There is no required form for the appointment of a director under the articles of association and it can thus be made orally. However, it is advisable to establish the decision in writing because in the event of a dismissal of the statutory director there could be confusion and, as a result, potentially costly legal proceedings might have to be conducted.
A statutory director is appointed by the general meeting of shareholders, the supervisory board, or any other body authorised by the articles of association. The law does not prescribe a specific form: a written appointment resolution is not mandatory, unless the articles of association provide otherwise. Nevertheless, it is strongly recommended.
Often, a statutory director also has an employment contract with the company, but this is not a requirement. A major difference with an “ordinary” employee is that a statutory director can be dismissed without the intervention of the Employee Insurance Agency (UWV) or the subdistrict court. Therefore, it is crucial that the company can prove that a director is a statutory director by means of an appointment decision and that the director has accepted this appointment.
What are the consequences when the appointment of the statutory director is not (properly) recorded in writing? In both a recent case before the subdistrict court in Apeldoorn and a somewhat older judgment by the subdistrict court of The Hague, this question was at the heart of the case.
In both cases, the director argued that he was not a director under the articles of association, but only a nominal director, and that he was therefore entitled to dismissal protection as with ordinary employees. In the Hague case, the director therefore claimed annulment of the dismissal and otherwise a fair compensation, while in the Gelderland case, the director demanded a fair compensation first. According to this director, the employer should have applied to the UWV for a dismissal permit before terminating the employment relation.
In both cases, the employer claimed that the director was indeed a statutory director, but could not submit a formal appointment decision. As mentioned earlier, a decision to appoint a director under the articles of association is free of form. There is no legal requirement for a written record, as long as it is clear that the competent body took the decision. How did the employers in both cases manage to prove this?
In the Apeldoorn case, the general meeting of shareholders was the competent body. The company submitted as evidence a ‘letter of appointment for directors’, which stated that the general meeting authorised the company to appoint the director as ‘Director’. Although this document did not contain an effective date of the appointment, nor were minutes of the shareholders’ meeting available, there was sufficient evidence that the appointment had actually taken place:
The court therefore concluded that, despite the lack of a formal written appointment decision, it was sufficiently plausible that the director was a director under the articles of association. And in this case, that meant that the case should not be heard by the subdistrict court, but by the commercial court.
In the The Hague case, the employer could not produce a shareholder resolution or any other documents showing that it had been intended to appoint the director as a statutory director. Nevertheless, even in this case, the employer managed to prove that the director was a statutory director and not just a nominal director:
The counterarguments of the employee were not successful in court. The fact that the employee only had a part time contract for a fixed term when he was appointed did not rule out appointment as a statutory director. After all, there is no direct connection between the nature and scope of the employment relationship of the (statutory) director and the appointment as a director under the articles of association. Besides, as already mentioned, a person may be the director of a legal entity even if there is no employment contract.
Both cases show that the absence of a written appointment resolution need not be immediately fatal, but it does significantly complicate the legal process. After all, once it has been established that someone is a statutory director, they can be dismissed by a simple resolution of the general meeting of shareholders, without the need for intervention of the UWV or the subdistrict court.
Should the dispute nevertheless have to be submitted to the court, it is very important to have clarity right from the start as to whether someone is a statutory director. In that case, the subdistrict court does not have jurisdiction to rule on the dismissal dispute and another division of the court will have to deal with the case.
To avoid complicated legal proceedings, it is wise to ensure that you record the actual and desired situation. When directors act in practice as statutory directors, you should also appoint them as such. Not only should you put the appointment decision in writing, you should also register the statutory director in the Commercial Register. This way, both the company and the director avoid unpleasant surprises when the director is dismissed.
Do you need advice on the advantages and disadvantages of appointing a director as statutory director? Or do you have any questions about the position pertaining to employment law or company law of the director under the articles of association? Please contact us:
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