Corporate Governance and Directors' Duties: The Netherlands

Transcription

1 Corporate Governance and Directors' Duties: The Netherlands Resource type: Articles: know-how Status: Law stated as at 01-Dec-2012 Jurisdiction: The Netherlands A Q&A guide to corporate governance law in The Netherlands. The Q&A gives a high level overview of board composition, the comply or explain approach, management rules and authority, directors duties and liabilities, transactions with directors and conflicts, company meetings, internal controls, accounts and audit, institutional investors and reform proposals. To compare answers across multiple jurisdictions, visit the Corporate Governance Country Q&A tool. The Q&A is part of the PLC multi-jurisdictional guide to corporate governance law. For a full list of jurisdictional Q&As visit Cars-Jan van Gool and Tim Carapiet, Boekel De Nerée Contents Corporate entities Legal framework Board composition and remuneration of directors Management rules and authority Duties and liabilities of directors Transactions with directors and conflicts Disclosure of information Company meetings Minority shareholder action Internal controls, accounts and audit Corporate social responsibility Company secretary Institutional investors and shareholder groups Reform The regulatory authorities Dutch Corporate Governance Code Monitoring Committee Online resources Contributor details Cars-Jan van Gool Tim Carapiet

2 Corporate entities 1. What are the main forms of corporate entity used in your jurisdiction? The two main corporate entities are: Private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid, BV) (private company). Public limited company (naamloze vennootschap, NV) (public company). Private companies are subject to less strict capital restrictions resulting in more freedom to make distributions, and its capital may be organised in flexible types of shares. Public companies can issue shares in bearer form, which allows them to be freely negotiable. Up until now this has been the main reason why only shares of a public company were allowed to be listed on the stock exchange. Private companies can only issue registered shares. However, following recent legislative amendments, the articles of association (articles) of private companies may provide for flexible transfer restrictions, complete restriction on the transfer of shares or even lift transfer restrictions entirely (Flexible Private Company, see Question 4). European legislation has introduced the possibility of a European company (Societas Europea, SE), which is also registrable in The Netherlands. In certain industries or fiscal structures, a co-operation (coöperatie) is used more frequently. A cooperation is a corporate entity based on an association, which has members who conclude individual agreements with the co-operation and whose liability may be partially or fully excluded. The characteristics of the membership of a co-operation can be designed to operate similarly to company shares, including the right to financial benefits, voting rights and transferability. Legal framework 2. What is the regulatory framework for corporate governance and directors' duties? Corporate governance and directors' duties are regulated by: Book 2 of the Dutch Civil Code (DCC), which imposes various mandatory rules for all entities. DCC will further be amended as of 1 January 2013, introducing more flexibility regarding internal governance and the one-tier board (see Question 37). A company's articles. The articles of co-operations are supplemented by individual agreements between the co-operation and each member. The Works Council Act 1971 (Wet op de ondernemingsraden), which applies to companies with a works council. Companies that employ at least 50 people must set up a works council. A large company regime, set out in the DCC, which contains various mandatory rules relating, for example, to subjecting board resolutions to the approval of non-executive board members

3 or the supervisory board. The large company regime applies to public companies and private companies that meet all of the following criteria (large companies): the issued share capital plus reserves is at least EUR16 million; the company or any subsidiary has established a works council under a statutory requirement; the company, together with its subsidiaries, has 100 or more employees in The Netherlands. The NYSE Euronext rules (harmonised and non-harmonised) contained in the Euronext Rule Book (Market Rules), which apply to listed companies. The Act on Financial Supervision (Wet op het Financieel Toezicht) (Wft), secondary legislation and governmental decrees. The Wft brings together practically all the rules and conditions applicable to the financial markets and their supervision, such as the disclosure of substantial shareholdings and licence obligations. Section 5 of the Wft on the supervision of conduct on the financial markets provides the rules of conduct that apply to all parties that are active on the financial markets. Section 5 of the Wft was amended, effective 1 January 2009, with the implementation of Directive 2004/109/EC on transparency requirements for securities admitted to trading on a regulated market and amending Directive 2001/34/EC (Transparency Directive) and Directive 2007/14/EC implementing the Transparency Directive in relation to information about issuers whose securities are admitted to trading on a regulated market, introducing a common European system for the publication of annual, bi-annual and interim financial information by issuers. Industry specific legislation also includes corporate governance rules, for example various acts applicable to health care institutions and academic hospitals. The Dutch Corporate Governance Code (CGC), which contains a non-binding list of principles and best practices for listed companies (see Question 3). Industry specific governance codes including the Banking Code (Code Banken) 2009, containing non-binding principles for banks with a banking permit issued under the Wft, and the Healthcare Governance Code that applies to most hospitals, mental care institutions and affiliated health care companies. 3. Has your jurisdiction adopted a corporate governance code? The current CGC entered into force in 2009 (amended 2008). The CGC contains a non-binding list of principles and best practices for listed companies. The areas covered in the CGC are divided into four main sets of principles relating to: The management board (that is, its role and procedures, remuneration and conflicts of interest).

