What happens with a Dutch BV when a director passes away?
Some questions are better left unasked, especially when the subject is rather bleak. The passing away of any person or a company succession is never a positive conversational topic, nonetheless it deserves attention, especially in the context of business matters. For example, if you are the owner of a Dutch BV and you pass away: do you know what will happen to your company, assets and liabilities? Do you know who will take over your company? Or do you intend to sell it after you pass away, to leave money for possible heirs? In general, the amount of time you spend on answering such questions and coming up with a well thought out plan, will determine how smoothly the process will go. In this article we will provide more information on the subject, and we will explain what exactly can happen when a director passes away. We will also outline what you can do to secure your future, and the future of your heirs.
Do you know who the heirs are?
One of the most important questions when you pass away, is who will inherit what you left behind. So the question arises as to who the heirs are. This question can fairly simply be answered, if a will has been drafted. In the Netherlands, this can be checked in the Central Wills Register (CTR). The CTR is a register that contains various 'dispositions of property upon death', or other regulations that have consequences in the event of death. You can inspect the CTR yourself when someone has passed away. If a will has been created, it is usually relatively easy to find out who the heirs are. If, however, there is no will at all, it may take longer before there is clarity about this matter. Research must be done into who the heirs are by, for example, writing to the municipality(s) and consulting the population register. Sometimes the heir turns out to be a minor, incapacitated, or no heir at all can be found.
If a will has been made, the heir investigation doesn’t take a lot of time. Nonetheless, reality shows that shortly after someone’s death, those involved do not always take immediate action. In some cases the heirs might not even know that someone passed away. The heirs will have to contact a notary, after which a period of investigation will first follow. During this period, certain persons must be approached, before a certificate of inheritance can be issued. This certificate clarifies who is authorized to represent the deceased person. It is not always clear who is authorized to act on behalf of the deceased director, hence the need for an investigation.
Do the heirs automatically become the new director(s)?
Unfortunately, the process is not that simple. If the will doesn’t state clearly what should happen with the company after its director passes away, there are numerous options that need to be figured out. So once the heirs are found, it does not mean that a new director can be appointed. For example, if one is married in community of property, some believe that the surviving spouse automatically becomes the sole shareholder of the Dutch BV. This is not correct, as before there is a single shareholder, a deed must be drawn up first by a notary.
It is also preferable and necessary that someone takes over the company who knows what to do with it. If there are multiple eligible heirs, it should be researched who the best follow-up will be. Please note, that the follow-up cannot be appointed in the will. This is due to the fact, that this is a task of the general meeting of the company to appoint directors. Even if you are both a director and a sole shareholder, the appointment of directors is reserved for the general meeting. The situation can become pretty messy If nothing is known whatsoever about the person who should take over the company, which is why it’s important to think about creating a will when you own a company.
The certificate of succession explained
A certificate of inheritance is a deed drawn up by a notary, which shows who the heirs and/or executor are. In addition, the certificate of inheritance shows who are competent to settle the inheritance. This involves, amongst other things, the making of payments. If it turns out that there is an executor, a certificate of inheritance will be drawn up in which only the executor is mentioned. An executor cannot perform all actions alone, because sometimes an act still requires the cooperation of the heirs. This can be for practical tasks such as the closure of a bank account. If it later turns out that the cooperation of the heirs is required for certain actions, you can still have an extensive certificate of inheritance drafted.
Appointing an executor in your will
In order to avoid the previously mentioned messy situation, you as a director can appoint an executor in your will. An executor is a person who represents the heirs when someone passes, and can also exercise the voting rights on the shares in his function. He may also appoint a successor director in that position, for an interim period, until the heirs have reached agreement on the subject. Please be mindful about the fact, that appointing an executor in a will is not a real solution, if there are multiple shareholders. The shareholder who includes the appointment of an executor in his will does so unilaterally, whilst other shareholders have no influence on the matter. Moreover, it may be that the executor has no ties at all with the company, and therefore has less insight into a suitable director. In such cases, more involved people should assist. In addition, the blocking arrangement that we will discuss below usually plays a role in a situation of several shareholders.
Can the articles of association provide extra insight?
Many companies include a provision in the articles of association of companies, stating that in the event of death, one person must be appointed to represent the heirs. This arrangement is particularly practical towards the BV itself, because only one person acts as the representative of the heirs and not all heirs. This makes communication especially a lot easier. Moreover, if there is a less good atmosphere within the family, for example, due to disagreements about which of the family members should be appointed as a director, this arrangement puts the (possible) problem solely with the heirs. Instead of the question of who should be appointed as a director, the question now is who should be appointed as a voter. Thus, the provision can actually cause more confusion than solutions.
The Dutch law lays down the obligation to regulate how the management is (provisionally) provided for, in the event of absence of a director. This should be clearly stated in the articles of association of a BV. In addition, the articles of association can also describe which cases qualify as absence. Usually, articles of association state that in the absence of all directors (in the case of just one director, the sole director), the general meeting needs to appoint a person. In such cases, the general meeting is formed by the heirs. So if the heirs do not manage to figure out whom they want to put forward as a director, then problems arise. One possibility to avoid this impasse is to include in the articles of association that an independent third party is granted the power to appoint a director.
