Summary

I. Introduction. Bodies of legal entities pass resolutions (besluiten). Resolutions are legal acts of their own nature. To what extent do resolutions differ from other legal acts? With this question in mind, this doctoral thesis outlines ten issues related to legal entities’ resolutions. Its aim is to add specific knowledge to the existing literature. Each topic is set out in a separate, independently readable chapter, most of these chapters have been published in journals before. The method is legal- dogmatic; the thesis not only sets out, in detail, the law as it stands, but also proposes improvements of the law. German law, Belgian law and Dutch administrative law have been studied, in addition to the Dutch law on legal persons.

II. ‘Resolution’ and ‘legal act’. Dutch law treats resolutions as legal acts. A legal act (rechtshandeling) requires a legal consequence (rechtsgevolg). That is to say: a legal act is only brought about if it produces legal effects. Therefore, all resolutions must produce legal effects. If a resolution does not affect any legal relationship or position, it is not considered to be a resolution in the sense of Dutch law.

It is often understood that preparatory, negative and (some) internal resolutions are in fact not to be considered resolutions. When the board of a factory decides to acquire machinery, no resolution is passed. Strictly speaking, the board’s decision does not constitute the purchase. The purchase of machinery is only effected after due representation of the corporation. Similarly, the decision not to take over a business has a negative effect only and, therefore, is not to be considered as a resolution. Furthermore, the adaptation of the annual accounts does not (in principle) have any effects outside of the legal entity. One could therefore question its status as a resolution (§ II.2).

Such conceptual difficulties do not arise under Belgian law. Likewise, it is remarkable that administrative law judges construe these issues at their discretion. They do not hesitate to interpret the conceptual framework quite broadly. German law, however, takes a more solid, well-considered approach. German scholars emphasize that every decision taken intends to determine, in a binding fashion, what the legal entity wants. The outcome of decision making – i.e. the legal entity’s will is set – provides for the legal effects necessary to constitute a legal act. Therefore, all resolutions are indeed resolutions, even if they are of a preparatory, negative or internal nature (§ II.3-4).

One could interpret the concept ‘resolution’ somewhat broader, although the practical consequences of this are likely to be very limited. What does it matter, if the court declares preparatory or negative resolutions null and void (nietig verklaren) or if it nullifies such resolutions (vernietigen)? This does not, for instance, affect the validity of the contract concluded with the machinery manufacturer. The legal entity is still bound by the contract, even if the resolution to enter into that contract is invalid. Similarly, the invalidity of the resolution not to take over the other company does not imply a resolution was passed to take it over (§ II.5).

III. Adoption and interpretation. Under Dutch law, resolutions have no prescribed form. Resolutions can be implied by certain actions. They can also be passed implicitly. This applies in particular for the appointment of directors. When all shareholders of the company have signed the form issued by the Chamber of Commerce to register a director, they effectively pass a resolution to appoint that director. It seems appropriate that resolutions do not require any prescribed form. Formalities should not be laid down in statute. However, in some circumstances, the court can demand that resolutions must explicitly become apparent from evidence in writing. This applies specifically for certain important resolutions that have substantial consequences for the persons involved. One can imagine the court has high standards for a resolution to issue shares or for a resolution to expel a member of an association (§ III.2).

By contrast, resolutions must be interpreted in an objective manner, that is to say words prevail over the intention of the persons involved. The court can only take the meaning of written evidence into consideration to the extent such evidence is apparent to everyone. Resolutions can affect people that were not present when the resolution was passed. Only in some circumstances, the court may interpret resolutions more in light of what those involved had in mind. This is appropriate when the resolution concerned only affects a limited number of people (§ III.3).

IV. Resolutions with external effects and third parties. Dutch law recognizes the so-called ‘indoor management rule’. A person dealing with a legal entity does not need to inquire about the formality of the internal proceedings, but is entitled to assume that resolutions have been passed in compliance with relevant statutory law, the articles of association and all other relevant rules. So, one could say that resolutions have effect only internally, inside the legal entity. Some resolutions, however, do have effects outside the legal entity. For instance, the appointment of a director does not require any act beside the resolution itself. Where one specific individual is addressed, a resolution has direct external effect. The legal entity does not need to be represented. Similarly, some resolutions pose a requirement for legal acts that follow, such as the issuance of shares (§ IV.2-3).

If a resolution is invalid, this affects everyone, even those outside of the legal entity. If the court nullifies a resolution to issue shares, for example, this implies that those who have acquired the relevant shares have never been shareholders.

However, section 2:16 (2) Dutch Civil Code (DCC) protects those who were neither aware nor ought to have been aware of the defect in the resolution. The resolution’s invalidity cannot be raised as a defence against such parties. In this context, this thesis stresses that one should differentiate between ‘insiders’ and ‘outsiders’. Insiders should not be protected, whereas outsiders should (§ IV.4-5).

