&A agreement under Dutch law in an international setting

The facts are straightforward. Parties (located in New York, USA and the Netherlands) dispute whether final agreement on the EUR 169 million transaction has been reached but do agree a break fee of €30 million in case of non-signature of the final agreement was agreed. However, in addition to claiming there is no final agreement, the defendant also argues that the break fee – due when there is no final agreement – should be reduced or changed due to the coronavirus crisis.

As to contract formation it must be noted that Dutch law allows broad leeway on how to communicate what may or may not be an offer or acceptance. The standard is what a reasonable person in the same circumstances would have understood their communications to mean.  Here, the critical fact is that the defendant did not sign the so-called “Transaction Agreement”. The letter of intent’s binary mechanism (either execute and deliver the paperwork for the Transaction Agreement by the agreed date or pay a EUR 30 million fee) may not have been an absolute requirement for contract formation (under Dutch law) but has significant evidentiary weight. In M&A practice – also under Dutch law – with which these parties are thoroughly familiar with, this sets a very high bar for  concluding a contract was agreed other than by explicit written agreement. So, parties may generally comfortably rely on what they have agreed on in writing with the assistance of their advisors.

The communications relied on by claimant in this case did not clear the very high bar to assume that despite the mechanism of the letter of intent and the lack of a signed Transaction Agreement there still was a binding agreement. In particular attributing the other party’s advisers’ statements and/or conduct to the contracting party they represent did not work for the claimant in this case as per the verdict nothing suggested that the advisers would be handling everything, including entering into the agreement.

Court order for actual performance of a – deemed – agreement on an M&A deal?

The Interim Injunction Judge finds that there is not a sufficient likelihood of success on the merits so as to justify an interim measure ordering the defendant to actually perform its obligations under the disputed Transaction Agreement (payment of EUR 169 million and take the claimant’s 50% stake in an equestrian show-jumping business).

Enforcement of the break fee despite “Coronavirus”?

Failing the conclusion of an agreement, there was still another question to answer as the letter of intent mechanism re the break fee as such was not disputed. Should the Court enforce the full EUR 30 million fee in the current COVID-19 circumstances? Or should the fee’s effects be modified, mitigated or reduced in some way, or  the fee agreement should even be dissolved?

Unforeseen circumstances, reasonableness and fairness

The Interim Injunction Judge rules that the coronavirus crisis may be an unforeseen circumstance, but it is not of such a nature that, according to standards of reasonableness and fairness, the plaintiff cannot expect the break fee obligation to remain unchanged. The purpose of the break fee is to encourage parties to enter into the transaction and attribute / share risks between them. As such the fee limits the exposure of the parties. Payment of the fee is a quick way out of the obligation to pay the purchase price of EUR 169 million and the risks of keeping the target company financially afloat. If financially the coronavirus crisis turns out less disastrous than expected, the fee of EUR 30 million may seem high, but that is what the parties already considered reasonable when they waived their right to invoke the unreasonableness of the fee. The claim for payment of the EUR 30 million break fee is therefore upheld by the Interim Injunction Judge.

Applicable law and the actual practice of it by the courts

The relevant three articles are in this case articles 6:94, 6:248 and 6:258 of the Dutch Civil Code. They relate to the mitigation of contractual penalties, unforeseen circumstances and amendment of the agreement under the tenets of reasonableness and fairness. Under Dutch law the courts must with all three exercise caution. Contracts must generally be enforced as agreed. The parties’ autonomy is deemed paramount and the courts’ attitude is deferential. All three articles use language stating, essentially, that interference by the courts in the contract’s operation is allowed only to avoid an “unacceptable” impact, as assessed under standards of reasonableness and fairness.

There is at this moment of course no well- established case law on COVID-19. However, commentators have provided guidance that is very helpful to think through the issues. Recently a “share the pain” approach has been advocated by a renowned law Professor, Tjittes, who focuses on preserving the parties’ contractual equilibrium in the current circumstances. This is, in the Court’s analysis, the right way to look at the agreement here. There is no evidence in the record suggesting that the parties contemplated or discussed the full and exceptional impact of the COVID-19 crisis. The crisis may or may not be unprovided for.  However, the court rules in the current case there is no need to rule on this issue. Even if the crisis is unprovided for, there is no support in the record for the proposition that the crisis makes it unacceptable for the claimant to demand strict performance by the defendant. The reasons are straightforward.

The break fee allocates risk and expresses commitment and caps exposure. The harm to the business may be substantial and structural, or it may be short-term and minimal. Either way, the best “share the pain” solution, to preserve the contractual equilibrium in the agreement, is for the defendant to pay the fee as written in the letter of intent. This allocates a defined risk to one party, and actual or potential risks to the other party. Reducing the break fee in any business downturn, the fee’s express purpose – comfort and confidence to get the deal done – would not be accomplished and be derived in precisely the circumstances in which it should be robust. As a result, the Court therefore orders to pay the full EUR 30 million fee. So the break fee stipulation works under the circumstances without mitigation because of the Corona outbreak.

