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  • 01-07-2012


The flexibilisation of the Dutch BV rules will affect both existing and future joint ventures. For example, it will be possible to better tailor the BV's capital structure to the parties' desires and needs.

Please find below a number of Questions & Answers with regard to Flex BV and Joint Ventures.

Q&As regarding the Flex BV Act (effective 1 October 2012)

Will the entry into force of the Flex BV Act require existing joint venture BVs to amend their articles of association?

The Flex BV Act does not expressly require existing BVs to amend their articles of association, or at least not immediately. However, there are two changes that must be made, where applicable, when the articles are next amended. If the BV has a supervisory board, the articles of association must provide for the situation where positions on the board become vacant or board members are unable to perform their duties (ontstentenis of belet). Secondly, if depositary receipts for shares have been issued with the cooperation of the BV, the articles of association must grant meeting rights to the holders of those receipts.

Moreover, in order to take full advantage of the flexibility offered by the new legislation, other amendments may be necessary or at least advisable. The articles of association of many existing BVs contain provisions that incorporate or are derived from the current statutory rules (such as in relation to dividends, financial assistance and share buy-backs). An important question is whether these provisions will remain in force or be disregarded when the new statutory rules are introduced. Some of these provisions may, from the date of entry into force of the Flex BV Act, be treated as an election and hence become binding on the company. In those cases, an amendment to the articles of association may be necessary or at least advisable. The brochure 'Flex BV Guide to the BV's articles of association' sets out how the Flex BV Act and One-Tier Board Act will affect a number of important common provisions in a BV's articles of association.

In general, however, we do not expect the articles of association of joint ventures to be immediately amended in order to take advantage of the new flexibility. This is mainly because joint venture partners have already been able to achieve a substantial degree of flexibility by contractual means. They will not be inclined to tamper with the results of their commercial negotiations solely to benefit from the advantages of including these provisions in the articles of association. For example, good/bad leaver schemes and tailor-made share transfer restrictions are now recorded in shareholder agreements to the satisfaction of the parties.

Please note that 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 therefore to amend the articles of association.

Will the entry into force of the Flex BV Act require joint venture partners to amend their existing shareholder agreements?

There is no need to amend existing shareholder agreements. Nonetheless, it may still be worthwhile to do this in certain cases (see below). In general, we do not expect that joint venture partners will immediately amend existing shareholder agreements in order to take advantage of the new flexibility, for the same reasons that we do not expect immediate amendments to the articles of association of joint venture BVs. The parties will not be inclined to tamper with the results of their commercial negotiations in order to address problems that parties currently solve by contractual means. For example, good/bad leaver schemes and tailor-made share transfer restrictions are now recorded in shareholder agreements to the satisfaction of the parties. For future joint ventures it may be useful to include a number of provisions in the articles of association that parties would usually lay down in a shareholder agreement.

When may/must the management board of a joint venture withhold its approval of a dividend or other distribution?

Under the new rules the management board may generally withhold its approval only if the distribution test is not met, i.e. if it knows or could reasonably foresee that the BV will be unable to discharge its due and payable debts after the distribution. If the management board knows or could reasonably foresee this and nevertheless approves a distribution, the board members will, in principle, be jointly and severally liable for the shortfall that has occurred as a result of the distribution. The joint-venture partners may anticipate these changes by amending their shareholder agreement to provide that distributions may be made only in so far as the results of the distribution test permit this. Given the risk of liability for an unjustified distribution, we recommend that the management board be required to record its approval and the reasons for this in writing.

In what ways will it be possible to make the capital structure of a joint venture BV more flexible?

It will be possible to organise the capital structure of new joint ventures in the form of BVs much more flexibly after the introduction of the new Dutch company law rules, in keeping with the demands of international practice. The changes are as follows:

- The minimum capital requirement of EUR 18,000 will no longer apply.

- The share capital may be denominated in a currency other than the euro.

- There will be greater freedom to reach agreements about the time when amounts are to be paid up on the share capital.

- Voting rights can be awarded to individual shareholders on a much more customised basis; certain shares can carry more than one vote.

- It will be possible to have shares without voting rights.

- It will be possible to have shares without the right to participate in profits.

