Since 2013, the private limited liability company has a statutory regulation with Article 2:239 (6) of the Dutch Civil Code for the situation where one or more directors have a direct or indirect personal interest that conflicts with the interest of the company and its affiliated business.
The regulation concerns an internal decision-making scheme. If a board member has a direct or indirect personal interest, he is required under Article 2:239(6) BW to abstain from the deliberations and decision-making.
When is there a conflict of interest?
To determine whether there is a conflict of interest, the standard set out in the Bruil judgment must be applied. There is a conflict of interest – within the meaning of Article 2:239(6) of the Dutch Civil Code – if a management board member is unable to protect the interests of the company with integrity and impartiality because of a direct or indirect personal conflict of interest.
How should the Bruil criterion be interpreted?
In the literature it is sometimes thought that the Bruil criterion should be understood more broadly than the legislator does and that a conflict of duties, a qualitative conflict of interest, should also be included in the Bruil criterion. A conflict of duties may exist if a managing director enters into an agreement on behalf of a company with another company, of which he is also a managing director, and, given the factual circumstances, he must be considered unable to safeguard the company’s interests with integrity and without prejudice. There may also be parallel interests. The mere fact that a director enters into an agreement on behalf of a company with another company, of which he is also a director, does not mean that there is a conflict of interest. It must be a conflict of duties.
The conflict of duties is not part of the statutory regulations (Article 2:239(6) of the Dutch Civil Code). This means that a board member does not have to abstain from the deliberations and decision-making in the event of a conflict of duties.
The Linders-Hofstee rules and other case law of the Enterprise Chamber
However, in addition to the statutory rules of Section 2:239(6) of the Dutch Civil Code, there is also case law of the Enterprise Chamber. In the Linders Hofstee judgment, the Supreme Court formulated a number of rules that a management board member must observe in the event of a conflict of interest. For example, if a management board member believes that there is a conflict of interest or potential conflict of interest, he must disclose this to the other management board members (and/or to the Supervisory Board, and if there is no Supervisory Board, to the General Meeting) and he must ensure that the agreement that is intended to be entered into is at arm’s length and that an expert is engaged if necessary. By applying these rules, the conflict of interest could be ‘resolved’.
The Linders-hofstee rules must always be followed, so not only in case of a personal conflict of interest, but also in case of a conflict of duties. Think of the situation in which there is a qualitative conflict of interest (a conflict of duties), but the board member concerned does not disclose the conflict to his fellow board members and still participates in deliberations and decision-making. If there is a conflict of duties, the director need not abstain. However, in view of the reasonableness and fairness of Article 2:8 BW in conjunction with Article 2:15 BW, the resolution would be subject to annulment.
It has also been assumed in several decisions of the Supreme Court in Enterprise Chamber cases that a director (or supervisory director) must refrain from decision-making in the event of a conflict of duties. In addition, there may be mismanagement if there is a conflict of interest – not only in the context of decision-making rule (in the past there was also a representation rule). An example is the Zwagerman II judgment, in which mismanagement was assumed when there was a conflict of interest (this judgment was rendered before Bruil) among the directors and the minority shareholders were insufficiently informed about transactions entered into by the director. In the Verstatel judgment it was assumed that the members of the Supervisory Board of Versatel, who were also directors of Tele2, had a conflict of interest and had to refrain from making decisions.
Advice to directors
The advice to directors is therefore to always apply the Linders-Hofstee rules and in addition, even in the event of a conflict of duties, to refrain from decision-making. Whether it is reasonable that a director can be blamed for not abstaining from the deliberation and decision-making process in the event of a conflict of duties is of course questionable. After all, the law does not prescribe it. However, the Enterprise Chamber considers the statutory decision-making scheme too brief. Incidentally, the articles of association can also provide for a regulation in the event of a conflicting interest. Acting contrary to the statutory regulation of Art. 2:236 (6) DCC also provides a rebuttable presumption of improper management within the meaning of Art. 2:9 DCC (Berghuizer-Papierfabriek HR). Acting contrary to a provision in the articles of association that aims to protect the interests of the legal entity can have the same effect.
The statutory decision-making scheme has internal effect
For the record, the decision-making rule of Art. 2:239(6) DCC only has internal effect. A decision taken contrary to Article 2:239(6) of the DCC therefore cannot be invoked against a third party (unless there is a so-called ‘Bibolini exception’).
Conflict of interest for foundations and associations
With the entry into force of the Management and Supervision Act on 1 July 2021, the same decision-making rules of Art. 2:239 (6) of the Dutch Civil Code will also apply to all other legal entities. In the case of the association, therefore, the representation rules of Section 2:47 of the DCC will be changed to decision-making rules. In the case of foundations – partly in view of the one-tier structure of this legal entity – no conflict-of-interest rules existed yet. However, this is often already provided for in the articles of association, if there is a supervisory body.
Contact a specialist
Conflict of interest is a complex subject. Should you have any conflicts of interest, please contact Justin de Vries. You cannot be blamed for the mere existence of a conflict of interest. What matters is how you deal with it.
