Under Dutch company law, both legal entities and natural persons may be appointed as the statutory director of a company. This differs to other jurisdictions (eg, Germany), where only natural persons can be appointed as the statutory director of an ordinary limited company.
In the Netherlands, if a natural person is appointed as a statutory director, he or she will often enter into an employment agreement with the company, pursuant to which the management activities will be performed. If a non-affiliated legal entity is appointed as a statutory director of a Dutch company, it may enter into a management agreement with the company.
More than 10 years ago, the Supreme Court handed down the so-called 'April 15 rulings', which imply that a resolution of a shareholders' meeting dismissing a statutory director who has an employment agreement with the company also terminates the agreement by operation of law. According to the Supreme Court, this differs only where a prohibition of dismissal applies or the parties have agreed otherwise.
Following the April 15 rulings, it was unclear whether a corporate dismissal resolution would result in the termination of a management agreement where such an agreement existed. Differences of opinion on this matter existed in the literature and in the case law of both the district courts and the courts of appeal. Although there were no relevant cases in recent years, on January 18 2018 the Limburg District Court ruled on this matter once again.(1)
The claimant had been the managing director of Asparagus Beheer BV, a holding company which cultivated asparagus, since November 1 2003 and had entered into a management agreement with the company. On November 25 2016 the sole shareholder of Asparagus Beheer BV ended the management agreement and appointed an interim director, who replaced the claimant as managing director. One of the board members of the sole shareholder of Asparagus Beheer BV subsequently notified the claimant of the termination of his management agreement, which took effect on March 1 2017.
Due to various issues with the resolution to replace the claimant as Asparagus Beheer BV's managing director, it was subsequently confirmed by a shareholders' resolution on January 18 2017. However, the claimant:
- disagreed with his dismissal and the termination of his management agreement; and
- claimed that the dismissal resolution was void and that a one-year notice period had to be observed with regard to the agreement's termination.
The Limburg District Court ruled that – because of the company's confirmation of the resolution on January 18 2017 – there was no ground for considering the dismissal resolution to be void.
Further, as regards the management agreement and its termination, the court ruled that the same applies for employment agreements entered into by a director who is a natural person. According to the court, a legal entity-director which has entered into a management agreement should not enjoy greater protection against dismissal than a director who is a natural person. Therefore, a corporate dismissal resolution also terminates the management agreement (if one has been entered into) by operation of law.
If a management agreement provides as such, a notice period must be observed. However, as the claimant and Asparagus Beheer BV had not agreed on a notice period in the management agreement, the court did not see reason – pursuant to the requirements of reasonableness and fairness or on other grounds – for requiring the shareholder of Asparagus Beheer BV to observe a notice period that extended beyond March 1 2017.
Although the Supreme Court has yet to rule on this matter, the prevailing doctrine seems to be that the April 15 rulings, according to which the employment agreement of a director who is a natural person terminates by operation of law, also apply to a management agreement if such has been entered into by a statutory director which is a legal entity.
Therefore, a management agreement terminates by operation of law when the legal entity-director is dismissed. However, the principles of reasonableness and fairness may require that a reasonable notice period be observed, in which case the company will be liable to compensate the dismissed director, unless the parties initially agreed that no or a short notice period should be observed.
For further information on this topic please contact Ward Aerts or Ben Reinders at AKD by telephone (+31 88 253 50 00) or email ([email protected] or [email protected]). The AKD website can be accessed at www.akd.nl.
Endnotes
(1) Limburg District Court, January 18 2018, ECLI:NL:RBLIM:2018:150.
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