Abstract
This article discusses the proposed changes to the capital maintenance regime applicable to the Dutch BV. The draft legislation introduces a liability of directors for unlawful distributions and an obligation for shareholders to repay distributions made to them in the suspect period of one year prior to the opening of bankruptcy proceedings. The current enhanced balance sheet test is replaced with a simple balance sheet test and a liquidity test. With the proposed new rules on creditor protection, the Dutch legislature aims to balance welfare and fairness: the law should not place unnecessary restrictions on company’s financing decisions, but at the same time it should offer effective protection to creditors. The draft legislation has been subjected to a consultation process. The reactions to the consultation document show that it is not easy to strike the right balance between the interests of the three parties involved: the shareholders, the directors and the creditors.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
The consultation document is available in Dutch at: http://www.justitie.nl/onderwerpen/wetgeving/bv_recht/Consultatie_derde_tranche/.
O. Boerstra, ‘Aansprakelijkheid bestuurder neemt toe’, Financieele Dagblad, 13 April 2006.
Seen. 1.
For a discussion of this question, see P. Davies, Introduction to Company Law (Oxford: Oxford University Press 2002) pp. 78–79.
See G. Hertig and H. Kanda, The Anatomy of Corporate Law (Oxford: Oxford University Press 2004) p. 73.
See L. Lin, ‘Shift of Fiduciary Duties upon Corporate Insolvency: Proper Scope of Directors’ Duty to Creditors’, 46 Vanderbilt Law Review (1993) p. 1494.
See W. Schön, ‘Balance Sheet Tests or Solvency tests — or Both?’, 7 EBOR (2006) p. 183: ‘It is commonly accepted today — and I have a feeling that this has always been the case — that ‘entity shielding’, i. e., the protection of the creditors’ interest in the company’s funds against withdrawals by the shareholders (and against the access of the shareholders’ creditors) is a natural complement of limited liability. There must be a limit to the freedom of shareholders to instruct directors to pay out moneys from the company’s funds.’
See C. Kuhner, ‘Zur Zukunft der Kapitalerhaltung durch bilanzielle Ausschüttungssperren im Gesellschaftsrecht der Staaten Europas’ [On the Future of Capital Maintenance by Accounts Based Distribution Restrictions in the Company Laws of EC Countries], 33 ZGR (2005) p. 768.
See P.O. Mülbert, ‘A Synthetic View of Different Concepts of Creditor Protection, or: A High-Level Framework for Corporate Creditor Protection’, 7 EBOR (2006) p. 368.
See J. Rickford, ed., ‘Reforming Capital: Report of the Interdisciplinary Group on Capital Maintenance’, 15 EBLR (2004) p. 967.
For a suggestion to shorten this period to six months, see J.N. Schutte-Veenstra, H.E. Boschma and M.L. Lennarts, Alternative Systems for Capital Protection (Deventer, Kluwer 2006) p. 57.
See H. Merkt, ‘Creditor Protection Through Mandatory Disclosure’, 7 EBOR (2006) p. 122. Merkt concludes that the current mandatory disclosure regime does not sufficiently provide for ‘soft’ information on the expected solvency of the company.
For the main criticisms of the capital maintenance regime of the Second EC Directive (which applies with only slight modifications to the Dutch private limited company), see H.J. de Kluiver and S.F.G. Rammeloo, ‘Capital and Capital Protection in The Netherlands: A Doctrine in Flux’, in M. Lutter, ed., Das Kapital der Aktiengesellschaft in Europa, ZGR Sonderheft 17 (Berlin, Walter de Gruyter 2006) p. 658; and Schutte-Veenstra, et al., op. cit. n. 11, at pp. 3–5.
See p. 5 of the Explanatory Memorandum.
The point that legislation concerning distributions to shareholders should strike a reasonable balance between welfare (which cannot be achieved if excessive restrictions apply when businesses wish to make distributions to shareholders) and fairness (in the form of a fair measure of protection for creditors) is also made in Rickford, loc. cit. n. 10, at p. 967.
See E. Ferran, ‘The Place for Creditor Protection on the Agenda for Modernisation of Company Law in the European Union’, 3 ECFR (2006) p. 191.
See M. Kroeze, Bange bestuurders [Scared Directors] (Deventer, Kluwer 2006).
This point is made in several of the responses to the consultation document.
HR 8 November 1991, NJ 1992 No. 174.
See J.B. Huizink, Rechtspersonen, loose-leaf (Deventer, Kluwer) Art. 2:99, No. 3.
HR 6 February 2006, JOR 2004 No. 67 (Reinders).
Explanatory Memorandum, p. 9.
Ibid., at p. 30.
See, for example, B. Bier, ‘Het verleden, heden en de toekomst van de kapitaalbescherming’ [Past, present and future of capital maintenance], in De vereenvoudigde BV, preadviezen voor de Vereeniging handelsrecht (Deventer, Kluwer 2006) p. 250.
De Kluiver proposes that directors should only be required to make a detailed assessment for the next twelve months. Events taking place after that period should be taken into account, however, if it is evident for the average capable director that these events threaten the solvency of the company. See H.J. de Kluiver, ‘Vermogensbescherming bij de BV: modernisering in international perspectief’ [Capital maintenance in the BV: modernisation from an international perspective], WPNR (2006) pp. 578–579. This approach appeals more to me than simply limiting the liquidity test to the next twelve months, as this seems rather arbitrary.
See Rickford, loc. cit. n. 10, at p. 979.
What is said here about the timing problem also applies to distributions made on the basis of a decision to reduce capital, because a resolution of the general meeting is also necessary in the case of a capital reduction. The timing problem will be less severe in the case of buy-backs, because it is proposed to give the board — instead of the general meeting — the power to decide upon share buy-backs. In this case, there is only a timing problem if a long period lapses between the date of the board’s resolution and the date the buy-back is executed. However, I should note that it will remain possible that the articles of association provide that the shareholders’ meeting must approve share buy-backs.
Explanatory Memorandum, p. 26.
See Schutte-Veenstra, et al., op. cit. n. 11, p. 21.
For a recent plea to introduce this rule in the Netherlands, see Kroeze, op. cit. n. 17.
Explanatory Memorandum, p. 30.
See De Kluiver, loc. cit. n. 25, who points at the competitive disadvantage created by this obligation because other legal systems (he mentions the United Kingdom and Germany) protect the shareholder who received a distribution in good faith.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Lennarts, L. Directors’ and Shareholders’ Liability as a Means of Protecting Creditors of the BV . Eur Bus Org Law Rev 8, 131–141 (2007). https://doi.org/10.1017/S1566752907001310
Published:
Issue Date:
DOI: https://doi.org/10.1017/S1566752907001310