Last year closed with the entry into force of an important bill implementing the Shareholder Rights Directive II (SRD II). However, most of the associated legislative processes are still ongoing. This newsletter provides an overview of the status of the most important legislative proposals in the field of company law and concludes with a review of the implementation of SRD II.
Bill on the management and supervision of legal entities
On 20 January 2020, a proposal for an act on the management and supervision of legal entities was adopted by the Lower House of Parliament. The bill clarifies the existing rules on the management and supervision of associations, cooperatives, mutual insurance companies and foundations and aligns these rules to those applicable to the public limited company (NV) and the private limited-liability company (BV), found in the Civil Code. It will henceforth be possible for associations and foundations to establish a supervisory board, and all types of legal entities will be able to opt for a one-tier governance system. For associations, cooperatives, mutual insurance companies and foundations, the bill provides greater clarity on:
the principles that directors and supervisory board members must observe in the performance of their duties;
the position of directors and supervisory board members with a conflict of interest; and
the rules on the liability of directors and supervisory board members.
For foundations, the rules on the court-ordered removal of a director are clarified.
The Lower House also adopted three amendments and a motion (request to the government):
an amendment to make uniform for all legal entities the rules on absences and inability to attend (meetings);
an amendment to prohibit a director or supervisory board member from being able to cast more votes than the other directors or supervisory board members combined, applicable to all legal entities;
an amendment introducing an evaluation provision so that the law is evaluated five years after its entry into effect;
a motion requesting the proactive communication of information on the consequence of the law for existing associations and foundations.
On 11 February 2020, the bill will be discussed by the Upper House. If the committee members have no further input, the Upper House can call for a vote fairly quickly. It is not yet clear when this will take place, but given the current state of affairs, entry into force on 1 July 2020 is feasible.
Bill on introduction of a cooling-off period for the management of listed companies
On 18 December 2019, a bill to introduce a cooling off period for the management of listed companies was submitted to the Lower House of Parliament. A listed company faced with shareholder activism or a hostile takeover will be able to benefit from a cooling-off period of up to 250 days, with the approval of the supervisory board, if there is one. During this period, the board of directors shall gather all information necessary to make a careful policy determination and must, in any case, consult with shareholders representing at least 3% of the subscribed capital as well as with the works council. In addition, the power of the general meeting to appoint, suspend or remove the directors and supervisory board members (or amend the relevant provisions of the articles) is suspended during the cooling-off period. Upon expiry of this period, the board must account to the shareholders for the policy pursued. Shareholders representing at least 3% of the subscribed capital may petition the court to put an end to the cooling-off period.
Compared to the 180-day response time provided for by the Corporate Governance Code, the statutory cooling-off period offers greater legal certainty, according to the legislator. The duration of the cooling-off period is longer, and this possibility can also be used in the context of a public offer. There is thus some overlap between the two options, with the statutory cooling-off period taking precedence over the rules on response time. It will be up to the court to reconcile use of the cooling-off period with other protective measures relating to the appointment, suspension or removal of directors or supervisory board members and takeovers. For more information on this subject, please refer to our December 2018 newsletter. The date of entry into force is not currently known. However, it is feasible to enter into force at the end of this year or early next.
Bill on undesirable control in the telecommunications sector
On 4 March 2019, a bill on undesirable control in the telecommunications sector was submitted to the Lower House of Parliament. For more information on this subject, please refer to our newsletter of 14 March 2019. On 20 December 2019, a number of amendments were made to the bill, notably:
introduction of an exemption from the notification obligation for protective foundations (beschermingsstichtingen);
introduction of the possibility for the minister of economic affairs to impose mitigating measures on the undertakings concerned, resulting in suspension of a ban subject to compliance with these conditions;
raising of the threshold value in the case of a combination of services where “relevant influence” is exceeded, even if no service individually exceeds the threshold value;
introduction of the possibility to investigate the identity of a shareholder prior to the establishment of undesirable control.
The definition of “relevant influence” will be clarified in an order in council (AMvB). For this purpose, the Decree on undesirable control in the telecommunications sector was submitted on 19 December 2019 for consultation, which runs until 21 February 2020. A plenary discussion of the bill is scheduled for 4 February. If the bill is adopted at that time, discussions will be pursued in the Upper House. Given the current status, it is feasible to enter into force at the end of this year.
Bill implementing the European Regulation establishing a general framework for the screening of foreign direct investment in the EU
Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investment in the European Union (the “Regulation”) entered into force on 10 April 2019. The Regulation will be applicable as from 11 October 2020. Although a regulation has direct effect, a bill to implement the Regulation was nonetheless submitted at the end of 2019 as the Regulation merely provides for the possibility for Member States to maintain, change or establish mechanisms to screen foreign direct investment for reasons of security or public policy on their territory. The bill does not introduce any new Dutch investment tests or screening mechanisms and does not change the existing screening mechanisms. It governs:
(i) enforcement in the event of non-compliance with the aforementioned obligation;
(ii) establishment of a contact point;
(iii) authority to process, collect and provide information.
These measures are deemed necessary to guarantee the effectiveness of the Regulation and to ensure that the Netherlands meets its obligations thereunder.
