It is publicly known that lawyers are not good at doing the math. This may be different for attorneys when they have completed their contract, but that is a different story. Sometimes you need to do the math, even though you are not very good at it. Sometimes, you even have to do the math years in advance. For instance, when drawing up a retirement schedule. It is amazing how poor managing directors and supervisory directors are at doing the math when it comes to their own term of appointment.

It regularly happens in management boards and supervisory boards that individual members and sometimes even the entire board are active although their terms of appointment have long since expired. In that case, resolutions that are legally contestable and often even invalid have been passed for months, sometimes years. You think that you have passed a resolution, but legally you have not. This can be very painful. For instance when you have suspended a managing director. After a year, it appears in retrospect that this (former?) managing director has never been suspended. This is painful and expensive. Or the management board has entered into a lease agreement or purchase agreement approved by the supervisory board. Panic is caused when later it turns out not to be a valid legal act. So, be careful. How to solve the matter when it has gone wrong? Below you will find a few examples and suggestions.

Retirement schedule
It is wise to draw up a retirement schedule. Do not put it in a drawer afterwards, but regularly review it, at least once a year. This schedule indicates of every individual when he or she has been appointed, when the term of appointment expires and whether this term can be extended. Check whether this extension takes place by operation of law in accordance with the articles of incorporation (this is rarely the case). If not, an explicit reappointment has to take place in time. If the term of appointment can be extended, the number of times is often limited to once or twice in the articles of incorporation. So you will need to indicate when the final retirement reception will be as well. Prevent all members of the management board from retiring simultaneously. This is a disaster for the continuity of the organization. Make sure the moments of reappointment are spread.

If a supervisory director qualifies for reappointment on 1 October 2015, but the shareholder postpones the formal appointment, does this person still have the right to participate in meetings? No. If desired, this person can attend the meetings as an observer. He cannot vote. Does he have the right to access meeting documents? No. It depends on a decision of the supervisory board whether this former supervisory director is given the documents. From a formal perspective, you also have to be careful with that, for the obligation of confidentiality that all members of the management board or the supervisory board normally have, does not necessarily apply to an observer. This has to be agreed on explicitly.

Validity of resolutions after the term of appointment has expired
Suppose nobody has realized that the terms of appointment of two or three members of the supervisory board have already expired for more than a year. What about the validity of the resolutions passed since then? That depends. Strictly speaking, you would have to check whether the voting proportions have been affected in those resolutions, because some (pseudo) members of the supervisory board have also voted, but have not cast a valid vote. It may then be possible that there was no quorum or no majority in retrospect. The relevant resolutions are then invalid. The simplest way to correct this is to confirm the resolutions passed in the past with a competent supervisory board. This should be done in a formal resolution, with due observance of what the law provides for in this respect. Any flaws in the decision-making process in the past will then be repaired.

Sometimes there is an entirely different problem in connection with appointments. In Bonaire, for instance, some supervisory boards are completely understaffed, because the shareholder (read: the Public Body of Bonaire) does not proceed to appointment. In some cases, it takes years before a resolution is passed. Then you have a real problem as a company. Based on the articles of incorporation, the supervisory board is obliged to approve or disapprove certain resolutions. If there is no quorum, this is impossible. The activities have then actually been suspended. No valid resolutions can be passed. There is not much you can do about it from a legal perspective. Normally, a shareholder does not leave a company to fend for itself. That is why this has not been provided for by law. Theoretically, the company could sue the shareholder under civil law on account of unlawful omission. Well, quite a fuss. So just do the math correctly and do what you have to do.

This column is also available in Papiamentu. Click here to download a pdf version.

Do you have a question about corporate governance yourself? Please e-mail it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.

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