4 The supervisory board (that is, its role and procedures, independence, composition and expertise, the role of the chairman and company secretary, key committees, conflicts of interest, remuneration and one-tier board structure). The shareholders and general meeting of shareholders (that is, their powers, depositary receipts for shares, information for and logistics of the general meeting, and responsibilities). Auditing and financial reporting (that is, responsibility for financial reporting, the roles of internal and external auditor). The CGC contains a set of principles and best practice provisions that regulate relations between the management board, the supervisory board and the shareholders. The CGC applies to all: Companies whose registered offices are in The Netherlands and whose shares or depositary receipts for shares have been admitted on a stock exchange (foreign or in The Netherlands), or more specifically to trading on a regulated market or a comparable system. Large companies (that is, balance sheet value more than EUR500 million) whose registered offices are in The Netherlands and whose shares or depositary receipts for shares have been admitted to trading on a multilateral trading facility or a comparable system. For the purposes of the CGC, holders of depositary receipts issued with the co-operation of the company (met medewerking van de vennootschap, bewilligde certificaten) are treated similar to shareholders. The general principles concerning good corporate governance contained in the CGC can also apply to non-listed companies. These companies can voluntarily apply the CGC. Listed companies must publish a statement on their corporate governance (DCC and Corporate Governance Decree of 23 December 2004 (amended 1 April 2009) implementing EU directives). This corporate governance statement may be incorporated in the annual report, added as an appendix or electronically published separately with reference to the annual report. The following elements must be addressed in the report: Compliance with the principles and best practices of the CGC. Main characteristics of the internal risk management and control systems connected with the company's financial reporting process. Functioning of the general meeting and its primary powers and the rights of shareholders. Composition and performance of the management board and the supervisory board and its committees. Participations in listed companies. Special control rights attached to shares and the parties entitled to those rights. Limitations of voting rights.

5 Appointment and replacement members of the management board and supervisory board. Powers of the management board and supervisory board, specifically regarding the issuance and redemption of company shares. List of names of persons with special control rights under the articles and the characteristics of those rights. The CGC is based on the comply or explain principle. Deviation from the principles and best practice provisions of the CGC is allowed, but must be duly explained in the company's annual report. The corporate governance statement must be reviewed by the registered accountant as part of its review of the annual account. The accountant verifies: Whether the statement is present. Whether the statement addresses the principles and best practices. The presence of an explanation in cases of deviation from these principles. The presence of other subjects that need to be reported in the annual report regarding corporate governance but which are not part of the corporate governance statement. However, the accountant does not materially review the statement or explanations, except for a marginal check on consistency with the financial reporting. The Committee on Corporate Governance (Committee) annually reviews the compliance of listed companies with the CGC and reports its findings to the government. Its reports are made public on The Committee recommends that a listed company sets out its general corporate governance structure and the extent of its compliance with the CGC. Participation in the annual review of the Committee is mandatory for listed companies. Although the CGC is not mandatory, non-compliance with its principles or best practice provisions that are in line with statutory provisions under the DCC forms a direct breach of the CGC. In addition, a breach of the CGC may: Lead to a breach of the principle of reasonableness and fairness. Form the basis for specific corporate legal proceedings, such as inquiry proceedings. The Committee indicated in its Annual Report 2011 that the CGC is increasingly supported by directors of listed companies with a relatively high level of compliance. However, explanation of why certain principles are not complied with is sometimes insufficient and a number of material changes must still be made (for example, term in office, severance bonus, composition of the supervisory board to reflect a more balanced male/female ratio). The Committee also observes an increasing awareness of (institutional) shareholders of their own responsibility in using their voting rights. In addition, the Committee finds that non-listed medium and small sized companies are

