Dutch bill on the digital general meeting of private legal entities

On 15 January 2024, the Dutch Minister for Legal Protection (the Minister) submitted the bill 'Digital General Meeting of Private Legal Persons Act' (Wet digitale algemene vergadering privaatrechtelijke rechtspersonen) (the Bill) to the Dutch Senate and the House of Representatives. In short, the Bill enables a fully digital general meeting. In this article, we successively discuss (i) the current legal framework concerning the (partial) digital general meeting and (ii) the changes the Bill entails.

Although the Bill applies to the statutory regulation of the general meeting of the N.V., B.V., association, cooperative, mutual insurance company (onderlinge waarborg maatschappij), VvE, SE and SCE, this article will only focus on the changes the Bill has for the statutory regulation of the N.V. and the B.V.

Current law

Currently, it is not possible under Dutch law to hold a fully digital general meeting of shareholders. It is assumed that the same applies to meetings of holders of shares of a certain type or designation. The (mandatory) provisions in Book 2 of the Civil Code on the general meeting assume that there is always also a physical meeting, which must be held in the place mentioned in the articles of association or in the municipality where the company has its registered office. However, from 24 April 2020 to 1 February 2023, the holding of a fully digital general meeting was temporarily made possible due to the issues raised by the COVID-19 pandemic. During this period, (partial) digital meetings were frequently held, simply because physical meetings were hardly possible.

Holding a general meeting where part of the shareholders are physically present and part are digitally present via electronic means of communication such as a conference call or video conference (also known as a hybrid general meeting), has already been possible since 1 January 2007, provided that the articles of association allow for this and the shareholders can be identified via electronic means of communication, take note of the proceedings of the meeting and directly exercise their vote.

The Bill - What will change?

The Bill aims to modernise Dutch company law while also providing sufficient safeguards for shareholders' interest in the way the general meeting is designed. If the Bill is adopted unamended by both the Dutch Senate and the House of Representatives, Dutch company law will change in several respects, making it possible to hold a fully digital general meeting. The conditions for a fully digital meeting are set out below.

Since the fully digital general meeting is no longer linked to a particular meeting location, a geographical point of reference is missing in such cases. However, this connecting point may be of value, for instance in a tax context. For example, the Company Law Commission (Commissie Vennootschapsrecht) already noted in its consultation response that a meeting location may play a role in the question of what should be determined as the location of a taxpayer. It follows from the explanatory memorandum to the Bill that where the location of a meeting is relevant for the application of laws and regulations, the physical location of the chairman may be regarded as the location of the meeting. It is therefore advisable to check in advance whether the location of the meeting chairman is relevant to the company.

A statutory basis

Before a general meeting can meet digitally, the articles of association of the legal entity must provide for that possibility. The Minister indicates that the legal entity itself can determine the content of that statutory basis. The explanatory memorandum of the Bill gives as an example that the articles of association may provide, for example, that the board may decide, under certain conditions, that the general meeting will take place entirely digitally. It is also conceivable that certain resolutions can only be taken during a hybrid or physical general meeting. The articles of association may further provide that every general meeting will henceforth be organised (fully) digitally or that the possibility of a digital general meeting is precisely excluded altogether. Finally, the explanatory memorandum mentions that the statutory basis for a digital meeting could be further elaborated in regulations (to be adopted by the management board or supervisory board). It is not obvious that the articles of association would provide that the general meeting can determine that a meeting can be held digitally, because that first resolution would have to take place physically first. In short, it is up to the notarial practice to arrive at a clear and workable statutory basis.

Moreover, the Minister does not consider the decision to introduce such a statutory basis to be so controversial or far-reaching as to justify a mandatory qualified majority, quorum or other type of protection of a dissenting minority. Voting shareholders may therefore be forced to hold digital meetings in the future, whether they want to or not.

Full shareholder participation

The starting point is that shareholders and other persons entitled to attend meetings digitally should be able to participate fully in the general meeting. This means that shareholders must be able to participate in the entire meeting with sound and image. Use of a two-way audiovisual means of communication will thus become mandatory. Shareholders who participate digitally must also be able to speak (with sound and image) and ask questions.

The obligation to use a two-way audiovisual means of communication applies to both the fully digital general meeting and the hybrid variant. In this way, the Bill aims to offer shareholders a fully-fledged alternative to physical participation in the general meeting, with the difference that in the case of a digital or hybrid meeting, a heavier responsibility will rest on the board to ensure a stable and secure connection.

Neither the Bill nor the current legislation provides rules on how to vote. However, the Bill does prescribe that the convocation notice of a digital general meeting (both hybrid and fully digital) must include, among other things, the procedure for digital voting. It is obvious that - as in physical meetings - the chairman can determine the method of voting (e.g. show of hands, acclamation, voting buttons or a vote visible only to the chairman (similar to the closed notes variant in physical meetings)).

Identification

Finally, shareholders participating in the digital general meeting must be identifiable through the electronic means of communication. This requirement should prevent persons from attending the general meeting and casting votes who are not entitled to do so. On this point too, the Bill does not provide any further rules on how this identification should take place. In any case, the chairman or a civil law notary present who oversees the orderly conduct of the meeting, will always have to make sure that a shareholder identifies himself sufficiently clearly. Something that in the world of AI and deep fakes can be tricky sometimes.

Adaptation of rules on notice of general meeting

Current law already allows shareholders to be summoned to a general meeting by a legible and reproducible message sent electronically (such as e-mail) to the digital address disclosed to the company by the shareholder for this purpose. This is currently subject to two requirements: (i) the articles of association may not prohibit it and (ii) the individual shareholders have agreed to it. With the entry into force of the Bill, the right of consent will lapse.

In addition, for the non-listed N.V., the requirement that the general meeting must be convened via a national daily newspaper will also be removed, and convening by publishing the invitation to the general meeting on the N.V.'s website will become possible (just as currently already applies to the listed N.V.).

Transitional law

The Bill provides for transitional law which, among other things, stipulates that a reference to a statutory provision is valid as a reference to the new statutory provisions. By doing so, the Minister aims to prevent statutes from having to be amended purely for this reason. At the same time, however, the articles of association must provide a statutory basis for a digital meeting, should digital meetings be desired. It will depend on how the articles of association are currently worded whether the articles of association need to be amended to allow for the digital general meeting after the Bill enters into force. As mentioned, the inclusion of a statutory basis for the digital meeting is subject to a simple majority without a quorum, unless the current articles of association do require a quorum or qualified majority.

Closing

In summary, once the Bill is passed in unamended form by both the Dutch Senate and the House of Representatives and the Bill enters into force, organising a fully digital general meeting will be possible as long as: (i) the articles of association allow it, (ii) shareholders can participate fully during the general meeting and (iii) shareholders can be identified.

The Bill is currently before the House of Representatives. The Minister's aim is for the Bill to enter into force on 1 January 2025. As the Bill has not been declared controversial, the formation of the new cabinet need not stand in the way of the Bill coming into force.