Corporate Advisory & Litigation

Introduction The Institute of Directors (IoD) recently published a new version of the Code of Conduct for Directors. The IoD is a British professional organization for company directors, senior business leaders, and entrepreneurs. Established in 1903, it is the longest-running organization for professional leaders in the UK. Approximately 75% of FTSE 100 companies have an IoD member on their board or in a senior management role. The voluntary Code of Conduct is described by the IoD as a practical tool to help directors make “better choices.” It represents a voluntary commitment by directors and their organizations to support and foster a positive organizational culture, ethics, and integrity. This article compares the IoD Code with the Dutch Corporate Governance Code 2022 (NCGC). The comparison focuses solely on relevant governance aspects related to ESG objectives. Comparison Sustainability and ESG (Environmental, Social, Governance) have become critical focus areas in corporate governance. As noted, we compare ESG-related guidelines from the NCGC and the IoD Code of Conduct for Directors 2024 (IoD Code). Both codes provide governance frameworks but approach the subject from different cultural and legal contexts. The NCGC applies to Dutch listed companies and has a “comply or explain” character. The IoD Code, on the other hand, is voluntary for directors and organizations affiliated with the IoD. 1. Sustainable Value Creation The NCGC emphasizes the importance of long-term sustainable value creation (Chapter 1.1). Directors are expected to develop strategies that consider social and environmental impacts, based on “People, Planet, Profit.” It highlights double materiality: how the company influences sustainability and how sustainability influences the company. The IoD Code addresses the principle of Responsible Business. It encourages directors to integrate ethical and sustainable business practices into their decision-making, with explicit attention to broader societal and environmental impacts. Comparison Both codes stress the importance of sustainability, but the NCGC includes more specific requirements, such as mandatory reporting on sustainability effects. The IoD Code is less detailed but strongly focuses on ethical behavior by directors. 2. Risk Management and Governance The NCGC extensively addresses risk management, including identifying ESG-related risks such as climate change and social inequality. Directors are required to implement adequate internal control systems and evaluate them regularly. In the IoD Code, risk management is embedded within broader principles of responsibility and transparency. Directors are encouraged to manage risks responsibly and to avoid prioritizing short-term shareholder profits over long-term resilience. Comparison The NCGC offers more concrete guidelines on managing ESG risks, while the IoD Code emphasizes ethical principles that influence risk management. 3. Stakeholder Engagement The NCGC explicitly requires companies to develop policies for effective dialogue with stakeholders, including the involvement of employees in decision-making. The IoD Code highlights the importance of transparency and open communication with stakeholders, including mechanisms such as speak-up policies to report misconduct. Comparison While both codes value stakeholder engagement, the NCGC places more emphasis on structured and strategic dialogue, whereas the IoD Code focuses more on ethical behavior and transparency. 4. Diversity and Inclusion The NCGC mandates a diversity policy with concrete goals for gender equality and other diversity aspects. In the IoD Code, diversity is addressed under the principle of Fairness. Directors are encouraged to promote inclusive cultures where everyone feels valued. Comparison The NCGC provides stricter and measurable guidelines for diversity, while the IoD Code adopts a broader behavioral approach. Conclusion Both codes emphasize the importance of ESG principles in governance but approach the subject differently. The NCGC offers detailed, legally anchored guidelines focusing on implementation and reporting. The IoD Code, on the other hand, centers on the behavior and ethics of individual directors. Together, these codes provide valuable frameworks to support directors in fostering sustainable and responsible enterprises. If you would like to know more about good governance and ESG, feel free to contact Mathijs Arts or Patrycja Chelmiak.