6 progressively implementing the CGC. However, these companies are not formally obliged to do this. Board composition and remuneration of directors 4. What is the management/board structure of a company? Amendments The draft Amendment on the Rules on Management and Supervision (Amendment Management and Supervision) has been adopted and will enter into force as of 1 January This amendment legislation introduces the one-tier board for public and private companies, consisting of executive and non-executive directors (see Question 37). The answers below describe the current situation (2012) whereby only a two-tiered board is possible. Legislation making private companies more flexible (Flexible Private Company) has been adopted and is in force as of 1 October 2012, which amends a number of DCC articles (see Questions 14 and 37). The answers below take these amendments into account. Structure Dutch public and private companies must have a management board. The articles can provide for a two-tiered board structure with a management board and a supervisory board. A two-tiered board structure is mandatory for large companies (see Question 2). Although currently not expressly provided for in the DCC, it is possible to set up a management board to operate similarly to a onetiered board under Dutch law. As of 1 January 2013 legislation will come into effect under which the one-tier board will be permitted under the DCC (see above, Amendments). Management The day-to-day management of a company is carried out by the management board. The name that is given to members of the management board is managing director (bestuurder). Board members The managing directors sit on the management board and the supervisory directors sit on the supervisory board. Managing directors cannot sit on the supervisory board. Supervisory directors cannot sit on the management board. Employees' representation Employees may have, but are not entitled to, board representation. In large companies, the works council can recommend candidates for the supervisory board. Unless the articles provide for a different procedure, the works council also has an "enforced nomination right" (versterkt aanbevelingsrecht) with regard to one-third of the members of the supervisory board (see Question 8, Appointment of directors).

7 Number of directors or members If installed, the supervisory board must have at least one supervisory director, except for large companies, which must have at least three supervisory directors. Only natural persons can be appointed as supervisory directors. A management board must have at least one managing director. References to directors in this overview include management and supervisory directors, unless otherwise stated. There is no maximum number of directors. 5. Are there any general restrictions or requirements on the identity of directors? General restrictions There are no restrictions on the person who can be appointed managing director. A managing director can be: A natural person or a legal entity. Part of the group to which the company is a subsidiary. An independent director. The articles may set out criteria for eligible managing directors. However, these criteria can be disregarded by the general meeting by a majority vote equal to the majority required to amend the articles. For public companies, a vote by a qualified majority and quorum is required. Age There are no formal age restrictions on directors. Technically any person of any age or legal capacity can be appointed as director. There is no mandatory retirement age. Nationality Dutch law imposes no restrictions on the identity of directors. However, restrictions can be set out in the articles. For companies to qualify for certain tax exemptions, the tax requirement of substance needs to be met whereby the tax authorities may require that the majority of the managing directors be Dutch residents. Companies offering management services (trust offices) often provide Dutch (legal) persons or residents to sit on the board alongside the representatives of the foreign parent company. This position should not be pro forma: it is important that the board members provided by trust offices make their own independent assessment when performing management tasks at the instruction of the parent company. In large companies, the management board and supervisory board must set out specific diversity objectives in relation to the composition of the supervisory board, including with regard to gender and age. Gender

8 There are no legal quotas for males and females on the boards. However, the Amendment Management and Supervision will introduce a quota (see Question 37). The CGC prescribes as a principle for the supervisory board to aim for diverse composition in terms of, for example, gender and age. 6. Are non-executive, supervisory or independent directors recognised or required? Recognition Currently under the DCC, the role of a non-executive director is recognised as a member of the supervisory board in a company with a two-tiered board structure. The DCC does not expressly provide for a one-tiered structure and therefore does not recognise a non-executive director as a member of the management board in a one-tiered structure (see Question 4, Structure). As of 1 January 2013, the Amendment Management and Supervision will amend the DCC and introduce a statutory base for a one-tier board consisting of executive and non-executive directors. Board composition In a two-tiered structure, the supervisory board performs the role of non-executive directors. The CGC recommends that in a one-tiered structure, the majority of the members of the management board be non-executive directors. Supervisory directors or non-executive directors can only be natural persons. The Amendment Management and Supervision introduces additional criteria regarding the maximum number of positions in a supervisory role (see Question 37). Similar restrictions are already recommended by the CGC, for example, individuals should not have more than five supervisory positions with Dutch listed companies (chairmanship of a supervisory board counts as two). Independence Supervisory directors must be guided by the interests of the company and its business when performing their duties. Large companies cannot appoint the following people as supervisory directors: Employees of the company. Employees of a subsidiary of the company. Officers and employees of an employees' organisation usually involved in establishing the employment terms of employees of the company or its subsidiaries. The CGC recommends that the executive directors should be independent of management and free from any relationships (business or otherwise) with the company that may interfere with their independence. The CGC sets out criteria for determining whether a non-executive director is independent and recommends that the annual report states whether these criteria have been met.