The Netherlands Commercial Court, continued

As already indicated above, the case is interesting because the verdict has been rendered by a Dutch state court in English and the proceedings where also in English. Not because of a special privilege granted in a specific case but based on an agreement between parties with a proper choice of forum clause for this court. In addition to the benefit to of having an English forum without mandatorily relying on either arbitration or choosing an anglophone court, it also has the benefit of it being a state court with the application of the regular Dutch civil procedure law, which is well known by it’s practitioners and reduces the risk of surprises of a procedural nature.  As it is as such also a “normal” state court, there is the right to appeal and particularly effective under Dutch law access to expedited proceeding as was also the case in the example referred to above. This means a regular procedure with full application of all evidentiary rules may still follow, overturning or confirming this preliminary verdict in summary proceedings.

Novel technology in proceedings

Another first or at least a novel application is that all submissions were made in eNCC, a document upload procedure for the NCC. Where the introduction of electronic communication and litigation in the Dutch court system has failed spectacularly, the innovations are now all following in quick order and quite effective. As a consequence of the Coronavirus outbreak several steps have been quickly tried in practice and thereafter formally set up. At present this – finally – includes a secure email-correspondence system between attorneys and the courts.

And, also by special order of the Court in this present case, given the current COVID-19 restrictions the matter was dealt with at a public videoconference hearing on 22 April 2020 and the case was set for judgment on 29 April 2020 and published on 30 April 2020.

Even though it is a novel application, it is highly likely that similar arrangements will continue even after expiry of current emergency measures. In several Dutch courts videoconference hearings are applied on a voluntary basis and is expected that the arrangements will be formalized.

Eligibility of cases for the Netherlands Commercial Court

Of more general interest are the requirements for matters that may be submitted to NCC:

  • the Amsterdam District Court or Amsterdam Court of Appeal has jurisdiction
  • the parties have expressly agreed in writing that proceedings will be in English before the NCC (the ‘NCC agreement’)
  • the action is a civil or commercial matter within the parties’ autonomy
  • the matter concerns an international dispute.

The NCC agreement can be recorded in a clause, either before or after the dispute arises. The Court even recommends specific wording:

“All disputes arising out of or in connection with this agreement will be resolved by the Amsterdam District Court following proceedings in English before the Chamber for International Commercial Matters (“Netherlands Commercial Court” or “NCC District Court”), to the exclusion of the jurisdiction of any other courts. An action for interim measures, including protective measures, available under Dutch law may be brought in the NCC’s Court in Summary Proceedings (CSP) in proceedings in English. Any appeals against NCC or CSP judgments will be submitted to the Amsterdam Court of Appeal’s Chamber for International Commercial Matters (“Netherlands Commercial Court of Appeal” or “NCCA”).”

The phrase “to the exclusion of the jurisdiction of any other courts” is included in light of the Hague Convention on Choice of Court Agreements. It is not mandatory to include it of course and parties may decide not to exclude the jurisdiction of other courts or make other arrangements they consider appropriate. The only requirement being that such arrangements comply with the rules of jurisdiction and contract. Please note that choice of court agreements are exclusive unless the parties have “expressly provided” or “agreed” otherwise (as per the Hague Convention and Recast Brussels I Regulation).

Parties in a pending case before another Dutch court or chamber may request that their case be referred to NCC District Court or NCC Court of Appeal. One of the requirements is to agree on a clause that takes the case to the NCC and makes English the language of the proceedings. The NCC recommends using this language:

We hereby agree that all disputes in connection with the case [name parties], which is currently pending at the *** District Court (case number ***), will be resolved by the Amsterdam District Court following proceedings in English before the Chamber for International Commercial Matters (“Netherlands Commercial Court” or ”NCC District Court). Any action for interim measures, including protective measures, available under Dutch law will be brought in the NCC’s Court in Summary Proceedings (CSP) in proceedings in English. Any appeals against NCC or CSP judgments will be submitted to the Amsterdam Court of Appeal’s Chamber for International Commercial Matters (“Netherlands Commercial Court of Appeal” or “NCC Court of Appeal”).

To request a referral, a motion must be made before the other chamber or court where the action is pending, stating the request and contesting jurisdiction (if the case is not in Amsterdam) on the basis of a choice-of-court agreement (see before).

Additional arrangements in the proceedings before the Netherlands Commercial Court

Before or during the proceedings, parties can also agree special arrangements in a customized NCC clause or in another appropriate manner. Such arrangements may include matters such as the following:

  • the law applicable to the substantive dispute
  • the appointment of a court reporter for preparing records of hearings and the costs of preparing those records
  • an agreement on evidence that departs from the general rules
  • the disclosure of confidential documents
  • the submission of a written witness statement prior to the witness examination
  • the manner of taking witness testimony
  • the costs of the proceedings.

