The Preliminary Bill Modernizing NV Law and making the ratio between the number of men and women in large companies more balanced contains proposals to adjust NV law in line with simplification and flexibility of the Flex BV Act which entered into force on 1 October 2012. This Bill aims to remove the restrictive and/or ineffective rules and to reduce the administrative burdens. The new regulation also gives shareholders of the NV more room to shape the structure of their company as they wish and desire and fulfill the needs of the national and international practices. Another aim of this Bill is to make the ratio between the number of men and women at the top of large companies more balanced as proposed by the EU directive in 2012.
Key words: Flex-BV, NV Law, Share Capital, Foreign Currency, 10% Limit, Decision- Making, Meeting, Definition Shares, Annual Accounts, Growth Quota and Appropriate & Ambitious targets.
In 2012, an EU directive proposal was published to improve the male-female ratio among non-executive directors of large listed companies. In the selection of non-executive directors, a preferential policy should be followed until the target of 40% for members of the under-represented gender or of 33,33% for executive and non-executive directors combined is achieved. This target had to be achieved by 1 January 2020 at the latest. (Directive proposal on improving the gender ratio among non-executive directors of listed companies and related measures, Brussels 14-11-2012 COM(2012) 614, 2012/0299 COD).
The preliminary bill modernizing NV law and making the ratio between the number of men and women in large companies more balanced aims to modernize NV law and adapt it to the needs of users. In addition, the aim is to make the ratio between the number of men and women at the top of large companies more balanced. This is to be achieved by making it mandatory for large public and private companies to formulate appropriate and ambitious target figures for the management board, the supervisory board and subtop. That is why large listed companies must make concrete plans to implement them and be transparent about the process. In addition, the male-female ratio in the supervisory board of listed companies must be at least one third of the number of men and one third of the number of women. Otherwise, the appointment will be considered as invalid. Finally, the bill contains proposals to adjust NV law in line with the simplification and flexibility of BV law in 2012.
The following principles underlie the preliminary bill modernizing NV law:
The legislator wants to achieve the following with this: (i) apply less mandatory and more regulatory law; (ii) give shareholders more freedom to shape the company as they see fit and desire with sufficient safeguards for the interests of other parties (particularly minority shareholders) (iii) remove rules that are unnecessarily restrictive or ineffective, (iv) reduce administrative burdens, (v) ensure balanced creditor protection, (vi) remove legal uncertainty, (vii) meet the needs of contemporary national and international practice; and finally (viii) link up with developments in neighboring countries and the European Union.
For the reasons mentioned above, the Bill contains the following simplifications regarding the NV Law:
NO OBLIGATION TO RECORD SHARE CAPITAL IN THE ARTICLES OF ASSOCIATION
The current article 2:67 paragraph 1 of the Dutch Civil Code obliges NVs to state the amount of the authorized capital in the articles of association. The authorized capital is an amount stated in the articles of association, above which no issue of shares can take place. In practice, the simplification and flexibility of BV law showed that the mandatory inclusion of a share capital leads to costs in the form of amendments to the articles of association, whereby it is not clear what necessary purpose the mandatory share capital serves. The same considerations apply to the NV. Additionally, Article 3 under c of Directive (EU)2017/1132 of the European Parliament of the Council of 14 June 2017 on certain aspects of company law (codification), L 169/46 (hereinafter: the Directive) permits the NV not to have registered capital. Article 2:67 of the Dutch Civil Code will be amended into 'The articles of association may state the amount of the share capital. The articles of association state the nominal amount of the shares.' However, the obligation to record share capital in the articles of association will be deleted. In addition, the increase in the minimum capital by order in council and the transitional law will also be cancelled. A minimum capital of EUR 45,000 will still apply.1
THE AUTHORIZED, ISSUED AND PAID-UP CAPITAL AND THE NOMINAL AMOUNT OF THE SHARES MAY BE DENOMINATED IN A FOREIGN CURRENCY
Pursuant to Section 2:67(2) of the Dutch Civil Code, it is possible to denominate the authorized, issued and paid-up capital and the nominal amount of shares in a foreign currency. The option is limited to one foreign currency. It is not allowed to use two different currencies.
