Legal Blog

Tuesday, June 08, 2010

The Managing Director under the Articles of Incorporation

The Managing Director (‘bestuurder’) under the articles of incorporation is a somewhat unique figure in in the labor law of the Netherlands Antilles due to the fact that he enjoys considerably less protection from a labor law perspective than a regular employee. In other words an employer can more easily dismiss a managing director than an employee. An employer does not, for example, require prior approval from the Directorate of Labor Affairs to terminate the employment contract of a managing director. It goes without saying, that the agreed period of notice between the parties must be respected.

In practice ‘Managing Director (by title)’  is often used when ‘Managing director (under the Articles of Incorporation)’ is meant and vice versa. A Managing Director under the Articles of Incorporation is appointed upon incorporation and afterwards by the General Meeting of Shareholders, unless the Articles of Incorporation determine otherwise. Legally there is a big difference between a ‘Managing Director (by title)’ and a ‘Managing Director (under the articles of incorporation)’. In practice both are called director, CEO, General Manager, President or other creative names, however not every title conceals a statutory position. A Managing Director is often not aware of his statutory position. The question, whether this is due to ignorance or just plain laziness, is not easily answered.

On March 1, 2004 the new Civil Code (Book 2) of the Netherlands Antilles was introduced. Article 2:8, paragraph 5 of the Civil Code specifies that the legal relationship between a director and the company is not considered or not also considered as an employment contract. In understandable English this new rule means that a Managing Director under the articles of incorporation does not have an employment contract with the company. However if the Managing Director (hereinafter director) was appointed before the introduction of Book 2 of the Civil Code he remains an employee as long as he is director. There is therefore no retroactive effect regarding previously acquired rights. Directors appointed on or after March 1, 2004 are not defined as employees and will be unable invoke the protective provisions of the labor law. By introducing this new law the legislator has endeavored to simplify the complicated discussion which has been going on for some time, mainly going on in the Netherlands, on the position of managing directors (under the articles of incorporation) under corporate law in relation to labor law.

A director can have an employment contract with a group company as long as he does not hold the formal position of managing director under the articles of incorporation. In addition it is possible that both parties declare that certain or all private law stipulations regarding employment contracts are correspondingly applicable in their contract, for example provisions concerning the notice period and the continuation of salary during illness. Although the employment agreement is not accepted by civil law, the legal relationship between parties, usually structured in the form of a contract for professional services, can be deemed such for tax purposes.

The director may be dismissed at any time by the General Meeting of Shareholders, unless the Articles of Incorporation state otherwise. Prior to such a decision the director must have the opportunity of being heard (seriously) and to caste his advisory vote. Such was the case in the well known ruling Janssen Pers of the Supreme Court on March 10, 1995.

As stated above, the ‘new generation’ of directors has no employment agreement with the corporation. In their case it is questionable whether or not a claim for compensation based on a manifestly unreasonable dismissal will be considered admissible by a court. One may argue, that a director cannot invoke this right, as this possibility is only open to employees and, quite reasonably, concerns a specific employee provision. Some caution is warranted here as the judiciary has not yet expressed its opinion on this matter. The above is all the more reason to include a ‘golden parachute’ provision in a contract between the director and the corporation.  Simply put this is a provision that guarantees the director severance pay if he is blameless for his dismissal. The golden parachute can be structured in various ways. Sometimes long terms of notice are agreed which can be seen as a sort of compensation on dismissal.

Filed under: CorporateDispute Resolution by William ten Veen.

 

 


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