Hoofdstuk 13 Summary

Chapter 1 This thesis discusses two key questions in relation to the obligation for a Dutch legal person to keep the books and records pursuant to Section 2:10 of the Dutch Civil Code (BW) (administratieplicht) in relation to the provisions on the liability of the board of directors of a public limited liability company (naamloze vennootschap) or a private limited liability company (besloten vennootschap) in the event of bankruptcy.1 The first key question is whether it is possible to design a system on the basis of which it can be assessed – taking into account the nature and scope of the legal person – whether the books and records (administratie) of the financial position (vermogenstoestand) and everything regarding the activities of the legal person have been kept in such a way that the rights and obligations of the legal person can be known at all times. This question focuses on the obligation laid down in Section 2:10(1) BW to keep proper books and records. The second key question concerns the obligations under Section 2:10(2) through Section 2:10(4) BW and the way in which these must be fulfilled.

Chapter 2 The civil-law obligation to keep the books and records has a long history. Based on the French Code of Commerce and a lengthy legislative procedure as a result of French domination, the Dutch Commercial Code (WvK) entered into force on 1 October 1838 for the greater part of the Netherlands. The obligation to keep the books and records included in Section 6 WvK provided for very detailed obligations as to how the books and records should be kept by the merchant. In 1922, Section 6 WvK was amended and merchants were given a large degree of freedom in the way he kept his books and records of his financial situation and everything concerning his business as long as his rights and obligations could be known therefrom at all times. The text of Section 6 WvK from 1922 can clearly be recognised in the current obligation to keep the books and records under civil law. Section 6 WvK was amended a few more times until it lapsed in 1994 and the civil-law obligation to keep the books and records that applies to anyone who pursues a business or a professional practice for his own account was included in (ultimately) Section 3:15i BW. Since 1976, a legal person has also been subject to an obligation to keep the books and records for its own account pursuant to (ultimately) Section 2:10 BW. With effect from 1994, the contents of this obligation to keep proper books and records has become similar to that of Section 3:15i BW.

Because the contents of the current civil-law obligations to keep the books and records under Section 3:15i(1) BW and Section 2:10(1) BW are still very similar to the text from Section 6 WvK from 1922, the considerations in the parliamentary history as from 1922 onwards are still important for the meaning of these articles today.

Chapter 3 Section 2:10(2) through Section 2:10(4) BW, which apply accordingly pursuant to Section 3:15i(2) BW, further specifies the obligation under Section 2:10(1)/3:15i(1) BW to make and put on paper a balance sheet and a statement of income and expenses and to preserve the books and records. Section 2:10(2) BW provides for a statutory period within which the balance sheet and the statement of income and expenses must be made and put on paper, namely within six months after the end of the financial year. Sections 2:10(3) and 2:10(4) BW provide for a more detailed explanation of the obligation to preserve the books and records. All books, documents and other data carriers belonging to the books and records must be kept for seven years. With the exception of the balance sheet and statement of income and expenses, electronic storage is permitted provided that the data is transferred to another data carrier correctly and completely and that the relevant data are available and can be made readable throughout the entire storage period within a reasonable time. The possibility of electronic storage has existed since 1 January 1994.

Chapter 4 The Dutch Civil Code contains two statutory provisions regarding the obligation to keep books and records. The civil-law obligation to keep records under Section 3:15i BW applies to anyone who pursues a business or a professional practice for his own account in the Netherlands. Section 2:10 BW applies to public-law legal persons under Dutch law. There is no consensus on the relationship between these two obligations. There are two schools of thought as to how this relationship must be construed. The first school argues that Section 3:15i BW applies to anyone who pursues a business or a professional practice for his own account in the Netherlands, with the exception of the public-law legal person under Dutch law, to which Section 2:10 BW is applicable. In this view Section 2:10 BW is a lex specialis to Section 3:15i BW. Proponents of the second school of thought are of the opinion that Section 3:15i BW applies to anyone who pursues a business or a professional practice for his own account in the Netherlands and that Section 2:10 BW also applies to public-law legal persons under Dutch law. In this view both legal obligations are coordinate. Although only little positive evidence can be found in the parliamentary history, literature and case law, I have joined the second school.

In my opinion, the words “the board of directors” in Section 2:10 BW does not have any independent meaning. Within the legal person subject to the standards of Section 2:10 BW, the obligation to keep and maintain the books and records is borne by the board of directors, regardless of whether this is provided for in Section 2:10 BW.

Chapter 5 Within the Dutch legal sphere, there are many different ways in which companies can participate in economic transactions. The capacity chosen also determines the civil-law obligation to keep the books and records. Section 3:15i BW applies to the sole proprietorship and the contractual partnership if the business or a professional practice for one’s own account is pursued in the Netherlands. Section 2:10 BW is not applicable in the absence of legal personality. The preliminary draft for new legislation for the contractual partnership proposes that Section 2:10 BW also becomes applicable to the partnership. Section 3:15i BW also applies if the partnership pursues a business or a professional practice for its own account in the Netherlands.

