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28 Oct 2022 Dismissal of foundation director by the court

Who can be qualified as ‘interested party’ in submitting resignation request?

In the Netherlands, it is possible for foundations to only have a board of directors and no supervisory board. This means external control over the board is lacking. For this reason, an interested party can start a legal procedure with a request to dismiss the foundation board if the board does not perform its duties properly. A recent ruling by the Arnhem-Leeuwarden Court of Appeal clarifies who can be an interested party in such proceedings.

What were the facts of the case?

The applicant is the nephew of a man with severe intellectual disability who lives in a care institution. The disabled man has no partner or children and his brother died young. The man's parents, together with another couple, set up a foundation with the aim of caring for disabled people, in particular the man himself. In that context, the foundation operates the former farm with agricultural land belonging to the man's parents, now owned by the foundation.

The man's parents have long since passed away. The man's father appointed the foundation as his sole heir under the burden of using the assets from the estate to fulfil the foundation's purpose. After the father's death, a third party joined the foundation board.

The nephew of the disabled man requested the court to dismiss or suspend the directors of the foundation under section 2:298(1) of the Dutch Civil Code and to appoint someone else as foundation director. The reason? The farm has been empty for years, is in deplorable condition, no maintenance is being done and the disabled man can no longer stay in the farm. According to the nephew, this is a case of mismanagement and thus grounds for dismissal.

How did the court and the court of appeal rule?

The court rejected the nephew's requests because he cannot qualify as an interested party. The nephew appealed but the court of appeal reached the same verdict.

Central to this case is the question: who is an interested party? Because only an interested party can take action against the foundation itself. Who is an interested party must be inferred from the nature of the proceedings and the law. In doing so, there are two criteria:

  1. To what extent can the interested party's own interest be affected by the outcome of the proceedings to such an extent that it should be entitled to intervene therein to protect that interest? or
  2. To what extent is the interested party otherwise so closely involved (or has been so closely involved) in the subject matter of the proceedings that an interest in appearing in the proceedings arises therein?

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According to the nephew, he has a self-interest in the dismissal of the foundation board because he is heir to the disabled man. On the disabled man's death, the nephew and the other cousins will inherit the farm. But according to the court, it has not been established that the nephew, as heir in the event of the disabled man's death, has a self-interest in the dismissal of the foundation board. After all, the farm is owned by the foundation and it has not been stated or shown that the man's heirs will be able to lay claim to (part of) the foundation assets after his death or that the man's estate will include claim rights on or debts to the foundation. Indeed, the foundation assets will remain in the foundation when the disabled man dies. In short, the first criterion is not met.

Nor has it been established that the nephew is so closely involved in the subject matter of the proceedings that he should be considered an interested party for that reason. It is insufficient that the nephew is an immediate relative of the disabled man and that he states that he, along with the other cousins, is concerned for his welfare. In this regard, the court finds it significant that there has apparently been no contact between the two cousins for more than 25 years. Nor do the other cousins play any role in the disabled man's life. The cousin's care seems to relate mainly to the former farm of the man's parents, which, according to the cousin, is in poor condition. But that, according to the court, is insufficient to qualify as an interested party. Thus, the second criterion is not met either.

You can read the ruling here.

Final Remarks

This judgment clarifies case law on the interested party criterion and, in our opinion, also shows that it is advisable to set up not only a board but also a supervisory board to oversee the implementation of the foundation's objective.

Also questions about foundations? Or other corporate law issues? Ask them to SPEE advocaten & mediation!

SPEE advocaten & mediation Maastricht

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