This Corporate Update is our semi-annual newsletter regarding recent developments in Dutch corporate law. In this Update we highlight the key Dutch corporate law changes as per 1 July 2013. We will also provide an overview of adopted Bills which will enter into force after 1 July 2013 and pending legislative proposals. Finally, we will address certain other corporate law developments.
2. New legislation as per 1 July 2013
Amendments to the Notification Requirements
The amendments provided for by the Corporate Governance Act (Wet corporate governance) which entered into force on 1 July 2013 relate to the notification requirements of Chapter 5.3 of the Dutch Financial Supervision Act (Wet financieel toezicht).
Reduction of minimum notification threshold for gross long positions
The Act introduces a new minimum threshold of 3% for the notification of gross long positions (i.e., shares and options whose value increases when the share prices increases) in listed companies1. The 5% threshold and the other, higher notification thresholds will remain unchanged. Investors holding at least 3%, but less than 5% of gross long positions in listed companies, have the obligation to notify the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the "AFM") thereof, ultimately on 29 July 2013. Exiting interests of 5% or more do not fall within the scope of this initial notification requirement as they should have already been notified to the AFM.
Notification requirement for gross short positions
The Act also introduces an obligation to promptly disclose gross short positions in listed companies to the AFM. Gross short positions concern financial instruments whose value appreciates when the share price falls.
For gross short positions the same thresholds apply as for gross long positions: those positions also need to be disclosed as from 3%. The gross short positions must be disclosed when the relevant threshold is, actively or passively, reached or surpassed in either an upward or downward direction. The AFM has adopted a Guideline (available in the Dutch language only) further determining the definition of a 'short position' and the calculation thereof.
The short positions must be disclosed on a gross basis. This means that short positions cannot be set-off against long positions. In the event an investor holds both short and long positions, each of whose value equals at least 3% of the issued capital, both positions must be notified.
The obligation to notify gross short positions shall apply in addition to the notification requirements for net short positions under the EU Shortselling Regulation. In order to determine the net short position, the gross short position must be calculated first.
Share capital interests, voting rights or short positions can be notified through the AFM desk, an online tool facilitated by the AFM. If the notification cannot be done via the AFM desk, e.g. due to inoperability, the notification should be done by means of a notification form which will be made available on the AFM's website in due course.
Other amendments Corporate Governance Act
For information on other amendments of the Corporate Governance Act we refer to our Corporate Alert of 23 November 2012. The most important changes are:
- Higher threshold for items to be put on the agenda of the shareholders' meeting: The statutory threshold for the right of shareholders to have items placed on the agenda of the general meeting has been increased from 1% to 3% of the issued share capital. This threshold applies to all public limited liability companies. The alternative threshold that applied to shareholders of listed companies having a share ownership with a market value of at least € 50 million has been abolished. The company's articles of association may provide for a lower, but not a higher, threshold. Unless the articles of association are amended, the new threshold of 3% will apply automatically after 1 July 2013 if the company's articles of association only refer to the statutory regulation. However, in the event that the current articles of association contain a reference to the statutory regulation with a specific reference to the 1% threshold, this regulation and hence the 1% threshold shall continue to apply after 1 July 2013 (unless of course the articles of association are amended to reflect a higher threshold of up to 3%).
- Identification of investors: The Act introduces a regulation in the Dutch Securities Act (Wet giraal effectenverkeer) allowing Dutch listed companies to keep track of their investor base with respect to a certain period preceding the shareholders' meeting. The term investor includes: (i) shareholders within the meaning of the Dutch Securities Act; (ii) the custodian of an investment institution; (iii) persons holding equity securities for their own account with foreign institutions that are not affiliated institutions or intermediaries within the meaning of the Dutch Securities Act. The procedure can only be used to identify investors holding an interest of at least 0.5% of the issued share capital. A listed company can submit an identification request with Euroclear Netherlands, affiliated institutions, other intermediaries, certain foreign institutions and custodians of investment institutions to provide information with respect to the identity of those investors for whom they administer shares or depositary receipts for shares. A listed company has successfully identified its investors when it holds the name, the address and the email address of the relevant investor. A listed company can submit an investor identification request at its own initiative, but it is not under a statutory obligation to do so, unless it is required by investors who, either individually or jointly with other investors, have a share capital interest of at least 10% of the issued share capital. Investors can submit such request to the company within a period from 60 but no later than 42 days prior to the shareholders' meeting. A listed company can make an identification request from 60 days before the shareholders' meeting up until the day of the meeting itself. However, the first request for identification must be made ultimately on the 28th day prior to the general meeting; this coincides with the registration date for the shareholders' meeting. Ultimately on that date, the company should announce on its website that a request for identification of investors has been made. The request should include a record date to which the identification procedure relates. In practice, the record date will coincide with the registration date.
