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Principles of Prevailing Dutch Company Law

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Abstract

Dutch company law is undergoing tumultuous times. Much is changing in the legislation, for example, a major revision of private limited company law is imminent. The courts are constantly presented with an increasing number of difficult issues. It is precisely in such times that there is a need for guiding ideas, and I went searching for them. In this paper, I have relied on the American theory of pragmatism to help find a method to trace principles of law (section 1). I present nine principles of Dutch company law (section 2) and finally enlist the aid of these principles to solve a problem of present Dutch company law (section 3). Based on these principles, I take a fresh look at Dutch company law. In my search, I came to the conclusion that, as a result of the increasing importance of ‘duties of care’, it is becoming less important who does and who does not belong to the company. To ensure that courts review the actions of corporate executives with restraint, I consider it important to make a distinction between standards of conduct and standards of liability.

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References

  1. William James published his great book on pragmatism in 1907. For a good biography of William James, see R.D. Richardson, William James, in the Maelstrom of American Modernism (Boston, New York, Houghton Mifflin Company 2006). For a representative survey of James’ ideas: W. James, On a Certain Blindness in Human Beings (Penguin Books, Great Ideas Series 2009).

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  2. A very good summary of pragmatic thought can be found in L. Menand, The Metaphysical Club (New York, Farrar Straus and Giroux 2001), at pp. 337–375.

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  3. For this fascinating train of thought we are also indebted to Darwin’s theory of evolution, which emerged at about the same time. For connections between the pragmatic thinkers and Darwin’s theory of evolution, see Menand, supra n. 3, at pp. 97–148.

  4. See my comments in ‘Situationele gelijkheid in het (privaat)recht’, Ondernemingsrecht (2008) pp. 336–341, also published in Gelijkheid in een pluriforme samenleving, Vol. 71 (2008), No. 2, Mededelingen of the Literature Section of the Royal Netherlands Academy of Arts and Sciences. This volume also contains the fine essay by B. de Rijk, ‘Normatief denken en praktisch handelen: Situationele differentiatie in politiek-wijsgerig perspectief’, from which I derived the distinction of guiding and directing and of motivation and reasoning, at p. 57.

  5. Regarding the background of this tendency, see the fascinating books by S. Toulmin, Cosmopolis: The Hidden Agenda of Modernity (Chicago, The University of Chicago Press 1990) and Return to Reason (Cambridge, Harvard University Press 2001). See H.W. van der Dunk, De verdwijnende hemel, over de cultuur van Europa in de 20ste eeuw (I and II) (Amsterdam, Meulenhoff 2000).

  6. I refer to O.W. Holmes Jr, who noted: ‘The life of the law has not been logic; it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed and unconscious, even the prejudices which judges share with their fellow-men, have a good deal more to do than the syllogism in determining the rules by which men should be governed’, The Common Law, John Harvard Library (Cambridge, Belknap Press of Harvard University Press 2009, first printing in 1881), at p. 3. In a number of famous studies in the second half of the 19th century, Holmes expressed some original thoughts about the formation of court judgments. In doing so, he took a somewhat cynical view of the world and his fellow men. In recent years, critical studies on Holmes’ thoughts have been published which place the emphasis on his cynical view of people but which, in my opinion, do not do justice to his brilliant insights. For such a critical type of study, see A.W. Alschuler, Law Without Values: The Life, Work and Legacy of Justice Holmes (Chicago, University of Chicago Press 2000). A Dutch book in which the meaning of Holmes’ thought is well generalised and its strengths are properly brought to the fore is R.C. Hartendorp, Praktisch gesproken, alledaagse civiele rechtspleging als praktische oordeels-vorming, Doctoral Thesis (EUR 2008).

  7. This statutory provision reads as follows: ‘A rule applicable between them (= members of the legal person) pursuant to a law, custom, articles of association or a decision will not apply in so far as this would be unacceptable under the circumstances according to criteria of reasonableness and fairness.’ (author’s translation)

  8. See my essay ‘Vereenzelviging als strijdmiddel in vennootschapsrechtelijke aansprakelijk-heidsprocedures’, in Geschriften by the Vereniging Corporate Litigation (Corporate Litigation Association) (2001–2002) pp. 15–28.