Visiting lawyers and typical course of the procedure

All acts of process are in principle carried out by a member of the Dutch Bar. Member of the Bar in an EU or EEA Member State or Switzerland may work in accordance with Article 16e of the Advocates Act (in conjunction with a member of the Dutch Bar). Other visiting lawyers may be allowed to speak at any hearing.

The proceedings will typically follow the below steps:

  • Submitting the initiating document by the plaintiff (summons or request as per Dutch law)
  • Assigned to three judges and a senior law clerk.
  • The defendant submits its defence statement.
  • Case management conference or motion hearing (e.g. also in respect of preliminary issues such as competence, applicable law etc.) where parties may present their arguments.
  • Judgment on motions: the court rules on the motions. Testimony, expert appointment, either at this stage or earlier or later.
  • The court may allow the parties to submit further written statements.
  • Hearing: the court interviews the parties and allows them to present their arguments. The court may enquire whether the dispute could be resolved amicably and, where appropriate, assist the parties in a settlement process. If appropriate, the court may discuss with the parties whether it would be advisable to submit part or all of the dispute to a mediator. At the end of the hearing, the court will discuss with the parties what the next steps should be.
  • Verdict: this may be a final judgment on the claims or an interim judgment ordering one or more parties to produce evidence, allowing the parties to submit written submissions on certain aspects of the case, appointing one or more experts or taking other steps.

Continuous updates, online resources Netherlands Commercial Court

As a final note the English language website of the Netherlands Commercial Court provides ample information on procedure and practical issues and is updated with a high frequence. Under current circumstance even at a higher pace. In particular for practitioners it’s recommended to regularly consult the website. https://www.rechtspraak.nl/English/NCC/Pages/default.aspx

On March 31, 2020 the details of emergency measures where shared in a press conference and the scheme was published simultaneously. This memo sets out the main lines of the NOW scheme.

Loss of turnover

Under the NOW scheme, employers can apply for an allowance for labour costs if they expect a loss of turnover of at least 20%. The loss of turnover of at least 20% must occur over a three-month period starting on the first day of the months March, April or May 2020. It must always relate to a consecutive period of three months.

The turnover is compared with 25% of the turnover from January to December 2019.

The loss of turnover is determined at group level. If a group as a whole has a loss of turnover of less than 20%, no compensation will be paid to any individual parts of that group that are still inactive. Net turnover is taken as the net turnover, i.e. the income from the supply of goods and services from the business of the legal entity less discounts and the like and tax levied on the turnover.

Wages and salaries

The employer must pay the wages to the employees in full, but can apply to the UWV (social security insurer for employees) for an allowance for labour costs. On the other hand, the employee must also be fully available to perform work.

The NOW scheme also covers employees with employees with a flexible contract insofar as they continue to be employed and receive wages from the employer during the subsidy period. The wage bill of all employees with a social security wage (virtually all) are eligible for the subsidy. These are, for example, employees with a so-called fictitious employment contract for employee insurance, but not voluntarily insured persons.

Wages up to € 9,538 gross per month are considered, the amount surpassing the same is not considered for the subsidy. Additional charges and costs such as employer contributions and employee contributions to pension and the accrual of holiday allowance are also compensated. A lump-sum surcharge for employer charges of 30% applies.

Advance payment

 The advance payment provided under the NOW is, in principle, based on the wage bill for the January 2020 return period. If there are no wage data for January 2020, the UWV will assume November 2019. If there are no data for this period either, no subsidy can be granted.

If the wage bill for the months March-April-May is lower, the amount of the subsidy will be reduced by 90% of the amount by which the wage bill fell. The settlement is an incentive to keep employees employed as much as possible for the hours they worked before the severe drop in turnover.

Calculation

The amount of the allowance for wage costs depends on the drop in turnover and amounts to a maximum of 90% of the wage bill. For example: If 100% of the turnover is lost, the allowance amounts to 90% of the wage and salary bill of the employer and if 50% of the turnover is lost, the allowance amounts to 45% of the wage and salary bill of the employer.

Extension of the arrangement

It was previously announced that the period of the allowance, which is 3 months, may be extended once for a further period of 3 months. The Cabinet now announces that this extension has not yet been decided; it will be decided before 1 June 2020, so that any second tranche will be in line with the first application period ending on 31 May 2020. In case of extension, further conditions may be added to the scheme.

Prohibition of dismissal

When applying on the grounds of the NOW, the employer undertakes in advance not to apply for dismissal on the grounds of business economics for his employees during the period for which the allowance is received. The employer is therefore expected not to apply to the UWV for permission to terminate an employment contract on the grounds of business economics in the period from 18 March to 31 May 2020 inclusive. The prohibition on dismissal does not apply to dismissal applications submitted to the UWV in the period from 1 March to 17 March 2020.

