Legal guide for company directors and CEOs in the Netherlands

Because environmental, social and governance (ESG) is such an increasing focal point of good corporate governance, we address ESG duties and responsibilities first. For more general duties and responsibilities of directors and CEOs, please scroll down the page or use the navigator to jump to the relevant section. 

The Dutch Civil Code requires that directors must act in the best interest of the company. Additionally, each director is under a duty of care vis-à-vis the company to “properly” perform his/her part of the management tasks assigned to him/her. 

These rules do not impose a duty for existing directors that can be categorised as an ESG consideration, but the overall duty of care vis-à-vis the company to properly perform one’s management tasks may require, depending on the circumstances, that the directors take ESG considerations into account during the performance of their management tasks. 

There has been an ongoing public debate in the Netherlands on whether a social duty of care for directors should be enshrined in Dutch law. This debate sparked following a plea from 25 Dutch professors advocating for such codification in 2020. However, this has not (yet) resulted in specific provisions regarding responsible corporate citizenship, other than the general rule to properly perform one’s tasks and to act in the company’s interest.  

The Dutch Corporate Governance Code (the “Code”), which only applies to listed companies in the Netherlands, offers additional rules for directors that relate to ESG considerations. A revised version of the Code has been adopted on 20 December 2022.  

The Code contains principles and best practice provisions that regulate relations between the management board, the supervisory board and the general meeting. The principles may be regarded as broadly-based general views on good corporate governance. The principles are elaborated in the form of specific best practice provisions. 

The principles that qualify as ESG considerations are: 

• Long-term value creation. The management board must develop a vision of long-term value creation for the company and formulate an appropriate strategy in this regard. In formulating the strategy, attention must, in any event, be paid to inter alia the interests of stakeholders in aspects of business relevant to the company and its enterprise, such as the environment, social and personnel affairs, the chain in which the company operates, respect for human rights and combating corruption and bribery.
• Accountability for diversity. The supervisory board must draw up a diversity policy for the composition of the managing board, the supervisory board and the executive committee, if any. This policy must set out specific objectives in respect of diversity such as nationality, age, gender, educational background and professional experience.
• Accountability for corporate culture. The management board must define values for the company which contribute to a culture of long-term value creation, and must discuss these values with the supervisory board. The management board is responsible for ensuring that these values are embedded in, and maintained by, the company. These values will be reflected in a code of conduct, which will be published by the company on its website.
• A system for reporting abuse and irregularities. The management board and the supervisory board must be alert to signals of (suspected) abuse and irregularities within the company and its enterprise. The management board must establish a procedure for reporting suspicions of abuse and irregularities and ensure that these reports are adequately followed up. The procedure must be published on the website of the company, and the supervisory board supervises the management with regard to the processing and handling of these reports and procedures. 

The Code does not constitute direct obligations, but works on the basis of the ‘comply or explain’ principle. Listed companies must apply the principles and best practice provisions of the Code. Under certain circumstances, listed companies may deviate from the principles and best practice provisions. In that case they must carefully explain why a provision has not been applied. In recent years major companies that are not listed have voluntarily adopted the Code and apply its principles and best practices within their businesses. The Code has also become increasingly relevant for non-listed companies in the Netherlands, as the open norms of Dutch company law are  more and more coloured by the principles of the Code. 

ESG considerations have been discussed on both national and EU levels. This has led to several regulations containing ESG considerations, resulting in changes in directors’ responsibilities regarding ESG considerations. Some of these regulations entered into force already (i.e. Sustainable Finance Disclosure Regulation, Corporate Sustainability Reporting Directive and the Taxonomy Regulation), and others will soon enter into force (i.e. Corporate Sustainable Due Diligence Directive). 

The SFDR fully entered into force on 1 January 2023 and requires financial market participants – such as asset managers, investment advisers, pension funds and fund managers – to disclose sustainability information at entity level. Under the SFDR, market participants shall indicate how sustainability risks are taken into account in the investment process and what the expected impact of these risks is on the (sub)fund’s return. If fund managers consider sustainability risks irrelevant for a certain product, they must explain why they think this is the case. 

A heavier threshold applies to funds qualifying as funds with sustainable characteristics or with a sustainable objective. These funds must provide the additional information on a product level in their prospectus. 

