The implementation of a one-tier board for associations, foundations, cooperatives and mutual insurance societies should be possible for some time now.
But several days before the inforcement of the Act on the governance and supervision of legal persons (“Act”) on the first day of July 2021, the one-tier board, part of this Act, was delayed. The reason of this delay has not been clear to us, until now.
The formal implementation of the one-tier board and subsequently the registration in the trade register of the Dutch Chamber of Commerce is apparently less simple than it seems. What’s going on?
What is the issue?
Regularly our clients, often international operating associations or foundations, ask us when they can appoint their executives in a one-tier board. Formally, this is not yet possible, the specific legislative text has not yet entered into force which also means that the registration of the one-tier executives in the trade register of the Dutch chamber of commerce is not possible.
In practice, it is usually possible to construct a one-tier model of governance, however it takes exact descriptions of tasks, responsibilities and authority of executives and non-executives in the articles of association, to prevent issues related to directors’ liability.
Not only an elaborate and undesirable situation, but also somewhat surprising, since it is possible for the public limited company as well as the private limited company to appoint executives and non-executives in their articles of association for many years now.
It has not been clear to us so far why the enforcement of this part of the Act was delayed and why the one-tier board is not yet possible for associations, foundations, cooperatives and mutual insurance societies.
However, after some research we have more clarity on this issue thanks to an article of Prof. Mr. G.J.C. Rensen “Sponsorloop voor de one tier?” (WPNR July 30st – August 6th 2022). More about that later in this blog. But first the one-tier board, a short review.
De one-tier board; a short review
The one-tier board is part of the Act on the governance and supervision of legal persons (“Act”). This Act provides clarity in tasks and responsibilities of executives and non-executives of associations, foundations, cooperatives and mutual insurance societies. On 1 July 2021, the Act would fully enter into force.
A one-tier board refers to a management model in which the executive and non-executive directors jointly form one legal body. If a legal entity has established a one-tier board, predetermined duties shall be deposited with the non-executive directors. This involves supervising the performance of duties by the directors, chairing the board of directors, making nominations for the appointment of directors and determining the remuneration of executives.
Particularly for international operating associations or foundations the one-tier board is an interesting management model, as it reflects the Anglo-Saxon governance model. It is not always allowed to set up a one-tier board.
There is a chance that specific regulations to a particular sector are applicable, which require the establishment of a separate supervisory legal body. In that case, a one-tier board is therefore not possible. For more information about this subject we refer to our earlier blog on this subject.
What is the explanation?
And now back to the issue why it is not possible to register a one-tier board for the association, foundation, cooperative and mutual insurance society in trade register of the Dutch chamber of commerce? The answer is as well as simple as concerning: there are insufficient funds to make adjustments in the trade register of the Dutch chamber of commerce in order to realise the technical legal possibility for registration. You might think it could not be so complex, but unfornately it is.. So there is a bill, but unfortunately with respect to the one-tier board out of order for the association, foundation, cooperative and mutual insurance society.
To be (hopefully soon) continued …