SHAREHOLDERS OF CERTAIN DESIGNATION CAN BE DESIGNATED AS A BODY OF THE COMPANY WITHOUT CREATING A NEW CLASS OF SHARES
By also including holders of shares of a specific designation under the term 'organic', it becomes possible to designate holders of specific shares, which are indicated, for example, with letters or numbers, as an authorized body without a new class of shares having to be created for this purpose. It is therefore also possible to give shares a certain right by means of a numbering system for one class of shares.
DEFINITION OF SHARES UPDATED
The definition is being amended due to the expiry of the mandatory share capital (see article 2:67 paragraph 1). It is proposed to determine that shares are the parts into which the authorized capital or, if the company has no authorized capital, the issued capital is divided. Because the issued capital can be increased without an amendment to the articles of association, the words "in the articles of association" are deleted2. This definition differs from the definition of shares in Article 190 for the BV which is based on the possibility of shares without voting rights.
THE PAYMENT OF THE FORMATION COSTS CAN BE INCLUDED IN THE DEED OF INCORPORATION
In line with the Flex BV it is proposed that the founders may commit the company to pay costs related to the incorporation. To this end, the first sentence of Article 2:93 paragraph 4 of the DCC is amended as 'The founders can only commit the company in the deed of incorporation by issuing shares, accepting payments thereon, appointing directors, appointing supervisory directors and paying costs related to the incorporation and performing legal acts as referred to in Article 94 proparagraph 1.' This means that the payment of the formation costs can be included in the deed of incorporation. Separate confirmation of the formation costs by the board is then no longer necessary3.
THE VOTING RIGHT TO A PLEDGEE OR USUFRUCTUARY CAN BE GRANTED AT A LATER DATE
As with the simplification and flexibility of BV law, it has now been proposed to grant the voting right to the usufructuary at a later date by means of the written agreement. The usufructuary can only exercise a voting right granted after the creation of the usufruct after the company has recognized the legal act or the agreement has been served on it in accordance with the provisions of Article 2:88(3) of the Dutch Civil Code.
THE 10% LIMIT ON SHARE BUYBACKS WILL BE ABOLISHED
The 10% limit for share buybacks as laid down in article 2:89a paragraph 1 under b of the DCC will be abolished. With the entry into force of the Act of May 29, 2008 to implementation of Directive 2006/68/EC of the European Parliament and of the Council of the European Union of 6 September 2006 (OJEU 2006, L 264) amending Directive 77/91/EEC on the formation, maintenance and amendment of public limited liability companies of their capital4 the 10% limit for the purchase of own shares has been abolished5. The company may only pledge its own shares or depositary receipts for such shares if the shares to be pledged are fully paid up and the general meeting has approved the pledge agreement6.
DECISION-MAKING OUTSIDE A MEETING IS SIMPLIFIED
- It is no longer necessary for a provision on decision-making outside a meeting to be explicitly included in the articles of association. It is sufficient that all persons entitled to attend meetings agree to this manner of decision-making.
- Decision-making outside a meeting is possible if a collaboration of the company certificates of shares has been issued. The prohibition in NV Law here will be abolished.
- The unanimity of votes is no longer required for decision-making outside a meeting.
- It will be possible in the articles of association to designate a place outside the Netherlands for the general meeting.
- It will be easier to hold the general meeting at a place other than the place of residence of the NV or the place mentioned in the articles of association.
- The holding or resolution of the general meeting is mandatory at least once every financial year during each financial year at least one general meeting is held or a decision is taken at least once in accordance with article 101 paragraph 5 or article 128 paragraph 17.
THE ADOPTION OF THE ANNUAL ACCOUNTS IS SIMPLIFIED
If all shareholders are also directors or supervisory directors of the company, the signing of the annual accounts by all directors and supervisory directors also counts as adoption of the annual accounts, provided that all persons entitled to attend meetings have agreed with this simplified decision-making in accordance with the proposed 128 paragraph 1 (see explanation part N). The articles of association may exclude this manner of adoption. This avoids unnecessary formalities. In article 2:108 of the Dutch Civil Code it is proposed for the NV that during each financial year at least one general meeting is held or at least once a resolution is passed in accordance with article 101 paragraph 5 or article 128 paragraph 1. This amendment clarifies that the regulation for decision-making outside a meeting also applies to the mandatory annual general meeting.
