Managing director: under the articles of association or not?

A recurring discussion whenever there is a proposal to dismiss a managing director is whether he or she is actually a managing director under the articles of association (statutair bestuurder). This is an important question, given the fact that a managing director under the articles of association enjoys less protection from dismissal than a ‘regular’ employee.

The main rule is that managing directors under the articles of association are appointed by the general meeting of shareholders. Such appointment must be based on a shareholders’ resolution. The law does not prescribe any formal requirements for this, however, and nor do a company’s articles of association necessarily.

You would think that it’s just a matter of adopting a written shareholders’ resolution, having the new managing director co-sign it, if necessary, and confirming in the managing director’s employment contract that his signature constitutes acceptance of the appointment. The final step would be to simply enter the managing director in the Trade Register.

If an employer does not do this, it would be challenged to produce evidence. This was also the case in the following proceedings (click here for the full ruling (Dutch only)).

SterGro is the sole shareholder and managing director of Groveko. SterGro dismissed its managing director. The parties disputed whether the managing director should be considered to be a managing director under SterGro’s articles of association, or managing director / CEO of Groveko, the subsidiary. SterGro asserted that, although there was no formal shareholders’ resolution appointing the managing director, the managing director must be considered to have been a managing director under SterGro’s articles of association since mid-2015. The resolution to dismiss and the termination letter ended both the corporate law and the employment law relationship between the managing director and SterGro with effect from 1 July 2020 (in accordance with the Dutch Supreme Court’s judgments of 15 April, click here for the full ruling (Dutch only)).

The managing director subsequently asserted that although he had, admittedly, concluded an employment contract with SterGro, he was actually Groveko’s managing director, which company paid his salary too. The managing director initiated interim relief proceedings and won: SterGro had failed to make a plausible case that the managing director was a managing director under its articles of association. So no dismissal ensued, and the managing director remained in employment.

SterGro then lodged an appeal. The Court of Appeal held that it was plausible that an appointment resolution had been adopted and that the managing director had accepted his appointment. Allegedly, the managing director had agreed to become a managing director of SterGro when he had sold his own company to SterGro, his employment contract contained a reference to his appointment, and he had signed off on SterGro and its subsidiaries’ consolidated financial statements as a managing director. What is more, he referred to himself as ‘statutair directeur’ in emails.

Briefly put, the Court of Appeal held that the managing director had no justifiable reason for assuming that he had not been appointed as a managing director under the articles of association. The Court of Appeal found that the managing director’s dismissal with effect from 1 July 2020 was legally valid; the dismissal resolution of 27 April 2020 and the subsequent termination letter of 29 April 2020 then ended both the corporate law and the employment law relationship between SterGro and the managing director, with effect from 1 July 2020. Only if the parties had agreed, when concluding the employment contract, that any future corporate law dismissal would not also constitute a dismissal under employment law, would this situation have been different. The Court of Appeal referred in this regard to the judgments of 15 April (“de 15-april arresten”). That was not the case here. More than that, the employment contract actually contained a severance scheme / severance pay clause for the managing director as managing director under the articles of association and as an employee of SterGro.

The findings of the Court of Appeal are remarkable and, in my opinion, incorrect to boot, given the fact that the Dutch Supreme Court has made it clear – in the Squamish v Van Ekelenburg judgment – that the facts are more important than appearances: if a pseudo-managing director assumes in good faith that he was appointed as a managing director and/or has been acting as such, for instance by signing the financial statements, representing the company, etcetera, that does not necessarily mean that he is a managing director within the meaning of Book 2 of the Dutch Civil Code.

And based on those facts, the Court of Appeal concluded that the managing director was a managing director under the articles of association. Be that as it may, this judgment could just as easily have favoured the managing director. That would not necessarily have been helpful for him, given the fact that SterGro had, in the meantime, applied for and obtained permission to dismiss, meaning that the employment contract would have ended anyway even if the managing director had been classified as a ‘regular employee’. In any event, it is important to prevent this type of costly dispute. After all, there is a simple way of doing so!

Dennis Veldhuizen (dv@clintlegal.com / +31 20 820 0330)