Dismissal of directors of a B.V. under Dutch law.

The dismissal of directors of a private limited liability company (in Dutch: “BV”) is not that straightforward and can even be complicated. Dutch law prescribes that managing directors of a BV can – at any given time – be suspended and dismissed by the corporate body that is entitled to appoint the directors of the BV. In general, such corporate body will be the general meeting of shareholders (“GMS”). However in some cases the general meeting of priority shareholders or the supervisory board (if installed) will be entitled to appoint – and therefore to dismiss – the directors of the BV. In order for the resolution of the GMS to dismiss a director to be legally valid, it is crucial that certain steps are followed. If not, the resolution of the GMS may be voidable or even null and void.

First, the respective director must be given the opportunity before the actual resolution has been made, to give his view on the grounds for dismissal. This adversarial procedure does not necessarily have to take place before the GMS has been convened, but can also take place during the GMS (but before the resolution to dismiss has been made!). The timing of the adversarial procedure will depend on the facts and circumstances and the urgency of the matter. Second, the director must be given the opportunity during the GMS to render advice on the dismissal. In order for the director to use such opportunity, the director needs to be invited to the GMS. Besides these specific requirements safeguarding the interests of the director, general requirements on how to convene a GMS need to be met as well. For tips on how to convene a GMS, please be referred to my article ‘General Meeting of Shareholders for the BV’ (General Meeting of Shareholders ).

The Dutch Supreme Court has ruled in April 2005 that a legally valid dismissal of a director by the GMS automatically leads to the termination of its employment agreement. Exceptions to this automatic termination are, for instance (i) the applicability of a prohibition on termination, such as sickness or maternity or (ii) in the event that parties have made their own agreements applying to a dismissal. Although, this judgment of the Supreme Court has given clarity on the status of the employment of a dismissed director, it unfortunately has not given clarity on the situation whereby the dismissed director is not employed by the BV but in fact has a so-called management agreement with the BV. A management agreement is an assignment agreement through which the manager (i.e. the director) is assigned to provide the management of the company. The manager under such management agreement can be the director in person or a BV of which the shares are held by the person who shall perform the management activities. Unfortunately, Dutch case law is ambiguous as to the question whether the dismissal of a director automatically leads to termination of a management agreement in line with the Supreme Court’s ruling of April 2005. In absence of a Supreme Court ruling on this matter, one can best insert a clause in the management agreement stipulating that the dismissal of the director automatically leads to the termination of the management agreement without any further action being required. If such a clause has not been agreed upon, it is best to seperately  terminate the management agreement.

Dismissal of a director can be a complicated matter and it is essential that certain procedures are followed in order to constitute a legally valid dismissal. Should you have any questions regarding the dismissal of directors under Dutch law or any related matter, please contact Peter Keegstra (pkeegstra@kernadvocatuur.nl). Peter Keegstra is partner at KERN Advocatuur and is specialized in corporate litigation and corporate law.