A legal exploration of the scope and permissibility of the ‘bad leaver’ provision in The Netherlands. In the complex landscape of partnership and shareholder agreements, terms such as ‘good leaver’ and ‘bad leaver’ are crucial in determining the rights and obligations of departing shareholders. Leaver provisions are agreed to ensure that a departing shareholder is not left as a (passive) shareholder when the involvement in the company changes. A “good leaver” generally leaves without any problems, while a “bad leaver” often results from a situation of conflict or unwanted departure. These distinctive terms have significant implications, especially with regard to share transfers and their financial consequences. Because of the impact of the consequences, it is important to have a clear picture of the legal aspects when entering into such a clause. In this contribution, we will highlight the role of reasonableness and fairness in the interpretation and application of “bad leaver” clauses in The Netherlands. In doing so, we will also provide recommendations for drafting clear and objective bad leaver clauses, as this will prevent costly and complicated litigation later on. Good leaver vs. bad leaver A leaver provision regulates the obligation of a shareholder to offer the shares he holds in the company under certain circumstances. A ‘good leaver’ is generally a shareholder who leaves the company without pre-qualified reasons of ‘bad’ or ‘early’ leaver. For example, after expiry of a certain term, by mutual consent, or after retirement or death or long-term illness. In such cases, depending on the terms of the agreement, the leaver may be obliged to offer the shares at “fair market value” or a predetermined approximation of the fair price. However, things get more complicated when the shareholder is classified as a “bad leaver”. Depending on the agreement, the shareholder may in that case be obligated to transfer the shares at a contractually determined purchase price that will generally be lower than the ‘fair market value’. The agreement may even provide that the departing shareholder will not receive more than the nominal value for its shares. The financial consequences of qualifying as a bad leaver and the settlement included therein can therefore be significantly detrimental to the departing shareholder. For example, the bad leaver may have to offer its shares of considerable value for as little as one euro or a greatly reduced price. A ‘bad leaver’ provision is therefore often a point of contention for the parties. In case law, this more than once leads to the question whether this forced transfer and its adverse consequences are in line with the standards of reasonableness and fairness. There is also debate in the literature as to whether the bad leaver provision should be reduced on the basis of Section 6:91 of the Dutch Civil Code (‘DCC’) in conjunction with Section 6:94 DCC because it should be regarded as a disguised penalty clause. Interpretation of the bad leaver provision Before being able to test the reasonableness and fairness and the qualification of penalty clause, we must first determine how the ‘bad leaver’ provision should be interpreted. As with any other contractual agreement, freedom of contract applies in principle. The Court of Appeal of The Hague, in a judgment dated 28 March 2023[1], emphasised that the provision cannot be interpreted (purely) linguistically alone; in this case, the Haviltex standard applies, looking, among other things, at the intention of the parties. However, it becomes difficult to interpret the ‘bad leaver’ provision differently the more objectively it is formulated. This could include a ‘bad leaver’ provision that refers to the urgent reason for dismissal described in Section 7:678 DCC. In this case, when assessing whether there is a ‘bad leaver’, the text and the law will be followed more quickly. 7:678 DCC. In this case, the assessment of whether there is a ‘bad leaver’ will more readily follow the text and the law. Section 7:678 DCC makes the provision more concrete but at the same time creates a high threshold for assuming a ‘bad leaver’ situation. A clear and objective provision therefore plays an important role in the interpretation of the ‘bad leaver’ clause. However, it will not provide any guarantees because the Haviltex standard will still apply. Reasonableness and fairness or a penalty after all? Next, we return to the question of how far one can go with the bad leaver clause in terms of adverse financial consequences for the leaver before it is deemed contrary to reasonableness and fairness. After all, it does not seem reasonable to have to offer shares worth, say, more than €1 million at the nominal value of €1. In a dispute before the District Court of The Hague on 20 June 2018[2] (which was upheld on appeal), the question was whether the former director of the company was bound by the ‘bad leaver’ provision and therefore had to transfer his shares at their nominal value. The management agreement had been terminated by the company for urgent reasons and the court considered this a justified dismissal under Section 7:678 DCC. According to the management agreement, the former director had to transfer his shares at nominal value in case of dismissal due to an urgent reason. The (former) director tried in vain to get out of the provision by invoking reasonableness and fairness. However, the court did not go along with his reasoning. The court considered that this clause had already been agreed upon in the letter of intent. Moreover, the party was assisted in this by specialists, including lawyers and accountants. According to the court, the director therefore had to be aware of