SHAREHOLDER DECISION-MAKING IS EASED
The proposed 2:128 paragraph 1 provides for this purpose that decision-making by shareholders can take place in a manner other than in a meeting, provided that all persons entitled to attend meetings have consented to this manner of decision-making. Consent to the manner of decision-making can take place electronically, unless the articles of association provide otherwise. In addition, a statutory regulation is no longer required to be able to take decisions outside the meeting. The unanimity requirement for decision-making will also be abolished. Finally, decision-making is also possible outside a meeting if there are other persons entitled to attend meetings. However, a valid decision-making process requires that all persons entitled to attend meetings have agreed to the manner of decision-making. This prevents minority shareholders and other persons entitled to attend meetings being confronted against their will with decision- making by the majority shareholder(s) without consultation having taken place in a general meeting.
According to the proposed paragraph 2 of this article, the decision-making must take place in writing outside a meeting, because otherwise it would be unclear what the voting result is and who is entitled to determine it. Consent can be obtained electronically.
The Social Economic Council (the SER) issued its advice on 20 September 2019 and argued for specific measures aimed at promoting diversity and inclusion at the top of the business community. The main aim of the measures is to promote the advancement of women and to accelerate the growth of the share of women at the top of the corporate sector and recommended a measure for listed companies to introduce a 'growth quota' of 30% m/f for these companies for the Supervisory Board. If an appointment does not contribute to a representation of at least 30 percent m/f to impose a sanction. The second measure focuses on the broad group of approximately 5000 companies and to work towards a proportional m/f distribution by obliging these companies to draw up appropriate and ambitious target figures for their Executive Board, Supervisory Board and sub-top. Finally, these companies must report annually on the self-imposed target figure, the m/f composition of the Executive Board, Supervisory Board and the sub-top, and on the measures they take to achieve the target. On 7 February 2020, in its response to the SER advice, the Dutch cabinet announced that it would introduce a statutory regulation in the Civil Code to increase diversity of women and men at the top of the Dutch business community. The Preliminary Bill Modernizing NV Law and making the ratio between the number of men and women in large companies more balanced was introduced on 15 April 2020 for internet consultation. After completion of the consultation period for the preliminary draft bill Modernizing NV Law and making the ratio between the number of men and women in large companies more balanced, the bill on making the composition of the management board and supervisory board in large companies more balanced was submitted to the House of Representatives on 4 November 20208. As a result, the proposed regulation to modernize NV law will be included in a separate bill.
INTRODUCING GROWTH QUOTA
The growth quota is regulated in article 2:142b of the Dutch Civil Code. Article 2:142 b, paragraph 1 limits the scope of the provision to companies with a Dutch stock exchange listing and affiliated with a company whose shares or depositary receipts for shares are admitted to trading on a regulated market as referred to in article 1:1 of the Financial Supervision Act in the Netherlands. Paragraph 2 regulates the growth quota. This means that at least one third of the number of members must contain men and at least one third of the number of members must be women. An appointment of a person who does not contribute to a more balanced relationship between men and women on the supervisory board is contrary to the law and therefore null and void (Article 2:14 paragraph 1 of the Dutch Civil Code). Based on article 2:214b, paragraph 3, the growth quota applies mutatis mutandis to executive and non-executive directors in a one-tier board model. The growth quota does not apply to directors or supervisory directors who have been appointed by the Enterprise Section in an inquiry procedure (paragraph 4). However, from the point of view of legal certainty and in order to protect third parties who deal with the company, the nullity does not affect the legal validity of the decision-making of the supervisory board (paragraph 5)9.
