2.2 Dutch law: Analysis and Proposed Improvements

The Dutch (civil-law) partnership (maatschap) is described by law as an agreement in which two or more persons undertake to make contributions with a view to share the benefits. In some cases, courts have qualified relationships as a partnership where those involved had expressly agreed not to form a partnership, and the other way around. Those judgements have created unnecessary legal uncertainty and limit organisational freedom. The author proposes that suchre-qualifications be limited to vitiated consent and abuse cases. Also important to note is that a partnership aimed at conducting a commercial business under a joint name is deemed by law to be a commercial general partnership (VOF), which qualification entails specific legal consequences. The author recommends that in future legislation, VOF status is based on a formal and express choice of the partners (see below). This would limit legal complexity, as the line between civil and commercial activities (and between a business vs. less than full-fledged business activities, such as a real estate project) is unclear. It would also enhance organisational freedom: partners will be allowed to freely choose between maatschap and VOF.

The general partnership is not regarded as a legal entity. In legal literature, a distinction is often made between ‘silent’ and ‘public’ partnership (stille en openbare maatschap). Considered ‘public’ is the partnership acting towards third parties under a joint name. Proposals have been made to provide the ‘public’ partnership with legal entity status. It is acknowledged, however, that failing formal criteria, it may be difficult to draw a clear line between ‘silent’ and ‘public’ partnerships. The author’s recommendation is to forego on the distinction between these two types of general partnership. The (civil-law) partnership can carry on without being a legal entity, whereas the current commercial partnership (VOF) can be transformed to a type of partnership suitable for both civil and commercial business and provided with legal entity status (see below).

The difference in partner liability regimes between maatschap and VOF is felt by many to be no longer justified. Under the current rules, those exercising a liberal profession are partly liable for the partnership’s non-professional debts (maatschap), whereas partners in a commercial business are fully liable for partnership debts (VOF).

In the statutory provisions on general partnerships, it is stated that the partners are liable for equal parts of the partnership’s debts. In some respects, this deviates from the multiple debtor rules of general law. Example: under general law, if a partnership (not an individual partner) has agreed to provide professional services to a client, all partners will be jointly and severally liable for damages due to a professional error, except that ‘innocent’ partners may exculpate themselves entirely. In a 2013 ruling, the Dutch Supreme Court has explained that the two sets of rules must be applied cumulatively. As a result, an ‘innocent’ partner able to exculpate himself under general law, will still face liability for an ‘equal part’, based on partnership law. In the same ruling, the Supreme Court has determined that a new partner will as such not become liable for a partnership debt which already existed at the time when he joined the partnership. In the author’s view, it would be preferable to stop looking at the partnership law liability provisions as an addition to general law. Instead, those rules could be understood to mean that the partners’ personal liability is fully and solely governed by general law. The author argues that this should also be the rule in future partnership legislation, for reasons of simplicity and fairness.

Under general law, joint debtors are liable for equal parts, unless the law provides otherwise. The law does provide otherwise, inter alia, with respect to indivisible obligations and obligations to pay damages resulting from breach of contract or tort. Such obligations are joint and several. French, German and English law provide for more cases of joint and several liability than Dutch law. To bridge the gap and for reasons of fairness, the author proposes to expand joint and several liability in general Dutch law to all cases where two or more persons acting in a professional or commercial capacity are liable for the same debt, unless agreed otherwise. He also recommends that two or more persons contractually incurring liability for a divisible obligation be jointly and severally liable, unless agreed otherwise. If partnership law simply refers to general law on issues of partner liability, this expansion of joint and several liability will apply to partnerships as well.

Whilst not being a legal entity, a Dutch partnership conducting business under a joint name can sue and be sued. This feature is worth preserving. It is uncertain whether, in addition, an individual partner can sue an alleged creditor of the partnership (i.e., the joint partners) in that partner’s own name but for the partnership’s account. In France (action sociale ‘ut singuli’), in Germany (actio pro socio, Notgeschäftsführung) and in England (action for an account; derivative suit in representative form), such legal proceedings are facilitated, albeit in different shapes and forms. Dutch general law on joint ownership contains a basis for such proceedings as well, but the Dutch Supreme Court has ruled that this provision may only be used for proceedings against third parties, not againstco-owners. The author recommends that this restriction be lifted and that this type of legal proceeding is applied to partnerships by analogy. Its use may be restricted to situations where the partnership itself is prohibited to act or managing partners have a conflict of interests.

Assets and liabilities acquired by the joint partners as such constitute a separate fund. Partnership creditors have direct recourse to the assets of that fund. There is legal debate as to whether a partner’s shares in individual partnership assets form part of that partner’s private property. If they do, that may raise issues in a partner’s bankruptcy. Example: a partner holds a 50% share in each of the individual partnership assets, but pursuant to the partnership agreement, he is entitled to 10% of the value of the partnership as a whole. There are no partnership creditors. This partner goes bankrupt and leaves the partnership. Now, if the 50% shares in the individual assets belong to the partner’s estate, the receiver in bankruptcy may claim more than the 10% overall which the bankrupt ex-partner is contractually entitled to. There is consensus that this would not be fair. The desired result can be achieved by simply acknowledging the legal concept of trust: the bankrupt ex-partner holds his shares in the individual partnership assets in trust for the partnership (i.e., the joint partners); the bankrupt estate just comprises the partner’s 10% beneficial interest in the aggregate. Traditionally, reticence against the trust has been unfavourable to this solution. The author proposes to change the Dutch attitude to the trust with regard to partnership property and in a more general sense.

Adoption of this trust approach may shed more light on a partner’s stake in a partnership. That stake (the partnership share) can be conceived as a combination of the partner’s contractual position as a partner (membership position) and his equally contractual beneficial interest in the partnership property as a whole (financial position). The partnership share can thus be regarded as a contractual receivable, which can be made transferable within the limits set by the partnership agreement. Likewise, the creation of a right of pledge in a partnership share can be facilitated. Under current law, there is a substantial amount of legal uncertainty about these issues.