  9. See the groundbreaking judgment HR 6 April 1979, Dutch Law Reports (NJ) 1980, 34 (Kleuterschool Babbel). Regarding this development, see also my comments in Onderstromen in het rechtspersonenrecht, Preliminary Advice of the Dutch Lawyers Association (2000) pp. 115–130.

  10. Art. 2:138/248 BW contains the provisions on directors’ and officers’ liability in the event of a company’s insolvency. The provisions also apply to a person who has determined a company’s policy as if he or she were a director or officer.

  11. For this angle of approach, see my comments in ‘Impliceert beperkte toetsing door de rechter ook beperkte verantwoordelijkheid?’, Ondernemingsrecht (2005), at pp. 335–336.

  12. This is an old insight. I refer to G. Ripert, Aspects juridiques du capitalisme moderne (Paris, L.J.D.G. 1951). In this book, Ripert studies the economic function of various legal institutions. For a more modern, interesting book focusing on company law, see F.H. Easterbrook and D.R. Fischel, The Economic Structure of Corporate Law (Cambridge, Harvard University Press 1991).

  13. Menand, supra n. 3, at p. 339. This insight can also be found in the catching book by the pragmatist Richard Rorty, dating from much later. See, for example, his collection of essays Truth and Progress (Cambridge University Press 1998) and Philosophy and Social Hope (London, Penguin Books 2000). A good introduction to Rorty’s work is a collection of interviews with him: E. Mendieta, ed., Take Care of Freedom and Truth Will Take Care of Itself (Stanford, Standford University Press 2006).

  14. There is international interest in principles of company law. I refer to W. Bayer and M. Habersack, eds., Aktienrecht im Wandel, Band II, Grundsatzfragen des Aktienrechts (Tübingen, Mohr Siebeck 2007); this book has all of 1287 pages. An approach based on principles can also be found in P. Davies, Introduction to Company Law (Oxford, Oxford University 2002) and R. Kraakman, et al., The Anatomy of Corporate Law: A Comparative and Functional Approach, 2nd edn. (Oxford, Oxford University Press 2009). Impulses for an approach to company law based on principles at European level can be found in S. Grundmann, European Company Law, Organization, Finance and Capital Markets (Antwerpen, Intersentia 2007). See also H.J. de Kluiver and J. Wouters, eds., Beginselen van vennootschapsrecht in binationaal perspectief (Antwerpen, Intersentia 1998). In employment law, the principles-based approach plays a larger role than in company law since in employment law the value of the working person takes a central place. See, for example, P.F. van der Heijden and F. Noordam, De waarde(n) van het sociaal recht, Preliminary Advice of the Dutch Lawyers Association (2001).

  15. HR 21 January 1955, Dutch Law Reports (NJ) 1959, 43.

  16. HR April 2003, Dutch Law Reports (NJ) 2003, 286 (RNA).

  17. See my comments in ‘Situationele gelijkheid in het (privaat)recht’, supra n. 5.

  18. For an overview, see Grundmann, supra n. 16, at pp. 373–473.

  19. On the single-member company, see H.E. Boschma, De eenpersoons-bv, Doctoral Thesis (RUG 1997).

  20. See Art. 2:140/250(2) BW and HR 13 July 2007, Dutch Law Reports (NJ) 2007, 434 (ABN-Amro).

  21. The courts could also create a certain hierarchy in the interests to be served. Thus far, the Supreme Court has at any rate not done so for company law. See, for example, the Decision concerning ABN Amro of 13 July 2007, Dutch Law Reports (NJ) 2007, 434. See, however, infra n. 28 regarding insolvency law.

  22. See section 3 of the preamble to the Tabaksblat Code and section 7 of the preamble to the Frijns Code. The Frijns Code is the successor to the Tabaksblat Code and states that a company must strive for shareholder value in the long term. In doing so, the board of directors and supervisory board must take account of other interests as well. See further P.C. van den Hoek, ‘Verantwoording en raad van commissarissen’, Ondernemingsrecht (2006) p. 343.