- Information exchange shareholders: The Act provides for a mechanism to enhance effective communication between a listed company and its investor base as well as between the investors. An investor who, either individually or jointly with other investors, holds at least 1% of the issued share capital or shares representing a market value of at least € 250,000, will have the right, prior to the shareholders' meeting, to request the listed company to pass-on the information that it has made available to the company to other investors that have been identified by way of the identification procedure set out above. The information must relate to an item on the agenda of the shareholders' meeting. The company must pass-on the information, unless the information has an incorrect or misleading effect on the markets or if the information is such that distribution cannot be expected from the company on the basis of the standards of reasonableness and fairness. The company can also refuse to distribute the information if the request is made not at least one week prior to the shareholders' meeting.
Simplification of Procedure under Collection of Mass Claims Act
The Act to amend the Collection of Mass Claims Act (Wet collectieve afwikkeling massaschade, the ‘WCAM’) was adopted by the Dutch Senate on 25 June 2013 and entered into force on 1 July 2013. The WCAM has been in effect since 2005 and provides a unique procedure for the settlement of mass claims. Pursuant to the WCAM, the parties to a settlement agreement may request the Amsterdam Court of Appeal to declare the settlement agreement binding on all parties to which it applies according to its terms. The amendment of the WCAM, inter alia, improves the possibility to use the WCAM-procedure after a bankruptcy, introduces a pre-procedural hearing that fosters collective settlements and sets a quality requirement for interest groups protecting the rights of victims. For more information we refer to our Corporate Update of 16 July 2012.
 Various Dutch laws contain definitions what constitutes a ‘listed company’ and these definitions are not necessarily the same. Where reference is made to ‘listed companies’ in this newsletter, this should be construed as a reference to ‘listed companies’ as this term is defined in the relevant law involved. While some of the definitions also include other companies, all definitions include Dutch companies that have issued shares that are traded on Euronext Amsterdam.
3. Adopted Bills entering into force after 1 July 2013
Implementation of the Alternative Investment Fund Managers Directive
The Act to implement the Alternative Investment Fund Managers Directive (the ‘AIFMD’) will enter into force on 22 July 2013. The AIFMD will result in a number of substantial changes with respect to the regulatory regime for investment undertakings, such as private equity funds, hedge funds, property funds and other types of collective investment undertakings, other than collective securities investment undertakings. As a result of the AIFMD entering into force, a large number of investment institutions, as well as their managers, that have not been subject to any form of regulatory supervision to date will become subject to regulatory supervision and will have to obtain a permit. For more information we refer to our Corporate Update of 16 July 2012.
4. Update Other Legislation and Pending Bills
Status Claw Back Bill
The Claw Back Bill is still pending before the Dutch Senate. The current status of the Bill is unclear. For more information on this Bill, we refer to our Corporate Alert of 1 October 2010. The two main elements of the Bill are:
- The statutory power of the supervisory board to adjust bonuses that are awarded to members of the management board and under certain circumstances the power to reclaim these bonuses.
- The provision that, in case of a public offer or a proposal for a transaction as meant in Section 2:107a of the Dutch Civil Code (Burgerlijk Wetboek) or a proposal for a legal merger or split-up, the surplus value of the shares or share subscriptions rights awarded to the director of the company as remuneration must be set off against the director's remuneration.
Proposed Amendments Financial Reporting Requirements Listed Companies
The Financial Markets Amendment Bill 2014 contains both technical- and substantive amendments of, amongst others, the Dutch Financial Supervision Act, and amendments regarding financial reporting. The Bill is expected to enter into force on 1 January 2014. The most important amendments are as follows:
New Transparency Requirements:
As of 1 January 2014 three new transparency requirements would apply to listed companies.
- The annual accounts must be adopted with due observance of facts and circumstances that occurred between the preparation of the annual accounts and their adoption. This must be done to the extent that these facts and circumstances are essential to providing insight into the company's financial position as required by law. In the event that these facts and circumstances occur after the annual accounts have been prepared but have not yet been adopted, listed companies must make an announcement generally available without delay.
- Listed companies must make an announcement generally available without delay in the event that the adopted financial statements deviate from the prepared financial statements. This situation could for example occur when the general meeting disagrees with the annual accounts as drawn-up and amendments have to be made before the general meeting adopts the annual accounts.
- If it appears that the annual accounts materially fail to provide the insight mentioned above, the management board must, without delay, inform the shareholders thereof and lodge a notice regarding the same with the AFM. The AFM will forward this notice also to the Trade Register.
For these requirements, relevant announcements should be made "generally available". An announcement is made generally available by means of a press release. This press release may refer to the website of the listed company, on which the notice is published. Simultaneously this announcement must be sent to the AFM.
Improvement effectiveness of supervision on financial reporting by the AFM
According to the Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving) the AFM supervises financial reporting by listed companies. Enforcement of these rules takes place under civil law by initiating legal proceedings before the Enterprise Chamber of the Amsterdam Court of Appeal (Ondernemingskamer, the 'Enterprise Chamber'). The proposed amendments to this Act only relate to the manner of enforcement.
