23.01.2025 · Short read

What a Shakespearean drama teaches us about the adoption and publication of annual accounts

Paul Quist discussed the judgment of the Court of Appeal Arnhem-Leeuwarden of April 16, 2024, ECLI:NL:GHARL:2024:2564, in JOR 2025/3. He discusses the statutory provisions for the preparation and publication of the annual financial statements. The judgment reads like a Shakespearean drama. Unavoidably, the company in question undergoes a step-by-step downfall. The reader is warned: this is not for the faint-hearted.

Introduction
The ruling concerns the bankruptcy of Emotech B.V. (‘Emotech’). What’s in a name? In this case, the bankruptcy trustee tries, through known routes, to hold the management of Emotech and its shareholder, Rovis Holding B.V., liable. The trustee deploys almost all weapons in the trustee’s arsenal: improper performance of duties (2:9 Dutch Civil Code), distributions contrary to statutory provisions (2:216 Dutch Civil Code), late publication of the annual financial statements, and the improper performance of duties related to this, with the assumption that these failures were a significant cause of the bankruptcy (2:248, 2:10, and 2:394 Dutch Civil Code), culminating in a tort (6:162 Dutch Civil Code). It is for the court to decide whether the downfall was due to an unfortunate combination of circumstances or was so blameworthy that liability for the directors and shareholder should follow from this. In this contribution, I limit myself to the timing of the filing (publication) of the annual financial statements, which, according to the trustee, led to directors’ liability under 2:248, paragraph 2 Dutch Civil Code. The private limited company (BV) is central here, but the regulation for the public limited company (NV) is generally similar.

Preparation and Approval of the Annual Financial Statements
What are the provisions regarding the approval of the annual financial statements again? According to 2:210 Dutch Civil Code, the board of a BV must, within five months after the end of the financial year, unless extended by five months due to special circumstances, prepare the annual financial statements and make them available for inspection at the company’s office. The financial statements are signed by all directors and supervisory directors. If the signature of one of them is missing, this must be reported with a reason given. A director or supervisory director cannot have the annual financial statements signed by another director or supervisory director by proxy. The financial statements are then approved by the general meeting. The articles of association cannot contain provisions that allow binding proposals or regulations regarding the financial statements or any item thereof.

Publication of the Annual Financial Statements
Regarding the publication of the annual financial statements, 2:394, paragraph 1 Dutch Civil Code stipulates that the legal entity is required to deposit the annual financial statements with the trade register within eight days after approval. Paragraph 2 of this article states that even if the annual financial statements are not approved within two months after the maximum period for preparation (i.e., two plus ten months), the board must deposit the prepared (but not yet approved) financial statements with the trade register. Therefore, a financial statement must be published within twelve months after the end of the financial year, whether approved or not. Moreover, the preparation deadline for the financial statements was previously also five months, but with a possible extension of this period by six months, so the annual financial statements had to be published within thirteen months after the end of the financial year. This was changed to five months with the implementation of the Annual Accounts Directive Implementation Act on November 1, 2015. The case in the judgment is governed by the old law and therefore still uses the maximum publication period of thirteen months.

Draconian Consequences of Late Publication
A question that frequently arises is whether failing to deposit the annual financial statements within eight days of approval invokes the statutory presumption of 2:248, paragraph 2 Dutch Civil Code, or whether this only occurs if the financial statements are not published within twelve months after the end of the financial year. The annual financial statements of Emotech for 2011 were approved on October 9, 2012, and deposited on November 26, 2012. The annual financial statements for 2012 were approved on August 27, 2013, and deposited on October 21, 2013. In both cases, this was later than eight days after approval as prescribed by 2:394, paragraph 1 Dutch Civil Code, but within the maximum (then) thirteen-month period set out in 2:394, paragraph 3 Dutch Civil Code.

The sanction of 2:248, paragraph 2 Dutch Civil Code for the late publication of the annual financial statements is draconian: the board has performed its duties improperly and it is also presumed that improper performance of duties was a significant cause of the bankruptcy. The central question here is whether publication later than eight days after approval but within the maximum statutory publication period leads to these draconian consequences for the directors.

Improper Performance of Duties by the Directors?
The trustee argued that the board performed its duties improperly because Emotech failed to comply with the provisions of article 2:394 Dutch Civil Code: the annual financial statements for 2011 and 2012 were deposited within thirteen months, but not within eight days of approval. The court disagreed, ruling that for the application of the sanction under article 2:248, paragraph 2 Dutch Civil Code, only the twelve-month period (previously thirteen months) under article 2:394, paragraph 3 Dutch Civil Code is relevant. The breach of the eight-day deadline under paragraph 1 is considered a minor omission under the final part of article 2:248, paragraph 2, and is therefore disregarded.

The court justifies its judgment by noting that the drastic sanction finds its justification in the interest that creditors have in compliance with the publication requirements. Just as creditors do not care whether the financial statements are deposited within two months of the (extendable) preparation deadline, they are also indifferent as to whether the financial statements are deposited within eight days of approval. According to the court, it is relevant that the law does not impose an obligation to approve the financial statements and therefore does not require approval within a specific period. The timing of the approval is somewhat arbitrary, and creditors must expect that approval may occur near the end of the twelve-month period (formerly the thirteen-month period) or not at all. For creditors, the most important thing is that the financial statements are published no later than twelve (formerly thirteen) months after the end of the financial year. The trustee did not raise any other interest.

I agree with both the outcome and reasoning of the court, which is in line with the Supreme Court ruling of June 11, 1993, ECLI:NL:HR:1993:ZC0994 (Brens/Sarper). Creditors know that, at the latest, twelve months after the end of a financial year, an annual financial statement will be published, and if that does not happen, it is too late (except for a minor delay of a few days). Comparable to J.E.P.A van Hooff, MvO 2015 nr. 1/2, critical C.A. Schwartz and R.A. Wolf, MvO 2016 nr. 1/2.

Extension of the Deadline for Preparing the Annual Financial Statements
In light of the above, I believe that an extension of the deadline for preparing the annual financial statements by the general meeting due to special circumstances under 2:210, paragraph 1 Dutch Civil Code is also not relevant for creditors. In practice, there is some debate over what constitutes valid ‘special circumstances’, though starting too late would certainly not be considered among them. I interpret the provision to mainly regulate the relationship between the board and the general meeting. The board must have a valid reason to request an extension from the general meeting. This does not concern creditors.

Approval by Signing
In this context, I note that under 2:210, paragraph 5 Dutch Civil Code, if all directors are also shareholders and there are no other eligible voters (pledgeholders, usufructuaries, and certificate holders with voting rights), signing the annual financial statements also counts as approval and extends to discharging the directors and supervisory directors. This provision aims to reduce administrative burden in cases where all directors are also shareholders. However, those involved are often unaware of this approval mechanism, which often leads to publication after the eight-day deadline. Due to the presumed severe consequences of publication after the eight-day deadline, this ‘approval by signing’ mechanism is often removed from the articles of association using the final sentence of 2:210, paragraph 5 Dutch Civil Code.

Concluding Remarks
Was it a fateful combination of circumstances or management failure that led to the downfall of Emotech? Perhaps a bit of both? Anyone reading the judgment must acknowledge that it didn’t exactly go in their favor. An entrepreneur may, yes must, take risks, and may make mistakes without immediately being personally liable. According to the court, the board and shareholder of Emotech were, all things considered, more sinned against than sinning. All in all, in my opinion, a satisfactory ruling, at least regarding the issue of the publication of the annual financial statements.

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Quist Geuze Meijeren
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