By Hidde Reitsma @ AMS Advocaten
In the Netherlands, in principle, the general meeting of shareholders (AGM) of a private limited company appoints its directors. An appointment decision may also be made outside the meeting. In that case, certain conditions apply, such as that all votes must be cast in writing. Corporate Law Lawyer Hidde Reitsma explains this procedure.
Share transaction by a proxy holder
In a recent court case in the Netherlands, the dispute between the parties concerned the question as to whether an appointment decision had been made in a legally valid manner. A proxy holder of a limited company had sold the shares the company owned in a property company (limited company). The (formal) director, who was also a shareholder of the limited company, was unaware of this share transaction. According to him, the proxy holder did not have the authority to carry out the share transaction.
Had the appointment decision been made in a legally valid manner?
On the other hand, the proxy holder claimed that the director had resigned verbally and that the proxy holder had been (formally) appointed as a director. In his own words, the proxy holder, therefore, did have authority. The Dutch Court of Appeal examined whether the appointment decision was made in a legally valid manner.
Shareholders’ decision outside the AGM
It was established that the proxy holder had not been appointed in a General Meeting. According to Section 238 of Book 2 of the Dutch Civil Code, shareholders can also make decisions outside meetings. In the Netherlands, it is nevertheless required that all those entitled to attend the meeting have agreed to that manner of decision-making. Furthermore, if a decision is made outside a meeting, the votes must be cast in writing. This is called the Dutch requirement that something be recorded in writing.
The Dutch Chamber of Commerce’s change form
According to the proxy holder, the requirement for the decision to be recorded in writing had been fulfilled. After all, the director and (sole) shareholder had signed the Chamber of Commerce’s form to change the director’s name. According to the proxy holder, this should be considered as a record of the appointment decision. The proxy holder was then registered in the Trade Register as a director, and the director was deregistered sometime later.
The requirement that the decision be recorded in writing had not been fulfilled
The Dutch Court of Appeal was of the opinion that filling in the Chamber of Commerce’s change form did not qualify as a record of the decision. After all, the form did not refer to a decision made by the shareholders. The requirement for the decision to be recorded in writing had not been fulfilled. The appointment had not been made in the manner prescribed by law and the Articles of Association. The proxy holder’s appointment as a director was not legally valid, and, therefore, he did not have the authority to decide on the share transaction.
Dutch lawyer for the appointment of directors
The Dutch Court of Appeal upheld the court’s judgement that ruled that the proxy holder was not authorised to represent the limited company and to sell the shares and that the director was the official director and 100% shareholder of the limited company. The proxy holder was ordered to compensate the losses suffered by the limited company as a result of the sale of the shares in the property company, to be assessed later during separate follow-up proceedings and settled according to the law, with compensation of the legal costs.
This original article is available here.
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