9 Duties and liabilities The supervisory board's duties consist of supervising the management board policy and the company's general state of affairs. Generally, the liability of the management board and supervisory board is collective. This means that every managing director can be held jointly and severally liable for damages caused by the management board's failure (see Question 16, General duties). In addition, every supervisory director can be held jointly and severally liable if it is determined that the supervisory board has failed to properly supervise the failing management board. 7. Are the roles of individual board members restricted? There are no restrictions imposed by law on the roles of directors. However, companies can set out, in the articles or in management regulations, the roles, tasks and duties of directors. The articles may provide special powers, for example, for a managing director to have a casting vote (that is, more votes than other managing directors but no more than the number of shares of the other directors jointly). Each managing director must perform its task in the interest of the company and its business. He must make an independent assessment each time as to whether certain (specific) instructions of group control are aligned with that interest. In a one-tiered board installed following the adoption of the Amendment Management and Supervision, the role of executive directors is restricted (see Question 37). The CGC recommends that the chairman of the supervisory board should not be a former managing director of the company. In addition, a current management board member cannot be the chairman of a supervisory board of a listed company. However, this does not include companies within the group to which the company belongs. It is also recommended that a management board member cannot be a member of the supervisory board of more than two listed companies (also see Question 37, Management and Supervision). In a one-tiered board, the CGC recommends that the chairman of the management board should not be (or have been) an executive director either. 8. How are directors appointed and removed? Is shareholder approval required? Appointment of directors The shareholders appoint managing directors in a general meeting of shareholders (general meeting). The articles can provide that managing directors are appointed by a meeting of holders of shares of a certain class or designation, or by the sole holder of a share of a certain class or designation as far as all shareholders can vote for the appointment of at least one managing director. The articles can also provide for appointment from a nomination made by a different corporate body of the company, which nomination may be ignored by the general meeting resolving at qualified majority and quorum. The same applies to supervisory directors, whereby the articles can provide for the option that onethird of the supervisory board is appointed by a different corporate body than the general meeting.

10 If a company has a works council, it must be given the opportunity to advise on a proposal to appoint, suspend or remove managing directors. In large companies, the supervisory board informs the general meeting about the intended appointment of a managing director before it appoints him. Supervisory directors of large companies are appointed by the general meeting from a nomination made by the supervisory board. A general meeting can overrule the nomination of the supervisory board by a resolution passed by a majority of votes cast and quorum. The works council and a general meeting can make recommendations about candidates for the nomination of the supervisory board. In addition, the works council can recommend candidates for nomination for at least one-third of the supervisory board, with limited grounds for the supervisory board to deviate from this nomination (enforced nomination right). The articles may set out different principles for appointing directors. Removal of directors The company body entitled to appoint directors can also suspend and dismiss them at any time if certain requirements are met. The articles can provide that a different corporate body can also dismiss managing directors and that supervisory directors can also be dismissed by the general meeting. The supervisory board can at any time suspend managing directors, unless the articles provide otherwise, this suspension can be lifted by general meeting. In particular, based on the principle of reasonableness and fairness, a director must be given the opportunity to defend himself against the intended removal. In large companies: The supervisory board removes managing directors after consulting with the general meeting. The general meeting can dismiss the entire supervisory board by a vote of no confidence, after which the Company Division of the Amsterdam Court of Appeal will appoint one or more supervisory directors, on a temporary basis, to ensure the new supervisory board is nominated. The general meeting cannot dismiss supervisory directors individually (but it can request the Company Division of the Amsterdam Court of Appeal to do so). Case law provides that the dismissal of a managing director automatically results in the termination of that member's employment relationship with the company (if any (see Question 10, Directors employed by the company)), possibly giving rise to the company having to pay compensation through severance payments. Automatic termination of the employment relationship can only be prevented if the director being removed agrees to continue his employment relationship. 9. Are there any restrictions on a director's term of appointment? There are no statutory restrictions on directors' terms of appointment. In large companies, a supervisory board member must resign no later than four years after he is appointed. However, a supervisory board member can be reappointed and there is no limit on the number of times he can be reappointed.