If a request for dismissal is nevertheless made and this request is not withdrawn (or not withdrawn on time), a correction will be made when the subsidy is determined. When the subsidy is determined, the wages of the employees for whom dismissal has been requested will be determined. This wage is then increased by 50%. This wage plus the 50% increase is deducted from the total wage sum on which the final amount of the subsidy is based.

Submitting the request

The UWV will be charged with processing the application. The applications are expected to be submitted on 6 April next. The first advance payments will be made within 2 to 4 weeks. This advance payment will in any case amount to 80% of the grant.

On 28 May 2019 the Dutch Parliament adopted new employment legislation: The Balanced Labour Market Act (‘Wet Arbeidsmarkt in Balans’), hereinafter the WAB. The most important changes are discussed below.

New cumulation ground for dismissal

The legislation introduces a new ground for dismissal. This makes it a bit easier for employers to dismiss employees. Dismissal will also be possible if there is a sum of circumstances, the so-called cumulation ground. Now the employer must fully comply with 1 of the 8 grounds for dismissal. This new ground gives the court the opportunity to combine circumstances. The employee can receive an extra half transitional allowance (on top of the current statutory transitional allowance) if the cumulation ground is used for the dismissal.

Severance: Transitional allowance

The new act arranges that employees will have the right to a transitional allowance immediately from the first start of the employment contract, instead of only after two years.

The accrual of transitional allowance is reduced in case of long-term employment. The accrual for everyone, regardless of the age of the employee, is one third of a monthly salary.

There will be a scheme for small employers to compensate the transitional allowance if they have to end their business due to retirement or illness.

Extending the scope of the chain of employment agreements

The current period after which successive fixed-term employment contracts legally change into an employment contract for an indefinite period is two years. The WAB broadens the succession of temporary contracts. Under the WAB it will still be possible to enter into a maximum of three temporary contracts. The maximum period of fixed-term contracts will be extended to three years. This chain of successive fixed-term employment contracts can be broken by an interruption period of six months.

It is possible to shorten the interruption period between a chain of fixed-term contracts in a Collective Bargaining Agreement from six to three months if there is recurring temporary work that can be done for a maximum of nine months a year.

An exception to the chain provision will be made for temporary workers in primary education who replace employees who became ill.

Call agreement

A new definition is introduced in Article 7: 628a paragraph 9 of the Dutch Civil Code: the ‘call agreement’. In call agreements the number of working hours per period and the salary are not established upfront but can vary depending on for example the amount of work available. Under the WAB an employee must be called by the employer at least four days in advance. If the employer does not follow this regulation, the employee is not obligated to come in for work. Call workers retain the right to wages for the period for which they were called if the work is cancelled less than four days in advance. The employer is obliged to offer the call worker an employment contract after a year for the average number of hours that he has worked in the previous twelve months. In Collective Bargaining Agreements alternative arrangements can be made under certain conditions.

Payrolling

Payroll employees will receive the same legal position and primary and secondary employment conditions as employees who are employed by the employer.

Payroll employees are also entitled to an ‘adequate’ pension scheme.

Unemployment benefit premium differentiation

In order to make employment contracts for an indefinite period of time more attractive for employers, the WAB arranges for an unemployment benefit premium differentiation between permanent and temporary contracts. A lower premium will apply for employment contracts for an indefinite period of time and a higher premium for fixed-term employment contracts.

Commencing date

The intended commencing date of the WAB is 1 January 2020. The right to an adequate pension scheme for payrolling starts on 1 January 2021.

The author of this post is Regine de Wit.

Sonia García Navasquillo

Practice areas

  • International trade
  • Compliance
  • Corporate
  • Alternative Dispute Resolution
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    M&A, Force Majeure and Covid19 according to the Netherlands Commercial Court

    6 May 2020

    • Netherlands
    • Contracts
    • Litigation
    • M&A

    Where is it more suitable to set up a new limited liability company in Europe?

    I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

    Spain: the “Create and Grow Law”

    In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

    Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

    It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain “undercapitalized”), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

    Online incorporation of a company in Spain

    The “CIRCE system” (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies “over the Internet” ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

    The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

    The Netherlands: The Flex BV law

    The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

    The Flex BV law has, among others, the following characteristics:

    • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
    • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

    Online incorporation of a company in the Netherlands

     In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

    The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

    The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

    What positive and negative aspects can be highlighted?

    Positives aspects:

    • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
    • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
    • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
    • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
    • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

    Negatives aspects:

    • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident “underfinancing” of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
    • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
    • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
    • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
    • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

    Conclusions

    Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

    Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

    Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

    • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
    • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
    • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

    If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

    This week the Interim Injunction Judge of the Netherlands Commercial Court ruled in summary proceedings, following a video hearing, in a case on a EUR 169 million transaction where the plaintiff argued that the final transaction had been concluded and the defendant should proceed with the deal.

