Watch out: changes for foundations under the WBTR

Corporate Law

5 July 2021

Watch out: changes for foundations under the WBTR

Stelt u zich eens voor: u werkt al jaren met dezelfde zelfstandige. Hij stuurt facturen, factureert btw en heeft een eigen kvk-nummer. Toch krijgt u in 2026 ineens vragen van de Belastingdienst over de aard van uw samenwerking. Hoe heeft het zo ver kunnen komen?

As of 1 July 2021, all foundations and associations must comply with the new Governance and Supervision of Legal Entities Act (WBTR). But does this mean your foundation must quickly change all sorts of things? Read below about the WBTR and the (non-)action points that follow from it for foundations.

Current supervision of the foundation

A foundation may only distribute money if this benefits the social or ideological purpose laid down in its articles of association. Distributing profits to its board other than in the form of the usual salaries is of course not the intention. The board must ensure that the statutory purpose is realised with the foundation’s assets, and that is why profit reserves matter. Making a profit is therefore allowed, but not for the personal purposes of the directors. Since there is relatively little supervision of foundations, they are popular as a front for criminals. It also happens in practice that a foundation hoards a lot of profit reserves because it cannot distribute profit. Directors (with malicious intentions) who can dispose of the foundation’s assets can nevertheless secretly start using this money for, for example, financing a private home or paying off private debts. Abuse sometimes takes place more subtly, by (having) invoices sent to the foundation for work that was not done, or reimbursing costs that were not incurred.

What is the purpose of the WBTR?

To counter the above, the government has created the Governance and Supervision of Legal Entities Act (WBTR), to improve the quality of governance and supervision of associations and foundations. With the WBTR, the government wants to prevent mismanagement, irresponsible financial management, self-enrichment, abuse of positions and other undesirable activities from harming associations and foundations. Unfortunately, things like “dipping into the till” and “cronyism” turn out to occur more often than many think. The WBTR counters this by discussing and recording internal procedures and responsibilities.

What changes for foundations from 1 July 2021 under the WBTR?

But what actually changes for your foundation? The main changes concern supervision, conflict of interest, liability, dismissal of directors and supervisory board members, multiple voting rights, and incapacity and absence. Each topic is discussed below. In general, it can be said that the changes reduce the differences between the foundation on the one hand and the NV and BV (public and private limited companies) on the other. Foundation directors will be subject to more statutory obligations.

Is an amendment to the articles of association already necessary now?

Do the articles of association of foundations need to be amended right away? No, strictly speaking that is not necessary, but it is advisable, because otherwise the law will start deciding for you from a certain point onward.

The WBTR has so-called direct effect. This means, for example, that some provisions currently included in the articles of association, but that conflict with the WBTR, become invalid as of 1 July 2021. This applies in particular to the arrangement around conflict of interest of directors. It is a good idea to have the articles of association adjusted for this, so that directors do not make mistakes in this regard. After all, that can have unpleasant personal consequences if action is nevertheless taken with a conflict of interest while that is no longer allowed. Incidentally, the board can still ratify old cases of representation involving a conflict of interest. There is also transitional law for multiple voting rights, which means that from 5 years after the introduction of the WBTR, this statutory arrangement in any case takes precedence over the arrangement in the articles of association. However, it has not been well worked out exactly how that will happen. What exactly will happen then? That means, for example, that if there is a Stichting Administratiekantoor (foundation trust office) in which a father, under the articles of association, has multiple voting rights with 5 votes and his children together have 4 votes, that will become a mess after 5 years. For now it is still allowed, but it is advisable to anticipate this. Amending the articles of association, so that they already run in parallel with the WBTR, is therefore wise. Do not wait until the transitional law starts deciding for you.

Supervisory board or one-tier board

With the introduction of the WBTR comes the option of setting up a supervisory body, namely a Supervisory Board (Raad van Commissarissen, RvC) or a Board of Supervision (Raad van Toezicht, RvT). It is also possible to have the supervisor sit closer to the directors with the so-called one-tier board model. In this case, the board has a distinction between executive and non-executive directors. This option already existed for other legal entities, but is now also open to foundations. However, it is used little in the Netherlands. The RvC or RvT model is much more common.

