22 Dec New legislation for foundations and associations in the pipeline
On 10 November 2020, the Dutch Upper House adopted the legislative proposal regarding the Wet bestuur en toezicht rechtspersonen (Legal Entities Management and Supervision Act – the “Act”). The Act will enter into force on 1 July 2021.
The Act is relevant to foundations, associations, cooperatives and mutual insurance companies. The objective of the Act is to improve the quality of the management and internal supervision at such legal entities. That is achieved by linking up to the existing rules for public limited liability companies (NVs) and private limited liability companies (BVs).
The main changes introduced by the Act are addressed in this article.
1. Expansion of liability of managing directors and supervisory directors
The liability of managing directors and supervisory directors of foundations, associations, cooperatives and mutual insurance companies will be expanded. That will be done in the following manners, among others:
- the Act provides that managing directors and supervisory directors must focus on the company’s interest in performing their tasks. If they fail to do so adequately, they are liable for any loss incurred;
- the Act also makes managing directors and supervisory directors of semi-public and non-commercial associations and foundations jointly and severally liable for loss in the event of insolvency if they are guilty of mismanagement. Until the Act enters into force, this rule applies only to managing directors and supervisory directors of BVs, NVs and commercial associations and foundations; and
- the rule that, in principle, a managing director or supervisory director is guilty of mismanagement in the event of insolvency if he or she has failed to comply with the accounting duty will in future also apply to managing directors and supervisory directors of semi-public institutions (such as housing corporations, educational institutions, healthcare institutions and pension funds). Until the Act enters into force, this rule applies only to managing directors and supervisory directors of BVs, NVs, formal and commercial associations and commercial foundations. This rule will not apply to informal and non-commercial associations or to non-commercial foundations (such as the local football club).
2. Statutory basis for supervisory board
In practice, supervisory boards are already being set up at associations and foundations, but they lack a legal basis. The Act will create that legal basis and provides that the supervisory board must be set up in accordance with the rules of the Act.
3. Introduction of conflict-of-interest provision
The Act will introduce a conflict-of-interest provision, meaning that, simply put, a managing director or supervisory director who has a personal conflict of interest with the foundation, association, cooperative or mutual insurance company may not take part in the deliberations and decision-making. In that case only the other managing directors and supervisory directors may take part in the deliberations and decision-making.
4. Statutory provision on absence and inability to act
The Act provides that the articles of association must in future include provisions regarding the manner in which a management board or supervisory board must act when a managing director or a supervisory director is absent (temporarily unable to perform his or her work) or unable to act (permanently unable to perform his or her work).
If you are a managing director or supervisory director of a foundation, association, cooperative or mutual insurance company, it is advisable now already to check what these changes will mean for you. For more information on this subject please contact Helger Kamerman (+31-6-51080197).
This article was published in the Newsletter Vestius of December 2020