11 The CGC recommends that a management board member be appointed for a maximum period of four years and that he be reappointed for a term of no more than four years at a time. The CGC recommends that a person be appointed to the supervisory board for a maximum of three four-year terms. 10. Do directors have to be employees of the company? Can shareholders inspect directors' service contracts? Directors employed by the company It is not necessary for managing directors to be employees of the company. Generally, a managing director who receives a salary and performs work regularly is considered to be an employee of the company. A supervisory director usually performs incidental work for the company and is therefore not considered an employee. The Amendment Management and Supervision provides that a managing director of a listed public company will never be considered an employee or have an employment contract. Shareholders' inspection The general meeting is entitled to all company information that it requests, unless that disclosure conflicts with the company's material interest. This can include the directors service contracts. Individual shareholders have the right to request this information during the general meeting. However, in principle they do not have the right to demand specific information outside of the general meeting except for special circumstances. 11. Are directors allowed or required to own shares in the company? Directors are allowed to own shares in the company, but are not required to do so by law. The CGC recommends that shares held by directors in a listed company should be considered a long-term investment and that shares granted to a managing director should in principle be based on performance criteria (achieving an increase in turnover, for example). Share options should not be exercised within three years of issuance and bonus shares should not be sold for at least five years (lock-up). The CGC recommends that supervisory directors should not be granted shares or share options in listed companies as remuneration. 12. How is directors' remuneration determined? Is its disclosure necessary? Is shareholder approval required? Determination of directors' remuneration The general meeting determines managing and supervisory directors' remuneration, although the articles may provide otherwise. Remuneration for directors is not mandatory. The articles of listed companies usually provide for the determination of directors' remuneration by the supervisory board or its specialised remuneration committee. A listed company must produce a policy on the remuneration of managing directors at the responsibility of the supervisory board, this policy must be approved by the general meeting. The CGC recommends that the remuneration policy includes

12 a clawback provision, whereby the supervisory board may reclaim variable remuneration granted to managing directors based on incorrect (financial) information. Disclosure Subject to the DCC and unless disclosing such information can be traced back to one natural person, all companies that are not exempted from the obligation to publish the company's annual accounts must state in the explanatory notes to their annual accounts the aggregate amount of remuneration for: The current and former supervisory board. The current and former management board. The notes should also specify the share option rights, loans, advance payments and guarantees granted to the current supervisory board and management board. In addition to the above, public companies, except for a company limited by shares whose articles exclusively provide for registered shares and contain transfer restrictions, must state the amount of remuneration for each managing director (including details of any shares and share options they hold in the company). The notes should specify the loans, advance payments and guarantees granted to each member of the current supervisory board and management board of that company. For listed companies, the CGC: Recommends that the supervisory board prepares a remuneration report on the company's remuneration policy in the previous and the next financial year, including a description on specific severance payments or extraordinary compensation awarded to managing directors during the current financial year and the supporting arguments. Requires that the main elements of a managing director's service contract, such as the amount of fixed salary and variable remuneration components, are made public immediately after it is concluded. Shareholder approval See above, Determination of directors' remuneration. Management rules and authority 13. How is a company's internal management regulated? For example, what is the length of notice and quorum for board meetings, and the voting requirements to pass resolutions at them? The management board adopts resolutions that are passed by a simple majority of votes cast by its directors, unless the articles state otherwise. The articles can provide that board resolutions:

13 Must be adopted by a unanimous vote or by a qualified majority of votes. Require the prior approval of another corporate body of the company (see Question 14, Directors' powers). The articles can require a plenary meeting or a quorum for the management board to adopt resolutions and may also set a notice period for board meetings. In addition, the articles may provide for the adoption of resolutions outside formal meetings and the use of electronic voting. Each managing director has one vote. The articles can give more than one vote to a director who can be specified by either name or office. A single director cannot cast more votes than the other directors combined. 14. Can directors exercise all the powers of the company or are some powers reserved to the supervisory board (if any) or a general meeting? Can the powers of directors be restricted and are such restrictions enforceable against third parties? Directors' powers Generally, the management board has full and unrestricted power to represent and bind the company. The Flexible Private Company legislation introduced the right of a different company body to give specific instructions to the management board, if provided for in the articles (see Question 37). The managing board must follow these instructions, unless the interest of the company or its business dictates otherwise. The articles can make management board resolutions subject to the approval of a company body, such as the supervisory board or the general meeting. In large companies, a number of management board resolutions are subject to the approval of the supervisory board. Generally, a share-related decision, for example the issue of shares, reduction of issued capital, acquisition of shares by the company or cancellation of shares, requires the approval of the general meeting, or is subject to the previous approval of the general meeting. For matters not covered by the articles or the DCC, the DCC contains a catch-all provision stating that these matters are decided by the general meeting. Restrictions The powers of individual managing directors can be restricted by the articles, that is, a system can be used requiring the signatures of two or all directors for a company to be bound. The power of representation of managing directors can never be limited for a certain amount or for certain actions. A restriction of the powers of individual managing directors by the articles is enforceable against third parties, provided this restriction is registered with the Trade Registry of the Chamber of Commerce (Trade Registry). If a management board resolution requires approval by a company body and this approval has not been given, the managing directors will still validly represent and therefore bind the company.

