REALWorld Law

Real estate finance

Corporate governance

Does the law lay down any rules which must be complied with before a corporate entity can give valid security over its real estate assets, for example 'financial assistance' rules and 'corporate benefit' rules?



Conflict of interest

The Civil Code stipulates that if there is a conflict of interest (tegenstrijdig belang) between a limited liability company or a private limited liability company and one or more of its managing or supervisory director(s), the conflicted (supervisory) director(s) are not allowed to participate in the deliberations and the adoption of the relevant resolution.

If, as a result, no managing board resolution can be adopted because of a conflict of interest, the relevant resolution must be adopted by the supervisory board of the company or, if no supervisory board has been established the general meeting of shareholders is allowed to adopt the relevant resolution, unless specified differently in the articles of association.

Similarly, if due to a conflict of interest no supervisory board resolution can be adopted, the relevant resolution will be adopted by the general meeting of shareholders, unless specified differently in the articles of association.

Although managing board resolutions taken contrary to the decision-making rules above are subject to nullification by any party having a reasonable interest in observance of such rules, a transaction with a third party will not be affected by these void resolutions if the third party was not or should not have been aware of the conflict of interest.

Ultra vires or corporate benefit

Pursuant to Article 2:7 Civil Code, any legal person incorporated under Dutch law or, as is most frequently the case, its trustee in bankruptcy (faillissementscurator), may annul a legal act entered into by the legal person, if the act exceeded its objects (as set out in the objects clause in a company's articles of association) and its counterparty knew or (without investigation) should have known that the legal person's objects were exceeded.

Legal acts which are expressly permitted by a company's objects clause, or which may generally be assumed to be conducive to furthering the company's express objects, are a good indication that the legal act does not violate Article 2:7 Civil Code. However, according to the case law of the Supreme Court, all relevant circumstances of a case at hand, including the question as to whether the performance of the legal act is in the company's corporate interest, should be taken into account in order to determine whether a legal act exceeds a company's objects clause and consequently violates Article 2:7 Civil Code. Examples of relevant factors include, but are not limited to, whether:

  • the legal act expressly falls within the objects clause of a company's articles of association;
  • the legal act can be considered proportionate (eg the amount of a guarantee vis-à-vis the company's financial condition or, for example, shareholders equity);
  • the company forms part of a group of companies who are all affected (to a greater or lesser extent) by the performance of the relevant legal act, and the performance of the legal act is seen as being in the interests of the group as a whole;
  • other group companies are performing similar legal acts (such as the provision of guarantees);
  • the continuity of the company is safeguarded by its performance of the legal act (eg the issuing of a guarantee); and
  • the company will derive direct or indirect benefit from the performance of the legal act, monetary or otherwise. An example would be the giving by the company of a guarantee under a loan facility agreement, which facility also benefits the company performing the relevant legal act.

Financial assistance

The Civil Code stipulates that neither a public company (naamloze vennootschap) nor any of its subsidiaries (dochtermaatschappijen) – including, most likely, foreign subsidiaries – may, with a view to (met het oog op) the taking or acquisition by third parties of shares in its capital, create security, grant a guarantee or otherwise accept liability (including providing loans which exceed statutory thresholds). Any acts in contravention with the aforesaid prohibition will violate Dutch law and most likely be void.

The equivalent financial assistance prohibition for private limited liability companies (besloten vennootschappen met beperkte aansprakelijkheid (BVs)) was repealed on 1 October 2012, and therefore no longer applies. However, the articles of association of many BVs may need to be amended to delete provisions which are a remnant of the previous financial assistance prohibition.

Other rules

Security rights may be affected and limited by the general defences available to obligors under Dutch law in respect of the validity and enforceability of contractual obligations. Without purporting to be comprehensive, we note that the security documents may be voided if they were made through undue influence (misbruik van omstandigheden), fraud (bedrog), threat (bedreiging) or error (dwaling) of any of the parties thereto and any claims under the security documents may be, or become, subject to set-off, counterclaim or suspension (opschorting). The rights and obligations of the parties to the security documents are subject to the principle of good faith/reasonableness and fairness (redelijkheid en billijkheid), that under Dutch law governs the relationship between the parties to a contract and which, in certain circumstances, may limit or preclude the reliance on, or enforcement of, contractual terms and rules relating to force majeure.