Does the dismissal of a statutory director also implicate the termination of the underlying management agreement?

28th of March

In the Netherlands it is common practice that the statutory director of a private company with limited liabilty (BV) works for the BV on the basis of a management agreement. However up until recently it was not clear which procedure must be followed if you want to fire the statutory director and also end the underlying management contract. Was it enough to have a shareholders’ decision to fire the statutory director or do you also need to terminate the management agreement separately? Recent case law show us what to do.

What is the problem?

In the Netherlands you have to make a distinction between the function of statutory director and the underlying contract that exists between the statutory director and the BV. These are two different legal relationships. The function of statutory director is controlled by the rules of company law as included in book 2 of the Dutch Civil Right code. The contract between the statutory director and the BV is however controlled by the rules of the labor law (in case of a natural person as a statutory director) or the contract law (in case of a management agreement). These different laws can make it difficult to know how to end a relationship between the statutory director and the BV.

A natural person as statutory director

In 2005 a court order made it clear how to act if you have a natural person as a statutory director and you want to fire him from his position. Normally you also want to end the full relationship with that person at the same time. What you don’t want is that the statutory director (who still remains an employee within the company, with all the obligations that come with that) is admittedly fired as a statutory director. Back in the day you had to end the function with respect of the rules of the company law and also, separately, end the employment with respect of the rules of the labor law. Because this procedure was unclear for both parties, the case law of 2005 described that when you end the function of a statutory director, you automatically end the labor contract with that person. You don’t have to take separate action to end the labor contract as well. However, according to the ending of the labor contract you have to respect the notice period according to the Dutch labor law. In this case the function of statutory director can end immediately, but the full relationship can only end after the legal notice period has ended.

A legal person as statutory director

Up until recently it was not clear whether the ending of the function of statutory director for a legal person also leads to ending of the management contract with that legal person. However, a recent verdict of a Dutch court has made clear that ending the function of statutory director of a legal person, automatically ends the underlying management contract. You don’t have to take separate action in order to end the management contract. The court has also made clear that if there is a notice period in the management contract, you have to respect that period. If there is no notice period in the management contract, you have to respect a reasonable notice period.

As a result of this verdict it is now clear that the procedure you have to follow to end a relationship with a legal person as a statutory director is the same procedure as the procedure of how to end a relationship with a natural person as a statutory director. The only difference is how you determine your notice period. For a natural person you have to follow the labor law, for a legal person you have to follow the management contract or respect a reasonable notice period.