The CSRD entered into force on 5 January 2023. This directive updates and reinstates the existing requirements under the Non-Financial Reporting Directive regarding the social and environmental information that companies have to report on. The CSRD changed the regulatory framework on non-financial reporting duties for companies. Sustainability information to be reported under the CSRD comprises impacts, risks and opportunities relating to environmental, social and human rights and governance factors. This includes information on the company's business model and strategy, time-bound targets, the role and expertise of the management boards, the company's policies, the existence of incentive schemes, due diligence processes and principal risks, all to the extent related to sustainability matters. Companies must also provide information on processes they have in place to identify this sustainability information. 

Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards ("ESRS"). The delegated regulation containing the ESRS entered into force on 1 January 2024. The ESRS introduce incorporation and disclosure requirements of the sustainability report and provide tools for it. In addition, companies are required to report on items that, based on the "double materiality test", are considered material to the company. This requires companies to report on the impact the company has on traditional accounting materiality, such as the impact of business activities on the society and environment (inside out). On the other hand, it requires reporting on the risks companies face from, for example, climate change or resource scarcity (outside in). 

Large companies (large companies with a public interest, such as listed companies, insurance companies and other companies designated by national authorities as public-interest companies) shall already be required to report on sustainability matters in the calendar year 2025 in their annual reports for financial year 2024.

On 4 May 2024 the Council of the European Union approved the adoption of the CSDD. The CSDD will enter into force 20 days after it has been published in the Official Journal of the European Union. Member States will have two years to transpose the directive into national law and notify the Commission of the relevant texts. The rules will begin to apply to companies one year after this transposition, with a gradual phase-in period spanning 3 to 5 years following the CSDD's entry into force.

This directive sets out a corporate due diligence duty for companies to identify, prevent, bring to an end, mitigate and account for adverse human rights and environmental impacts in global value chains. The new rules also introduce a duty for directors to set up and oversee the implementation of the due diligence processes and to integrate due diligence into the corporate strategy.

If a company falls within the scope of the directive, the rules will apply to the company's own operations, the operations of their subsidiaries and their value chains. Member States will supervise that companies comply with their due diligence obligations and may impose fines to companies, or issue orders requiring the company to comply with its due diligence obligation.

The CSDD contains an obligation for company directors to take into account short-, medium- and long-term sustainability issues, including human rights, climate change and environmental impact. Since directors in the Netherlands already have to take the interests of all stakeholders into account, this does not seem to require an amendment of the law. The Commission will issue a set of guidelines to assist companies in conducting due diligence.

The Taxonomy Regulation provides for a uniform classification system (taxonomy) for “environmentally sustainable” economic activities. This regulation provides an EU-wide conceptual framework for investors interested in investing in economic activities with a positive impact on the environment. The Taxonomy Regulation establishes the criteria for determining whether an economic activity qualifies as environmentally sustainable for the purposes of establishing the degree to which an investment (in the economic activity) is environmentally sustainable. Market participants are required to share this information on a product level with potential buyers. As a screening tool, the taxonomy regulation seeks to support investment flows into those environmentally sustainable activities. The Taxonomy Regulation fully entered into force on 1 January 2023. Since this date, (directors of) companies in scope of the SFDR and CSRD are required to comply with their disclosure obligations under such rules in accordance with the Taxonomy Regulation.    

ESG considerations-related topics are not only being discussed on European level: various proposals for regulations have also been made in the Netherlands. The call by 25 professors for a social duty of care enshrined in Dutch law for companies and directors, as referred to under question 1 above, is particularly noteworthy. The professors argued for a social duty of care through an amendment of the statutory duties of directors. Currently, a stakeholder model applies whereby directors must act in the interests of the company and its enterprise. Among other things, the professors point out that in practice, the interests of shareholders carry more weight than one would expect on the basis of the Code. Therefore, the professors recommend a system in which all stakeholders of the company are served by the social duty of care enshrined in Dutch law. 

It remains to be seen what the Dutch legislator will do with the professors’ plea and if, or when, the Dutch Civil Code will provide a social duty of care. Parliament has called on the government to investigate the legal basis of a broader (including social) duty of care for directors of companies in the short term. These developments and discussions are expected to lead to more legislative initiatives in the coming years.

