The supervisory board of a Dutch subsidiary

Publication date: 13 August 2020
Supervisory board members of a Dutch subsidiary that is fully owned by foreign companies are required to primarily focus on the interests of the subsidiary. However, their knowledge of the Dutch rules also allows them to warn the parent company of problems.

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Dutch law requires large Dutch companies to establish a supervisory board (hereinafter: SB; in Dutch: Raad van Commissarissen; RvC), the so-called two-tier board regime. If an international group has a subsidiary in the Netherlands, that meets the conditions of the two-tier board regime, the group will also have to deal with it. What is the added value of mandatory supervisors for a company? And how independent may/must the SB operate?

Two-tier board regime: when is a supervisory board required?

A company is subject to the two-tier board regime if:

  • Its issued capital with reserves is at least EUR 16,000,000
  • It has established a works council by virtue of a statutory obligation and
  • It generally has at least hundred employees in the Netherlands.

A company meeting these criteria, has to report this to the Commercial Register. If a company continuously meets these criteria for three years, the two-tier board regime applies. Companies that do not fulfil the criteria may voluntarily apply the two-tier board regime.

Full and mitigated two-tier board regime

The two-tier board regime can be a full or mitigated regime. Each two-tier board regime is obliged to establish an SB. However, in a mitigated system it has fewer powers. The application of the full two-tier board regime is the main rule. The law provides for a number of exceptions.

If at least half of the issued capital of the Dutch companies is held by a legal entity (for example, international holding, parent company) with most of its employees active outside the Netherlands, the application of the mitigated two-tier board regime is permitted. Dutch subsidiaries, that are part of an international group, thus often have a mitigated regime.

Role of the supervisory board

In a full two-tier board regime, only the SB is authorised to appoint and dismiss directors and important management decisions must be approved by the SB. In the mitigated two-tier board regime, the SB only has the power to approve important board decisions. The other powers are reserved to the shareholder(s). The power of approval is, in principle, limited to decisions taken by the board of the two-tier board company itself. After all, the group strategy is determined by the shareholder and thus the international holding/parent company.

Although the mitigated two-tier board regime limits the powers of the SB, it does not make the role of the SB as an independent supervisor any less important. The mandatory SB supervises the management policy and the general course of affairs in the company. The SB also assists the board of directors. In the performance of their duty, the SB must be guided by the interests of the Dutch company and its affiliated company.

As a supervisor, the SB is closely involved in the management, the activities, the works council and the employees of the Dutch subsidiary. The SB also charts the social and governance objectives and obligations facing the Dutch subsidiary, the climate in which it operates and what the role, added value, vision and input of a works council is.

In a situation in which the international holding/parent company primarily focuses on the interests of the group and thus threatens to undermine the interests of the Dutch subsidiary, the SB has an important role. In the exercise of its supervisory task, the SB primarily focuses on the interests of the Dutch subsidiary and its stakeholders. The SB can also warn the international holding/parent company if a group strategy is formulated and implemented at a subsidiary, which will run into practical and legal problems in the Netherlands. Therefore, the SB is an independent discussion partner for all parties involved.

Conclusion

Although the supervision of the SB is limited to the Dutch subsidiary and its affiliated company, the SB has an important role. In the exercise of its supervisory task, the SB primarily focuses on the interests of the Dutch subsidiary, but at the same time is an important discussion partner for all parties involved. Both the international holding/parent company and the Dutch subsidiary thus benefit from the independent implementation of the tasks of the SB.

More information

Do you need advice on the position of the supervisory board within an international group? Do you have a dispute with the foreign parent company or holding? The specialist lawyers at Russell Advocaten will gladly assist you. Please contact:

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