14 15. Can the board delegate responsibility for specific issues to individual directors or a committee of directors? Is the board required to delegate some responsibilities, for example for audit, appointment or directors' remuneration? The management board or the supervisory board can delegate responsibility for specific issues to individual directors or a committee of directors, under the articles or board regulations. However, if a matter falls within the responsibility of two or more directors, each director remains jointly and severally liable for it (see Question 16). The Amendment Management and Supervision will introduce the possibility to delegate (under the articles or regulation or by resolution) the authority to resolve to individual directors on delegated specific issues, with some limitations. For listed companies, the CGC recommends that the supervisory board appoints from among its members, committees to deal with audit, remuneration, and selection and appointment. Duties and liabilities of directors 16. What is the scope of a director's duties and personal liability to the company, shareholders and third parties? General duties The duties and liabilities of the management board and the supervisory board are, in general, collective. However, each director has his own duty of care for the proper performance of his tasks. A director can discharge himself from liability by showing that any mismanagement or lack of supervision is not attributable to him. If specific tasks are delegated to one or more directors, other directors can only discharge themselves from collective liability if each director individually can show that the mismanagement is not attributable to him and that he did not fail to take action to avoid or to prevent the consequences of mismanagement (this will apply only after the introduction of the Amendment Management and Supervision) (Introduction of the Amendment Management and Supervision). When adopting the annual accounts, a general meeting usually discharges the managing directors from their responsibilities for the preceding accounting year. However, this discharge requires a specific resolution and is not granted automatically by adoption of the annual accounts. This discharge only extends to activities and facts made known to the shareholders by the annual accounts or before they are adopted. A decision by a general meeting to grant this discharge is void if it is made in breach of the law, the articles or principles of good faith. The discharge is only valid in terms of the company's internal affairs. Theft and fraud A legal entity can commit a crime under Dutch law. When a legal entity is found guilty of a crime, the managing directors and the individuals directly responsible for the company's criminal behaviour can face criminal penalties. In addition, many provisions of Dutch (economic) criminal law are specifically aimed at the management board or its directors. A company can also commit an offence under tort law. The managing directors can be liable for damages incurred by third parties, depending on the circumstances of the case.

15 Securities law A person who has insider knowledge cannot enter into transactions in or from The Netherlands in securities that are listed or are likely to be listed on an authorised securities exchange in or outside The Netherlands. Breach of this provision is an economic offence and the Dutch Authority for the Financial Markets (AFM) can complain to the Public Prosecutor, or impose an administrative fine or a cease and desist order. In certain circumstances, directors can be liable under tort law to investors if they produce a misleading prospectus in relation to an issue of securities. Insolvency law If the company is insolvent and the company's insolvency is found to have been caused by apparent negligence in the performance of the duties of the management board over the three years before the date of the insolvency, the managing directors are personally jointly and severally liable for the company's debts. Apparent negligence is irrefutably presumed if either the company has not kept sufficient accounts for all assets and liabilities to be determined at any time or the annual accounts have not been filed with the Trade Registry in a proper and timely manner. In addition, a rebuttable presumption exists that the failed obligation to keep the accounts was an important cause of the company's insolvency. A managing director can only be discharged from liability by showing that he was not negligent and did not fail to meet his duty to take action to avoid or to prevent the consequences of mismanagement. If failure of the duty to keep accounts is insignificant, it is generally not taken into account and the director is usually discharged from liability. Health and safety No specific regulations exist in relation to liability for health and safety issues. However, a director can be criminally liable if it is proved that he contributed to the cause of health and safety issues by his consent or neglect. Environment Managing directors can be held personally liable by the authorities or third parties for environmental damage resulting from misconduct or serious mismanagement by a director. In addition, a managing director can be criminally liable if it is proved that he contributed to the breach of that regulations by his consent or neglect. Anti-trust Dutch competition law can impose personal liability on directors for certain anti-trust offences. Cyber-crime A legal entity can be held criminally liable and the managing directors and the individuals directly responsible for the company's criminal behaviour may face criminal penalties for cyber-crime. This