    This in an – intended – transaction where the letter of intent stipulates that a EUR 30 million break fee is due when no final agreement is signed.

    In addition to ruling on this question of construction of an agreement under Dutch law, the judge also had to rule on the break fee if no agreement was concluded and whether it should be amended or reduced because of the current Coronavirus / Covid-19 crisis.

    English Language proceedings in a Dutch state court, the Netherlands Commercial Court (NCC)

    The case is not just interesting because of the way contract formation is construed under Dutch law and application of concepts of force majeure, unforeseen circumstances and amendment of agreements under the concepts of reasonableness and fairness as well as mitigation of contractual penalties, but also interesting because it was ruled on by a judge of the English language chamber of the Netherlands Commercial Court (NCC).

    This new (2019) Dutch state court offers a relatively fast and cost-effective alternative for international commercial litigation, and in particular arbitration, in a neutral jurisdiction with professional judges selected for both their experience in international disputes and their command of English.

    The dispute regarding the construction of an M&A agreement under Dutch law in an international setting

    The facts are straightforward. Parties (located in New York, USA and the Netherlands) dispute whether final agreement on the EUR 169 million transaction has been reached but do agree a break fee of €30 million in case of non-signature of the final agreement was agreed. However, in addition to claiming there is no final agreement, the defendant also argues that the break fee – due when there is no final agreement – should be reduced or changed due to the coronavirus crisis.

    As to contract formation it must be noted that Dutch law allows broad leeway on how to communicate what may or may not be an offer or acceptance. The standard is what a reasonable person in the same circumstances would have understood their communications to mean.  Here, the critical fact is that the defendant did not sign the so-called “Transaction Agreement”. The letter of intent’s binary mechanism (either execute and deliver the paperwork for the Transaction Agreement by the agreed date or pay a EUR 30 million fee) may not have been an absolute requirement for contract formation (under Dutch law) but has significant evidentiary weight. In M&A practice – also under Dutch law – with which these parties are thoroughly familiar with, this sets a very high bar for  concluding a contract was agreed other than by explicit written agreement. So, parties may generally comfortably rely on what they have agreed on in writing with the assistance of their advisors.

    The communications relied on by claimant in this case did not clear the very high bar to assume that despite the mechanism of the letter of intent and the lack of a signed Transaction Agreement there still was a binding agreement. In particular attributing the other party’s advisers’ statements and/or conduct to the contracting party they represent did not work for the claimant in this case as per the verdict nothing suggested that the advisers would be handling everything, including entering into the agreement.

    Court order for actual performance of a – deemed – agreement on an M&A deal?

    The Interim Injunction Judge finds that there is not a sufficient likelihood of success on the merits so as to justify an interim measure ordering the defendant to actually perform its obligations under the disputed Transaction Agreement (payment of EUR 169 million and take the claimant’s 50% stake in an equestrian show-jumping business).

    Enforcement of the break fee despite “Coronavirus”?

    Failing the conclusion of an agreement, there was still another question to answer as the letter of intent mechanism re the break fee as such was not disputed. Should the Court enforce the full EUR 30 million fee in the current COVID-19 circumstances? Or should the fee’s effects be modified, mitigated or reduced in some way, or  the fee agreement should even be dissolved?

    Unforeseen circumstances, reasonableness and fairness

    The Interim Injunction Judge rules that the coronavirus crisis may be an unforeseen circumstance, but it is not of such a nature that, according to standards of reasonableness and fairness, the plaintiff cannot expect the break fee obligation to remain unchanged. The purpose of the break fee is to encourage parties to enter into the transaction and attribute / share risks between them. As such the fee limits the exposure of the parties. Payment of the fee is a quick way out of the obligation to pay the purchase price of EUR 169 million and the risks of keeping the target company financially afloat. If financially the coronavirus crisis turns out less disastrous than expected, the fee of EUR 30 million may seem high, but that is what the parties already considered reasonable when they waived their right to invoke the unreasonableness of the fee. The claim for payment of the EUR 30 million break fee is therefore upheld by the Interim Injunction Judge.

    Applicable law and the actual practice of it by the courts

    The relevant three articles are in this case articles 6:94, 6:248 and 6:258 of the Dutch Civil Code. They relate to the mitigation of contractual penalties, unforeseen circumstances and amendment of the agreement under the tenets of reasonableness and fairness. Under Dutch law the courts must with all three exercise caution. Contracts must generally be enforced as agreed. The parties’ autonomy is deemed paramount and the courts’ attitude is deferential. All three articles use language stating, essentially, that interference by the courts in the contract’s operation is allowed only to avoid an “unacceptable” impact, as assessed under standards of reasonableness and fairness.