the scope and (financial) consequences of the clause. To the extent that this was not the case, this should still be for the director’s account and risk. Finally, the court emphasises that the threshold for assuming urgent reasons is high and can only be accepted in case of seriously culpable behaviour of the director. As a result, the court concludes that the former director is bound by the provision and an appeal to reasonableness and fairness does not succeed. Thus, the mandatory offer of shares at par value does not automatically violate reasonableness and fairness. Regarding the qualification of the bad leaver provision as a penalty clause as referred to in Section 6:91 DCC, the court in this ruling ruled that the offer obligation in this case could not be qualified as such. After all, the obligation arose from the occurrence of a certain event and not a breach of the obligation, namely the termination of the management agreement. In addition, the court ruled that a penalty clause must focus on compensation for damages or to induce performance. This, as in this dispute, will not easily be the case. Thirdly, here too, the intention of the parties was important and a different penalty provision had been agreed elsewhere in the contract from which the court inferred that the bad leaver provision would then not be intended as a penalty. A mitigation of the bad leaver provision under Section 6:94 DCC was therefore not valid. According to the court, the former director was therefore justified in offering his shares at nominal value. The ultimate difference between the nominal value and the market value in this case amounted to almost €5,000,000. The importance of a well-formulated bad/good-leaver provision is thus evident. Conclusion and recommendations The above shows that the forced transfer of shares at par value as a result of a bad leaver provision is in principle possible and permissible. Under which circumstances this is possible will depend on the specific circumstances of the case. It is advisable for both the company and the (future) shareholders to draw up a delineated and objective bad leaver provision and to clearly write down its consequences in order to avoid ambiguities in the future. Here, attention should be paid to the definition of ‘bad leaver’ and when it applies. Consequences such as price, damages or competition provisions should be explicitly specified. However, the interpretation and application of the provision always remain subject to the Haviltex standard and therefore it is very important to seek timely legal advice. Contact If you have questions about the good leaver or bad leaver clauses, or if you would like to discuss further, please contact Mathijs Arts, Reinoud van Ginkel, or one of our other Mergers and Acquisitions (M&A) specialists.  [1] ECLI:NL:GHDHA:2023:961 [2] ECLI:NL:RBDHA:2018:7368

On 1 September 2023, the Implementation Act for the European Mobility Directive comes into effect. This new law contributes to a more integrated and dynamic European market. In an era of increasing globalization and international business activities, companies are increasingly faced with the challenge of operating across borders and expanding their operations. Cross-border mergers, conversions, and splits play a crucial role in facilitating this business mobility and promoting collaboration between companies from different countries. Wilt u deze bijdrage in het Nederlands lezen? Klik hier. Background  Despite the fact that cross-border mergers were already allowed according to jurisprudence of the EU Court of Justice, there is still a need for legislation and regulation. From this need, the European Mobility Directive (2019/2121/EU) emerged with the aim of facilitating and promoting cross-border mobility of companies within the European Union. This directive follows earlier M&A directives such as the Merger Directive (2009/133/EC), as a consequence many terms and processes are already familiar and already in use for national mergers and splits. The Dutch legislature has adopted the Implementation Act for Cross-Border Conversion, Mergers, and Splits to implement this EU directive, making it easier for companies to convert their legal form to the law of another EU member state. At the same time, the law introduces additional protection mechanisms for stakeholders and a mandatory fraud check by the notary. The Act should have been implemented on 1 January 2023 but now officially comes into effect on 1 September 2023. Three Phases  The directive only applies to capital companies of EU member states. In the Netherlands, this means exclusively the B.V. and the N.V. Due to Brexit, this directive does not apply to any British companies such as the LLP. The law applies only to the transactions mentioned in the directive for which the proposal was filed with the Chamber of Commerce after 1 September 2023. These transactions include conversion, splitting, and merger, collectively referred to as “transactions.” The law divides these transactions into three different phases: (1) the preparation phase, (2) the decision-making phase, and (3) the implementation phase. During the preparation phase, each company must take preparatory steps in accordance with the national laws of the respective member state. For mergers, this includes, among other things, preparing and disclosing a (joint) merger proposal. The directive specifies the minimum required contents to be included in this proposal. After the formal proposal to merge, the decision-making phase begins. According to the directive, the competent authority in the country of departure provides a written declaration – the so-called pre-merger certificate – to the competent authority