Manon specializes in corporate litigation and corporate law in general.
manon.hoekstra@russell.nl +31 20 301 55 55It can have major consequences when a body within the company takes a decision it is not authorised to take. What are these consequences and how do you avoid making a decision in the wrong way?
Anyone managing a company or holding any other position within a company will have to take into account the interests of the various stakeholders. This includes ensuring that the right body makes or is called in to make a decision at the right time. In addition, the various bodies of the company should ensure that the company acts in accordance with the relevant laws and regulations. This too falls under corporate governance. In two blogposts we will therefore cover both these topics. The first contribution deals with the relations between the various corporate bodies. The second contribution deals with the subject of compliance.
Corporate governance refers to the management of a company and its supervision by the company’s various bodies. Contrary to what is sometimes thought, corporate governance is also important for non-listed companies. This misunderstanding has arisen because the Dutch Corporate Governance Code is only binding for listed companies.
The Corporate Governance Code has a reflex effect for non-listed companies. After all, non-listed companies also have to deal with many interests, such as those of the management board, supervisory board, shareholders, suppliers, creditors, etc. When a company has its corporate governance in order, it ensures that integer decision-making can take place in the interest of the company, taking into account sustainable long-term value creation. On this basis, the company should focus on the long term and its survival rather than short-term success.
The various bodies within the company have their own duties and powers. It is important to really separate these tasks from each other and not let them get mixed up. This is because decisions taken by the wrong body are null and void and are deemed never to have been taken.
In addition, normally, only the directors of the company can be held personally liable if they can be personally seriously blamed. However, the person who (co-)determined the company’s policy can be equated with the director in case of bankruptcy and as a result also be held personally liable. It is therefore all the more important for a supervisory director or shareholder to stick to their own – defined by law or the articles of association – duties.
There are many examples of decisions that have been taken the wrong way. In this contribution, we will dwell on three different situations: (i) the supervisory board took a decision on its own remuneration; (ii) a director was incorrectly appointed; and (iii) the works council’s advice was not followed or the works council was not asked for its advice, while the board should have done so.
The law states that the general meeting can decide on the SB’s remuneration. Only the general meeting is authorised to determine the remuneration for SB members. This means that if the management board or the SB nevertheless takes a decision on its own remuneration, it is void for being contrary to the law or the articles of association. The decision regarding the SB’s remuneration is then deemed never to have been taken. As a result, the company has to reclaim any remuneration provided on the ground of undue payment.
At the time a company is incorporated, the appointment of the directors is made by the memorandum of association. After the company is incorporated, the directors are appointed by the general meeting. However, it is possible to provide in the articles of association that a meeting of a certain type of shares is authorised to appoint at least one director. If the structure regime applies, the directors are appointed by the supervisory board.
The moment a director is appointed incorrectly, there may be several consequences. The moment a body other than the competent body appointed the director, the decision is void and the director is deemed never to have been appointed. This can have major consequences if the director in question made management decisions after that wrong appointment. After all, the director was not competent at the time of making those management decisions.
For important financial, economic or organisational decisions, an advice of the works council is required. The board must await the works council’s advice before the board can take the proposed decision. However, it is possible that the works council issues a negative advice or has not yet issued an advice, but the board takes the decision anyway.
If a negative works council advice is issued but the board takes the decision anyway, the board will have to properly substantiate why it decided to deviate from the works council advice. In principle, the board must then suspend implementation of the decision for a month, unless the works council has indicated that implementation may proceed immediately. The works council can appeal to the Enterprise Chamber within a month of the board decision being taken. Therefore, in case of a negative advice, the works council is well advised to remind the board in writing of this one-month suspension period.
If a management decision is taken, while the works council believes it has not received sufficient information about it, the works council may appeal the decision taken to the Enterprise Chamber. The Enterprise Chamber can then order the director to withdraw the decision taken and undo any consequences of the decision.
If the board has not awaited the works council’s advice, or has not asked for any advice at all, the works council can also start proceedings at the Enterprise Chamber. In this situation also, the appeal must be filed within a month of the decision taken, and the board must wait for that month before it may proceed to implement the decision. The Enterprise Chamber will then assess whether the board decision is manifestly unreasonable. This will often be the case when the director should have asked for a works council opinion, but failed to do so.
In both situations, the Enterprise Chamber will test whether the management board could reasonably have reached the decision when all interests are weighed up. It is important here that the advisory process of the works council was followed carefully. Thus, the Enterprise Chamber does not examine whether the board took the best possible decision.
As explained above, it is very important to keep the tasks of the various corporate bodies well apart. Are you part of a corporate body and do you have questions about corporate governance within your company? We will be happy to provide you with advice. You can also contact us for other questions about corporate law:
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