    There is at this moment of course no well- established case law on COVID-19. However, commentators have provided guidance that is very helpful to think through the issues. Recently a “share the pain” approach has been advocated by a renowned law Professor, Tjittes, who focuses on preserving the parties’ contractual equilibrium in the current circumstances. This is, in the Court’s analysis, the right way to look at the agreement here. There is no evidence in the record suggesting that the parties contemplated or discussed the full and exceptional impact of the COVID-19 crisis. The crisis may or may not be unprovided for.  However, the court rules in the current case there is no need to rule on this issue. Even if the crisis is unprovided for, there is no support in the record for the proposition that the crisis makes it unacceptable for the claimant to demand strict performance by the defendant. The reasons are straightforward.

    The break fee allocates risk and expresses commitment and caps exposure. The harm to the business may be substantial and structural, or it may be short-term and minimal. Either way, the best “share the pain” solution, to preserve the contractual equilibrium in the agreement, is for the defendant to pay the fee as written in the letter of intent. This allocates a defined risk to one party, and actual or potential risks to the other party. Reducing the break fee in any business downturn, the fee’s express purpose – comfort and confidence to get the deal done – would not be accomplished and be derived in precisely the circumstances in which it should be robust. As a result, the Court therefore orders to pay the full EUR 30 million fee. So the break fee stipulation works under the circumstances without mitigation because of the Corona outbreak.

    The Netherlands Commercial Court, continued

    As already indicated above, the case is interesting because the verdict has been rendered by a Dutch state court in English and the proceedings where also in English. Not because of a special privilege granted in a specific case but based on an agreement between parties with a proper choice of forum clause for this court. In addition to the benefit to of having an English forum without mandatorily relying on either arbitration or choosing an anglophone court, it also has the benefit of it being a state court with the application of the regular Dutch civil procedure law, which is well known by it’s practitioners and reduces the risk of surprises of a procedural nature.  As it is as such also a “normal” state court, there is the right to appeal and particularly effective under Dutch law access to expedited proceeding as was also the case in the example referred to above. This means a regular procedure with full application of all evidentiary rules may still follow, overturning or confirming this preliminary verdict in summary proceedings.

    Novel technology in proceedings

    Another first or at least a novel application is that all submissions were made in eNCC, a document upload procedure for the NCC. Where the introduction of electronic communication and litigation in the Dutch court system has failed spectacularly, the innovations are now all following in quick order and quite effective. As a consequence of the Coronavirus outbreak several steps have been quickly tried in practice and thereafter formally set up. At present this – finally – includes a secure email-correspondence system between attorneys and the courts.

    And, also by special order of the Court in this present case, given the current COVID-19 restrictions the matter was dealt with at a public videoconference hearing on 22 April 2020 and the case was set for judgment on 29 April 2020 and published on 30 April 2020.

    Even though it is a novel application, it is highly likely that similar arrangements will continue even after expiry of current emergency measures. In several Dutch courts videoconference hearings are applied on a voluntary basis and is expected that the arrangements will be formalized.

    Eligibility of cases for the Netherlands Commercial Court

    Of more general interest are the requirements for matters that may be submitted to NCC:

    • the Amsterdam District Court or Amsterdam Court of Appeal has jurisdiction
    • the parties have expressly agreed in writing that proceedings will be in English before the NCC (the ‘NCC agreement’)
    • the action is a civil or commercial matter within the parties’ autonomy
    • the matter concerns an international dispute.

    The NCC agreement can be recorded in a clause, either before or after the dispute arises. The Court even recommends specific wording:

    “All disputes arising out of or in connection with this agreement will be resolved by the Amsterdam District Court following proceedings in English before the Chamber for International Commercial Matters (“Netherlands Commercial Court” or “NCC District Court”), to the exclusion of the jurisdiction of any other courts. An action for interim measures, including protective measures, available under Dutch law may be brought in the NCC’s Court in Summary Proceedings (CSP) in proceedings in English. Any appeals against NCC or CSP judgments will be submitted to the Amsterdam Court of Appeal’s Chamber for International Commercial Matters (“Netherlands Commercial Court of Appeal” or “NCCA”).”

    The phrase “to the exclusion of the jurisdiction of any other courts” is included in light of the Hague Convention on Choice of Court Agreements. It is not mandatory to include it of course and parties may decide not to exclude the jurisdiction of other courts or make other arrangements they consider appropriate. The only requirement being that such arrangements comply with the rules of jurisdiction and contract. Please note that choice of court agreements are exclusive unless the parties have “expressly provided” or “agreed” otherwise (as per the Hague Convention and Recast Brussels I Regulation).

    Parties in a pending case before another Dutch court or chamber may request that their case be referred to NCC District Court or NCC Court of Appeal. One of the requirements is to agree on a clause that takes the case to the NCC and makes English the language of the proceedings. The NCC recommends using this language:

    We hereby agree that all disputes in connection with the case [name parties], which is currently pending at the *** District Court (case number ***), will be resolved by the Amsterdam District Court following proceedings in English before the Chamber for International Commercial Matters (“Netherlands Commercial Court” or ”NCC District Court). Any action for interim measures, including protective measures, available under Dutch law will be brought in the NCC’s Court in Summary Proceedings (CSP) in proceedings in English. Any appeals against NCC or CSP judgments will be submitted to the Amsterdam Court of Appeal’s Chamber for International Commercial Matters (“Netherlands Commercial Court of Appeal” or “NCC Court of Appeal”).

