A company's articles of association may provide that the management board must act in accordance with the instructions of another body of the company, for example the general meeting of shareholders. The management board is obliged to follow those instructions unless they are contrary to the interests of the company and its affiliated enterprise (article 2:239 paragraph 4 of the Dutch Civil Code). This is called the instruction authority under the articles of association. A slightly different provision applies to public limited companies. I will confine myself in this paper to the private limited liability company.
The authority to instruct under the articles of association is particularly important for companies in a group, as it enables a parent company to influence the policy of the management board of the subsidiary.
In principle, a parent company cannot be held liable for obligations entered into by a subsidiary. As mentioned, this is different in the case of board members and supervisory board members. The shareholders may use their voting right for their own benefit. A parent company which makes use of the instruction authority under the articles of association also has to take the corporate interest of the subsidiary into account. In a group, the corporate interest is partly determined by the group interest of which the company forms part, but the group interest may never be decisive in this respect.
Under certain circumstances, a parent company that uses its instruction authority under the articles of association can be held liable in tort or as a co-director of the subsidiary.
liability based on tort (article 6:162 of the Dutch Civil Code)
The management board must follow the instructions of the parent company, unless these are contrary to the interests of the company and its affiliated enterprise. The management board must therefore always make an independent assessment of whether the instruction is contrary to the company's interests. If the management board carries out an instruction contrary to the company's interests, the management will be exposed to a liability risk.
The parent company, which gave the instruction, also faces a liability risk. After all, the parent company must exercise a certain degree of care by distinguishing the interests of the company from the interests of the group. Violation of that duty of care may under circumstances lead to liability of the parent company, which gave the contrary instruction.
liability as co-controlling party (article 2:248 paragraph 7 of the Dutch Civil Code)
In case of bankruptcy, each managing director is jointly and severally liable towards the estate and / or the trustee for the amount of the debts, insofar these debts cannot be paid by the liquidation of the other assets, if the managing director has manifestly improperly fulfilled his task and if it is plausible that this is an important cause of the bankruptcy ( article 2:248 of the Dutch Civil Code). Paragraph 7 of article 2:248 of the Dutch Civil Code states that the following shall be equated with a managing director: the person who has determined the policy of the company, or has co-determined it, as if he were a member of the management board.
A parent company, which makes use of its instruction authority under the articles of association, is in fact a co-director. In contrast to liability in tort, for liability as a co-director a de facto override of the management board of the subsidiary is constitutively required. After all, the parent company must have determined the policy within the subsidiary as if they were in charge. Literature and lower courts are divided on the question of when there is actual overruling.
On the one hand, it is argued that there is already de facto overruling when the management board of the subsidiary has, by merely executing instructions, acquiesced in the parent company's policy. Others argue for a more active role of the parent company. They argue that the parent company must have taken the management out of its hands and imposed its will directly on the management, whether or not by threatening to dismiss the management, so that the management could not make its own independent assessment of interests.
Liability of a parent company as a de facto policymaker seems to be possible if the board has had no or insufficient opportunity to make its own independent assessment of interests. The trustee has the burden of proof. Because de facto overruling will be difficult to prove, I think that a trustee in bankruptcy will hold a de facto policymaker liable on the grounds of tort, because the de facto overruling of the management board of the subsidiary is simply not required for this.