Conflict of interest (tegenstrijdig belang)

A conflict of interest arises where a director has a direct or indirect personal interest that conflicts with the interest of the company and its business. Dutch law does not prohibit the transaction; it removes the conflicted director from the decision.

Legal basis

Article 2:239 paragraph 6 of the Dutch Civil Code provides that a director with such an interest may not take part in the deliberation and decision-making. If as a result no board resolution can be taken, the decision passes to the supervisory board, and if there is none, to the general meeting, unless the articles provide otherwise. The equivalent rule for supervisory directors is in Article 2:250 paragraph 5.

Since the 2013 reform this is an internal rule only. A transaction entered into in breach of it remains binding on the counterparty; the consequence is that the resolution is voidable internally and that the director may face liability under Article 2:9.

What counts as a conflict

The test is qualitative: is the director capable of safeguarding the company’s interest with the required integrity and objectivity? A personal financial interest on the other side of the transaction is the clearest case, as is a directorship of the counterparty. A general family or business connection is not automatically enough.

In a company with a sole director who is also the sole shareholder, the rule does not apply in the same way, since the general meeting and the board are the same person; the articles usually address this expressly.

Where it goes wrong

The usual failure is not the conflict itself but the absence of any record. Where the conflict is identified, minuted, and the decision taken by the general meeting, the transaction is rarely attacked successfully. Where it is only discovered later, in a dispute or a bankruptcy, it becomes an argument about the director’s integrity rather than about the transaction.