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The essence of the two-tier board structure [structuurregime] is that large companies are legally obliged to appoint a supervisory board. This must consist of at least three members, one of them appointed on the binding nomination of the company’s works council. Amongst other things, the task of the supervisory board is to approve certain management board resolutions.

The two-tier board structure must be introduced in a Dutch company if all three of the following criteria have been met for three consecutive years and that fact has been reported to the Trade Register:

  • the issued share capital together with the reserves amounts to at least EUR 16 million according to the balance sheet; and
  • a works council has been established pursuant to a statutory obligation for the enterprise itself or for a subsidiary; and
  • the company and its subsidiaries employ a total of at least 100 employees in the Netherlands.

If a company meets those three criteria, it must report this to the Trade Register within two months of the adoption of its annual financial statements. Having done that, it must then indicate each year in its annual report whether the relevant criteria are still met for the year concerned. If that is the case for three successive years, then the two-tier board structure must be implemented.

Providing notification is a “constitutive requirement” for implementation of the two-tier board structure. If notification is required but has not been provided, then an economic offence has been committed. In that case, the three-year period does not commence.

Notification to the Trade Register

The Trade Register must be notified within two months of adoption of the annual financial statements which show for the first time that the company meets the requirements for implementation of the two-tier board structure.

There is no need for the company to notify the Trade Register again every year. For example, if notification is made for the first time after adoption of the annual financial statements for 2017, it will then be sufficient in subsequent financial years to state in the annual report that the relevant criteria have again been met for the relevant year. This will not yet be necessary in the 2017 annual report.

In the case of a group of companies, each of them must be assessed separately to see whether it meets the three requirements for implementation of the two-tier board structure. If several group companies meet the three requirements, the notification must be made for each of them.

When does the two-tier board structure need to be implemented?

The two-tier board structure must actually be implemented, at the latest, with effect from the day on which notification has bene registered with the Trade Register for three years without interruption.

Example: if the first notification is filed with the Trade Register on 1 June 2018, then the articles of association of the company concerned must be brought into line with the requirements of the two-tier board structure and a supervisory board must be installed by 1 June 2021 at the latest.

The statement must then have been registered without interruption for three years. If a company no longer meets the requirements for implementation of the two-tier structure in 2019 or 2020 – for example because part of the company has been sold – the notification must be deleted and the period will only commence again once a new notification has been submitted to the Trade Register.

Where does the two-tier board structure have to be implemented?

Ultimately, the two-tier board structure will have to be implemented at the highest level within the group in the Netherlands. If, for example, the parent company has met all the criteria for three years after the first notification, the two-tier structure will need to be implemented in/by that company. The “underlying” companies are from then on automatically exempted.

However, as long as the two-tier board structure has not actually been implemented within the group, all the companies that meet the above requirements must notify the Trade Register if they meet these three requirements.

What is the impact of implementation of the two-tier board structure?

The Netherlands has a “complete” and a “mitigated” two-tier board structure. The only difference is that in the case of the complete structure the members of the management board are appointed and dismissed by the supervisory board, whereas in the mitigated structure that power is reserved to the shareholders.

The mitigated structure may be implemented, inter alia, if the company concerned is part of an “international” group of companies most of whose employees work outside the Netherlands. Full exemptions are also possible, for example if the two-tier board structure is already complied with higher up in the group within the Netherlands.

As soon as the two-tier board structure has actually been implemented, the law (Section 2:274(1) of the Dutch Civil Code [BW]) requires that a number of strategic decisions by the company’s management board must be made subject to approval by the supervisory board.
If you want to know more about the two-tier board structure, then please contact Marie-Louise Kneepkens. You can of course also contact one of the other lawyers in our Mergers & Acquisitions team.