Who are insiders and who are outsiders? Executive and supervisory directors are in any case seen as insiders, at all times. And even shareholders are to be considered insiders, with regard to resolutions of the general meeting and where the legal entity in question is characterized as a small and personal entity. The same applies for high-ranking company officers and others who are closely affiliated with the legal entity (§ IV.6). Whoever joins a legal entity following a resolution – i.e. a director or shareholder to be – must be cautious as well. They are to be considered as insiders. Currently, section 2:16 (2) DCC provides for an exception where it comes to, among others, the appointment of directors. The scope of that exception should be widened. As a consequence, only third parties should be granted protection against defects in resolutions of the legal entity (§ IV.7).

V. Nonexistent resolutions. A resolution in the name of Unilever cannot be passed in the street by just saying a resolution has been passed. These ‘resolutions’ are in fact no resolutions; they are not even to be considered null and void, but rather not to exist at all. There is no substance at all. Is this statement useful? One may have one’s doubts about this, not only where resolutions are concerned, but also in case of legal acts in general. Under Dutch law, nonexistence, however, is a widespread concept where it comes to marriages, legal mergers and split-ups (§ V.2-4).

Contrary to common understanding, this thesis takes the view that the concept of nonexistence is useless. Nonexistence, as generally understood, is not compatible with the notion that the consequences of nullity should be determined on a case-by- case-basis (§ V.6). Moreover, nonexistence as concept cannot be applied consistently, as it is impossible to define the legal act’s essential core. One cannot distinguish properly between nullity and nonexistence (§ V.7). Furthermore, nonexistence has no purpose. The concept of nullity is sufficient to counter defect legal acts (§ V.8).

VI. Defective resolutions. Courts have been given the competence to declare resolutions null and void or to nullify them. The purpose of this is to make reviewing resolutions possible, more specifically with regard to their compliance with all the applicable rules (scrutiny function). At the same time, review by the courts aims to protect the interests of all individuals involved (protective function) (§ VI.1). Both functions come to play a role when the boundaries of nullity and voidability are to be explored. Resolutions can be valid, even though they violate the law, the articles of association or other binding rules. When does this occur? This thesis takes the view that neither nullity nor voidability should be effected automatically (§ VI.10).

In this context, ratification (bekrachtiging) of invalid resolutions should be possible to a large extent. Ratification entails that the defect in the resolution is repaired, either due to the fulfillment of a legal condition afterwards or because the competent body duly passes the same resolution again. To enlarge the scope of ratification, section 3:58 DCC should be interpreted broadly. Contrary to what is commonly understood, ratification should also be possible if an unauthorized body has passed a resolution (§ VI.3). On the other hand, section 2:14 (2) DCC should be repealed. This section, written for resolutions exclusively, has the undesirable effect that nullity occurs more frequently than necessary (§ VI.2). In addition, this chapter deals with confirmation (bevestiging): the power to invoke a ground for annulment lapses under certain conditions (section 2:15 (6) DCC; § VI.4).

Furthermore, one can waive or forfeit one’s right to invoke a ground for nullification (§ VI.5). That right will lapse after one year (section 2:15 (5) DCC; § VI.6). Moreover, one may not have a reasonable interest, as required by section 2:15 (3) DCC. This requirement should be properly distinguished from the more general requirement of section 3:303 DCC, which stipulates that a person only has a right of action if he has sufficient interest. In addition, to determine whether any reasonable interest exists, it might be helpful to group the individuals involved in two categories. Those in the inner circle have an interest by definition, whereas those in the outer circle must specifically prove they have an interest (§ VI.7). In particular, a reasonable interest is absent where a vote has not been counted, mistakenly, without having any effect on the voting result as such (§ VI.8).

The court must declare resolutions null and void or nullify them if there are sufficient grounds to do so. It has been argued that courts should be granted more discretion in this matter (§ VI.9).

VII. Adoption of resolutions by court. The court may declare a resolution null and void or may nullify it. In principle, the court cannot pass another resolution itself. It is up to the competent body of the legal entity to pass a new resolution. This, however, may not be in the interest of the individual who started the legal proceedings. Under current law, he has to wait and see, without being able to secure his rights (§ VII.1). This chapter, first of all, explores the possibility to prevent the legal entity from passing a resolution (§ VII.2). It also discusses the suspension of resolutions by the court (§ VII.3).

It is unclear whether the court itself can pass a substitute resolution. Can it decide that its judgment entails such resolution? Many scholars are opposed to this, but their arguments do not seem to be convincing (§ VII.4). German law as well as administrative law accept that the court can adopt a new resolution if certain requirements are met (§ VII.5-6). This possibility should also be implemented in Dutch company law. In any case, the court should exercise great restraint when deciding on passing a resolution itself. However, formal requirements, such as requirements laid down in comprehensive statutory law, are not the way to achieve such restraint. It is left up to the court to act with prudence. The court may only pass a resolution itself if it has serious doubts that the competent body of the legal entity will not act appropriately and always with due consideration of the interests involved (§ VII.7). Not only the regular courts, but also the Netherlands Enterprise Chamber (Ondernemingskamer) should have this competence (§ VII.8).