    To request a referral, a motion must be made before the other chamber or court where the action is pending, stating the request and contesting jurisdiction (if the case is not in Amsterdam) on the basis of a choice-of-court agreement (see before).

    Additional arrangements in the proceedings before the Netherlands Commercial Court

    Before or during the proceedings, parties can also agree special arrangements in a customized NCC clause or in another appropriate manner. Such arrangements may include matters such as the following:

    • the law applicable to the substantive dispute
    • the appointment of a court reporter for preparing records of hearings and the costs of preparing those records
    • an agreement on evidence that departs from the general rules
    • the disclosure of confidential documents
    • the submission of a written witness statement prior to the witness examination
    • the manner of taking witness testimony
    • the costs of the proceedings.

    Visiting lawyers and typical course of the procedure

    All acts of process are in principle carried out by a member of the Dutch Bar. Member of the Bar in an EU or EEA Member State or Switzerland may work in accordance with Article 16e of the Advocates Act (in conjunction with a member of the Dutch Bar). Other visiting lawyers may be allowed to speak at any hearing.

    The proceedings will typically follow the below steps:

    • Submitting the initiating document by the plaintiff (summons or request as per Dutch law)
    • Assigned to three judges and a senior law clerk.
    • The defendant submits its defence statement.
    • Case management conference or motion hearing (e.g. also in respect of preliminary issues such as competence, applicable law etc.) where parties may present their arguments.
    • Judgment on motions: the court rules on the motions. Testimony, expert appointment, either at this stage or earlier or later.
    • The court may allow the parties to submit further written statements.
    • Hearing: the court interviews the parties and allows them to present their arguments. The court may enquire whether the dispute could be resolved amicably and, where appropriate, assist the parties in a settlement process. If appropriate, the court may discuss with the parties whether it would be advisable to submit part or all of the dispute to a mediator. At the end of the hearing, the court will discuss with the parties what the next steps should be.
    • Verdict: this may be a final judgment on the claims or an interim judgment ordering one or more parties to produce evidence, allowing the parties to submit written submissions on certain aspects of the case, appointing one or more experts or taking other steps.

    Continuous updates, online resources Netherlands Commercial Court

    As a final note the English language website of the Netherlands Commercial Court provides ample information on procedure and practical issues and is updated with a high frequence. Under current circumstance even at a higher pace. In particular for practitioners it’s recommended to regularly consult the website. https://www.rechtspraak.nl/English/NCC/Pages/default.aspx

    On March 31, 2020 the details of emergency measures where shared in a press conference and the scheme was published simultaneously. This memo sets out the main lines of the NOW scheme.

    Loss of turnover

    Under the NOW scheme, employers can apply for an allowance for labour costs if they expect a loss of turnover of at least 20%. The loss of turnover of at least 20% must occur over a three-month period starting on the first day of the months March, April or May 2020. It must always relate to a consecutive period of three months.

    The turnover is compared with 25% of the turnover from January to December 2019.

    The loss of turnover is determined at group level. If a group as a whole has a loss of turnover of less than 20%, no compensation will be paid to any individual parts of that group that are still inactive. Net turnover is taken as the net turnover, i.e. the income from the supply of goods and services from the business of the legal entity less discounts and the like and tax levied on the turnover.

    Wages and salaries

    The employer must pay the wages to the employees in full, but can apply to the UWV (social security insurer for employees) for an allowance for labour costs. On the other hand, the employee must also be fully available to perform work.

    The NOW scheme also covers employees with employees with a flexible contract insofar as they continue to be employed and receive wages from the employer during the subsidy period. The wage bill of all employees with a social security wage (virtually all) are eligible for the subsidy. These are, for example, employees with a so-called fictitious employment contract for employee insurance, but not voluntarily insured persons.

    Wages up to € 9,538 gross per month are considered, the amount surpassing the same is not considered for the subsidy. Additional charges and costs such as employer contributions and employee contributions to pension and the accrual of holiday allowance are also compensated. A lump-sum surcharge for employer charges of 30% applies.

    Advance payment

     The advance payment provided under the NOW is, in principle, based on the wage bill for the January 2020 return period. If there are no wage data for January 2020, the UWV will assume November 2019. If there are no data for this period either, no subsidy can be granted.

    If the wage bill for the months March-April-May is lower, the amount of the subsidy will be reduced by 90% of the amount by which the wage bill fell. The settlement is an incentive to keep employees employed as much as possible for the hours they worked before the severe drop in turnover.

