9.4 Blocked assets in the event of change of legal form of foundations (Chapter 4)

The foundation is a special legal entity under Dutch corporate law because of its objects clause. The protection of the assets of a foundation after change of legal form are more extensive than the protection dwing its existence as a foundation. From the parliamentary history no explicit choice of a stricter regime occurs. Both statutory regimes need to be linked to one another, section 2:285 subsection 3 Dutch Civil Code should be the point of departure for section 2:18 subsection 6 Dutch Civil Code.

The interpretation of the present `blocked assets' clause (section 2:18 subsection 6 Dutch Civil Code) is unclear. I suggest introducing a reserve relating to change of legal form. Under present legislation there is a strict and a flexible theory. Blocked assets under the strict theory means the blocking of all individual assets of the legal entity. In this theory it is not possible to spend assets in another way than the original objects of the foundation because a court will not grant such permission (based on section 2:18 subsection 6 Dutch Civil Code). In the flexible theory, blocked assets means assets minus liabilities at the time of change of legal form of the foundation.

The difference between the strict theory and the flexible theory is based in the explanation of the benefits of the blocked assets. Under the strict theory the benefits and benefits of the blocked assets (vruchten van beklemd vermogen) remain blocked, also after change of legal form. Under the flexible theory the benefits of the blocked assets refers to the benefits of the assets minus liabilities at the time of change of legal form (and not afterwards). Present case law follows a strict theory.

It is difficult to analyse enforcement of blocked assets after the change of legal form of a foundation. The civil law notary and judge who are involved in the procedure of the change of legal form do not have always a clear picture of all the interests to be protected. A blocked assets clause suggests protection which is not or barely actual. Sanctions on non-compliance with the blocked assets clause may lead to the general theory of mismanagement.

Change of legal form is not to be regarded as a donation (schenking) nor as a gift (gift). Change of legal form does not constitute a change in assets. Under the flexible theory, change of legal form from a foundation into a capital company may result in a gift to the extent the capital at the time of the change in legal form will be paid up by the assets of the foundation which is to be regarded as a deviation from the objects of the foundation.