- The first proposal allows the AFM to request the Enterprise Chamber to order Dutch listed companies to comply with a recommendation of the AFM to issue a press release specifying in what respect the financial statements do not comply with the legal requirements and what the effect would have been if those requirements had been correctly implemented. Currently, this possibility only exists for listed companies incorporated under laws other than those of the Netherlands and as far as Dutch companies are concerned the AFM may only ask the Enterprise Chamber to rule on the accounts rather than on the recommendation. The proposed time limit for submitting this request would for all companies become nine months from the time the relevant reports are submitted by a company to the AFM.2
- The second proposal is to provide the AFM with the authority to take enforcement measures with respect to the semi-annual financial reporting of listed companies. The scope of this proposal applies to both (i) providing the AFM with a further explanation and (ii) following the AFM's recommendations. The time period within which the AFM should submit these requests with the Enterprise Chamber will be nine months as well. Interestingly so, this would allow the AFM to submit the aforementioned request even though the annual reporting covering the full financial year has already been prepared.
Other amendments to Book 2 of the Dutch Civil Code
- Currently, private limited liability companies whose securities are admitted to trading on a regulated market as referred to in Section 5:25c of the Financial Supervision Act are already required to make their financial statements generally available within four months following the end of the financial year. However, Section 2:210 of the Dutch Civil Code refers to a period of five months to prepare the financial statements. In order to eliminate this discrepancy, it is proposed to include the same four months period in Section 2:210 of the Dutch Civil Code. It will furthermore be clarified that this period cannot be extended with respect to these private companies with limited liability.
- The exemption for intermediate holding companies to draw up consolidated financial statements in the event that the (ultimate) holding company has included the consolidated financial information in its own financial statements, will no longer apply to legal entities whose securities are admitted to trading on a regulated market or a comparable system in a state that is not a member state of the European Union. Consequently, such intermediate holding companies will be required in the future to draw up not only corporate accounts but also consolidated accounts meeting the requirements of IFRS as approved by the European Commission.
 In case of Dutch companies only this period would as far as the annual report is concerned start running from the filing of the adopted accounts with the AFM.
5. Other noteworthy developments
Application of the Act on the Accountancy Profession
The Act on the Accountancy Profession (Wet op het Accountantsberoep) entered into force on 1 January 2013, with the exception of the compulsory rotation rule that will become effective on 1 January 2016. For more information on this Act, we refer to our Corporate Alert of 11 December 2012.
Compulsory rotation of accountancy firms
Organizations of public interest, which currently include only listed companies and non-listed banks and insurers (the so-called ‘PIOs’), are required to change their accountancy firm every eight years as of 1 January 2016. The sentence 'as of 1 January 2016', appeared to be open to several interpretations. Following this debate, the Dutch Accountants Association (Nederlandse Beroepsorganisatie voor Accountants), following consultation with the AFM, explained that this sentence should be construed as to read 'as of the audit year 2016'. As a consequence, PIOs should, in the context of planning their corporate agenda, bear in mind that they might have to engage a new external auditor during 2016 at the latest.
Separation of audit services and advisory services
Since 1 January 2013 accountancy firms performing audits for PIOs may no longer also perform other services for such organizations. This rule applies not only to the accountancy firms but also to their network. It is still unclear to what extent this rule also has extraterritorial effect. However, based on transitional provisions, accountancy firms are allowed to continue to perform advisory services until 31 December 2014 for which they have a contractual obligation and assigned to them prior to 1 January 2013.
COSO – updated Internal Control – Integrated Framework 2013
According to best practice provision II.1.4 of the Dutch Corporate Governance Code, the management board of a listed company must include a description of the internal risk management and control systems in the annual report and indicate which normative framework was used for the evaluation of those systems. One of those frameworks is the so-called 'COSO framework' of the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The COSO framework is a generally accepted format for internal control and risk management and has played an important role in the preparation of, amongst others, the Sarbanes-Oxley Act and the Dutch Corporate Governance Code).
On 14 May 2013 the COSO issued an updated version of the COSO framework. In 1992 the notion of 'internal control' was defined in order to provide a standard for companies and organizations to assess their internal control system and in order to determine how these systems could be improved. The updated version of the COSO framework does not change the 1992-definition of internal control. However, the framework has been amended in such a way so as to reflect the latest thinking about internal control and risk management. Furthermore, the five layers of the framework have been specified in more detail. An important amendment is the translation of the concept of internal control into seventeen principles and their characteristics, which should help organizations with their risk assessments and help increase their performance.
Stibbe Flex-BV webtool – available in English
As of 1 October 2012, the Act on the simplification and flexibilization of private companies (the "FlexBV Act") drastically changed Dutch corporate law applicable to private companies with limited liability (besloten vennootschap met beperkte aansprakelijkheid, abbreviated to "BV"). Subsequently, the Management and Supervision Act (the "MSA") came into effect as per 1 January 2013 bringing further changes to Dutch corporate law landscape.
The Stibbe Flex-BV webtool provides an extensive overview of all legislative amendments and provides a clear insight to the changes that are relevant to you or your company. This web tool furthermore enables you to (i) obtain practical information on the applicable legislative changes, (ii) easily determine the differences between the former and current legislation for each topic and (iii) quickly assess whether you need to take any action.
For more information please contact any of the Stibbe contact persons.