  23. Para. 172 Companies Act 2006.

  24. For an explanation of English law regarding this point, see Gower and Davies: Principles of Modern Company Law, 8th edn. (London, Sweet & Maxwell 2008), at pp. 515–516.

  25. This way of prioritising shareholders’ interests shows similarity to what the Supreme Court decided in the Sigmacon judgment of 24 February 1995, Dutch Law Reports (NJ) 1996, 472. In that judgment, the creditors’ interests of an insolvent company were put first and foremost above other interests. The Supreme Court did not rule out the fact that other interests may sometimes take precedence. See, in the same vein, HR 19 December 2003, Dutch Law Reports (NJ) 2004, 93 (Mobell/Interplan).

  26. H. J. M. N. Honée pointed out this, in my opinion, important issue in ‘Commissarissen, gezanten uit Niemandsland?’, 74 De NV (1996), at pp. 283–284.

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  27. See my comments in ‘Waarom dient de structuurregeling in de één of andere vorm te worden gehandhaafd?’ in De werknemer in het ondernemingsrecht, series of the Van der Heijden Instituut, Vol. 76, pp. 1–6 (2004).

  28. The concept of certain duty of care has existed for some time in company law. I refer to the Beklamel case law requiring a certain care on the part of a director or officer towards creditors if there are no financial prospects. See HR 6 October 1989, Dutch Law Reports (NJ) 1990, 286. On the importance of duties of care, see T.F.E. Tjong Tjin Tai, Zorgplichten en zorgethiek, Doctoral Thesis (Leiden 2007).

  29. See, for example, HR 13 October 2006, Dutch Law Reports (NJ) 2008, 527 (Vie d’Or).

  30. There are internal outsiders as well, for example, minority shareholders. The NOM was such an internal outsider in the Supreme Court’s Willemsen/NOM judgment of 20 June 2008, Dutch Law Reports (NJ) 2009, 21. The case is interesting because the NOM had protected its own weak internal position through special rights under the articles of association.

  31. See HR 8 April 2005, Dutch Law Reports (NJ) 2006, 443 (Laurus). The criterion of the reasonably competent and reasonably acting officer was used by the Supreme Court in actions based on an unlawful act by, for example, the supervisor in HR 13 October 2006, Dutch Law Reports (NJ) 2008, 527 (Vie d’Or), or by the receiver in HR 19 December 2003, Dutch Law Reports (NJ) 2004, 93 (Interplan). It concerns the liability standard generally applicable to professional practitioners. See, for example, HR 7 March 2003, Dutch Law Reports (NJ) 2003, 202, and HR 3 October 2006, Dutch Law Reports (NJ) 2008, 529 (Vie d’Or).

  32. See especially HR 8 December 2006, Dutch Law Reports (NJ) 2006, 659 (Ontvanger/Roelofsen), HR 2 March 2007 (NJ) 2007, 240 (Holding Nutsbedrijf Westland/X) and HR 20 June 2008, Dutch Law Reports (NJ) 2009, 21. See also the Explanatory Memorandum to Bill 31058, p. 33: ‘The provisions in Art. 2:216 are based on the internal liability of the directors and officers towards the company. Because the provisions in Article 216 first of all serve to protect the interests of creditors of the company, a certain extent of concurrence of third parties’ claims against the directors and officers based on tort is unavoidable. The case law in the field of external liability of directors, officers and shareholders is roughly in line with the rules of Article 216.’ (author’s translatio

  33. See my comments in ‘Een pleidooi voor een kloof tussen enquêterecht en bestuurders-aansprakelijkheid’, in Verantwoording aan Hans Beckman (Deventer, Kluwer 2006), at p. 541, note 32.

  34. See Van der Heijden-Van der Grinten, Handboek (Deventer, Tjeenk Willink 1992), no. 231.

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  35. For an in-depth treatment, see Grundmann, supra n. 16, at pp. 149–170 and pp. 293–372.

  36. See my comments in ‘Het aan ondernemingen toekomende recht op geheimhouding’, in Tot vermaak van Slagter (Deventer, Kluwer 1988) pp. 307–320.

  37. Sometimes forced by the European Court of Justice. See the judgment of16 December 2008 in Cartesio, where the European Court of Justice decided that a Member State must recognise a cross-border conversion of a company falling under its law if the Member State to whose law the company was converted recognises that conversion.

