Dismissal of a director

Advice from a Dutch lawyer

Only those directors appointed under the Articles of Association of a private limited company (BV) (or another legal entity, such as a public limited company (NV) or a foundation), can call themselves director under the articles of association. In most cases, the board of management of a BV is appointed by the general meeting of shareholders. Sometimes – especially in larger companies – this is done by the Supervisory Board or by the holders of special shares (priority shares), to which a power to appoint is attached.

Director or employee?

The managing director of a company often also has an employment relationship to the company: in that capacity, he is also a regular employee with an employment contract. The only exception to this is if the managing director receives no direct compensation (salary), but if another BV – almost always owned by the managing director – has concluded a management contract with the company. The employment relationship between the director and the BV is separate from his corporate position as director under the articles of association. This often means that it is more problematic to dismiss a director. After all, two ties have to be severed.

Suspension of director is always possible

The corporate law principle is that each director can at all times be suspended or dismissed by the party entitled to appoint him. In other words: a valid decision, by which a director under the articles of association is dismissed, means that the director also loses his capacity as director under the articles of association. However, this does not imply that the employment contract is then terminated. For example, the valid term of notice still has to be observed (unless in cases of summary dismissal). Other than for normal employment contracts, the permission of the Center for Work and Income (CWI) is not required to terminate the employment contract with the director.

Advice by Dutch corporate lawyer

If a director disagrees with his dismissal, he cannot claim reinstatement of the employment. He can, however, apply to the court for compensation. If the dismissal was ‘manifestly unreasonable’, the court can award compensation. Whether or not dismissal was unreasonable, depends on the circumstances of the case. For example, if there is no reasonable severance package, the dismissal can be considered manifestly unreasonable. Also, the director, who is also an employee, can apply to the court within the term of notice to have the employment contract dissolved, and then apply for compensation.

Dutch law firm AMS

Law firm AMS is based in Amsterdam, The Netherlands. The corporate attorneys of AMS have gained a broad experience in advising and litigating for (international) companies and individuals. The attorneys are highly involved with their client’s interests and offer a sharp and transparent fee structure. Should you require more information on summary proceedings, or should you have any question with respect to litigation in The Netherlands, please feel free to contact us.