APPROPRIATE AND AMBITIOUS TARGETS FOR LARGE COMPANIES
The bill on making the composition of the management board and supervisory board in large companies more balanced contains an obligation for large companies (NV and BV) to set appropriate and ambitious targets in the form of a target to increase the ratio between the number of men and women on the board and to make the supervisory board more balanced, as well as the ratio in the sub-top to be determined by the company. Large companies are also required to draw up a plan to achieve these goals. Finally, large companies are obliged to report on the number of men and women who are members of the management board and the supervisory board at the end of the financial year, as well as the categories of employees in managerial positions to be determined by the company, the goals in the form of a target, the plan to achieve these goals and if one or more goals have not been achieved, the reasons for this10. The Bill on making the composition of the management board and supervisory board in large companies more balanced will be evaluated after 5 years and will expire after 8 years if no extension is decided.
The Dutch legislator aims to simplify the NV law. In order to achieve this, the legislator wants to meet the current wishes of the NV companies by among others, (i) no longer obligating to record share capital in the articles of association, (ii) to make possible to issue the nominal amount of the shares in a foreign currency, (iii) to exit the 10% limit of the shares buybacks, and (iv) easening the decision-making.
The Flex BV Act has made a positive contribution to simplifying regulations. It is expected that the simplification of NV law will also make a positive contribution to NV companies to give more substance and direction to their companies. Practice will have to show whether the expected reduction in burdens for NVs is accomplished and whether it has been sufficient. It is not yet known when the Legislative Proposal Modernizing Public Limited Law and Balancing the Gender Ratio in Large Companies will come into effect and whether any amendments will be made. We'll have to wait until more information about this comes and see what the developments regarding this bill will be in the future.
Although the preliminary draft included both the modernization of the NV law and a more balanced male and female ratio at the top, it was later decided to split the subjects and to submit a separate bill for a more balanced male and female ratio at the top. Because the business community had failed to achieve the objectives of more balanced gender relations in top positions, the legislator wanted to make an arrangement in Book 2 of the Civil Code without incurring delays. With this, the legislator aims to achieve the goals for a more balanced male and female ratio at the top by introducing the growth quota and forces large companies to draw up a plan for appropriate and ambitious targets to increase the ratio between the number of men and women on the board more balanced. The large companies must also account for themselves by reporting annually to the SER. The bill on making the composition of the management board and supervisory board in large companies more balanced was approved by the Senate on 28 November 2021 and is likely to enter into force on 1 January 202211.
1. Internet consultation draft Explanatory Memorandum Amendment of Book 2 of the Dutch Civil Code in connection with the modernization of the law on public limited companies and the balancing of the ratio between the number of men and women on the management board and supervisory board of large public limited liability companies and private limited companies, 15 April 2020, p.21.
2. İbid, p. 23.
3. İbid, p.24-25 and Parliamentary Papers II, 2006–2007 session, 31 058, no. 3, p. 60.
4. Official Gazette 2008, 195.
5. Parliamentary Papers II, 2007/2008 session, 31 220, no. 3, p. 2.
6. Internet consultation draft Explanatory Memorandum Amendment of Book 2 of the Dutch Civil Code in connection with the modernization of the law on public limited companies and the balancing of the ratio between the number of men and women on the management board and supervisory board of large public limited liability companies and private limited companies, p.24.
7. İbid, p. 27.
8. House of Representatives of the States General, Session Year 2020-2021, Parliamentary Paper 35 628, no.2, bill of 4 November 2020 to amend Book 2 of the Civil Code in connection with making the ratio between the number of men and women in the Netherlands more balanced. the management board and the supervisory board of large public and private limited companies. See also Explanatory Memorandum, House of Representatives of the States General, Session Year 2020-2021, Parliamentary Paper 35 628, no.2, 4 November 2020 to amend Book 2 of the Civil Code in connection with making the ratio between the number of men and women more balanced women on the management and supervisory boards of large public and private companies.
9. House of Representatives, session year 2020-2021, Parliamentary Paper 35 628, no. 3, explanatory memorandum regarding amendments to Book 2 of the Dutch Civil Code in connection with making the ratio between the number of men and women on the board and the board of directors more balanced. supervisory directors of large public and private companies, page 25. See also, Memorandum of Reply, 8 April 2021, Senate, session 2020-2021, 35 628, C, p.7.
10. Ibid, pages 26-27.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.