Conflicts and related-party protocol in the Netherlands

A conflicts and related-party protocol for the Netherlands turns on one distinction that has no exact equivalent in common-law systems. Since a 2013 reform, a director with a personal interest that conflicts with the company's interest is excluded from the board's deliberation and decision-making on that matter, but not from the power to represent the company to the outside world. The two used to be joined; they are not joined now, and treating them as if they still were is the single most frequent drafting error boards bring to this review. A working protocol has to say who decides when every director on the board is conflicted, and what the annual accounts must disclose about the transaction once it exists.

A Dutch besloten vennootschap (BV) with a foreign parent proposes to lease office space from a company owned by one of its own directors. The director drafts the lease, signs it on behalf of the BV, and only later asks whether that was permitted. By then the lease exists, the year's accounts are being drawn up, and the question is no longer whether the transaction can be approved. It is whether the decision can be corrected on the record at all, and what has to be disclosed either way.

This page sets out the test the Netherlands applies to that situation, the filing consequence once a conflicted transaction reaches the annual accounts, and the point past which this firm's role in a conflicts and related-party protocol review stops.

What changes in the Netherlands

For a group doing business in the Netherlands, the starting point is that Dutch law does not run a general, judge-tested duty of loyalty of the kind a common-law board is used to. It runs a statutory exclusion rule attached to the board of directors as a body: a director may not take part in deliberation and decision-making on a matter in which they have a direct or indirect personal interest conflicting with the company's interest, under Book 2, Article 239(6) of the Dutch Civil Code (Burgerlijk Wetboek). The general version of this protocol sets out how the same problem is handled where no such statutory exclusion exists. What changes in the Netherlands is that the exclusion is internal only. A conflicted director who signs a contract anyway still binds the company externally; the company is not protected by an argument that the counterparty should have checked the director's authority. The comparable position under English law, and the different route Singapore takes to the same problem, are set out in the comparison of civil-law and common-law director duties and in the Singapore version of this protocol.

This matters for drafting. A protocol built on the assumption that a conflict voids the director's authority to sign will misstate Dutch law and will not protect the company from the contract it is trying to avoid. The protocol has to be built on the decision-making rule as it actually stands, not on the rule the board's foreign counsel is used to.

The local requirement or test that drives the work

The test is whether the interest is personal to the director and conflicts with the company's interest, not whether the transaction is unfavourable on its terms. An interest is personal if the director, or someone closely connected to the director, stands to gain or lose from the outcome independently of the director's role as director. Ownership of the counterparty by the director, by a beneficial owner the director also controls, or by a close family member all fall inside the rule; a director who simply favours one commercial option over another for the company's own benefit does not.

Once the interest is identified, the board minutes recording that a director stepped out of the deliberation become part of the company's permanent record the moment they are signed. They cannot be rewritten afterwards to add a conflict that was not disclosed at the time, only corrected going forward by a further, dated minute. Where every director on the board has a conflicting interest in the same matter, decision-making authority passes to the supervisory board, and if there is no supervisory board, or it is equally conflicted, to the general meeting, unless the articles of association provide otherwise. A protocol that does not name the fallback decision-maker in the articles is not finished; it has simply moved the same unresolved question one level up the structure.

• Identify every director, and every person closely connected to a director, with an interest in the matter.
• Record the exclusion in the board minutes on the date the matter is decided, not after the fact.
• Confirm who decides if the exclusion leaves no director able to vote.
• Check the articles of association for a provision that displaces the statutory fallback.
• Set the disclosure the annual accounts will need to carry before the transaction closes.

The filing, register or forum consequence

Two separate obligations follow a related-party transaction into the statutory filing cycle. Dutch accounting rules require the notes to the annual accounts to disclose related-party transactions that are not conducted on normal market terms, including the nature of the relationship and the amounts involved. Under Book 2, Title 9 of the Dutch Civil Code, transactions with related parties on other than normal market terms must be disclosed in the notes, including their nature and financial extent. That disclosure then travels with the accounts once they are filed. Adopted annual accounts must be filed with the Trade Register (Handelsregister) held by the Chamber of Commerce within eight days of adoption, and the filing is a matter of public record from that point. A filing made on that basis cannot be withdrawn. If the disclosure turns out to have been wrong, the correction is a further filing referencing the original, not a retraction of it, and the original remains visible to anyone who searches the register in the meantime.

