Changes in Curacao as of 1 January 2012
The most important amendment in the Curacao provision with regard to the conversion of an NV or BV into a foreign legal entity (outbound) is that the requirement of the personal notice of liability by managing directors and shareholders has been removed as from 1 January 2012 onwards, except for the case mentioned below. This provision has been replaced by the possibility for creditors or contractual counterparties of the company wishing to convert into a foreign legal entity to lodge an objection on the grounds that they will be prejudiced in their position as creditor or contractual counterparty (Section 2:305 of the Civil Code). This provision is in line with what we already know about the doctrine of merger.
The application must state what security, guarantee, contract change, dissolution or compensation is demanded. If the court awards the objection it will determine the security or guarantee to be furnished by the NV or the BV or a third party or the compensation to be paid, or the contract change or contract dissolution which will apply when the conversion is effected. The court may attach an obligation on the NV or the BV to pay compensation with regard to a contract change or contract dissolution to become effective from the date of the conversion onwards.
The deed of conversion cannot be executed before the objection has been withdrawn, the decision in which the objection has been declared unfounded or, upon the objection being upheld, the security or guarantee determined has been furnished. If the deed of conversion has nevertheless already been executed, the court can, whether or not upon a legal remedy being instituted, order a security it has described to be furnished and to attach a penalty to this.
The intended conversion will be announced in a newspaper issued here in this country by the care of the civil-law notary no sooner than three months and not later than five weeks before the date of executing the deed of conversion and insofar as this is possible simultaneously in the journal in which official notices are placed by the authorities. This can be deviated from in cases where this is specifically required in the interest of the company (Section 2:304 subsection 5 of the Civil Code).
Therefore the announcement requirement can be omitted in cases when this is specifically required by the interest of the company. As appears from the Explanatory Memorandum in particular the case came to mind where a conversion into a foreign legal entity has been fully prepared up to and including the execution of the notarial deed, however, on the understanding that it only becomes effective when a certain condition has been fulfilled. Such a provision might be needed in times of war or a threat of war.
For that matter the legislator does not set further requirements on this criterion (if this is specifically required in the ‘interest of the company‘). Therefore this is regularly used in practice in order to avoid the waiting period associated with the objection process. In those cases the declaration of joint and several liability will be accepted without any problems.
If the announcement is not made the objection process will be prejudiced and there will be a chance that creditors and contractual counterparties will become the victim of this. The joint and several liability provision has been included for that case.
You see, if deviation takes place (so that no announcement has been made), the deed of conversion must include a statement by all the managing directors who were in office at the time of the resolution concerning the conversion and, unless a listed company is involved, of all the shareholders entitled to vote who did not cast their vote against the proposal for the conversion, in which they hold themselves jointly and severally liable for all debts of the company existing at the time the deed of conversion was executed; this liability will lapse except in the case of bad faith three months after that moment in time and in any case one year after the commencement of the continued existence of the company in the new legal form (Section 2:304 subsection 5 of the Civil Code).
Before 1 January 2012 the more general rule applied that all shareholders entitled to vote who had not voted against the conversion, had to hold themselves jointly and severally liable for all the debts of the company. There were many objections to this system, which objections also apply with regard to the more restricted system of joint and several liability. I will not discuss these any further at this time.
It was noted in the Explanatory Memorandum that a declaration of liability of managing directors or shareholders does not have to be problematic in practice. The simplest way to escape the consequences of this is by paying the debts when due. The management board must be considered to be able to have sufficient insight into this. Insofar as this is not so in a certain case or if payment is not possible and the parties involved nevertheless continue the conversion without compliance with the announcement requirements, the parties can stipulate guarantees and securities.
I also want to point out that Section 5 subsection 3 of the Civil Code has been declared applicable. In complying with the announcement requirements and realizing the consequences of non-compliance, the civil-law notary has a heavy responsibility. In the event of a failure to comply with the obligations arising from the law, the civil-law notary becomes personally liable to the parties who have suffered losses because of this. (To be continued)
Attorney (Lawyer) / Partner
(29 March 2013)