The conflict of interest provisions for private companies with limited liability (besloten vennootschappen met beperkte aansprakelijkheid: the “BV”) and companies limited by shares (naamloze vennootschappen: the “NV“) have changed with the introduction of the Act on the Management and Supervision of BV’s and NV’s (Wet bestuur en toezicht) effective 1 January 2013.
The scheme for BV’s is included in book 2, section 239 (6) of the Dutch Civil Code and the scheme for NV’s in book 2, section 129 (6) of the Dutch Civil Code. This subsection reads:
“A director may not take part in the deliberations and decision making if he has a direct or indirect personal interest in that which is in conflict with the interest referred to in subsection 5. If no management board resolution can be adopted as a result of this, the supervisory board shall resolve the matter. If there is no supervisory board, the matter will be resolved by the general meeting, unless the articles of association stipulate otherwise.”
A director therefore has a conflict of interest if he has a direct or indirect personal interest which is in conflict with the interest of the company and its business.
- the interest must involve the director personally. A purely qualitative interest of the director (the director is both the director of the company and of the counterparty) is no longer sufficient;
- there must be a case of (i) a direct conflict of interest or (ii) an indirect conflict of interest, and
- there is a material criterion: there must be concrete circumstances that affect the decision making process by the director such that he cannot be expected to safeguard the interest of the company and its business in a way that can be expected of an ethical and unprejudiced director.
Only if all the provisions in 1., 2. and 3. apply is there a case of a conflict of interest within the meaning of the law.
Consequences for decision making:
The director with the conflict of interest must notify his fellow directors of this in a timely manner and may not participate in the deliberations and decision making on the particular matter. He may however be questioned about the matter by his fellow directors or the other company bodies and must provide them with information. As soon as the actual decision making starts, the director who has the conflict of interest may no longer be involved.
If there is only one director or if all the directors have a conflict of interest in relation to the matter, it becomes impossible for a decision to be taken. In that case the supervisory board is authorised to take the decision.
If there is no supervisory board or if all the supervisory board members or the sole supervisory board member has a conflict of interest, then it is also impossible for the supervisory board to take the decision. In that case, as a general rule it is the general meeting that must take the decision. It is significant here that there are no explicit conflict of interest provisions for shareholders.
If a director with a conflict of interest is also a shareholder or is even the sole shareholder of the company, the decision can nonetheless be taken by the general meeting and the particular director can then participate in the decision making in the general meeting!
The general rule can therefore be set aside by deviating provisions in the articles of association. In that case it may be a different company body, rather than the general meeting, which decides, or the articles of association may stipulate that the board, including the director or directors with a conflict of interest, can take the decision regardless.
Consequences for a decision (potentially) taken in violation of the provisions
If a board resolution is adopted in violation of the conflict of interest provisions, it is subject to annulment. If the board resolution is annulled, this only has an effect internally.
The representative authority of the directors, even those with a conflict of interest, is not impaired. The directors remain authorised to represent the company even if there is a conflict of interest and the company will still be bound by the legal act which has consequently been established with the counterparty. At most this could give rise to liability for compensation on the part of the counterparty towards the company on grounds of wrongful act. The particular director can also be liable to the company on grounds of mismanagement or wrongful act.
Be careful in case of doubt!
If it is unclear whether there is a conflict of interest on grounds of the material criterion, we advise you to take two steps to protect yourself: have the resolution adopted BOTH by the board AND in accordance with the conflict of interest provisions in the articles of association. After all: if it emerges that there was no conflict of interest and the resolution has been adopted by the wrong company body, the particular resolution is not subject to annulment, but simply void! If in doubt, always consult a Dutch civil-law notary!
Karen Verkerk, civil-law notary
Anne Claire Sillevis Smitt, candidate civil-law notary
 A similar conflict of interest scheme for supervisory board members can be found in book 2, section 140 (5) of the Dutch Civil Code (company limited by shares) and book 2, section 250 (5) of the Dutch Civil Code (private company with limited liability).