Where the conflict rule is said to have been ignored altogether rather than mishandled, the forum for that dispute is specific. Inquiry proceedings alleging mismanagement, including a breach of the conflict-of-interest rule, are brought before the Enterprise Chamber (Ondernemingskamer) of the Amsterdam Court of Appeal. That is a specialised commercial forum, not a general civil court, and it can order an investigation into the company's affairs and, in some outcomes, suspend or remove a director pending the result. A board that has documented its conflict decisions correctly is answering a question the Enterprise Chamber would otherwise have to reconstruct from scratch.

Sequencing on this point is set out further in the note on which board resolutions a related-party transaction actually requires.

A related-party transaction agreed under a mistaken belief about the conflict rule creates exposure that attaches to the director personally, not only to the company. Once the transaction has closed and the accounts disclosing it have been filed, that exposure cannot be removed retrospectively; it can only be assessed, and where possible, addressed going forward.

What this service does not include in the Netherlands

This firm reviews the requirement, sets the criteria a conflicted decision has to meet, checks appointment terms for the directors involved, and assesses the exposure that follows from how the matter was actually handled. It does not act as a director, secretary, nominee shareholder or trustee for a Dutch entity, and it does not supply, source or arrange for another person to take on any of those roles. That is not a matter of preference. Providing a director as a third-party service, or arranging for someone else to do so, is a licensed trust office activity in the Netherlands. Providing or arranging the provision of a director for another party's company is regulated trust office business under the Trust Offices Supervision Act 2018 (Wet toezicht trustkantoren 2018), supervised by De Nederlandsche Bank, and carrying it on without a licence is a criminal offence. A firm without that licence has no lawful route to offer it, and no client is better served by a firm that pretends otherwise.

What the client receives instead is the requirement mapped against the board actually in place, the fallback decision-maker identified in the articles rather than assumed, the appointment terms of the directors involved checked against what the conflict rule expects of them, and a written assessment of the personal exposure a conflicted decision has created or avoided. That is the boundary of a board of directors' governance review, and it is a boundary set by licensing law, not by the scope of the firm's expertise.

A group whose current governance sits on the wrong side of that lease agreement, or close to it, is not looking at a drafting fix. It is looking at a decision that closes off certain corrections the moment the current year's accounts are adopted and filed, and stays open on others only until then.

Assess your director exposure before the next set of accounts is adopted. Write to info@hreithlaw.com with the jurisdiction and the structure.

Assess your director exposure

A foreign-owned Dutch subsidiary with a single director who also controls the counterparty to a services agreement is the sharpest version of this problem, because the fallback decision-maker under the articles is frequently the very shareholder who appointed that director in the first place. That circularity is not fixed by better drafting of the agreement. It is fixed by confirming, before the transaction closes, who in the actual structure is entitled to decide.

Assess your director exposure while the transaction is still open for a properly minuted decision, rather than after the annual accounts have already gone to the Trade Register carrying it. Write to info@hreithlaw.com with the jurisdiction and the structure.

Assess your director exposure

Frequently asked questions

What happens if conflicts and related-party protocol in the Netherlands is not addressed?

The transaction itself usually still binds the company, because the exclusion rule affects internal decision-making, not the director's external authority to sign. The exposure instead attaches to the director personally, and it surfaces later, typically when the annual accounts disclosing the transaction are filed or when a shareholder questions the decision.

How often should conflicts and related-party protocol in the Netherlands be reviewed?

There is no fixed statutory interval. The practical trigger is any change to the board, the shareholder structure, or the articles of association, and, separately, the point each year at which related-party transactions are gathered for the annual accounts, since that is when undisclosed conflicts tend to surface.

Does conflicts and related-party protocol in the Netherlands change for a foreign-owned company?

The statutory test is the same regardless of who owns the company, but foreign-owned structures more often have a single local director whose interests overlap with the parent's, which makes the fallback decision-maker question sharper rather than different in substance.

What does conflicts and related-party protocol in the Netherlands require in practice?

It requires identifying the conflicted director before the matter is decided, recording the exclusion in the minutes at that time, confirming who decides if every director is conflicted, and setting the disclosure the annual accounts will need to carry. Treating a conflict as a signing authority problem rather than a decision-making one is the most common misconception, and it is the wrong test under Dutch law.

Who inside the company is responsible for conflicts and related-party protocol in the Netherlands?

The board of directors as a body is responsible for applying the exclusion rule to its own decisions, and the supervisory board, or in its absence the general meeting, becomes responsible only if every director is conflicted on the same matter and the articles do not provide another route.