16 includes, among other things, illegally accessing computers, tapping means of communication and electronic theft. Penalties consist of fines for the company or the individual (shadow) director, or even imprisonment for the (shadow) director. Cyber-crime may also qualify as a tort. The managing directors can be liable for damages incurred by third parties, depending on the circumstances of the case. Other Non-compliance with rules regarding the maintenance of the company's capital can impose personal liability on managing directors. The managing directors of private companies are responsible for maintaining the companies' financial position, and have to safeguard the liquidity position specifically when (Flexible Private Company): The general meeting resolves to pay out (any kind of) dividends. The company acquires shares or engages in third party agreements. The company reduces its issued and paid-up share capital. At these times, managing directors of private companies must either: Make an assessment as to whether the company will be able to continue to meet its due and payable, and short term (that is, one year term) liabilities, and deny the transaction in case the assessment turns out to be negative. Face liability for the deficit if the managing director foresaw or reasonably should have foreseen the deficit at the moment of the transaction. Generally, managing directors of both public and private companies have to continuously assess the liquidity and solvency position of the company. They should at least refrain from entering into transactions on behalf of the company if it (reasonably) can be foreseen that the company will not be able to perform the obligation and will not provide suitable recourse for the damages incurred by the creditor. Failure to notify the tax authorities of a company's future inability to pay tax (including social security benefits) will, if that non-payment occurs, result in the managing directors being personally liable for the tax owed by the company. 17. Can a director's liability be restricted or limited? Is it possible for the company to indemnify a director against liabilities? Liability for the issues identified in Question 16 cannot be restricted or limited. The managing directors of the private company may each exculpate their personal joint and several liability for deficits arising from dividends, capital mutations or third party transactions or any other payment to shareholders by showing that he at least voted against the proposal of his board members to make the payment (preferably evidenced by the minutes) and he can prove that he was not negligent in

17 taking measures to prevent the consequences of the deficit. This concerns new legislation and case law has yet to develop a clear doctrine on how directors may exculpate their liability for these deficits. A company sometimes indemnifies its managing directors for civil liability claims against them. This has not yet been recognised by law. Arguably the purpose of civil liability is defeated by this indemnity and it can be declared void. 18. Can a director obtain insurance against personal liability? If so, can the company pay the insurance premium? Some insurance companies provide insurance for civil liability claims against directors (see Question 17). The company typically pays the insurance premium. 19. Can a third party (such as a parent company or controlling shareholder) be liable as a de facto director (even though such person has not been formally appointed as a director)? In relation to the insolvency of a company, a person who has determined, or jointly determined, the policy of the business of a company as if he were a director is liable in the same way as a director (see Question 16). Transactions with directors and conflicts 20. Are there general rules relating to conflicts of interest between a director and the company? Company law does not provide specific rules on when a conflict of interest between a director and the company occurs. Case law indicates that an assessment should be made as to whether a material conflict exists (that is, personal interests of managing director no longer aligns with interests of company) rather than a formal test based on the type of transaction (for example, between companies both owned by different family members) or positions a person may hold (for example, managing director of both companies). The Amendment Management and Supervision provides that a conflict of interest exists if the direct or indirect personal interests of the managing director conflicts with the interests of the company or its business. Current statutory law provides that if there is any conflict of interest between a company and one or more of its managing directors, in relation to a transaction or generally, the company is represented by its supervisory board, unless: The articles state otherwise. A general meeting appoints one or more other persons to represent the company (if this happens, the supervisory board can no longer represent the company). This can be a managing director.

18 When there is a conflict of interest it is generally assumed that if the articles do not specify otherwise and a company has no supervisory board, a company can be represented by either its: Managing directors who have no conflict of interest, at the mandate of the general meeting of shareholders. A different person appointed by a general meeting to represent the company. The rules on the authority to represent the company if one or more managing directors has a conflict of interest will be changed by the Amendment Management and Supervision. Following the amended law, the director with a conflict of interest is restricted from taking part in the deliberations and resolutions of the managing board on the conflicted matter. If this would result in the managing board not being able to resolve on the matter, then the supervisory board resolves on the matter. If no supervisory board is installed, the general meeting resolves, unless the articles provide otherwise. Failing to comply with these provisions can result in the nullity of the resolution concerned and personal liability of the director towards the company. Similarly, a conflicted supervisory director does not take part in the deliberations and resolutions of the supervisory board. The general meeting resolves on matters on which the supervisory board cannot resolve as a result of the conflict of interest of its supervisory director. The Amendment Management and Supervision also provides that, regardless of a conflict of interest, a managing director can represent the company in the conflicted transaction, subject to the general limitation of his authority if any. However, he faces liability if he has not observed the rules described above regarding deliberations and board resolutions. The CGC has a general principle that a conflict of interest between a listed company and its managing directors should be avoided, and states that a managing director must: Not compete with the company. Not demand or accept substantial gifts from the company for himself or for, among others, his wife, registered partner or child. Not provide unjustified advantages to third parties to the detriment of the company. Not take advantage of business opportunities to which the company is entitled for himself or for, among others, his wife, registered partner or child. Immediately report a potential conflict of interest to the company, the supervisory board chairman and managing directors. Not take part in discussions or decision-making involving a subject or transaction in relation to which the managing director has a conflict of interest. The CGC states that a transaction in which there are conflicts of interest between a listed company and its managing directors must: Only be entered into on terms that are customary in the sector concerned.