These obligations consist of: (i) an obligation to report in relation to specific products; and (ii) the obligation to report relating to the company and its management. Reporting on these matters can either be done by providing additional product information, or by publishing reports and statements in the annual accounts or on the company website. 

The CSRD entered into force on 5 January 2023. Sustainability information to be reported under the CSRD comprises impacts, risks and opportunities relating to environmental, social and human rights and governance factors. We refer to the section regarding the CSRD under question 3 for more details. 

The SFDR requires financial market participants to disclose sustainability information relating to their products and overall sustainability strategy. The overall sustainability strategy shall be published on the website of the financial market participant. For each individual product, the precontractual product information (e.g. prospectus) will be used for the disclosure of additional sustainability information. 

As stated above, the Code only applies to listed companies and works on the basis of the ‘comply or explain’ principle. Private companies are not, in principle, subject to an obligation to disclose on ESG-related topics. In the management report published in the annual accounts of the company, the management board has to explain its vision of long-term value creation and the strategy to achieve this, and how it has contributed to this in the past financial year. In doing so, it reports on both short-term and long-term developments. The report also provides in the diversity policy for the composition of the managing board. The code of conduct, expressing the values relating to the corporate culture of the company, shall be published on the website of the company, together with the procedure for reporting abuse and irregularities. 

In the Netherlands, the management structure of a company is generally based on a two-tier board system. This consists of a management board (“raad van bestuur”), which is the executive body, and a separate supervisory board (“raad van commissarissen”), which advises and supervises the management board. A member of a management board is usually called a “directeur” or “bestuurder” and a member of a supervisory board is generally referred to as a “commissaris”. 

A supervisory board is optional for most Dutch companies but mandatory for large companies (“structuurvennootschappen”). As a rule, a supervisory board is mandatory when: 

• the company’s issued capital plus reserves amounts to at least EUR 16 million the company (or the group to which it belongs) has a works council, and
• the company and the group to which it belongs collectively employ at least 100 people within the Netherlands. 

As of 1 January 2013, Dutch law provides for the possibility of a one-tier board system. In a one-tier board, the board is made up of executives, who are responsible for the company’s general governance and day-to-day business, and non-executives, who are responsible for both supervision and the company’s general governance.  The corporate body appointing the directors determines whether a director will be an executive or a non-executive director. To implement a one-tier board, the articles of association must be amended to provide that the management tasks are divided among executive directors and non-executive directors. Executive directors may not occupy the position of chairman of the board. Furthermore, executive directors may not participate in the decision-making process regarding the appointment of other directors or their own remuneration.

Essentially, supervisory directors supervise and advise the management board in relation to the company’s business. Like members of management boards, supervisory directors must act in accordance with the company’s best interests. The supervisory board is not authorised to represent or bind the company towards third parties. The company’s articles of association may subject certain resolutions of the management board to the supervisory board’s prior approval. A mandatory supervisory board within a large company has the right to appoint, dismiss and suspend directors of the management board. 

The role of non-executive directors depends on the allocation of duties within the one-tier board. Generally, non- executive directors have a supervising role. Non-executive directors are allowed to nominate candidates for a position as (non-)executive director within the board and will resolve on the remuneration of the executive directors. One of the non-executive directors will occupy the position of chairman of the board. 

There are no legal restrictions on who can become a director. The articles of association may contain specific requirements in respect of the eligibility of directors and the right to nominate candidates. A legal person– whether incorporated in the Netherlands or elsewhere – can also be appointed as a director. 

For a company not applying the one-tier board system, there is a minimum of 1 and no maximum to the number of directors that the company may have, except for any minimum or maximum prescribed by the articles of association. A company with a one-tier board must have at least 1 executive director and 1 non-executive director. 

An individual director is not required to be resident in the Netherlands and there is no nationality requirement, unless otherwise required by the articles of association. If the articles of association contain such a requirement, discriminating between Dutch citizens and citizens of other EU countries is not permitted. 

As per 1 January 2016, legislation entered into force in order to fight bankruptcy fraud. It is possible to impose a restriction on a fraudulent director of a bankrupt company on becoming a director of another company or incorporating a new company. The public prosecutor or receiver in bankruptcy can request such a ban in court, except in the case of criminal prosecution. If the court has imposed a ban, the individual concerned is not allowed to be a director, supervisory board member, proxy holder or any other authorised representative of any Dutch legal entity. The ban will remain in force for a maximum of five years. Any appointment made despite a ban having been imposed is void.