We foresee that in family companies, separating the right to vote from the right to participate in the profits will, in particular, prove to be very useful. The introduction of shares without voting rights may, in certain cases, be a simple alternative for the issuing of depositary receipts and the use of a trust office.

Once the Flex BV Act enters into force, should arrangements such as lock-ups and other obligations of a contractual nature be included in the articles of association of a BV rather than – as is the current practice – in a shareholder agreement?

Once the Flex BV Act enters into force, parties to BVs will be able to choose whether they wish to record arrangements such as lock-up rules and other obligations of a contractual nature (e.g. the obligation to grant a loan to the BV) in the articles of association or a shareholder agreement. Under current law these arrangements cannot be included in the articles of association.

The advantage of an agreement is that its terms do not become public. By contrast, articles of association must be deposited at the trade register and are thus in the public domain. The advantage of having arrangements in articles of association, particularly for a minority shareholder, is that the protection under the articles of association goes further than protection under a shareholder agreement. Actions that are contrary to provisions of articles of association are void. An action in breach of a shareholder agreement is not void. In such cases the injured party is, in principle, entitled only to compensation. In each situation the parties will have to ask themselves what is more important: secrecy or legal protection.

As regards good leaver/bad leaver arrangements, there is another advantage to including them in the articles of association rather than in a shareholder agreement. Under the new rules it is possible for the articles of association to deviate from the statutory share transfer restrictions that otherwise apply by default. For example, the articles can provide that the price paid for shares need not be equal to their value as established by one or more independent experts. This makes it possible for the articles to contain good leaver/bad leaver arrangements with a deviating price-determination mechanism, provided it is clear. In that event, a transfer in violation of the arrangements is void.

Under the new rules will the inclusion of share transfer restrictions in the BV's articles of association still be mandatory?

No, the new rules will introduce substantial flexibility in this respect. Three expected approaches can be identified:

- The BV's articles of association provide that the statutory share transfer restrictions – which otherwise apply by default – are not applicable. The share transfer restrictions, if any, are then set out in a shareholder agreement. Although the legal protection afforded by a provision in the articles goes further than that afforded by a shareholder agreement, the parties may prefer to keep such arrangements secret.

- In lieu of the statutory default share transfer restrictions, the BV's articles of association set out alternative share transfer restrictions tailored to the specific circumstances of the case. For example, the articles can contain a price-determination clause that deviates from the statutory rule requiring the share price to be established by an independent expert.

- The BV's articles of association continue to include share transfer restrictions in the form of either an offering requirement (i.e. in the event of a proposed share transfer, the shares must first be offered to the other shareholders) or an approval requirement (i.e. a proposed transfer must be approved by the other shareholders or a specific corporate body). In line with current practice, the shareholders can, in addition, enter into a separate shareholder agreement providing for a more tailored arrangement that is binding between themselves.

Q&As in connection with the One-Tier Board Act (expected effective date 1 January 2013)

Will the new conflict-of-interest rules affect provisions requiring a quorum, a qualified majority or even unanimity for management board or supervisory board decisions?

Owing to the new conflict-of-interest rules, it would be advisable to alter the provisions in joint-venture agreements or articles of association that require a quorum, a qualified majority or even unanimity for decisions of a management board or supervisory board. As from the entry into force of the One-Tier Board Act, a management board member or supervisory board member who has a conflict of interest with the company in relation to a particular matter may no longer take part in the deliberations or decision-making on that matter. If the articles of association or the joint-venture agreement provide, for example, that certain management board resolutions may be passed only unanimously (the representatives of all joint-venture partners must vote in favour of the resolution in order for it to be passed), a management board member who has a conflict of interest may no longer obstruct the resolution, unlike under the current legislation. This is because the management board member may not take part in the decision-making.

In order to solve this problem in a practical way, we recommend that a provision be included in a shareholder agreement or the articles of association to the effect that a resolution, in respect of which one or more management board members or supervisory board members has a conflict of interest with the company, requires the approval of the general meeting of shareholders. A management board member with a conflict of interest will, however, be able to represent the company in the future, unlike under the current legislation. Any provision to the contrary in the articles of association of the joint venture will cease to be valid from the date on which the One-Tier Board Act enters into force.

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