The flexibilisation of the Dutch BV rules will affect financing transactions, in particular acquisition financing. A very welcome change is that the prohibition of financial assistance will be abolished.
Please find below a number of Questions & Answers with regard to Flex BV and financing.
FAQs regarding the Flex BV Act (effective 1 October 2012)
Does the abolition of the financial assistance prohibition mean that in future a BV may provide unlimited assistance?
No. In providing financial assistance the management board of a BV will have to assess – as in the case of any other transaction – whether such assistance is in the interest of the BV and how it will affect the BV's financial position. If management board members fail to observe due care, they will incur liability. The board will also have to determine whether the assistance is permitted by the BV's articles of association.
Will the abolition of the financial assistance prohibition also apply to NVs?
No, the prohibition will continue to apply to NVs.
Is it necessary to amend a BV's articles of association in order to take advantage of the abolition of the financial assistance prohibition?
BVs that have incorporated the provisions of Article 2:207c NCC in their articles of association (something that is by no means uncommon) are advised to remove them from their articles. Otherwise, there is a risk that the prohibition will continue to apply despite the new legislation.
Background: The transitional legislation provides that if the articles of association refer to a statutory provision that was valid before the entry into force of the new law or if they incorporate the substance of such a provision, the articles will be deemed to refer to or incorporate the relevant provision of the new law. As it remains unclear how strictly this 'formal' transitional rule will be interpreted, we would advise you not to rely on it and to amend the articles of association.
In what respects will it become easier for shareholders to adopt resolutions without holding a meeting?
The ability to pass resolutions without holding a meeting will no longer be dependent on authorisation in the articles of association;
The unanimity requirement will cease to apply. However, all those with meeting rights (including holders of depositary receipts issued with the cooperation of the BV and holders of any shares without voting rights or rights to participate in profits) must agree that the resolution may be passed without holding a meeting (whether electronically or otherwise); and
Resolutions may also be passed without holding a meeting if depositary receipts for shares have been issued with the cooperation of the BV.
If the articles of association contain lock-up provisions, how will this affect the possibility to pledge shares?
If a BV's articles of association provide that the shares are not transferable for a given period (known as a lock-up period), the shares may not be pledged during this period. This is because the encumbrance of the shares with a limited right (such as a pledge) generally constitutes a transfer for the purpose of such provisions. A bank which has obtained a pledge on shares should be aware of this and, where necessary, demand that the articles of association be altered to allow shares to be pledged. For parties who have agreed a lock-up, it may be advisable to exclude pledges from the prohibition on transferability in order to retain maximum flexibility in obtaining financing at a later date.
FAQs in connection with the One-Tier Board Act (expected effective date 1 January 2013)
How must a management board member act in the case of a conflict of interest: may he/she represent the company despite the conflict?
Yes. Once the One-Tier Board Act enters into force, a management board member who has a conflict of interest may represent the BV even if this is explicitly prohibited by the current articles of association. The Act provides that a conflict of interest only has consequences for internal decision-making. A management or supervisory board member who has a direct or indirect personal interest that conflicts with the interests of the BV in relation to a particular transaction may not take part in the deliberations and decision-making on that transaction. If he/she nonetheless does so, the decision will be voidable and the board member in question may be held liable towards the BV. The transaction with the third party will, however, be valid. This will provide greater legal certainty in financial transactions: if it transpires later that one or more of the management board members had a conflict of interest when a transaction was entered into, the lender can no longer be faced with a situation in which the loan agreement proves to be invalid.
Background: Under the current law on BVs, a management board member who has a conflict of interest with the company is not authorised to represent the BV. If he/she nonetheless did so, a transaction with third parties can, in some circumstances, be invalid. That rule will be abolished.
Must the articles of association be amended in order to take advantage of the new conflict-of-interest rules?
No, that is not necessary. With the entry into force of the One-Tier Board Act the current conflict-of-interest rules will automatically cease to apply in relation to the representation of a BV and any provision in the articles of association which contains the current rules will be deemed to be not applicable. To avoid misunderstandings, however, we would advise that any such provisions be removed from the articles of association (and possibly replaced by the new rules).
Can the new conflict-of-interest rules be set aside in the articles of association?
Yes. The new rules can be set aside (insofar as all management board members and supervisory board members have a conflict of interest and it thus becomes impossible to make a decision) by including a provision in the articles of association authorising management board members with a conflict of interest to participate in the decision-making in that situation.