VIII. Arbitration of resolutions. In the Groenselect judgement, he Netherlands Supreme Court (Hoge Raad) has decided that resolutions cannot be nullified in arbitration proceedings. The Supreme Court holds that an arbitral tribunal cannot nullify resolutions nor declare them null and void, since an arbitral decision cannot bind parties that were not involved in the proceedings. Furthermore, nullification can affect the rights and interests of third parties, and is therefore reserved by regular courts. These arguments, however, do not rule out arbitration categorically (§ VIII.2).

As accepted under German law, arbitration may take place if it meets certain conditions. For instance, all shareholders or members must have agreed on the arbitration clause in the articles of association and must have their say in the appointment of the arbitrators. Moreover, it must be ensured that others than the parties directly involved can intervene in the arbitration proceedings (§ VIII.3). This ‘German solution’ should be implemented into Dutch law, with some modifications (§ VIII.4).

IX. Wrongful resolutions. Resolutions may constitute a wrongful act (onrechtmatige daad). One should distinguish this from the validity of resolutions. Can a wrongful act have been committed if a resolution has been passed validly? And, the other way round: has a wrongful act been constituted if a resolution has been passed in breach of the relevant statutory law, articles of association or other binding rules?

In the IMG case, the Netherlands Supreme Court ruled that an action can be brought arising from a wrongful act, even though the voidability of a resolution was not invoked in time and the resolution has therefore become inviolable. This ruling is to be supported (§ IX.2). However, filing a claim arising from a wrongful act should not be possible at any time. Firstly, the claimant may have forfeited his rights when certain circumstances occurred. Secondly, if nullification of the resolution was not requested, this is a factor that may result in fewer damages to be compensated. Claimant then has himself to blame (§ IX.3). On the other hand, if a court has declared a resolution null and void or has nullified it, this constitutes, by definition, a wrongful act conducted by the legal entity (§ IX.4).

The question whether an action can be brought is another question than the question whether violation of the principles arising from the principle of reasonableness and fairness (as required in section 2:8 DCC) constitutes a wrongful act. In the IMG case, the Supreme Court suggests that an unreasonable resolution is not necessarily wrongful. Nevertheless, older case law indicates that a resolution in breach of the principle of reasonableness and fairness constitutes a wrongful act by definition, at least if the resolution in question can be said to deal with matters that are very closely related to the legal entity (§ IX.5).

X. Adoption of the annual accounts. In annual accounts proceedings, the Netherlands Enterprise Chamber has the power to nullify a resolution in which the annual accounts have been approved (section 2:451 (4) DCC). This concurs with the competence of the regular courts (§ X.2). How are both proceedings to be distinguished form each other? In this thesis, it is argued that the grounds, the actions and the consequences of both proceedings differ. The Enterprise Chamber’s jurisdiction is strictly defined to scrutinizing the annual accounts rules, whereas the regular courts look into the compliance with the more general rules that govern the passing of resolutions (§ X.3-5).

XI. Expulsion appeal. Except where the relevant decision has been taken by the general meeting under the articles, the member of an association has the right to appeal his expulsion in the general meeting or at a constituent body or third party designated in the articles (section 2:35 (4) DCC). In this thesis, it is argued that the decision of the appeal body – whether to set the expulsion aside or not – must be qualified both as a resolution and as a settlement agreement (§ XI.2). The appeal body acts in accordance with the articles and therefore passes resolutions (§ XI.3). This does not mean, however, that these resolutions are governed by the rules laid down for resolutions in Book 2 DCC. Pursuant to section 7:901 (1) DCC, appeal decisions must be treated as if these are made on the basis of a settlement agreement. This implies that the rules of Book 7 and Book 3 need to be applied. In this thesis, it is argued that this should be turned around. The appeal body passes resolutions, and these resolutions need to be treated as resolutions (§ XI.4).

XII. Final remarks. Legal entities can be seen as institutions that survive independently from their shareholders, directors and members. The legal entity represents a person itself, governed by its own rules and aware of the interests of all parties involved. Resolutions are only means to an end; they serve to determine what the legal entity wants.

More specifically, the influence of the institutional doctrine becomes apparent in five respects, each of which is discussed in one of the chapters of this doctoral thesis. Firstly, the principle of reasonableness and fairness can be invoked to escape from the principle that resolutions bind everyone involved equally. A resolution can lose its binding force with regard to a specific individual (§ XII.1). Secondly, one should distinguish between actors as insiders and as outsiders (§ XII.2). Thirdly, the rules regarding resolutions should differ. Large legal entities should be governed by other rules than smaller ones (§ XII.3). Fourthly, it is essential that the rules regarding resolutions line up with the rules regarding legal acts in general, at least whenever that is possible (§ XII.4). Fifthly, the legal entity has its own interest, which need to be weighed against the interests of other parties involved (§ XII.5).