    Calculation

    The amount of the allowance for wage costs depends on the drop in turnover and amounts to a maximum of 90% of the wage bill. For example: If 100% of the turnover is lost, the allowance amounts to 90% of the wage and salary bill of the employer and if 50% of the turnover is lost, the allowance amounts to 45% of the wage and salary bill of the employer.

    Extension of the arrangement

    It was previously announced that the period of the allowance, which is 3 months, may be extended once for a further period of 3 months. The Cabinet now announces that this extension has not yet been decided; it will be decided before 1 June 2020, so that any second tranche will be in line with the first application period ending on 31 May 2020. In case of extension, further conditions may be added to the scheme.

    Prohibition of dismissal

    When applying on the grounds of the NOW, the employer undertakes in advance not to apply for dismissal on the grounds of business economics for his employees during the period for which the allowance is received. The employer is therefore expected not to apply to the UWV for permission to terminate an employment contract on the grounds of business economics in the period from 18 March to 31 May 2020 inclusive. The prohibition on dismissal does not apply to dismissal applications submitted to the UWV in the period from 1 March to 17 March 2020.

    If a request for dismissal is nevertheless made and this request is not withdrawn (or not withdrawn on time), a correction will be made when the subsidy is determined. When the subsidy is determined, the wages of the employees for whom dismissal has been requested will be determined. This wage is then increased by 50%. This wage plus the 50% increase is deducted from the total wage sum on which the final amount of the subsidy is based.

    Submitting the request

    The UWV will be charged with processing the application. The applications are expected to be submitted on 6 April next. The first advance payments will be made within 2 to 4 weeks. This advance payment will in any case amount to 80% of the grant.

    On 28 May 2019 the Dutch Parliament adopted new employment legislation: The Balanced Labour Market Act (‘Wet Arbeidsmarkt in Balans’), hereinafter the WAB. The most important changes are discussed below.

    New cumulation ground for dismissal

    The legislation introduces a new ground for dismissal. This makes it a bit easier for employers to dismiss employees. Dismissal will also be possible if there is a sum of circumstances, the so-called cumulation ground. Now the employer must fully comply with 1 of the 8 grounds for dismissal. This new ground gives the court the opportunity to combine circumstances. The employee can receive an extra half transitional allowance (on top of the current statutory transitional allowance) if the cumulation ground is used for the dismissal.

    Severance: Transitional allowance

    The new act arranges that employees will have the right to a transitional allowance immediately from the first start of the employment contract, instead of only after two years.

    The accrual of transitional allowance is reduced in case of long-term employment. The accrual for everyone, regardless of the age of the employee, is one third of a monthly salary.

    There will be a scheme for small employers to compensate the transitional allowance if they have to end their business due to retirement or illness.

    Extending the scope of the chain of employment agreements

    The current period after which successive fixed-term employment contracts legally change into an employment contract for an indefinite period is two years. The WAB broadens the succession of temporary contracts. Under the WAB it will still be possible to enter into a maximum of three temporary contracts. The maximum period of fixed-term contracts will be extended to three years. This chain of successive fixed-term employment contracts can be broken by an interruption period of six months.

    It is possible to shorten the interruption period between a chain of fixed-term contracts in a Collective Bargaining Agreement from six to three months if there is recurring temporary work that can be done for a maximum of nine months a year.

    An exception to the chain provision will be made for temporary workers in primary education who replace employees who became ill.

    Call agreement

    A new definition is introduced in Article 7: 628a paragraph 9 of the Dutch Civil Code: the ‘call agreement’. In call agreements the number of working hours per period and the salary are not established upfront but can vary depending on for example the amount of work available. Under the WAB an employee must be called by the employer at least four days in advance. If the employer does not follow this regulation, the employee is not obligated to come in for work. Call workers retain the right to wages for the period for which they were called if the work is cancelled less than four days in advance. The employer is obliged to offer the call worker an employment contract after a year for the average number of hours that he has worked in the previous twelve months. In Collective Bargaining Agreements alternative arrangements can be made under certain conditions.

    Payrolling

    Payroll employees will receive the same legal position and primary and secondary employment conditions as employees who are employed by the employer.

    Payroll employees are also entitled to an ‘adequate’ pension scheme.

    Unemployment benefit premium differentiation

    In order to make employment contracts for an indefinite period of time more attractive for employers, the WAB arranges for an unemployment benefit premium differentiation between permanent and temporary contracts. A lower premium will apply for employment contracts for an indefinite period of time and a higher premium for fixed-term employment contracts.

    Commencing date

    The intended commencing date of the WAB is 1 January 2020. The right to an adequate pension scheme for payrolling starts on 1 January 2021.

    The author of this post is Regine de Wit.

    Kai Guldemond

    Practice areas

    • Corporate
    • Contracts
    • International trade
    • M&A
    • Private Equity
    Contact Kai