A director is normally appointed by the general meeting of shareholders. If the company has a mandatory supervisory board, qualifies as a large company and is not subject to certain exceptions provided by law, the directors are appointed by such supervisory board. The supervisory board must in this case notify the shareholders’ meeting of any proposed nomination. 

If the company has a works council, the works council should have the opportunity to render non-binding advice on the contemplated appointment before the appointment is made. The management board is therefore required to give the works council prior notice of any proposed candidate for appointment to the board. The works council’s rights are more extensive if it concerns a large company where the supervisory board is mandatory. 

Notification of the appointment, together with the signature of the director, must be filed by the company with the Dutch Trade Register. The Dutch Trade Register will also require a certified copy of the director’s passport and certain personal details, including his/her full name, nationality, date of birth, and (evidence of his/her) residential address. Disclosure of this information to the Dutch Trade Register is compulsory. The information held by the Dutch Trade Register is publicly available subject to payment of a fee, but residential addresses of directors can only be viewed by certain designated professional organisations such as lawyers, civil-law notaries and public authorities (such as tax authorities and courts). The filings with the Dutch Trade Register in relation to newly appointed directors can also be performed by a Dutch civil-law notary. 

Directors are usually appointed for an indefinite period of time. Appointments for limited periods and reappointments are possible. 

A director of a large company is prohibited from holding more than two supervisory positions at another large company or a Dutch foundation. In any event, such director may not occupy the position of chairman of such a supervisory board. If an appointment causes an executive director or a non-executive director to hold more than the maximum number of supervisory positions, that appointment is null and void. However, this does not affect the validity of decisions taken by that director. 

A director may resign his/her office at any time by notifying the company. If the director has an employment agreement with the company, such notice will automatically lead to termination of the employment relationship. Such resignation may, however, constitute a breach of the employment agreement. 

A director can be removed from office at any time. Removal requires a resolution of the shareholders. If the company has a mandatory supervisory board, the directors are normally removed by such board. The supervisory board must seek the opinion of the general meeting of shareholders prior to the removal. The director should be informed of the reasons for the proposed removal and be given the opportunity to give his/her views on the proposed removal prior to any contentious removal. 

If the company has a works council, the works council should be granted the opportunity to render non-binding advice on any proposed removal. 

If the director has an employment agreement with the company, the agreement usually terminates upon his/her removal from the board. The contractual notice period agreed in the employment agreement must be respected. If the company does not respect the contractual notice period, it must pay fixed damages to the director. In such a case, the director cannot be required to comply with any non-compete obligations in his/her employment agreement. If termination of the employment agreement is deemed to have been obviously unreasonable, unjustified or improper, the director may also be entitled to damages. In most cases a settlement is reached regarding the effective date of termination and the financial compensation. A director can also be suspended. 

Any resignation, suspension or removal of a director must be notified to the Dutch Trade Register. 

Each director has the authority to represent the company. The articles of association may provide that the company may only be represented by 2 or more directors, acting jointly or with certain third parties. Such joint authority to represent the company must be registered with the Dutch Trade Register to be effective towards third parties. 

The full board is always authorised to represent the company. Although the articles of association may require internal approval for specific resolutions, they cannot limit the external transactional powers of the directors in respect of specific matters or in respect of the size or nature of any one transaction. Consequently, non- compliance with these internal approval regulations will not affect the validity of the transactions transacted by directors, but may lead to liability towards the company. 

The board may adopt internal working rules which describe the duties, responsibilities and powers of each director as well as the rules applicable to board meetings. The adoption thereof can be made subject to prior supervisory board or shareholders’ approval in the articles of association. When adopting internal working rules, the points below should be taken into account. 

Directors, as members of the board, jointly have all the powers to manage the company, except for those limited powers which by law are, or may be, attributed to the shareholders or to the supervisory board. Those limited powers may include the right of prior approval of certain decisions of the board. For listed and certain other large companies, approval of the shareholders is always required in respect of a number of important decisions regarding the core identity of the company. 

The members of the board have collective responsibilities. They share responsibility for all decisions and acts of the board and for the acts of each individual director.