Conflict of interest

For the B.V. and the N.V. there was already a statutory conflict of interest arrangement since the WBT 2013. From July 2021, the WBTR also contains such an arrangement. The conflict of interest arrangement means that a director or supervisory board member may not participate in decision-making if he has a personal direct or indirect interest that conflicts with the interest of the legal entity. If, due to a conflict of interest, no decision can be made at all, for example because there is only 1 director, another body of the legal entity (such as the RvC) can be designated to make the decision. If that is impossible, the decision must still be made by the board, with the considerations recorded in writing. The new conflict of interest arrangement applies by operation of law to directors and supervisory board members of foundations and associations; an amendment to the articles of association is not required for this. But to prevent incorrect reading and implementation, it is advisable to amend the articles of association. After all, the articles of association are the primary rules of the game that are consulted when matters need to be arranged and are put to the test.

Director liability

At a B.V., a director (statutory director) can be dismissed fairly easily by the general meeting of shareholders. Since a foundation has no shareholders and members, a director can only be dismissed by the board itself. In an extreme case, this can be done by the court at the request of interested parties if it concerns a director or a two-person board (50%/50% deadlock). This can be the case, for example, because of acting in violation of the law or the articles of association, or because of, for example, mismanagement. This can then be done at the request of an interested party, for example the foundation’s employees or the Public Prosecution Service. Under the WBTR, the court gets additional grounds to order the dismissal. The following grounds are added:

‘neglect of the director’s duties’,
‘radical change of circumstances’, or
‘other weighty reasons’.

Multiple voting rights

The WBTR also contains a change regarding multiple voting rights. It was already possible to include a provision on multiple voting rights in the articles of association. This makes it possible to give a director more votes under the articles of association at the board meeting. Under the WBTR, this multiple voting right is limited. A director may never be granted more votes than the other directors combined. If a foundation has an arrangement that conflicts with this, the foundation does not have to change this immediately. However, it is advisable to anticipate this change. The amendment to the articles of association must be made within five years, or at the time of the next amendment to the articles of association, whichever comes first. Until then, the provision remains valid.

Incapacity and absence

A provision in the articles of association on what to do in the event of incapacity (for example due to suspension, illness or absence) or absence (for example due to resignation, dismissal or death of the director) of a director or supervisory board member becomes mandatory for foundations under the WBTR. This is to safeguard continuity. After all, the activities of the legal entity must be able to continue.

In this new WBTR arrangement, it can be agreed when there is incapacity. A common arrangement for the B.V. is also that, in those situations, the remaining director(s) are charged with managing the entity. The obligation to include an incapacity or absence arrangement in the articles of association applies both to the board and to any RvC or RvT. If the articles of association do not yet contain an arrangement on incapacity or absence, such an arrangement must be inserted at the next amendment of the articles of association.

Main action points.

The WBTR therefore comes into force on 1 July 2021 with direct effect, and there is transitional law.
Are you a board member of a foundation or association? Don’t let it come to that, but take the following actions in good time:

The first action point is to have the articles of association and internal regulations scanned for WBTR compliance by a corporate lawyer. This will result in concrete action points in terms of amending the articles of association and the internal governance regulations. This differs per organisation because it depends on the governance model, the type of organisation and activities, the content of the current articles of association, the sector, etc.

The second action point is that, because of the increased director liability for non-commercial foundations, the governance structure needs to be reviewed again. Have sufficient internal governance agreements been made, and are they being followed? Have checks & balances been put in place? Are the correct sector-specific governance codes being followed? Are the management and supervisory board regulations still adequate?

Do you have questions about the above, or need advice or support? Then contact us by emailing info@thelegalcompany.nl, calling 020-3450152, or filling in our contact form. We will call or email you back within 24 hours.

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Nothing changes as constantly as laws and regulations. Please note that our blogs may no longer reflect current laws and regulations and may therefore be outdated. If you have questions or an issue relating to this blog, or wish to obtain legal assistance, please contact us.

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