The legal person within the meaning of Section 2:3 BW and the European economic partnership (EESV) having its official seat in the Netherlands are subject to both Section 3:15i BW (provided that the business or a professional practice is pursued for one’s own account in the Netherlands) and Section 2:10 BW. The same applies to the European company (SE) and the European Cooperative Society (SCE) having their official seats in the Netherlands (and any business or professional practice for one’s own account pursued in the Netherlands) as to the EESV having its official seat in the Netherlands, albeit that this is not explicitly stated but assumed to be the case. Section 3:15i BW also applies to the foreign corporation and the company formally registered abroad when a business or a professional practice is pursued for its own account in the Netherlands. The applicability of Section 2:10 BW is more complicated for these entities. Section 2:10 BW does not apply to the foreign corporation, but because Section 2:138 BW applies (mutatis mutandis) pursuant to Section 10:121(1) BW, compliance with Section 2:10 BW does become relevant. The question has arisen in case law whether a director of a foreign corporation can be found to have manifestly committed improper management on violation of the duty to keep the books and records, although Section 2:10 BW, referred to in Section 2:138(2) BW is not applicable to the foreign corporation. Two problem-solving approaches have been developed. The first is to examine whether, on the basis of the law applicable to the foreign corporation, there is an obligation to keep the books and records similar to Section 2:10 BW. If this is the case, and the obligation to keep the books and records has been violated, it will subsequently be ruled that it is therefore established on the basis of Section 2:138(2) BW that the board of directors has committed manifestly improper management as if Section 2:10 BW had been violated. In the second problem-solving approach, the violation of Section 3:15i BW implicitly becomes part of Section 2:138(2) BW because the obligations under Section 2:10 BW and Section 3:15i are substantively identical. Although both solutions to the problem identified are understandable on the basis of the existing legislation, it would be much more logical to amend Section 10:121(1) BW in such a way that for the foreign corporation that pursues a business or a professional practice for its own account in the Netherlands a violation of Section 3:15i BW also leads to the applicability of Section 2:138(2) BW. In addition to Section 3:15i BW, Section 2:10 BW also applies to the company formally registered abroad, with the exception of the applicability of Section 1(2) of the Companies Formally Registered Abroad Act.

As the last possible entity to be subject to the standards under Section 3:15i/2:10 BW, I investigated the group as referred to in Section 2:24b BW. The group is not a legal person as referred to in Section 2:3 BW, which means that Section 2:10 BW is not applicable. In order for Section 3:15i BW to apply to the group, it is necessary that the group can be regarded as “Anyone” as referred to in Section 3:15i BW. This does not seem to be the case, but when there is (actually) an economic and organisational unit under common management – in respect of which there is also the authority to issue instructions with regard to the presentation, keeping and storing of the books and records of the legal entities and companies belonging to the group – it can be argued that the group is also an entity subject to the standards of Section 3:15i BW.

Chapter 6 There is relatively little literature and case law on the influence of an insolvency on the obligation to keep the books and records. From the moment of the bankruptcy order and the appointment of a bankruptcy trustee or the administrator in a suspension of payments, or the appointment of an administrator in a debt restructuring scheme for natural persons, each of them is subject to the obligation to keep the books and records of the winding-up period on the basis of the Dutch Bankruptcy Act and the so-called Recofa-guidelines.

For those cases in which Section 3:15i BW was applicable prior to a bankruptcy, from the moment of the bankruptcy order it will no longer apply to what takes place from that moment on. The bankruptcy trustee is responsible for this pursuant to the Dutch Bankruptcy Act. The same applies to the applicability of Section 2:10 BW prior to the bankruptcy and thereafter.

In the event of a suspension of payments, Section 3:15i BW will remain in force during the term of the suspension of payments for anyone to whom Section 3:15i BW also applied prior to the opening of the proceedings. Here, too, the same applies to Section 2:10 BW.

In the event of a debt restructuring scheme for natural persons, this is different to the extent that Section 3:15i BW will remain in force for anyone as referred to in that section who, with the consent of the administrator and the supervisory judge, continues his business or professional practice for his own account during the debt restructuring scheme for natural persons.

Chapter 7 The obligation to keep the books and records is referred to by the legislator as an elementary or fundamental duty of the board of directors. Any violation of this obligation in the three years prior to the bankruptcy of a public limited liability company or a private limited liability company means that the manifestly improper performance of the duties is established in full. The objective was to prevent mala fide directorship. Three main objectives for keeping the books and records can be identified from economic literature, and in particular literature in the field of accounting procedures or administrative information provision. The keeping of the books and records is necessary for the management and control of the enterprise run by the legal person, for the operation of that enterprise and for accountability for that. The books and records are therefore a tool for the management, control and operation of the legal entity and for accountability. In the case of a legal person of a certain size, all relevant accounting facts and circumstances cannot be remembered without it being kept in the books and records. If no adequate records are kept, it is not difficult to imagine that the rights of third parties, such as creditors, are prejudiced. The need to protect creditors, for example, has been a reason for the obligation to keep books and records since the Roman era. Other reasons for the obligation to keep books and records are being able to provide evidence, to determine the size and composition of capital, assets and results, to determine tax obligations and to comply with special regulations.

