In many SME businesses, directors fulfil several roles at once, for example also acting as a shareholder or investor. That is practical, but it makes decision-making vulnerable as soon as personal interests come into play. But what if a director has a conflicting interest in a decision? And who then decides whether he may still take part in the decision-making? The Supreme Court has recently set out clear rules on this in a recent ruling (ECLI:NL:HR:2026:592).
What was the case about?
This case centred on an internationally operating holding company that was in serious financial difficulty and needed to take far-reaching decisions at short notice.
Within the board, a discussion arose about the role of two directors. The other directors were of the opinion that these two had a personal interest in the outcome of the decision-making and should therefore not take part in the deliberations and voting. They were subsequently excluded from the decision-making. The directors concerned disagreed. In their view, it was up to them to assess whether there was a conflict of interest.
The key question ultimately put to the Supreme Court is highly relevant in practice: can a director of a company assess for himself whether he has a conflict of interest, or must the other directors decide on this?
Statutory framework
Under Section 2:239 of the Dutch Civil Code, directors of a private limited company must act in the interest of the company and the business connected with it. When a director also has a personal interest that may conflict with this, he may not take part in the deliberations and decision-making on that matter.
If, as a result, no decision can be taken within the board, decision-making shifts to another body: first the supervisory board, if there is one, and otherwise the general meeting, unless the articles of association provide otherwise.
However, the law does not specify who determines whether there is a conflict of interest, which can lead to uncertainty in practice.
Reporting and assessing a conflict of interest
The Supreme Court has filled this gap by clarifying how this should be handled. The starting point is that a director who may be dealing with a conflict of interest must be fully open about this towards his fellow directors. An active duty to report therefore rests on him, and transparency about this lies, in the first instance, with the director concerned.
If a discussion subsequently arises about whether there is actually a conflict of interest, the assessment no longer lies with the director concerned himself, but with the other directors. They must determine whether taking part in the decision-making is still justifiable.
Notably, this line also applies when the director himself has not made a report. The absence of openness therefore does not prevent the other directors from independently forming a judgement and intervening where necessary.
If they conclude that there is a conflict of interest, they are also under an obligation to ensure that the director concerned does not take part in the deliberations and decision-making.
What does this mean in practice?
With this ruling, the Supreme Court clearly places the emphasis on the board as a whole. This means that not only is the director concerned expected to be transparent, but fellow directors must also take an active role in identifying and assessing possible conflicts of interest.
In practice, this calls for clear arrangements within the board. It is advisable to record how and when a director must report a (possible) conflict of interest and how that report is to be assessed. Think, for example, of standing agenda items, a reporting protocol, or arrangements in board regulations.
In addition, it is important that fellow directors remain alert to signals of possible conflicts of interest, particularly in situations where directors wear multiple hats, such as with shareholder-directors or investment structures. Waiting for an explicit report is not always sufficient, since intervention can, and sometimes must, take place even without one.
Finally, it is advisable to carefully document decision-making around (possible) conflicts of interest. Record which interests were discussed, who was involved, and on what grounds it was decided to let a director take part in the decision-making, or not. This can be of great importance afterwards, for example in disputes or legal proceedings.
Need help?
Do you need help assessing (possible) conflicts of interest within your board, or setting up clear governance arrangements? We, the corporate lawyers of The Legal Company, are happy to help you with this. Contact us directly by emailing info@thelegalcompany.nl or call 020 345 0152.
