Publication date: 26 May 2016
It seems a safe choice to distribute risk with group companies. Therefore, the disadvantages are likely to be overlooked. Through group companies you will not only limit liability but also claims to third parties. So what do you have to look out for?
Private limited companies (BVs) and Public limited companies (NVs) are well-suited to limit the risk of the entrepreneur. As the company bears its own rights and obligations, the management (and shareholders) are not directly liable for potential debts. Through group companies the risk can be limited even further. Several companies will be established, each performing its own activities. Often they are led by or “hooked to” a parent company. If, for instance, one company of the group will go bankrupt, the other companies of the group will not automatically go bankrupt either.
However, group companies do not only have advantages. For example, great care is required in group financing and issuing and revoking “403 statements”. It is often overlooked that there are also risks involved if group companies contract. The different companies often work in close cooperation, for instance when concluding contacts that are relevant for several companies of the group. Often, one company will be the contracting party and this company will, in principle, be the only one entitled to address the other party regarding its obligations under the contract.
In a recent case before the Arnhem-Leeuwarden Court of Appeal, within a group, company A had bought tubes that company B had used in housing construction. After company A had gone bankrupt, company B wanted to address the seller because the tubes were defective. Though the seller had sent the invoices to company B and the materials had been supplied there too, according to the Court of Appeal, company B had not been involved sufficiently close in the performance of the contract. Only company A had acted as a party to the contract and company B had no opportunity to recover the damage from the seller.
Conversely, confusion can arise when several companies of the group are involved in the formation of a contract. Who are the contracting parties? The Amsterdam District Court ruled that the companies involved have the responsibility to dispel the confusion of the other party as quickly as possible. If they don’t do so, all companies of the group may be considered as contracting parties and will therefore be obliged to fulfil the contract.
Would you like to get more information about the possibilities of spreading risk when contracting through group companies? Or do you have any other questions concerning contracts and liability, please contact us:
On 10 November 2020, the Dutch Senate adopted the bill on the management and supervision of legal entities. This affects all associations and foundations, but, above all, nonprofit organizations. As an officer of a sports club, are you now more likely to be liable? Do you have to meet additional requirements when you are a member of the supervisory board of a school?read on
Proceedings do not always have to be in court. There are other ways to resolve legal disputes. An important and often also appealing alternative is arbitration. In particular if you are doing business internationally. What are the advantages of arbitration?read on
Is there already a works council in your company? Are you a member of your company’s works council? What are the advantages of having a works council in your company? Jan Dop and Priscilla C.X. de Leede explain the role of the works council and give an overview of the works council’s most important rights.read on
The Management and Supervision of Legal Entities Act will enter into force on 1 July 2021. How does this affect the articles of association of your foundation, association or cooperative association?read on
Management Boards of listed companies get a new tool to protect the company against unwanted shareholder activism or an impending (hostile) takeover. The possibility of invoking a 250-day cooling-off period is introduced. What does this cooling-off period entail exactly?read on
We have hosted a special webinar “COVID-19: Reorganization, Job Loss & Stay” in cooperation with IN Amsterdam on 23 March. During the webinar, we discussed issues that employers and international employees face due to the impact of the coronavirus. Watch the video today!read on
The expert lawyers of Russell Advocaten contributed the chapter on the Netherlands to the Lexology Guide Distribution & Agency. Lexology is the most comprehensive source of international legal updates, analysis and insights for law firms and in-house counsel.read on