It is, of course, advisable that this third party knows the company, and that any wishes of the deceased director are known to him or her. This will enable the right person for the position to become director. Another possibility is to appoint an intended successor as director, in advance, by the general meeting if someone is absent. At that moment, the general meeting is still formed by the director, since the director is still alive. The director can therefore provide for his – provisional – follow-up in the event of death. This last option seems most preferable, since the director himself knows more about the company, its ideology and employees than anyone else.
The benefits of the articles of association
The big advantage of regulating the succession of directors in the articles of association of any Dutch BV is, that the arrangement in the articles of association takes precedence over a possible testamentary arrangement. This also goes for a possible blocking arrangement in the articles of association. This ensures the certainty, especially for other remaining shareholders, that they do not have to fear a confrontation with an heir who wants to sit in the director's seat. Furthermore, the decision of appointing a director is made by the incumbent directors themselves. Whilst a will can only be made by one director, and can also be revoked.
What happens when there are multiple shareholders?
Until now, we discussed the situation in which there is only one director. But it is also possible, that a Dutch BV has multiple shareholders/directors. Is the aforementioned regulation in the articles of association also practical in such cases? It is usually not desirable, that any surviving shareholder is confronted with a director appointed by the heirs of the deceased shareholder. When something like this happens, it seems advisable to have the shareholders appoint a successor director together, before the situation arises at all. It is also possible to suffice with a regulation that, if one of the directors is absent or deceased, allows the surviving director to form the board. In other words: there will be no replacement for the deceased director. This provision is also often included in the articles of association.
What is the Dutch blocking arrangement exactly?
Especially when the situation arises with multiple shareholders, the so-called blocking arrangement is typically declared applicable in the articles of association. Although this blocking is no longer self-evident with the introduction of the Flex-BV, the regulation itself can still be encountered in practice. This regulation blocks the transfer of the shares, meaning that if a shareholder wishes to transfer one or more of their shares, they must first be offered for sale to a co-shareholder. This blocking arrangement makes the Dutch BV a private company, since there is only a closed circle of shareholders.
The regulation ensures that in the event of the death of one of the shareholders, the shares held by that shareholder must be offered by the heirs to the remaining shareholder(s). In this way, it is ensured that the voting rights – and therefore also the right to appoint a director – remain with the (original) shareholders themselves. Of course, the recipient will have to pay for the shares. However, if the financial means for the surviving shareholder(s) to finance the acquisition of the shares are missing, it is very well possible that the package of shares of the deceased shareholder does not end up with the remaining shareholder(s).
In order to prevent the remaining shareholder(s) from arguing with the heirs about the director's position, it is strongly advisable to provide for a regulation in the case of absence at an early stage by the general meeting. In this context, it might be desirable to include a safety net in the articles of association, which states that the directors are only jointly authorized to represent the BV. This will ensure that a director, appointed by the heirs, cannot simply act without engaging the other director(s). This joint competence can also be included for 'certain' actions.
What if you own a holding company?
If you own Dutch BV’s with a holding structure, it gets a little more complicated. If you do not hold shares in a BV directly but through a holding company, it is important that the articles of association of both BV's take this into account. For example, if an absence scheme is included in the articles of association of the subsidiary, it is wise to include whether it also applies to the shareholder of the subsidiary, if he or she is not a natural person but the BV itself. The same also applies to the blocking arrangement: a BV as a shareholder cannot die, but if the shareholder of the holding company dies, which in turn holds the shares in the subsidiary, it must be clear that the blocking arrangement also applies in that case. It is therefore good to indicate whether it is intended that the remaining shareholder should acquire full control, if the control over another shareholder changes due to the death of that shareholder.
Dismissing a director
Please note that the general meeting has the power to appoint, but also to dismiss directors. This means, that if a director has already been appointed before death, he or she can also be dismissed again if the shares with the voting rights ultimately end up with the heirs. A solution to avoid this problem can be found in the provision in the articles of association, that a reinforced majority is required for the appointment and dismissal of directors. However, under the law, this majority may not exceed a two-thirds majority. In addition, it is advisable to include further wishes with regard to the successor board in the decision of the current directors: is it the intention that the successor director only temporarily performs his function and looks for a suitable candidate himself? Or should the successor stay indefinitely? Drafting up such provisions can save you a lot of work and trouble, in the event that someone passes away.
What can Intercompany Solutions do for you?
Intercompany Solutions can assist you with every aspect of company formation in the Netherlands. This also includes legal and financial advice, especially about subjects that can be hard to understand for foreign investors and/or entrepreneurs. We strongly advise any business owner to think about topics such as succession in the case of death. You should also record your wishes in the articles of association, or in a formal decision. Afterwards, a notary can take care of the official registration. The advantage, registering this information officially, is the clarity you will have in the event of a death. If you would like to know more about the subject, please feel free to contact our team. We can also inform you about good notaries in the Netherlands, who can help you further.