  38. For this view of reorganisation, see the chapter on restructuring in M. J. Kroeze, L. Timmerman and J. B. Wezeman, De kern van het ondernemingsrecht, 2nd edn. (Deventer, Kluwer 2007).

  39. In his Doctoral Thesis, De Nederlandse juridische splitsing in Europees en rechtsvergelijkend perspectief (2009), H. Koster rightly devotes a lot of attention to the question of whether this abundance of mandatory law is indeed always necessary from a comparative law point of view.

  40. See for more details my essay ‘Mensenrechten van minderheidsaandeelhouders: voice, exit en gelijke behandeling’, in De nieuwe macht van de kapitaalverschaffer, Vol. 57 (Institute for Company Law 2007) pp. 31–42.

  41. Compare HR 31 December 1993, Dutch Law Reports (NJ) 1994, 436 (Verenigde Bootlieden).

  42. See, for example, Easterbrook and Fischel, supra n. 14, at pp. 67–70.

  43. Regarding the consequences, see the judgment of the Supreme Court in an interesting Antillean case of 29 September 2006, Dutch Law Reports (NJ) 2006, 639 (The Mill Resort), in which an all-powerful person was a member of a cooperative association besides a few powerless members and used this position of power to cause all kinds of trouble.

  44. HR 6 April 1979, Dutch Law Reports (NJ) 1980, 34 (Kleuterschool Babbel).

  45. On the distinction between primary and secondary offenders, see S.N. de Valk in her Doctoral Thesis Aansprakelijkheid van leidinggevenden naar privaatrechtelijke, strafrechtelijke en bestuursrechtelijke maatstaven, Vol. 63 (Institute for Company Law 2009). See also my comments in Onderstromen in het privaatrechtelijke rechtspersonenrecht, supra n. 10, at p. 153.

  46. It is remarkable that the Supreme Court did not set this requirement of serious personal culpability in a case where a shareholder asked a director to compensate for a loss resulting from claims which the shareholder had against the private limited company concerned and which had remained unpaid. In my opinion, this was not right. See HR 16 February 2007, Dutch Law Reports 2007, 256 (Tuinbeheer).

  47. See the instructive description of agency theory in S. Parijs, Fairness Opinions and Liability, Vol. 52 (Institute for Company Law, Groningen 2005) pp. 39–54.

  48. See in this regard HR 26 June 2007, Dutch Law Reports (NJ) 2007, 420 (Bruit).

  49. See, in detail, E. E. G. Gepken-Jager, Vertegenwoordiging bij nv en bv, Vol. 34 (Institute for Company Law 2000).

  50. Recently, the Supreme Court ruled on the importance of legal certainty in business transactions in paragraph 4.4 of its ABN-Amro order of 13 July 2007, Dutch Law Reports (NJ) 2007, 434.

  51. See D. Strik, ‘Aansprakelijkheid van niet-uitvoerende bestuurders: you cannot have your cake and eat it’, Ondernemingsrecht (2003) p. 371.

  52. See E. Zahn, Regenten, rebellen en reformatoren, een visie op Nederland en de Nederlanders (Amsterdam, Contact 1989), at p. 58.

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  53. Of course, in special situations, exceptions to this starting point should be possible. In such cases, a ground for justifying departing from this principle is required. For an example, see HR 14 September 2007, Dutch Law Reports (NJ) 2007, 611 (Versatel).

  54. See the groundbreaking judgment HR 10 January 1997, Dutch Law Reports (NJ) 1997, 360 (Staleman/van der Ven).

  55. See my comments in ‘Toetsing van ondernemingsbeleid door de rechter, mede in rechtsvergelijkend perspectief, over het onderscheid tussen gedragsnormen en toetsingsnormen’, Ondernemingsrecht (2003) p. 555, also published in Vol. 3 (2004) Mededelingen of the Royal Academy of Arts and Sciences.

  56. I have pointed out this distinction more than once, for example, in ‘Impliceert beperkte toetsing beperkte verantwoordelijkheid’, supra n. 13, at p. 337, and ‘Toetsing van ondernemingsbeleid door de rechter, mede in rechtsvergelijkend perspectief, over het onderscheid tussen gedragsnormen en toetsingsnormen’, supra n. 66.

