7.2.5 Conversion process

Conversion into an association, a cooperative, a mutual insurance society, or a foundation requires inter alia two discerned resolutions of the general meeting of the BV. As prescribed by Art. 2:18 paragraph 2 sub a and b DCC, the first resolution regards the conversion itself as the second resolution regards the amendment of the articles of association. The tules regarding the conversion of a BV into another legal entity are stringent, but do not prescribe the consent of all shareholders of the BV. The resolution for conversion must be adopted by at least a 90% majority of the votes cast.1 The 90% threshold is not prescribed if the BV is converted into an NV. The threshold is also not prescribed for the second resolution, the resolution for amendment of the articles of association. In order to adopt the resolution for conversion of the BV into an NV and the resolution for amendment of the articles of association the default tule of an ordinary majority of the votes cast applies.2 For each of these resolutions, the articles of association may prescribe a higher threshold, which must then be met.3

Moreover, the conversion and amendment of articles of association requires a notarial deed of conversion and amendment of the articles of association. For each amendment of the articles of association, a notice of no objection from the Ministry of Justice is required onder Art. 2:235 DCC.4

The BV is required to deposit the resolution regarding the conversion into an association, cooperative, or mutual insurance society with the trade register and to announce the conversion in a national newspaper.5 This tule is aimed at the protection of creditors of the BV. Up to two months after the announcement of the deposition, creditors have the right to object the conversion at the District Court (rechtbank) of the registered seat of the company. Art. 2:182 paragraph 5 DCC stipulates that the resolution for conversion has no effect during the period in which creditors may protest. If creditors protest, the resolution for conversion does not enter into effect unless the protest has been withdrawn or the removal of the protest is enforceable.

The conversion of a BV into an association or a foundation requires the authorization of the District Court.6 The competent court is the District Court of the registered seat of the BV. The decision to grant such authorization is at the discretion of the court. Statute recognizes four situations in which the court cannot grant authorization. The court has to refuse the authorization if (a) any required resolution is null and void (nietig) or (b) if proceedings for the annulment (vernietiging) thereof are pending. It should be noted that any proceedings for the annulment of resolutions must be started at the District Court of the registered seat of the BV, the same court that deals with the authorization.7

Moreover, the court refuses the authorization if it is of the opinion that (c) insufficient care has been taken towards the interests of the persons that are entitled to cast their vote at the general meeting and did not consent to the conversion. In addition, the court refuses the authorization if it is of the opinion that (d) insufficient care has been taken towards the interests of other persons at least one of whom sought the assistance of the court.8 The authorization needs to be applied for by the BV on submission of a draft notarial deed embodying the conversion and amendment. I recommend that the minutes of the general meeting that include the adopted resolutions for conversion and amendment and preferably include the manner in which votes are cast — have to be submitted to the court as well, in order to enable the court to assess these minutes.9

De Monchy, Snijder-Kuipers and Van der Streek have submitted that, for practical reasons, it can be assumed that the court has the discretion to give authorization under a condition precedent or a condition subsequent.10 I concur with this view, but stress that at the time of the execution of the deed of conversion the authorization must be unconditional. Before executing the deed of conversion, the civil-law notary involved in the conversion process must ascertain that the condition precedent has been fulfilled or that the condition subsequent will not be fulfilled.

The pivotal role of the court regarding the aforementioned grounds under (a) and (b) can be questioned. Similar to other notarial deeds in the field of company law, the civil-law notary examines the resolutions concerned before executing the notarial need. If the civil-law notary finds out that any of the required resolutions is null and void, he should not execute the deed and consequently block the conversion. In principle, a similar rule applies if the civil-law notary is aware of pending proceedings for the annulment (vernietiging) of the resolution. The civil-law notary could check this with the District Court of the registered seat of the BV, if one of the parties involved has not already informed him. If the resolution is null and void or has been annulled, the notarial deed based on this resolution will share the same fate. In addition, if the civil-law notary deliberately executes the deed, knowing that grounds (a) or (b) apply, this would (in general) lead to the conclusion that he acts in contravention of disciplinary rules.11 Instead of supervision by the court, the supervision could be delegated to the civil-law notary.12

The reason why the legislator has chosen not to prescribe the authorization of the court for conversion of a BV into a cooperative or a mutual insurance society can be found in the legislative history of Art. 2:18 DCC. The reason is that the similarities between a BV, a cooperative, and a mutual insurance society are greater than the similarities between the BV and the association and the foundation. The BV, the cooperative, and the mutual insurance society pursue material profits for their members and involve their members by way of their contribution and/or their (possible) liability. Moreover, usually their members are entitled to a proportionate share of the credit balance after liquidation of the legal entity.13 These greater similarities justify a less severe regime.

Finally, if all the aforementioned steps are taken and as soon as the resolution for conversion enters into effect, the notarial deed of conversion and amendment of the articles of association can be executed.14 If authorization is required, the civil-law notary is obliged to state in the deed of conversion that such authorization has been granted on the draft of the deed. Upon the execution of the notarial deed of conversion and amendment of the articles of association, the conversion and the new articles of association enter into effect.