in the country of destination, confirming that the merger has been carried out legally. In the Netherlands, this role is assigned to the notary, who must determine whether the transaction has fraudulent or unlawful purposes. If the notary does not provide such a certificate, the cross-border transaction will not proceed. Finally, there is the implementation phase, during which the transaction is carried out in accordance with the rules of the country of destination. During this phase, the deed is notarized, and a final certificate is issued. This final certificate allows the involved companies to update their registrations in the trade register of both the destination country and the country of departure. Protection of the Stakeholders  In addition to the introduction of the procedural phases, the law also provides protection additional protective measures for shareholders, creditors, and employees in every cross-border transaction. In the future, information should be provided quicker and more extensive. Shareholders for instance will need to be informed about the consequences of a transaction and the possible rights and remedies at their disposal. The law further protects shareholders through exit rights and introduces procedures for determining the exchange ratios and cash compensation for the shares. The rights of employees based on statutory employee participation schemes are not explicitly extended but are further codified for all cross-border transactions. With regard to the protection of creditors, they will have the option to enforce certain safeguards, such as a bank guarantee or a right of pledge if they are not satisfied with the securities offered in the proposal. However, creditors must act within three months of the transaction proposal having been made public, in the Netherlands this period was previously just one month. Conclusie  The Implementation Law for Cross-Border Conversion, Mergers, and Splits was introduced in response to the growing need for regulated business mobility within the EU. The law follows a three-phase approach for cross-border transactions, ensuring compliance with national legislation and specific directives: the preparation, decision-making, and implementation phases. It also introduces additional protection measures for shareholders, creditors, and employees. Overall, the new law promotes business mobility, facilitates cross-border cooperation, and strengthens the European market. It also ensures important protection mechanisms through a fraud check and additional information provision for stakeholders. The (Dutch) text of the law can be accessed through this link. If you have any questions about this topic or would like to discuss it further, please contact Reinoud van Ginkel or one of our other M&A specialists. Author: Reinoud van Ginkel 

China has recently decided to join the Hague Convention of 5 October 1961, also known as the Apostille Convention. The Chinese ambassador to the Netherlands submitted the accession on March 8, 2023. The Convention will come into force in China on November 7, 2023. What does this mean for you? In the past, if you wanted to have an official document issued in the Netherlands that you needed to use/be acknowledged in China, you typically needed to go through a lengthy process of notarization and legalization. For instance, to set up a company in China, among others you needed to provide a notarized and legalized extract of the Chamber of Commerce to verify the investor’s identity. The following steps had to be taken. First, you will need to have the document notarized by a public notary in the Netherlands. This ensures that the document is authentic and can be relied upon in legal proceedings. Secondly, the notarization should be verified by the district court before sending it to be authenticated by the Ministry of Foreign Affairs in the Netherlands. Once you have obtained the authentication from the Ministry, you will then need to have the document authenticated by the Chinese Embassy in the Netherlands for double authentication. Finally, it will be recognized as valid in China and can be used for the purpose it was intended. The whole process is rather costly and time-consuming. Once China joins the Apostille Convention, this traditional legalization process of official documents will be replaced by a single formality: an authentication certificate issued by the appointed authority where the public document was executed. For instance, if a Dutch company wants to use its company extract in China, it will need to obtain an apostille on the document. This means that the extract needs to be certified by the designated authority in the Netherlands and issued with an apostille certificate. The apostille certificate will verify the authenticity of the extract and makes it recognized as a legal document in China without the need for additional legalization. However, the applicability of the Convention in China depends on the definition of “public documents” under China’s domestic law. Only those documents falling under this definition will be recognized under the Convention. Therefore, it remains to be seen how China will interpret and apply the definition of “public documents” under its law. In terms of setting up a company or litigation, it is essential for documents such as a power of attorney, legal representative statements, and company incorporation certificates to be considered as public documents under China’s domestic law. This would greatly benefit foreign businesses operating in China. We will keep you updated for further clarification in terms of application in China. Contact If you need further information, please do not hesitate to contact Ye Yu.  

