Directors of a limited liability company (BV) under the articles of association often work on the basis of a management agreement with the company, but what happens to such an agreement when the director is dismissed by the shareholder(s)? Does the management agreement end automatically or does it continue? This question was recently raised in proceedings before the court of Rotterdam. Below you can read more about the outcome of the case.
Case background
The case concerned a family company founded by the grandfather, who was also a director under the articles of association (in Dutch: statutair bestuurder). Although he still held only 10% of the shares, he did not want to give up his role as a director. The remaining 90% of the shares were held by his sons and grandsons. Despite the grandfather's wish to “die in harness”, the other shareholders chose to dismiss him. However, the grandfather decided to challenge the dismissal. He initiated proceedings against both his dismissal as a director under the articles of association and the termination of his management agreement. To this end, he made several arguments.
Obligation to hear, right to be consulted and unanimous dismissal decision
First, the director argued that the dismissal was invalid because, in his opinion, the obligation to hear and the right to be consulted had not been met. The court rejected this, as the director had had the opportunity to express his objections to the dismissal during the general meeting. The fact that the other directors had not used their advisory role did not alter this. Nor were they obliged to do so.
In addition, the director referred to the shareholders' agreement, which stated that the appointment of a director required a unanimous shareholders’ resolution. According to him, this also applied to the dismissal of a director. The court did not agree with this. The law has a specific regulation for the dismissal of directors under the articles of association, which cannot be deviated from. This rule ensures that a director cannot keep his position if it goes against the wishes of a majority of the shareholders, in this case a two-third majority.
End of the management agreement?
Finally, the director argued that his management agreement was not validly terminated because this agreement did not contain a clause on termination. However, the court ruled that his dismissal as a director automatically led to the end of the management agreement. In its reasoning, the court followed the line of the judgments of 15 April 2005, in which the Supreme Court ruled that the dismissal of a director under the articles of association also automatically leads to the termination of the employment contract, even when there is no formal notice of termination of the employment contract.
Hence, it is now clear that the dismissal of the director by the shareholder(s) also leads to the automatic termination of the management agreement, despite the absence of a termination clause.
You can read the full ruling here.
De 15 april-arresten: verminderde arbeidsrechtelijke bescherming voor de statutair bestuurder
The abovementioned judgments of the Supreme Court dated 15 April 2005 are important decisions on the dismissal of directors. These judgments stipulate that a resolution of the general meeting of shareholders to dismiss a director, automatically terminates the employment contract of the director under the articles of association, without requiring a separate notice of dismissal. These judgments underline the difference in employment law protection between a director under the articles of association and an “regular” employee.
A regular employee enjoys extensive dismissal protection, such as notice periods and the possibility of dismissal review by the court or the Employee Insurance Agency (UWV). However, a director under the articles of association can be dismissed relatively easily, as his appointment and dismissal both depend on the shareholders' meeting. As a result, he enjoys a much lower level of protection against dismissal.
Importance of the ruling
The Rotterdam court ruling underlines once again that, provided that all formalities are met, a director under the articles of association can be dismissed relatively easily. Moreover, this dismissal also leads to the termination of the management agreement, even if there is no specific termination clause in this agreement. Therefore, the judgments of 15 April 2005 also apply to the management agreement.
Do you have questions about the dismissal of a director or about other employment or corporate law issues? The experienced lawyers at SPEE advocaten & mediation will be happy to assist you.