Post-crisis developments in Dutch company law
Lieke van der Velden
NautaDutilh
Amsterdam
Lieke van der Velden (Bio)
The worldwide financial crisis of the past few years has also left its mark on the Dutch financial sector. A regional Dutch bank went bankrupt and a number of other financial institutions required government capital injections or other assistance to survive.
Various committees set up to investigate the causes of the crisis have pointed to weaknesses in the system: the bonus culture contributed to irresponsible risk-taking; the supervision within companies failed and action by regulators was reportedly too little and too late. Legislators have been under pressure to introduce reforms. This article discusses a few legislative responses to the crisis in the Netherlands.
Clawback Bill
The Anglo-American bonus culture reached the Netherlands around the 1990s. According to the results of investigations into the causes of the financial crisis, the profusion of bonuses may have contributed to excessive risk-taking, a development that the 'Clawback Bill' now seeks to reverse. Although the Dutch Corporate Governance Code and the Banking Code already contain provisions aimed at curbing excessive bonuses, they cannot - unlike statutory provisions - be used to retract existing contractual rights. Moreover, these codes apply only to listed companies and banks. The Clawback Bill is broader in scope: it essentially covers all Dutch public limited liability companies and financial institutions. Under the bill the supervisory board may decrease a management board member's bonus if it is unacceptable based on the principles of reasonableness and fairness. This is a strict standard that will only be met in situations such as an extreme increase in share prices, heavy losses by the company or a severe economic slump. The general rule will remain that contractual rights prevail. The bill also makes it possible to claw back bonuses granted on the basis of incorrect information and requires listed companies to reduce bonuses that become unconditional as a result of a successful public offer and are excessive. The latter provision is intended to limit the role of golden parachute agreements as a driving force behind take-overs.
Bill requiring suitability and reliability test for management and supervisory board members
Another conclusion drawn by financial crisis investigators in the Netherlands is that in some cases the internal supervision of financial enterprises failed. According to the investigators, supervisory board members did not always stand up sufficiently to management, resulting in excessive risk-taking. A bill now before the Dutch Parliament will subject both management and supervisory board members of financial institutions to a suitability and reliability test, to be applied by the competent supervisory authorities, before they can be appointed. Currently, management board members are subjected to an expertise and reliability test. The new test will apply to supervisory board members as well and is also broader in scope. Suitability encompasses not only financial expertise but also cultural factors: for example, will the background of the members be sufficiently diverse? The independence of proposed supervisory board members will also be tested.
Draft bill increasing Dutch Central Bank's intervention powers
A regional Dutch bank, DSB, went bankrupt in 2009. Although the Dutch Central Bank (DCB) had been monitoring DSB's situation and attempting to steer it for some time, at a certain point bankruptcy became inevitable. The Dutch public was shocked. A post-bankruptcy investigation revealed, among other things, that the DCB may have had insufficient tools to act effectively and in time. Ahead of planned EU initiatives, a bill is now being prepared to give the DCB far-reaching authority to intervene at financial institutions experiencing serious problems. The draft bill entitles the DCB to, for example, draw up a plan providing for the transfer to a third party (an existing bank or insurer or a bridge institution) of the troubled bank's deposit agreements, assets and liabilities and/or shares. The bank is required to cooperate once the competent district court has approved the plan. If the stability of the financial system as a whole is in serious danger, the draft bill authorises the DCB to intervene in the institution's internal affairs (for example, by depriving shareholders of their voting rights or suspending management board members) or even to expropriate its assets or shares. The draft bill has received much scrutiny, in particular with regard to the limited legal protection granted to shareholders affected by the DCB's intervention. The definitive content of the bill therefore remains uncertain.
Stak Act: shares of State-owned financial enterprises now held by trust office
At the peak of the crisis, in October 2008, the Dutch State took over parts of Fortis, thereby becoming the sole shareholder of ABN Amro Group and insurer ASR Nederland. Pursuant to what is referred to as the 'Stak Act', in effect since mid June 2011, the legal ownership of those shares (including the voting rights) was transferred to a private foundation. The foundation in turn issued depositary receipts (representing the economic ownership of the shares but not entitling the holder thereof to vote) to the State. Similar to measures taken in the UK, the purpose of the Stak Act was to limit the influence of the Minister of Finance on the management of ABN Amro and ASR and ensure that commercial rather than political factors drive such management. When exercising its rights as a shareholder, the foundation must strive to protect the State's economic interest, which is mainly that the shares be divested as soon as possible on favourable financial terms. The Minister retains influence over important decisions by ABN Amro and ASR (which, for example, affect the State's financial risk or exit strategy), as such decisions require his consent. In such cases he can also issue a binding voting instruction.
Conclusion
The financial crisis has led to a flurry of legislative initiatives in the Netherlands, some of which may have far-reaching consequences for Dutch financial institutions. It will be interesting to see which of the bills discussed above actually lead to legislation and in what form.