Management and Supervision of Legal Entities Act: What are the changes?

The Management and Supervision of Legal Entities Act has been adopted by the Dutch Senate. It equalizes the structure of associations, foundations, cooperative associations, and mutual benefit organizations with that of companies. This affects above all the nonprofit sector.

On 10 November 2020, the Dutch Senate adopted the Management and Supervision of Legal Entities Act. The Act will come into force on 1 July 2021. This affects above all nonprofit organizations. What are the changes?

The Act will make it possible for all legal entities to:

• Set up supervisory directors (or a supervisory board);
• Opt for a one-tier board system: this means that, within the board, tasks are divided between executive and non-executive directors. There is no separate supervisory board in addition to the management board. This part of the Act will not come into force on 1 July 2021.

Thus, the rules applying to companies will also apply to associations, foundations, cooperative associations, and mutual benefit organizations.

Uniform arrangement for all legal entities

In addition, the Management and Supervision of Legal Entities Act introduces a uniform arrangement for:

• The liability of directors and supervisory directors in the event of improper performance of their duties
• The principles directors and supervisory directors must observe in the performance of their duties, in particular the interest of the legal entity
• The wider discretion given to the court to dismiss a director or supervisory director of a foundation if requested to do so by the Public Prosecution Service or any other interested party, and
• When directors and supervisory directors have a conflict of interest and must refrain from the decision-making process. This is particularly important for foundations, as there are no members who can control the management.

Points for attention:

1. Foundations, associations, cooperative associations, and mutual benefit organizations that have not included a prevention from acting and absence arrangement in their articles of association, must change their articles of association at the earliest opportunity. In the event of ‘prevention from acting’ you can think of long-term illness or suspension, and in the event of ‘absence’ of retiring from office or dismissal, for example. The fact is, the legislator believes that management and supervision should also have to be exercised when all members of the management board or supervisory board are absent or prevented from acting. This is certainly of importance in the current coronavirus crisis.
2. Provisions in the articles of association stipulating that one director or supervisory director has the majority of the voting rights in the decision-making are no longer permitted. Such provisions remain in force until the first amendment of the articles of association or up to a maximum of five years after the entry into force of the new law.  The legislator does not consider it desirable for a single director or supervisory director to have a dominant voting right as the management board and the supervisory board are internal collegial bodies.
3. The liability of directors and supervisory directors of informal and non-commercial associations and foundations in the event of bankruptcy is regulated by law. As a consequence, they can now more easily be held liable by the receiver. However, they are only liable if they have not performed their duty properly. This aggravated liability does not apply outside bankruptcy.
4. The rules for dismissal of directors under the articles of association will now apply to directors of all legal entities. This means, the employment contract will automatically be terminated if the director is dismissed. However, in that case too, there must be a sufficient ground for dismissal.

More information?

Are you a director or supervisory director of an association, foundation, co-operation or mutual benefit organization? Monitor the progress regarding the Management and Supervision of Legal Entities Act and the blog of Russell Advocaten! We are happy to keep you informed through our newsletter. Do you have any questions a about the bill, structure of your company, or corporate governance? Please contact us: