English summary

The financial statements exemption pursuant to section 2:403 DCC and the compensation of creditors

Pursuant to section 2:403 of the Dutch Civil Code (hereinafter: ‘DCC’) a group company can, under certain conditions, avail itself of a financial statements exemption. The group company (hereinafter: ‘403-company’) is then, among other things, exempt from the obligation to publish the financial statements.1 The two main conditions to be met for the 403-company to avail itself of the financial statements exemption are that the financial information of the 403-company has been consolidated in the consolidated financial statements of a legal entity within the group (hereinafter: ‘parent company’) and that this parent company has declared in writing that it has assumed joint and several liability for the debts arising from the legal acts of the 403-company (hereinafter: ‘403-statement’).2

If a 403-company avails itself of the financial statements exemption pursuant to section 2:403 DCC, its creditors cannot consult the financial statements to assess the risk level that their claim will not (fully) be satisfied.3 The compensation a creditor receives for this lack of insight is comprised of two complementary elements. Firstly, the 403-statement gives the creditor an additional claim on the parent company. In addition, he has the opportunity to inspect the consolidated financial statements of the parent company. This compensates a creditor for the fact that he has a claim on a debtor – the 403-company – whose financial statements he cannot inspect, with an additional claim on another debtor – the parent company – whose consolidated financial statements he can inspect. The creditor has no guarantee that his claim will be paid in full. He is compensated by the fact that he has the possibility to inspect the consolidated financial statements of the parent company and that he can then assess the risk level that his claim will not (fully) be satisfied. Ultimately, it is up to the creditor himself whether or not to accept this risk and whether or not to enter into a relationship with the 403-company or continue an existing relationship.4

I have examined how the 403-liability should be interpreted in the light of its function in compensating creditors for not being able to inspect the financial statements of the 403-company. The criterion I used for the compensation is that the disadvantage must be removed that is suffered by a creditor as a result of the 403-company availing itself of the financial statements exemption, or as a result of the parent company withdrawing the 403-statement or terminating the remaining liability.5 I also examined how the 403-liability should be interpreted in order to prevent, as far as possible, a creditor being overcompensated and placed in a more advantageous position by the compensation he receives. I refer to this as the principle for compensation that I advocate.

If I came to the conclusion that current legislation does not lead to a situation in which the creditors of the 403-company are (sufficiently) compensated for not being able – or not having been able – to inspect the financial statements of the 403-company, or where I felt that the creditors are being overcompensated, I made a proposal to amend the current law on this point.

The separate financial statements of the parent company

There is no requirement pursuant to section 2:403 DCC for the parent company to (also) have filed its separate financial statements – which does not alter the fact that a parent company may be required to do so under the financial reporting regime applicable to it. A creditor can better assess the risk that the parent company will not (fully) satisfy the claim under the 403-statement on the basis of the information in the separate financial statements than the information in the consolidated financial statements. To ensure that creditors can always easily inspect the separate financial statements of the parent company, I believe that section 2:403 DCC should be amended in two ways. First of all, the filing of the separate financial statements of the parent company should be added to section 2:403 DCC as a constitutive requirement for the use by the 403-company of the financial statements exemption. Also, it should be included in this provision that it is the 403-company that must file the separate financial statements of the parent company, so that creditors can inspect those financial statements when they request information about the 403-company from the trade register.6

The material scope of the 403-liability

Pursuant to section 2:403(1)(f) DCC, a parent company must, under a 403-statement, assume joint and several liability for the debts arising from legal acts of the 403-company. In this provision, three elements can be identified with regard to the material scope of the 403-liability: ‘debts’, ‘legal acts’ and ‘arising’.

The term debts refers to monetary debts and to obligations in forms other than currency of the 403-company. In my view, in order to clarify the scope of the 403-liability, it would be desirable to replace the term ‘debts’ in sections 2:403(1)(f) DCC with the term ‘obligations’.7 Since a parent company, under section 2:403(1)(f) DCC, only has to assume liability for the debts arising from a legal act of the 403-company, debts arising from the law – for instance taxes or a debt arising from an unlawful act – do not fall within the scope of the 403-liability.8

In my opinion, a debt arises from a legal act if the will of the creditor with regard to the creation, substance or continuation of the debt could have been influenced by insight into the financial statements of the 403-company – if the 403-company had not availed itself of the financial statements exemption under section 2:403 DCC.9

Under the law as it stands, a preferential or subordinated claim against the 403-company does not entail that the claim against the parent company is also preferential or subordinated. However, viewed from the perspective of compensation of creditors, there is no reason why a creditor’s rights of recourse against the 403-company and those against the parent company should be different. I therefore argue in favour of adding a provision to section 2:403 DCC to the effect that a claim against the parent company on the basis of the 403-statement has the same position of preference or subordination as the corresponding claim against the 403-company.10

The temporal scope of the 403-liability

The debate in the literature as to whether – and if so to what extent – a parent company is liable on the basis of a 403-statement for debts arising from the legal acts carried out by the 403-company before the 403-statement was filed, is partly caused by the fact that case law – hitherto only at a lower level – has decided differently on this subject. Since 2001, however, with the exception of one judgment, case law has consistently held that a parent company is liable under the 403-statement for all debts that arise or have arisen from a legal act of the 403-company.11 In parliamentary history, too, the 403-liability has been interpreted this way.12 Initially, the Minister stated that the liability of a parent company was limited to future obligations. But later he declared that on the basis of a 403-statement, a parent company is liable for all debts that arise or have arisen from a legal act of the 403-company.

That, under the 403-statement, a parent company is liable for all debts that arise or have arisen from a legal act of the 403-company is in line with the principle for compensation that I advocate.13 Both the existing and the new creditors are disadvantaged, because they cannot inspect the new financial statement(s) of the 403-company. Both groups of creditors should therefore be compensated by means of an additional claim on the parent company whose consolidated accounts they can inspect.

Interpretation under civil law of a claim based on the 403-statement

A creditor of the 403-company has two claims: a claim against the 403-company and a claim against the parent company based on the 403-statement (hereinafter: ‘403-claim’). In the literature there is a debate concerning the civil-law interpretation of the 403-claim against the parent company. This claim has also been interpreted differently in case law.

I have examined the legal consequences of four different interpretations of the 403-claim: the ‘joint and several’ claim, the ‘dynamic’ claim, the analogous application of section 6:142 DCC with regard to the 403-claim, and finally the analogous application of the provisions on surety with respect to the 403-liability.14 I have, for various different situations, examined the consequences of each interpretation.15 Next, I compared the consequences of the various different interpretations of the 403-claim with the outcome in these situations in accordance with the principle for compensation that I advocate.16 The conclusion is that an analogous application of the provisions on suretyship in respect of the 403-liability corresponds, in all the situations examined, to the outcome according to this principle.17 The Dutch Supreme Court, though, in the Akzo v. ING decision, rejected the analogous application of the provisions on suretyship in respect of the 403-liability.18 To be able to interpret the liability of the parent company as such, section 2:403(1)(f) DCC must therefore be amended.

However, it is not a solution to change section 2:403(1)(f) DCC so that the parent company must act as surety for the debts arising from a legal act of the 403-company. Since suretyship is an agreement,19 this would mean that the parent company would have to make arrangements regarding its liability with each creditor of the 403-company. I have identified two alternatives for achieving that the liability of the parent company is of a dependent and subsidiary nature. Firstly, it could be included in section 2:403(1)(f) DCC that the parent company must file a statement under which it assumes joint and several liability for the debts arising from a legal act of the 403-company, to the extent that the 403-company itself fails to perform and this liability is dependent on the obligation of the 403-company to which it applies. A second option is to amend section 2:403(1)(f) DCC thus, that the parent company must declare that it guarantees the debts arising from a legal act of the 403-company.

As long as section 2:403(1)(f) DCC is not amended in one of the above-mentioned ways, the only possibility a parent company has to achieve that its liability under the 403-statement is of a dependent and subsidiary nature, is to enter into an agreement with a creditor. A practical way to achieve this is to give the 403-company a standing power of attorney so that it can conclude the agreement with the creditor on behalf of the parent company, the moment the 403-company itself enters into an agreement with the creditor. However, the parent company cannot enforce this. The creditor will have to agree himself.

Within the possibilities of the current section 2:403 DCC, the consequences of the analogous application of section 6:142 DCC with regard to the 403-claim and the consequences of the interpretation of the 403-claim as a dynamic claim most often correspond to the outcomes according to the principle for compensation that I advocate.20 The Dutch Supreme Court, though, implicitly rejected the analogous application of section 6:142 DCC with respect to the 403-claim in its Akzo v. ING decision.21 In my opinion, the 403-claim should therefore under the law as it stands be interpreted as a dynamic claim.22 This interpretation means that the 403-claim is a joint and several claim which always accrues to the creditor with the corresponding claim on the 403-company. It is, however, not certain whether the Dutch Supreme Court will allow the 403-claim to be interpreted as a dynamic claim because two of its judgments contradict each other on this point.23 If the interpretation of the 403-claim as a dynamic claim is dismissed, this claim should be interpreted as a joint and several claim.24

Withdrawal of a 403-statement

A parent company may withdraw its 403-statement by filing a statement to that effect.25 The parent company is not liable for the debts arising from the legal acts performed by the 403-company from the moment it can invoke the withdrawal against the creditor.26 The parent company may include in the statement of withdrawal a provision that the 403-statement will be withdrawn on a certain date in the future.27 But it cannot, in my opinion, draw up its 403-statement in such a way that it also serves as a statement of withdrawal.28

If the 403-company has not yet published financial statements that comply with the requirements of title 9 of Book 2 DCC before the parent company can invoke the withdrawal of the 403-statement, there will be a period during which creditors will not be able to inspect the financial statements of the 403-company while at the same time they will not be compensated for this. The creditors whose claim arises from a legal act performed by the 403-company during this period are not compensated for the fact that they were unable to inspect the financial statements of the 403-company. In order to fill this gap in the compensation of creditors it is desirable, in my view, to amend section 2:404 DCC. It could be added to subsection (1) that the withdrawal of the 403-statement only has effect, or will only start having effect, if the 403-company has published financial statements that meet the requirements of title 9 of Book 2 DCC, or if a new 403-statement has been filed in respect of the 403-company.29

In the event that a 403-company no longer avails itself of the financial statements exemption under section 2:403 DCC but the parent company has forgotten to withdraw the 403-statement, the starting point is that a creditor can nevertheless invoke the forgotten 403-statement. In my opinion, this is only unacceptable under the standards of reasonableness and fairness if the creditor knows, or should know, that the parent company has forgotten to withdraw the 403-statement.30

A parent company may preventively limit liability on the basis of a 403-statement in the event that it fails to withdraw that statement.31 The most effective way of doing this is to include in the 403-statement a provision to the effect that the parent company assumes liability only for debts arising from the legal acts performed by the 403-company up to a certain date, or by filing a statement of withdrawal on the basis of which the 403-statement is withdrawn on a certain date.

The termination of the remaining liability after the withdrawal of the 403-statement

If a parent company withdraws its 403-statement, it remains liable for the debts arising from the legal acts performed by the 403-company until such time as the parent company can invoke the withdrawal against the creditor.32 I have concluded that this remaining liability covers all existing and future debts arising from the legal acts carried out by the 403-company up to that point.33

A parent company may terminate its remaining liability towards a creditor if it meets the four cumulative conditions under section 2:404(3)(a) through (d) DCC. This requires that the group relationship between the parent company and the 403-company has been severed. In addition, a notification of the intention to terminate the remaining liability must have been available for inspection at the trade register for two months. Also, at least two months must have elapsed since publication of an announcement in a national daily newspaper that the notification is available for inspection and where it may be inspected. Finally, no objection may have been lodged by the creditor against the intention of the parent company to terminate the remaining liability, or the creditor’s objection must have been withdrawn or declared unfounded by the court.

I consider it desirable to add to section 2:404(3)(b) and (c) DCC that a parent company, in the notification for the trade register and its announcement in a national daily newspaper, must explicitly state its own name, the name of the 403-company and any old names of them, if these have changed since the 403-statement was filed.34

In order to make it easier for a creditor to be aware of the parent company’s intention to terminate the remaining liability, I have advocated that the Chamber of Commerce should offer a system whereby third parties can automatically receive a notice if documents relating to a particular legal entity have been filed with the trade register. A creditor can then arrange that he receives a message if the parent company files a notification of its intention to terminate the remaining liability. If the Chamber of Commerce offers such a system, the condition that the parent company must publish an announcement in a national daily newspaper that and where this notification is available for inspection can, in my view, be deleted from section 2:404(3) DCC.35

Creditors in respect of whose claims the liability still exists, may lodge an objection against the intention of the parent company to terminate the remaining liability.36 This includes creditors who have a claim that has not yet been established against the 403-company, unless the claim is manifestly unfounded. In addition, the holder of a disclosed pledge on a claim of a creditor against the parent company, may lodge an objection against the intention of the parent company to terminate the remaining liability.37 If a creditor lodges an objection, he may demand a replacement guarantee for his claim on the 403-company.38 I have defended that a creditor is entitled to a replacement guarantee if, after the termination of the remaining liability, he does not have (at least) the same assurances, on the basis of the 403-company’s financial position or otherwise, that his claim against the 403-company will be satisfied, as the assurances he has that his claim against the parent company will be satisfied, unless the creditor does not reasonably run the risk that his claim against the 403-company will not be satisfied.39

The current doctrine in case law is that the extent of a replacement guarantee to be given, is fixed at the amount of the creditor’s existing and future claims against the 403-company. In my opinion, it is not right to always set the replacement guarantee at this amount. In my view, the replacement guarantee should add to the guarantees that the creditor already has, on the basis of the 403-company’s financial position or otherwise, up to the level that they collectively provide (at least) the same guarantees that the creditor’s claim against the 403-company will be met, as the guarantees that he has that his claim against the parent company will be satisfied.40 If it is not possible to determine precisely the extent of the replacement guarantee to be given in accordance with this interpretation of the guarantee, the court may determine the extent of the guarantee on the basis of an estimate of the guarantees the creditor has that his claims against the 403-company and the parent company will be satisfied.41

If a replacement guarantee must be given for claims that a creditor expectedly will have against the 403-company in the future, then in my view there is no need to give a total amount as a replacement guarantee all at once. Instead, the court may rule that the creditor must be given a replacement guarantee to which he can have recourse during the term of the agreement with the 403-company.42

I have concluded that only when a parent company can invoke the withdrawal of the 403-statement, it can publish an announcement in a national daily newspaper that and where the notification it has filed of its intention to terminate the remaining liability is available for inspection. If a parent company has already published an announcement to that effect in a national daily newspaper, a court must, in my opinion, rule that the period within which creditors can lodge an objection to the termination of the remaining liability has not begun.43

I believe that, at the latest by the expiry of the period within which creditors can lodge an objection against the intention of the parent company to terminate the remaining liability, all the conditions for the termination must have been met, save for the settlement of any lodged objections. In my opinion, the order in which these conditions are being met, is irrelevant.44 If, at the time of expiry of the objection period, not all the conditions have been met, a court must, in my opinion, rule that the remaining liability has not been terminated. The parent company will then have to initiate a new procedure for this purpose.

Finally, I believe that the condition for terminating the remaining liability that the group relationship between the parent company and the 403-company has been severed, is superfluous and makes it unnecessarily onerous to terminate this liability. I therefore consider it advisable to delete this condition from section 2:404(3) DCC.45

Merger, demerger and conversion

I believe that the nature of the 403-liability does not prevent it from being transferred under a universal title to an acquiring legal entity in the event of a merger or demerger of the parent company. In my opinion, this concerns both the liability for the existing debts of the 403-company which have already arisen from a legal act at the time of the merger or the demerger of the parent company, as well as the liability for the debts which subsequently arise from a legal act of the 403-company. From the moment of the merger or demerger, the 403-statement must be considered to be a statement of the acquiring legal entity.46

In the event that a parent company wishes to merge or demerge, creditors with a claim under the 403-statement may also lodge an objection.47 If a 403-company submits a proposal for a merger or demerger, the question of whether a creditor is entitled to a guarantee48 for the satisfaction of his claim should, in my opinion, not be answered on the basis of the guarantee offered by the financial position of the (legal successor of the) 403-company that the claim will be satisfied. Instead, in my view, it is necessary to assess what guarantee is offered by the financial position of the parent company that the creditor’s claim under the 403-statement will be satisfied.49

In my opinion, in the event of a merger or demerger of the parent company or the 403-company, the liability under the 403-statement continues to exist in full. The (legal successor of the) parent company is liable for all debts that arise and have arisen from the legal acts that the 403-company performs or has performed. Any other outcome would have the same effect as the termination of (part of) the 403-liability outside of section 2:404 DCC. A creditor would then unjustifiably be deprived of the procedures and safeguards set out in this section, which were designed to protect his right of recourse. In my view the 403-liability also doesn’t cease to exist if the parent company and the 403-company merge.50 A creditor then has two claims against the parent company or the 403-company: a claim based on the original legal relationship with the 403-company and a claim based on the 403-statement.

If the 403-statement has been withdrawn, the remaining liability may be terminated if certain conditions are met. Pursuant to section 2:404(3)(a) DCC this requires, among other things, that the group relationship between the parent company and the 403-company has been severed. I have reached the conclusion that this condition is fulfilled if, following the merger or the demerger of the parent company or the 403-company, the legal entity on who the remaining liability rests, does not belong to the same group as the legal entity whose actions may give rise to liability under the withdrawn 403-statement.51 In my opinion, this condition is also met if the parent company and the 403-company merge, with one of them disappearing and the assets being transferred under a universal title to the other.52

A (cross-border) conversion, and a cross-border merger or demerger of the parent company or the 403-company, may result in the (legal successor of the) 403-company not being allowed to avail itself of the financial statements exemption pursuant to section 2:403 DCC.53 To be allowed to avail itself of this exemption, the (legal successor of the) 403-company must be a legal entity referred to in section 2:360 DCC that qualifies for the financial statements exemption,54 and the (legal successor of the) parent company must be able to consolidate the financial information of the (legal successor of the) 403-company in consolidated financial statements to which the European Directives referred to in section 2:403(1)(c) DCC or the EU IFRS Regulation apply pursuant to the applicable law.

Recommendations to the practice

In addition to the above-mentioned recommendations for the legislator, the judiciary and the Chamber of Commerce, I have also made various recommendations to the parties in practice as to what steps they can take under current legislation in order to strengthen their position or to avoid possible disad­vantage. Firstly, a minority shareholder may attach conditions to the consent to be given by it pursuant to section 2:403(1)(b) DCC if the 403-company wants to avail itself of the financial statements exemption.55 In addition, I advise a parent company to follow the text of section 2:403(1)(f) DCC when drawing up the 403-statement.56

Also, a creditor can try to come to an agreement with the parent company, that the creditor must individually be informed if the parent company withdraws the 403-statement and if it publishes an announcement in a daily national newspaper that and where the filed notification of the intention to terminate the remaining liability is available for inspection.57 Finally, I recommend that the holder of a disclosed pledge on a claim of a creditor against the parent company, demand from the creditor – as pledgor – that he give this holder a replacement security if the parent company terminates the remaining liability.58