Posted on: 09-04-2020

Directors' conflict of interest

Written by:

Marcel van den Ende

Conflicting interests

In the performance of their duties, directors of a Netherlands company must focus on the interests of the company and its affiliated venture (Article 2: 239 DCC). A director holds a position of trust and must therefore avoid situations in which there is a conflict between the director's own interests and the interests of the company.

When is there a conflict of interest?

A conflict of interest arises if the director (director) concerned is confronted with such incompatible interests that it can reasonably be doubted whether he was guided solely in his actions by the interests of the company and its affiliated company.

directors' conflict of interest

How to act in case of a potential conflict of interest?

How should a director who thinks there could be a conflict of interest act?
Some management regulations contain specific rules on how to act in case of a conflict of interest. Even without such an arrangement, it is prudent for a director who thinks he might have a conflict of interest to disclose this information to the other board members and thereby provide all relevant information. These other directors (or share holders) can then determine on the basis of the information whether there is a conflict of interest. If so, the statutory regulation regarding a conflict of interest must be applied.

The legal regulation

Article 2: 239 paragraph 6 of the Dutch Civil Code stipulates that a director may not participate in the deliberation and decision-making if he has a direct or indirect personal interest that is contrary to the interest of the company. If no management decision can be taken as a result, the decision will be taken by the supervisory board. In the absence of a supervisory board, the resolution is passed by the general meeting, unless the articles of association provide otherwise. So the articles of association may contain an alternative arrangement, which often is the case with Netherlands companies.

Consequences of acting in violation of the legal regulations

The judge can, upon request, annul a decision that has been taken in violation of Article 2: 239 paragraph 6 of the Dutch Civil Code (Article 2:15 (a) of the Dutch Civil Code). After all, the decision was taken in violation of legal and statutory provisions that govern the making of decisions. An annulable decision is in principle valid until the court has decided to annul it. Pursuant to Article 2:15 (3) of the Dutch Civil Code, annulment is effected by a court decision on the claim of someone who has a reasonable interest in complying with the obligation that has not been complied with, or on the claim of the legal person itself.

Internal operation

It should be noted that the conflict of interest regulation has internal effect and that the company remains in principle bound by an agreement concluded with a third party to implement the decision. However, this does not alter the fact that the provision may have important consequences for the internal liability of the director and for other parties who knew of the conflict of interest and who benefited from it. As a rule, acting contrary to the regulation also constitutes an impetus for a dismissal of the director concerned and, if applicable, a ( link: text: dispute between shareholders). In short, the director who does not act transparently can face serious consequences.

Further information

Conflicts within companies are complex and can quickly get out of hand. If you would like to discuss your situation with a lawyer with knowledge of company law, you can of course contact us to discuss this with us. It is not without reason that our motto is "Your problem, our concern."

More information?

Marcel van den Ende will gladly help you further.

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