Who Is Actually Allowed to Sign?

It happens more often than you think in daily corporate law practice that a decision is made or a contract signed, and it transpires only afterwards that there was no authority to do so, or that the decision is legally shaky.

In this article we will discuss the key questions: who is authorized to take a decision? Who can represent a company? And what are the consequences if things go wrong? For hotel keepers and lawyers with a basic knowledge of company law, this article offers accessible, profound insight into the decision-making process and representation within the B.V. and N.V.

The company has several bodies with decision-making powers; the General Meeting (GM), the board, and possibly the Supervisory Board (SB). The division of these powers is partly laid down by law and partly dependent on the articles of association or internal rules and regulations (see Sections 2:78a/189a DDC, among other things).

Decision-making by the GM

The GM of an B.V. of N.V. has a number of mandatory powers, such as:

• appointing, suspending and dismissing directors;
• appointing, suspending and dismissing a minimum of 2/3 of the supervisory directors;
• amending the articles of association of the company;
• adopting the annual accounts;
• dissolution of the company;
• issue and withdrawal of shares;
• purchase and sale of shares.

In principle, the law assumes that resolutions are adopted at meetings. To adopt resolutions outside meetings a number of additional conditions have to be met, including (see Section 2:238 DCC):

1. all those entitled to attend meetings have to consent to this;
2. the votes are cast in writing;
3. prior to the adoption of resolutions, the directors and supervisory directors are given the opportunity to give advice.

The last point tends to be overlooked in practice, but is important indeed.

In principle, an ordinary majority of votes suffices to adopt a resolution. Some decisions require an enhanced majority, and it may also be that a certain percentage of the shareholders has to attend the meeting (Sections 2:230 DCC, 2:96 DCC, 2:99 DCC).

Null and void versus voidable

With regard to the challenging of resolutions, an important distinction exists between null and void resolutions and voidable resolutions:

• Null and void (Section 2:14 DCC): the resolution has become devoid of its legal basis by operation of law. Examples:
  • the resolution is contrary to the articles of association or the law;
  • the resolution was adopted by a body that had no authority to do so;
  • a fundamental rule of adopting has been breached (such as quorum requirements);
  • the resolution is contrary to public policy or good morals (Section 3:40 DCC).
• Voidable (Section 2:15 DCC): the resolution is valid until it is nullified. Grounds for nullification include the following:
  • breach of procedural regulations (such as convocation periods);
  • conflict with reasonableness and fairness (Section 2:8 DCC);
  • conflict with internal rules and regulations (e.g. Corporate Governance Code);
  • absence of intent, disadvantaging, or error.

Remedies

Nullity can only be corrected through ratification in specifically defined cases (Section 2:14 (2) and (3) DCC). Such as violation of a fundamental rule of adopting that can still be fulfilled afterwards (e.g. by means of a prior authorisation that was missing). Or if the company should have performed an act and has not, this can still be ratified later, within a reasonable period (Section 2:14 (3) DCC).

If resolutions are voidable, ratification is possible (Section 2:15 (6) DCC), subject to the same requirements as apply to the resolution to be ratified. The ratification will not take effect as long as proceedings instituted for the annulment in advance are still pending. If the claim is allowed, the nullified resolution shall be deemed to have been passed anew as a result of a later resolution, unless this is contrary to the necessary implication of the resolution.

A valid resolution is not the same as a valid act of representation. Representing the company – ensuring external connection – is a separate issue.

In principle, the board jointly and/or each director individually have the power to represent the company (Sections 2:130/240 DCC).

However, the articles of association may provide that the power to represent exists – apart from the board as a whole – for one or more directors acting jointly. There is external effect in that case. 

Limitations of representative authority

Several kinds of limitations can be distinguished when we speak about limiting representative authority.

For example, there are commercial limitations, with a provision in the articles of association granting a director only the authority to represent the company for agreements up to an amount of 17,500 Euro. If the director does conclude an agreement above this amount, this is of no avail to the company, because the company cannot rely on this limitation with vis-à-vis third parties – which does not alter the fact that the director may be obliged to the company to compensate possible damage (Section 2:240 (3) DCC).

Incidentally, an exception on the basis of the Bibolini judgment (and reasonableness and fairness, Supreme Court, 17 December 1982) is possible, if it was obvious that the third party concerned was aware of the limitation of representative authority.

There may also be a staff limitation, for example that – besides the joint board – a certain director can only represent the company together with another director under the articles of association. When this limitation as such has been registered in the trade register of the Chamber of Commerce, it can be invoked against a third party and the company is protected (Section 2:130/240 (2) DCC in conjunction with Section 25 (3) of the Trade Register Act).

Finally, there can be a statutory limitation to the representative authority, for example if the company’s objective in the articles of association is exceeded pursuant to Section 2:7 DCC (a mandatory limitation with external effect), of if shares are issued, and this power has been allocated to another body than the GM – which has that power under Section 2:206 (1) DCC, but can transfer this power to another body (it will then be necessary to look up in the articles of association which body is authorized to issue shares, for example).

In the performance of their duties, directors shall be guided by the interest of the company and the undertaking connected with it (Sections 2:129/239 (5) DCC). If a director has a direct or indirect personal interest that conflicts with the interests of the company and the undertaking connected with it, he cannot participate in the deliberation and adoption of resolutions on that topic.

If, as a result, no resolution can be adopted – for example if all directors have a direct or indirect personal interest – the resolution will be adopted by the supervisory board. Where there is no supervisory board, the resolution must be adopted by the General Meeting, unless the articles provide otherwise (Sections 2:129/239 (6) DCC).

The question as to whether a conflicting interest exists and a director should not be allowed to participate in the deliberation and adoption of resolutions on a certain topic is very casuistic in nature. However, clues can be found in previous case law that is still relevant (Supreme Court, 29 June 2007, JOR 2007/420 (Bruil) and Supreme Court, 14 October 2011, NJ 2012/110 (M.E. Beheer)).

It happens in daily corporate law practice that it is assumed that if a signature has been placed under an agreement, this will have been done by a person who is authorized for that purpose. It is not always checked whether the decision-making process prior to this has been correct, or whether the performance – through an act of representation – was done correctly.

This may lead to a lot of legal discussions or problems afterwards. Sometimes defects can still be remedied – by ratification or confirmation – but not always.

When in doubt, but even better as a precaution, you should have a specialist look in if the importance of the matter so warrants.

This way you will prevent a signature from turning out to be just a stroke of the pen, from a legal perspective. Let us be fair; nobody wants that after the champagne was drunk, the cork should not have been popped in the first place…

This article was written by Frans Langerak. Do you have any questions or would you like to exchange ideas about this topic? Please feel free to contact him.