Should a director take care of his own succession?

Recently a remarkable ruling was published by the Enterprise Chamber of the Amsterdam Court of Appeal ("OK") in which the OK charged a director under the articles of association of a company with the lack of a management board under the articles of association after his departure. This ruling is remarkable because, in principle, care for succession is not part of the duties of a company's statutory director. This is because, in short, the law prescribes that the power to appoint directors rests with the general meeting.

The case study

What was going on? The shares of the company in question were held by four parties in the following proportion: A (55%), B (15%), C (25%) and D (5%). B constituted the statutory management of the company. At some point B stepped down as statutory director. Only four years later a new statutory director was appointed. Thus the company was rudderless for four years. And this is evident from the investigator's report, which found an administrative mess.

Verdict OK

The OK makes no bones about it and rules that both B and A are to blame for the absence of a management board under the articles of association for four years. According to the OK, under the circumstances and in view of the provisions of Section 2:9 of the Dutch Civil Code, it could be expected of B as the retiring director that he would make serious efforts to prevent the absence of a management board under the articles of association. The OK went on to rule that also A as the majority shareholder could, under the circumstances and pursuant to Section 2:8 of the DCC, be expected to take steps to fill the resulting vacancy.

Judgment OK taken a closer look

Both B in his capacity as director and A in his capacity as shareholder are reprimanded by the OK. I find it understandable that A in his capacity of shareholder is reproached, since (i) the power to appoint the management board under the articles of association lies with the general meeting, except for exceptions under the articles of association, and (ii) A held the majority of the shares. In other words, he had the power and opportunity to provide for a new statutory board.

Why B in his capacity as director also goes for the axe I find less understandable. According to the OK, the basis for this lies in the legally embedded principle that the director is obliged towards the legal entity to perform his duties properly. But the OK does not explain why the duties of the retiring director include the care for succession. It is possible that the fact that B was not only a director but also a shareholder also played a role in this, but even this is not apparent in so many words from the reasons given by the OK.

Expansion of board duties?

Does this ruling bring an additional task for you as a company's statutory director? Not in my opinion. After all, the power to appoint the statutory board still rests with the general meeting. But keep in mind that, under circumstances, for example if a board vacuum threatens after your resignation, you will be expected to make efforts to prevent the board vacuum from materializing.