03-11-2010
Protection of spouse against business debts deteriorated further

Dutch law requires that a spouse needs approval of the other spouse for entering into certain obligations. Approval is required from the latter if the former, outside the scope of his or her business, acts as surety or as a several debtor, or provides security for a debt of a third party.

If the absence of the approval, the other spouse can annul the obligations. An exception to this protection of spouses applies if i.) the acting spouse is a director of the corporation for whose obligations he or she had accepted liability ii.) the director, alone or together with the other directors, owns the majority of the shares in the corporation and iii.) the debt of the corporation for which co-liability has been accepted has arisen in its ordinary course of business. 

The specific legal exception regarding the protection of the spouse is tailored to an simple corporate structure whereby the acting spouse is a direct shareholder of the corporation. It has been stated that this legal exception would not apply to corporations with more complicated corporate structures, in which the acting spouse/director is not a direct shareholder. In such cases the other spouse was said to be protected.

Such a situation was presented to the Supreme Court of the Netherlands, concerning a case of issuance of depositary receipts for shares. Through such issuance, a separation is created between the voting rights and the dividend rights. A administrative office issues depositary receipts for shares it owns. The administrative office retains the voting rights and collects the dividends and other distributions made payable on the shares. Subsequently the dividends are distributed to the depositary receipt holders.

On 8 October 2010 the Supreme Court ruled that an acting director/depositary receipt holder would not benefit. The fact that he was not a direct shareholder, but holder of depositary receipts, did not maintain the protection of his spouse. Despite the stated text of the law, the legal company structure is not decisive in matters like this. This ruling meant that the director had to pay. His spouse attempted in vain to nullify his several liability.

From now on it has to be assessed –regardless of the corporate structure- if the acting director/spouse is associated with the company to such an extent that he or she is actually the entrepreneur, through the fact that the director exercises control over the company, and has a direct financial interest in the company, in favour of which he accepted several liability.

From this Supreme Court decision one can conclude that even though shares have been converted into depositary receipts, the spouse of the director/depositary receipt holder does not always have the right to terminate the several liability or security offered by the director with regard to the corporation.

For more information, please contact Georg.vandaal@vmwtaxand.nl or Pascal.vanzweden@vmwtaxand.nl.