On 1 July 2021, the Act on Management and Supervision of Legal Entities (in Dutch: Wet bestuur en toezicht rechtspersonen) entered into force. The Act, which previously only applied to private and public limited companies (in Dutch: bv and nv), now also applies to all other legal entities. One of the consequences of this is that the so-called preventive dismissal test for directors of foundations has been lapsed.
Therefore, a good time to discuss the legal position of statutory directors of private and public limited companies in the event of dismissal. The position of an statutory director is different because there is both a corporate relationship and an employment relationship. See our recent blog on the dismissal of a statutory director of a foundation.
Corporate dismissal
Any statutory director of a private or public limited company can, in principle, be dismissed at any time by the body which is authorised to appoint the director. In most cases, this is the General Meeting of Shareholders (hereafter: AGM), unless the articles of association provide otherwise. Or, if the two-tier board system applies, the Supervisory Board (hereafter: SB).
The AGM has, in principle, every freedom to decide on the dismissal of the statutory director. It must, however, comply with all the procedural rules:
- A formal AGM must be held. The management board and the supervisory board are, in principle, authorised to convene a general meeting;
- The convocation must take place by means of a notice to convene. It is important that all subjects to be dealt with are stated therein, including the intended dismissal of a board member. No resolution can be passed on a subject that is not mentioned in the convocation;
- The legal deadlines must be observed when convening a meeting. Fifteen days for the public limited company and eight days for the private limited company;
- The director in question must be heard regarding the intended dismissal. In addition, all management and supervisory board members have an advisory vote at the AGM, the director who is eligible for dismissal included;
- Interim advice must be requested from the works council. It is important that this advice is requested at such a time that it can have a substantial influence on the decision to be taken.
If the dismissal is unauthorised or not in accordance with the procedural requirements, the decision is void or voidable. A void or voidable resolution means that the person concerned is still a director.
Dismissal under employment law
Case law has determined that a dismissal under company law also terminates the employment relationship. There are only two exceptions: i) if there is a legal prohibition against dismissal (such as dismissal during illness) or ii) if the parties have agreed otherwise.
The consent of the director is not required for the termination of the employment contract. In the absence of consent, the approval of the Dutch Employee Insurance Agency (UWV) or the court is also not required. Nevertheless, some rules of employment law should be taken into account:
- Similar to an ‘ordinary employee’, a reasonable ground for termination is required in the case of a statutory director. However, a difference of opinion on policy (the so-called h-ground) is accepted relatively quickly;
- An employer may only give notice of termination if it is not possible or reasonable to reinstate the director in another suitable position within a reasonable period of time, whether or not with the help of training. In practice, this is often not possible, or is not in reason if there is a lack of trust;
- The prohibitions against dismissal also apply to the dismissal of the statutory director;
- A director cannot claim reinstatement of his employment contract. However, he can claim an equitable compensation if i) there is no reasonable cause for the dismissal, ii) the obligation to make an effort to reinstate the director has not been fulfilled or iii) the employer has acted in a seriously culpable manner;
- The employer must take the applicable notice period into account when terminating the employment contract;
- If the employment contract is terminated on the initiative of the employer, the director is, in principle, entitled to transitional compensation, unless there is an urgent reason for dismissal.
Do you have any questions about the dismissal of a statutory director? Please contact one of our lawyers.