The legal status of the management board and supervisory board in the pre-pack
The board
It is the board’s job to identify financial difficulties, administer them and anticipate them. If directors fail to do so, the company can accuse them of mismanagement. When bankruptcy is imminent, the management board has the task of submitting a request to the court for the appointment of a prospective administrator if that seems useful: in the request, the management board must make it plausible that the pre-pack offers added value for the company. This means that the pre-pack is expected to limit social damage, create the highest possible value for the joint creditors and preserve employment as much as possible. The management board informs the shareholders’ meeting prior to the request, unless an overriding interest of the company opposes this. The management board shall also provide the supervisory board with all information required for the performance of its duties in a timely manner. In the case of a structured BV (structuur-BV), moreover, the management board’s decision to request the appointment of a prospective administrator under the Continuity of Enterprises Act I will be subject to the prior approval of the supervisory board.
After the appointment of the prospective administrator, the silent preparation phase begins. This usually lasts 11 to 15 days. During this period, the board retains its powers as described in this blog and its information duties as mentioned above. In addition, under the Continuity of Enterprises Act I, the management board has the duty to provide the prospective administrator, both on request and on its own initiative, with any information which it needs to perform its duties or which it knows or should understand to be important in that context. If the management board fails to do so, this may impede the prospective administrator in the performance of his duties and, consequently, the pre-pack. Directors risk mismanagement resulting in possible liability. In the worst case, the prospective administrator may even apply to the court to be relieved of his duties.
The supervisory board
In the pre-pack, the supervisory board retains its powers as described in this blog, but is not given any additional powers in relation to the pre-pack or the intended receiver. However, the supervisory board does have to take a more active stance from the moment it becomes aware of the financial difficulties. This follows, among other things, from the Laurus decision in which the Enterprise Chamber ruled that the supervisory board should have asked more critical questions and acted more quickly when insufficient information was provided by the management board. The legislator has also confirmed that such action may be required of the supervisory board. For instance, under the Continuity of Enterprises Act I, the supervisory board itself can also apply to the court for a prospective administrator.
Exciting times: Wieringa helps
In practice, the appointment of a prospective administrator may be perceived as exciting by directors: the prospective administrator is watching the directors as they continue to operate the company and enter into any new obligations such as purchase and delivery obligations. If the company goes bankrupt, the receiver (who was first intended receiver) will presumably investigate whether the director is liable, for example because he entered into obligations he knew or should have known the company would not be able to fulfil.
As a director, it is therefore advisable – if only for your own peace of mind and comfort – to consult a lawyer who can look at things with you from a legal perspective and advise you. After all, this is not the task of the intended receiver as described in this blog. Even as a supervisory director, you may need guidance and advice on your role if the company finds itself in dire financial straits. Please feel free to contact us without obligation to discuss the possibilities.