19 Be approved by the supervisory board. Be published in the company's annual report. 21. Are there restrictions on particular transactions between a company and its directors? There are certain restrictions on transactions between a company and its directors when a conflict of interest arises (see Question 22). If there is a conflict of interest relating to a transaction between a company and one of its directors the corporate bodies involved should also act carefully in the company's decision-making process about the transaction, based on the principle of reasonableness and fairness. According to case law, it is essential to separate the different interests with due care and to exercise as much openness as possible. The advantages and disadvantages of a transaction should be discussed exhaustively by the corporate bodies concerned. 22. Are there restrictions on the purchase or sale by a director of the shares and other securities of the company he is a director of? For unlisted companies, there are no general restrictions on the purchase or sale by a director of a company's shares and other securities. For listed companies, there are restrictions on transactions in shares and securities by a director, to prevent insider trading and to ensure transparency of major shareholdings in Euronext Amsterdam listed companies. The restrictions primarily (section 5, Wft): Restrict trading with insider knowledge and trade sensitive information. Impose heavier reporting duties on shareholdings. Secondary legislation determines, among other things, temporary trading restrictions. Disclosure of information 23. Do directors have to disclose information about the company to shareholders, the public or regulatory bodies? The management board and the supervisory board must provide information about the company at the request of a general meeting, unless this disclosure conflicts with the company's material interest. There are many circumstances in which the management board must disclose information about the company to shareholders and third parties (including authorities). For example, the works council, the Trade Registry, regulatory bodies and the supervisory board. This will mainly be in specific situations, such as the offer and issue of shares to the public, mergers, takeover bids (listed companies) and when directors are removed and appointed.

20 Managing directors of listed companies must disclose additional information based on, among other things, the Market Rules. For example, the Market Rules state that a listed company must publicise a fact or event that may have a significant influence on the price of its shares. Managing directors are responsible to publicise on the listed company's website the request made to relevant institutions to provide the company with information on the identity and shareholdings of its shareholders (this will apply only after the introduction of the Amendment Management and Supervision) (Introduction of the Amendment Corporate Governance). Listed companies already have the obligation to publish the number of issued shares and voting rights on their website as per the convocation date (annual general meeting date). If the company itself is a shareholder of listed companies, participations exceeding certain thresholds need to be notified to public registers. Company meetings 24. Does a company have to hold an annual shareholders' meeting? If so, when? What issues must be discussed and approved? At least one general meeting of a public company must be held within six months from the end of a company's financial year, unless the articles provide for it to be held within a shorter period after the end of the financial year. The shareholders of a private company must, at least once a year, either meet in a general meeting or resolve outside the general meeting. The general meeting usually adopts the annual accounts in this meeting, but it is not required. To enable the supervisory board to exercise its supervisory role, it is recommended that the management board and the supervisory board meet on a regular basis. There is no minimum number of meetings required. 25. Can shareholders call a meeting or propose a specific resolution for a meeting? If so, what level of shareholding is required to do this? The management board and the supervisory board can call general meetings, but the articles can also authorise others, such as individual managing directors or individual shareholders. One or more shareholders or holders of depositary receipts together holding at least 10% of the issued share capital (or a lower percentage if stated by the articles) of a public company can, on application, be authorised by the interim provisions judge (voorzieningenrechter) of a court to convene a general meeting. One or more shareholders or holders of attendance rights together representing at least 1% of the issued capital (or a lower percentage if stated by the articles) of private companies, can order the management board and supervisory board to convene a general meeting and to address certain topics. If the boards do not convene the meeting without due grounds, the shareholders can apply to the interim provisions judge to convene a meeting. If the management board or supervisory board have failed to call a meeting within six months from the end of the company's financial year (see Question 24), one or more shareholders holding at