A shareholders’ agreement (‘SHA’) may prevent discussions or conflicts between shareholders internally and also between the shareholders and the company. It is not mandatory to draw up a SHA, but this is highly recommended in case the shares are held by more than one shareholder. Freedom of contract is therefore largely paramount. In this blog we cover 5 specific points of attention regarding the shareholders’ agreement. #1 Benefits of the Shareholders’ Agreement In the case a company has more than one shareholder, it is advisable to draw up a shareholders’ agreement . Especially in respect of a joint venture with a 50/50 ratio. In the event of a dispute, there may soon be a deadlock situation that could harm or damage the company. The commitment to a SHA can prevent discussions and conflicts, as shareholders are forced to think about and agree on a number of matters in advance regarding their cooperation. In addition, you can address your fellow shareholders if they do not comply with the agreement. Moreover, the agreement is (largely) flexible and can be changed by agreement of all shareholders. It is also possible to keep the agreement secret, unlike the articles of association. #2 Parts of the Shareholders’ Agreement The SHA provides clarity on the rights and obligations of the shareholders and the possible consequences for their non-compliance. Important topics that are usually included in a SHA are: a list of decisions/topics requiring a larger majority than usual; a list of board decisions requiring shareholders’ approval; an exit scheme; tag/drag along provisions; valuation bases for the shares; agreements on profit distribution; a non-compete and/or relationship clause; a confidentiality clause; and any chain clauses for subsequent and acceding shareholders. #3 Beware of model agreements Every company has its own specific points of attention and not every collaboration is the same. Take a critical look at what you do and do not include in the agreement. Look at your own company and situation and not just the standard agreements and parts thereof and boilerplate clauses. Be careful when using standard shareholder agreements, model agreements and templates. If in doubt, always have your agreement checked by a lawyer. #4 Drafting the shareholders’ agreement In many cases, a tailor-made agreement is therefore wise and desireable. Moreover, the agreement is usually an important document with a lot of arrangements in it. Therefore, take the time to draw up the agreement and have the document checked by a lawyer. Especially if standard arrangements, such as the approval scheme when transferring shares, are not the best solution for your company or situation. #5 Consequences of non-compliance with agreements A SHA is legally an agreement like (almost) any other. This means that the agreement must be respected. Failure to comply with the arrangements under the agreement may have far-reaching consequences, including the obligation to offer the shares to the co-shareholder(s). However, the parties are free to regulate the consequences of a breach of contract under the agreement itself. Contact The lawyers of La Gro are an important source of information for entrepreneurs, shareholders and directors. The corporate law team focuses on your future and can be your discussion and sparring partner when making (daily) decisions with legal implications. Do you need advice on this topic? Please contact Joost Vrancken Peeters on +31 620210657 or [email protected] and Mathijs Arts on +31 614338775 or [email protected].

The Ultimate Beneficial Owner (“UBO”) register will enter into force on 27 September 2020. This register was based on an implementation bill that resulted from the fourth and fifth anti-money laundering directives by the European Parliament. The Dutch UBO register will be introduced as part of the Trade Register. This creates an obligation for legal entities established in the Netherlands and other legal entities to have and keep track of information about their UBOs. This information must be entered in the Trade Register. Who needs to register? To summarize almost every legal entity in the Netherlands needs to register its UBOs, including: private limited liability companies and public limited companies (excluding form listed companies); mutual insurance companies; cooperatives; associations with full legal capacity and with limited legal capacity operating a business; foundations; partnerships, general partnerships and limited partnerships. What is an Ultimate Beneficial Owner? A natural person can be qualified as a UBO with a capital company if he owns directly or indirectly more than 25 percent of the shares, voting rights or ownership interest. Moreover, it is also possible that the natural person is qualified as a UBO based on his or her actual control. In case the UBO cannot be qualified under these rules and there are no anti money laundering suspicions, or the identity of the UBO is not certain, senior management will be considered as a “pseudo-UBO”. Under Dutch law the natural person(s) who are managing director(s) will be regarded as senior management and thus have to be registered as a “UBO”. Public access to data The UBO data will be partly made public. The following six data will be publicly available in the register: name; month and year of birth; country of residence; nationality; and the nature and extent of the economic interest held by the beneficial owner in bandwidths. The exact size or monetary amounts will not be stated. Other additional information will only be available for inspection by designated government agencies: address; date of birth; place and country of birth; BSN number or Tax identification number; copies of documents that substantiate the UBO status; and copies of documents that support why this person is qualified as a UBO and what the nature and scope of the economic interest of the UBO is. Enforcement Failure to comply with UBO registration can be criminalized as an economic offense, which in extreme cases can ultimately lead to the imposition of prison or community service. Further information If you need further information, please do not hesitate to contact our Asia team: Joost Vrancken Peeters at +31620210657 or [email protected] or Ye Yu at +31639267995 or [email protected]. Jiahui Plomp authored this article.