When Article 6 WvK was amended in 1922, it was already noted in parliamentary history that the books and records to be kept – which from then on were afforded to a greater degree of freedom with regard to the way in which this obligation was fulfilled – had to meet the requirements of clarity, reliability and verifiability. In fact, these requirements still apply.

Chapter 8 A distinction can be made between the object and the outcome of the obligation to keep the books and records. The object of the obligation to keep the books and records is on the one hand the financial position (vermogenstoestand) and on the other hand everything regarding the activities, according to the requirements arising from those activities (alles betreffende de werkzaamheden, naar de eisen die voortvloeien uit die werkzaamheden). The outcome is that the rights and obligations can be known at all times.

In 1922, the financial position was introduced as part of the obligation to keep the books and records. The legislator’s intention was that the books and records had to be kept of all balance sheet items and the components of the profit and loss account. The element ‘everything regarding the activities’ also dates from 1922. The restrictive clause ‘according to the requirements of his business’ operations was added to this in the next amendment of the law in 1935. Parliamentary history shows that this referred to the influence of the nature and scope of the business operations conducted.

For the influence of the nature of the business conducted by the legal person on the books and records to be kept, I have based my opinion on a distinction that is customary in accounting procedures/information provision between commercial enterprises, industrial enterprises, agricultural enterprises and service companies. Depending on the type of business conducted, certain types of accounting are obvious. For the four main types of businesses (typologies), I have investigated what books and record keeping must be expected at the very least.

As far as the influence of the size of the business conducted by the legal person is concerned, I have, insofar as possible, followed the criteria already used in Book 2 BW for the size-dependent presentation rules in order to arrive at size-dependent criteria for keeping the books and records. In addition, I have followed the size-dependent presentation rules, but I have only distinguished two categories instead of four. I advocate a distinction between, on the one hand, legal persons that are eligible for simplified books and record keeping, if the requirements that apply to the micro-entity as referred to in Section 2:395a BW are met, and, on the other hand, legal persons that are not eligible for simplified record keeping. The last category includes all other legal persons (small, medium and large). These legal persons are subject to the ordinary obligation to keep the books and records. Because the use of a defined limit can always lead to arbitrary distinctions, the assessment of whether simplified record keeping was justifiably used in such borderline cases must be made with common sense.

The outcome of the obligation to keep the books and records is that the rights and obligations of the legal person can be known at all times. This means that the books and records must be kept throughout the year so that it can actually be a tool for the management and control of the legal person. A starting point in this respect is that relevant facts should immediately be processed in the books and records. The subsequent completion and correction of the books and record keeping is insufficient to allow the conclusion that the rights and obligations can be known at all times.

Based on what is part of the object of the obligation to keep the books and records, given the nature and size of the business conducted by the legal person, I have built up a system consisting of elements that must be present at the least in order to conclude that there was an adequate books and record keeping as referred to in Section 2:10 BW. In this system, a distinction is made between commercial, industrial, agricultural and service companies for everything regarding the activities, and in terms of size between being allowed to use the simplified obligation to keep the books and records or not. A distinction according to the nature and size of the legal person is not relevant for required books and records of the financial position, the personnel, the books and records required if the legal person is the head of a group, and the books and records required to be kept at all times.

Only little indicative literature and case law is available regarding the additional obligation to keep the books and records by the head of a group. Based on the main objectives of the obligation to keep the books and records – i.e. being a tool for the management, control, operation of a legal person and accountability – it is obvious that Section 2:10 BW should be interpreted for the head of the group in such a way that this includes that the head of the group has sufficient insight into the assets, activities, rights and obligations of the group companies. This can be incorporated into Section 2:10 BW, by putting it under the heading of ‘everything regarding the activities of the legal person’. Indeed, the activities performed by the head of a group will include the management of the legal persons and companies belonging to the group.

Chapter 9 The obligation to make and put on paper a balance sheet and a statement of income and expenses within six months of the end of the financial year, as referred to in Section 2:10(2) BW, must be distinguished from the obligation to prepare annual accounts as referred to, for example, in Section 2:101 BW for a public limited liability company and Section 2:210 BW for a private limited liability company. Only the timely preparation of the balance sheet and the statement of income and expenses and putting it on paper is relevant for any violation of Section 2:10(2) BW in the light of Section 2:138(2)/2:248(2) BW. This provision is not brushed aside by Section 2:101/2:210 BW for public limited liability companies and private limited liability companies.

Chapter 10 All books, documents and other data carriers belonging to the books and records must be preserved for seven years. This may be done electronically only with the exception of the balance sheet and the statement of income and expenses. Those must be made and put and kept on paper. It is (the board of directors of) the legal person that must ensure that the transfer of administrative data on electronic data carriers has taken place correctly and completely and that the data remain available and readable throughout the retention period. If this is not complied with, this lies within the responsibility of the board of directors of the legal person within the framework of Section 2:138(2)/2:248(2) BW.