The main direction of a company’s policy and its financial management and any other important decisions must be agreed by the board as a whole. Certain specific duties of the board may be allocated among the directors in or pursuant to the articles of association. For instance, tasks can be divided between executive and non- executive directors in a company with a one-tier board. The basic rule of collective responsibility will continue to apply and each director can in principle be held liable for mismanagement. In the event of mismanagement an individual director can avoid liability if he/she proves that the mismanagement was not attributable to him/her – taking into account the duties allocated to him/her – and that, in addition, he/she was not negligent in taking action to prevent mismanagement by the board. 

Appointment as a director does not in itself constitute a contract with the company or entitle a director to remuneration. Unless the articles of association provide otherwise, the shareholders have the right to decide on the remuneration of the directors. For listed and certain other large companies, it is in any case mandatory for the shareholders to determine the directors’ remuneration policy. 

Besides the directorship, a director may also have a contractual relationship with the company:

• as a consultant providing services under a consultancy agreement
• through a company or firm which contracts with the company to provide the director’s services (management agreement)
• as an employee under an employment agreement. 

The tax treatment of these options is different in each case. Termination of any such contract will not automatically terminate the director’s directorship. Termination of the directorship, on the other hand, will automatically terminate the employment agreement and may constitute termination of the consultancy or management agreement. Furthermore, termination of the directorship may constitute a breach of the consultancy agreement, management agreement or employment agreement. 

A conflict of interest will only affect the company’s internal decision-making process and not a director’s ability to represent the company externally. Neither a management board member nor a supervisory board member may participate in any deliberations or decision-making processes involving a matter in relation to which he/she has a direct or indirect interest which conflicts with the interests of the company. If the management board is unable to take a decision due to a conflict of interest on the part of all its board members, the decision must be taken by the supervisory board. If there is no supervisory board or if all supervisory board members are conflicted as well, the decision must be taken by the general meeting of shareholders, unless the articles of association provide otherwise. 

The board is entrusted with the management and representation of the company. This is a collective responsibility, for which each individual director is liable. Directors must act in the best interest of the company. As mentioned before, directors may allocate the management tasks among themselves, but the principle of collective responsibility entails that the directors must always resolve collectively on the main direction of a company’s policy and its financial management and on important issues.

Each director is under a duty of care vis-à-vis the company to “properly” perform his/her part of the management tasks assigned to him/her. The director is under a duty to use all reasonable endeavours to achieve this, but he/she does not have to guarantee any results. 

In case of improper performance, a director is, in principle, only liable for losses of the company in cases of serious mismanagement. From case law, it seems to follow that for some cases a more severe test will be applied, i.e. would any other competent director, acting reasonably, have made the same decisions? 

In a one-tier board structure, the above-mentioned basic rule of collective responsibility applies in a similar way. Non-executive directors may find it easier, though, to avoid liability for mismanagement by pointing to the allocation of tasks and their role within such a management board. 

Directors are also subject to a duty of care. This duty is derived from the principle that all those involved with the company pursuant to the law or its articles of association must apply the principles of reasonableness and fairness in their dealings with each other. 

The director’s duties are owed to the company itself, rather than to its shareholders. Directors must at all times act in accordance with the interests of the company (“vennootschappelijk belang”). 

Directors may be held personally liable if they undertake or enter into obligations on behalf of the company when the directors know or should have known that the company will not be able to meet such obligations. If a company is in financial difficulties, the directors should make sure that the company’s financial information is up to date and should thoroughly assess whether the company will be able to meet new obligations. The director’s duties will not significantly change when the company is in financial difficulties, but there are some duties that become more important when a company is in financial distress. Directors should maintain the company’s financial records properly and ensure that the company’s annual accounts are prepared and filed with the Dutch Trade Register on time. Furthermore, the directors should properly maintain the company’s corporate housekeeping (i.e. adopting and documenting resolutions in accordance with Dutch law, the company’s articles of association and, if applicable, board regulations). 

As soon as the directors are aware that a company is in financial difficulty, they should seek external advice. 

A distinction should be made between liability towards the company (internal liability) and liability towards third parties (external liability), including in either case a receiver in bankruptcy acting as their representative. For each of these two situations, only the most common types of liability of directors will be discussed. 