The bill also contains an amendment to the bill for an act on undesirable control in the telecommunications sector, namely a proposal to extend the notification period if the notification falls within the scope of the Regulation.
The consultation period ran until 14 January 2020, and the legislation is expected to enter into effect no later than 11 October 2020. For more information, please see our December 2019 blog post.
Finally, the investment review system will be further elaborated on in a separate legislative proposal, with reference to the guidelines provided for by the Regulation for the establishment of investment tests (for example with regard to the assessment criteria). According to the minister of economic affairs, this legislation could enter into force in 2021.
Draft bill for modernisation of partnerships
In early 2019, a bill to modernise partnerships was submitted for consultation. According to the Ministry of Justice and Security’s 2019 schedule, the bill was supposed to have been filed in the last quarter of 2019. This did not happen, perhaps due to the 34 responses to the proposal with quite a few questions and comments (including ours). The 2020 schedule does not contain a proposed timetable for this legislation. However, we expect the bill to be submitted later this year.
Draft bill amending the shareholder dispute resolution procedure and clarifying the eligibility requirements for the survey procedure
A draft bill to amend the shareholder dispute resolution procedure and to clarify the requirements to access the survey procedure was subject to consultation through November 2019. The amendments are in short:
Changes to the dispute resolution procedure
The grounds for the expulsion and exit of shareholders are extended. For example, according to the bill, the court can take into account the behaviour of a shareholder acting in another capacity (such as that of director) when balancing the interests in a claim for expulsion. The exit criteria are simplified, with reference to reasonableness and fairness standards. The bill provides that such a claim cannot be granted if the company or another shareholder has made an irrevocable, unconditional and reasonable offer to acquire the shares which is covered by sufficient guarantees.
Clarification of the requirements to access the survey procedure
A separate eligibility requirement for access to the survey procedure is introduced for shareholders (and the holders of depositary receipts) of listed companies with subscribed capital of less than €22.5 million. As a result, access cannot be denied through the use of low nominal share capital. Shareholders representing at least 1% of the subscribed capital or whose shares have a market value of at least €20 million can also request a survey. For shareholders of listed companies with subscribed capital of more than €22.5 million, the access requirements remain unchanged.
It is not yet known when the bill will be submitted to the Lower House. While the bill could reach the finish line by the end of this year, it is more likely that this will occur in 2021.
Bill implementing the UBO register
On 10 December 2019, the Lower House of Parliament adopted a bill introducing an obligation for companies and other legal entities to register their ultimate beneficial owners. The UBO Act follows from the fourth and fifth Anti-money Laundering Directives and introduces an obligation to establish, maintain and centrally register information about the ultimate beneficial owners (UBOs) of companies and other legal entities established in the Netherlands. Two amendments and three motions were also adopted by the Lower House:
An amendment on expiry of the exemption for religious denominations (churches);
An amendment to the registration obligation (prior identification) for every person who is granted access and the provision of information to UBOs about how often they are searched for;
A motion to monitor the privacy implications of the introduction of the UBO register for charitable institutions (anbi’s) and to inform the Lower House on this point one year after introduction of the UBO register;
A motion to require the directors of charitable institutions to include all board members in the UBO register, as is already the case with the trade register;
A motion to conduct an evaluation of the privacy impact of the UBO register one year after its introduction and again after four years.
The bill has been submitted to the Upper House for consideration. On 28 January 2020, the Upper House Parliamentary Committee conducted a preliminary investigation, pursuant to which it was determined that a number of MPs will submit further questions in writing. It is unclear when these questions will be submitted and answered but, at present, we expect the UBO register to become operational in the first quarter of 2020.
Binding gender quata for listed companies
On 3 December 2019, a motion was carried asking the government to require listed companies to have at least 30% female members on their supervisory board. The proposed binding quota is based on earlier recommendations of the SER.
The government is not obliged to implement the motion. However, it was the government which asked the SER for its opinion on this subject, and the final report is the result of extensive consultation between trade unions, employers and independent experts. There appears to be support for the quota, although voices have also been raised against it. The government has been asked to explain in a letter how it intends to implement the motion. If the government decides to introduce the quota, a bill will be prepared. It is expected that the bill will first be published for consultation. Afterwards, it can be submitted to the Lower House. After being passed by the Lower House, it will be sent to the Upper House for adoption. This will obviously be a lengthy process. Entry into force is not expected before the end of 2020, at the earliest.
Review of implementation of SRD II
On 1 December 2019, the bill implementing the Shareholder Rights Directive II (EU 2017/828) entered into force, with the exception of a number of provisions. The following new rules will enter into effect on 3 September 2020:
the provision (by an NV) of an electronic acknowledgment of receipt for a vote cast electronically;
the provision (by a listed company) of confirmation of the valid registration and counting of the votes cast by a shareholder at a meeting;
new rules on shareholder identification (changes to the Company Code).
The new law has consequences for ordinary NVs, structure NVs, listed NVs and BVs, life insurers, pension funds, asset managers, proxy advisors and parties in the custody chain. Please see our newsletter of 5 November 2019 for an overview of all changes.
Compliments of NautaDutilh, a Member of the EACCNY