  57. The distinction between conduct and liability standards is made under the renowned American business judgment rule. This rule makes it possible to properly distinguish the cases in which management actions should be reviewed with restraint or with less restraint. I am particularly impressed by the American idea that the more one’s own interest is involved in performing an act, the stricter the court’s review should be. I am not a proponent of a mechanistic application of the business judgment rule, but I do consider it an important source of inspiration. See for a thorough discussion of the American business judgment rule, B. F. Assink, Rechterlijke toetsing van bestuurlijk gedrag binnen het vennootschapsrecht van Nederland en Delaware, Vol. 59 (Institute for Company Law 2007).

  58. Regarding this question, see especially HR 29 November 2002, Dutch Law Reports (NJ) 2003, 455 (Berghuizer Papier).

  59. See, for example, H. Hansmann and R. Kraakman, ‘The End of History for Corporate Law’, in J. N. Gordon and M. J. Roe, eds., Convergence and Persistence in Corporate Governance (Cambridge, Cambridge University Press 2004) pp. 33–68. For a totally different approach in this regard, see A. Gamble, Politics and Fate (Cambridge, Polity 2000) and J. Gray, False Dawn, the Delusions of Global Capitalism (London, Granta 1998). Gray has continually protested against easy stories about the flattening and uniformisation of the world as a result of globalisation.

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  60. For a book that provides good explanations of the ways in which strong companies can be organised, see J. Roberts, The Modern Firm: Organizational Design for Performance and Growth (Oxford, Oxford University Press 2004).

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  61. See D. Cohen, Three Lectures on Post-Industrial Society (Cambridge, MIT Press 2009), at p. 33. See also the interesting book by R.B. Reich, Superkapitalisme en de bedreiging voor onze democratie (Amsterdam Business Contact 2007) where the same type of analysis can be found. In recent years, there has been too heavy an emphasis on market forces. The seed for this was planted by R. Coase, The Nature of the Firm (1937). In that book, Coase defended the notion that very many transactions handled by an organisation could also be completed through the market. I have the impression that this idea, very influential in economic circles and correct in itself, has been implemented in far too extreme a way in the last twenty years. I think that the estimation of charges for transactions effected through the market is often too low while that regarding transactions in the company is too high. For balanced considerations of these problems, see the book by Roberts, supra n. 71, at pp. 78–106.

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  62. Such sensitivity to risks is the idea on which much of the interesting work of the well-known German sociologist U. Beck is based. See his most recent, fascinating book, Weltrisikogesellschaft (Frankfurt am Main, Suhrkamp 2007).

  63. For such an approach, see my essay De begrenzers van het enquêterecht in Ondernemingsrecht by and for Mick den Boogert, Vol. 62 (Institute for Company Law 2008) pp. 149–154.

  64. I greatly value balance in companies and am therefore not an admirer of the case law of the European Court of Justice on the freedom of establishment and free movement of capital. I refer to the Sevic and Centros judgments of 13 December 2005 and 9 March 1999, respectively. They put too much pressure on the Member States to accept what has happened abroad, for example, the establishment of a company in another country that does not perform any real activities there, without there being enough room to strive for proportional relationships in such a company, as is considered important in the Netherlands. The European Court of Justice once again gave these problems an additional twist in the Cartesio judgment of 16 December 2008 by requiring a Member State to cooperate in the conversion of one of its own companies to the law of a Member State that allows such cross-border ‘incoming’ conversion. The renowned rule of reason, however, offers Member States some room to take action against abusive situations, but this room is very limited.

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  1. Erasmus University of Rotterdam, Netherlands

    Levinus Timmerman (Advocate General, Supreme Court of the Netherlands and Professor of Foundations of Corporate Law)

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Adapted and updated version of the text of the oratio the author gave at Erasmus University Rotterdam on 19 December 2008.

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Timmerman, L. Principles of Prevailing Dutch Company Law. Eur Bus Org Law Rev 11, 609–627 (2010). https://doi.org/10.1017/S1566752910400051

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