In order for liability towards the company for mismanagement to arise, there must be serious negligence on the part of the director. As already stated, a more severe test may be applied in specific cases. As a general rule, the responsibility of the board towards the company is of a collective nature, but each director is also responsible to the company for proper performance of the specific duties assigned to him/her. 

If a matter falls within the scope of responsibility of two or more directors, they are jointly and severally liable for mismanagement, unless a director is able to prove that the relevant shortcoming is not attributable to him/her. In order to satisfy this burden of proof, the relevant director must show that he/she was not personally negligent and that he/she did not fail in his/her duty to take action to avoid or prevent the consequences of the mismanagement. Certain important matters are by definition always part of the tasks and duties of each director, including but not limited to the main direction of a company’s policy and its financial management. 

If the company is unable to pay certain of its taxes or social premiums, it must notify the relevant authorities of its inability to pay within 14 days after the due date. In the absence of such notification, or if the inability to pay is caused by apparent negligence of the management board, the directors are jointly and severally liable for the relevant taxes and social premiums. Individual directors have the right to exculpate themselves, but in practice exculpation will only be possible in exceptional circumstances. If the company is declared bankrupt, the directors are personally liable for the deficit in bankruptcy if the bankruptcy is to a significant extent caused by the apparent negligence of the management board during a three-year period prior to the date of bankruptcy.       

If the company has not kept proper financial records or has not filed its annual accounts with the Dutch Trade Register in a timely manner, i.e. at the latest 12 months after the end of the financial year, there is a binding presumption – which cannot be challenged or proven wrong – that there has been apparent negligence and a further presumption that such apparent negligence has to a significant extent caused the bankruptcy. Directors may be held liable for the company's debts if such improper management (i.e. failing to file the annual accounts timely) has taken place within 3 years prior to the company’s bankruptcy. Again, individual directors have the right to exculpate themselves, but in practice exculpation will only be possible in exceptional circumstances. 

Except in certain combinations of complex and unusual circumstances, current Dutch  law does not provide for shareholders’ derivative suits. A breach of the duty of care may give rise to an action by the company or the receiver in bankruptcy against the management board or members thereof for mismanagement. 

An important legal basis for liability of the directors towards third parties is tort  ("onrechtmatige daad"). Creditors of the company, for example, may hold a director liable on the basis of tort if he/she entered into a transaction on behalf of the company when he/she knew, or reasonably should have known, that the company would not be able to fulfill its obligations under that transaction. Directors may also incur personal liability in the event of environmental pollution, fraudulent transfer of assets, unjustified inequality in the treatment of creditors, erroneous or misleading financial statements, a misleading prospectus or certain breaches of the competition law, for example. Establishing such personal liability for failure by directors to assess the admissibility of dividend distributions is being contemplated. 

The  distribution  of  dividends  and  reserves  requires  the  prior  approval  of  the  management  board.  The management board must refuse approval if it knows or can reasonably foresee that the company will not be able to continue to meet its liabilities after the distribution. The consequence of wrongful approval is joint and several liability of the directors for the deficit caused by the distribution. The recipients of a distribution can be held liable for compensation if they did not act in good faith, meaning if they knew or could have reasonably foreseen that the company would not be able to continue to meet its liabilities after the distribution. 

Under Dutch criminal law, a company can commit crimes. The individual who is directly responsible for the criminal behaviour of the company may also commit a crime. Accordingly, members of the management board may, in the event of personal liability for mismanagement under civil law, sometimes also face criminal sanctions. 

In specific instances, some form of director’s liability may also arise: (i) in respect of individuals who, without being appointed, effectively manage the company as if they were directors; (ii) for an individual who is the director of a company that is also a director; or (iii) for supervisory directors. 

It is noteworthy that based on one of the Dutch legislative proposals for the implementation of the CSRD the requirement to submit the sustainability report in a timely manner will be subject to enforcement under Dutch criminal law. Consequently, both the company and individuals exercising actual control (referred to in Dutch as "feitelijk leidinggevenden") risk prosecution in case of non-compliance. 

No statutory provision or case law exists which relates directly to the validity and enforceability of indemnities by the company. Indemnification clauses are rare because their effectiveness is generally considered to be limited. A company is permitted to take out directors’ insurance on behalf of its directors. Insurance policies usually contain many exclusions and limitations (such as in the event of deliberate or fraudulent acts on the part of a director).