Karel’s Legal Blog

Dissolution requires a shareholders’ decision

The shareholders of a Netherlands Antilles company may voluntarily decide to dissolve a company (NV or BV), which requires a shareholders’ resolution in accordance with the articles of association.

Publication of the dissolution of the company in the ‘Curaçaosche Courant’ (the Official Gazette of the Netherlands Antilles) by the liquidator (a.k.a. receiver) is mandatory. As is the registration of the dissolution and deregistration of the directors at the commercial register of the Chamber of Commerce.

Under Article 2:30(1) Netherlands Antilles Civil Code, the liquidator realizes the assets of a company and settles all liabilities of the company with its creditors. Any surplus after payment of the creditors shall be distributed to the shareholders or other parties entitled thereto pursuant to the provisions of the articles of association.

Under Article 2:30(2) Netherlands Antilles Civil Code the liquidator is entitled to pay distributions in advance if the condition of the estate so allows. If however it appears to the liquidator that the liabilities will exceed the assets, he must file for bankruptcy of the company, unless all known creditors agree to the continuation of the voluntary liquidation of the company, not under bankruptcy . 

Pursuant to Article 2:31(1) Netherlands Antilles Civil Code, the liquidator must render a statement of accounts (“the Accounts”). The Accounts must state to what extent the creditors have been paid and if there is a surplus, its extent and composition. The liquidator shall prepare a plan of distribution for the surplus showing the basis for the distribution (“the Plan”). The liquidator must file the Accounts and the Plan at the offices of the company and at the commercial register of the Chamber of Commerce, and both must be available for perusal by the public for a period of at least thirty (30) days.

The liquidator must announce in the local paper, the Curaçaosche Courant, where and until when the Accounts and the Plan are available for perusal by the public. The liquidator also must notify the registered shareholders and all known creditors, of said information, in writing.  Any creditor or any other interesting party may oppose the Account and the Plan by filing a petition with the court during the thirty day period, starting on the date of filing. If no one opposes the Accounts and the Plan, or any claim by opposing creditor(s) is denied by the court, the liquidator may proceed with the liquidation and will distribute the surplus to the parties entitled thereto.

Upon completion of the liquidation and once there are no more assets known to the liquidator, the company will have ceased to exist.

In the case that the company is involved in legal proceedings and faces a claim from a counterparty, the liquidator will be unable to complete the liquidation until such claim has been fully settled either in or out of court.

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: Corporate by Karel.Frielink
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A contractual arrangement may limit the board’s powers

Shareholders of a Dutch Caribbean NV or BV may choose between the English/American one-board system and the traditional continental European two-tier system. In a two-tier system there is a management board (parallel to the inside directors on a one-tier board) and a separate supervisory board (parallel to the outside directors on a one-tier board). Although every company (NV or BV) has a management board, not every company has a supervisory board.

Article 2:14 of the Netherlands Antilles Corporate Code (a.k.a. Book 2 Civil Code) provides that each member of the board of directors, either one-tier or two-tier, is responsible to the company for the proper performance of the duties assigned to him. The board has a duty to use its powers properly and to act within their limits. Furthermore, the board must act in accordance with the other duties it has, based on, inter alia, the law and the articles of association.

It is generally accepted under Netherlands Antilles law that the board of directors is the central policymaker within the company. The board of directors has discretionary powers to manage the company. With respect to directors’ liability, amongst other things, it is also generally accepted that the board should be allowed a certain degree of discretion. If a court is called to review the board’s business judgments, such review is generally restricted to the rather vague concept of ‘reasonableness’. The line between a full and a limited review of the substance of the business judgment is rather thin however.

The board of directors may contractually agree to a limitation of its powers to manage the company. Such arrangements are typical for trust offices engaged by a foreign ultimate beneficiary to render services to ‘his’ company, i.e. the client of a trust office. In principle, any contract a board of directors enters into binds the board and thereby limits its power. However, notwithstanding such a contract, it is still the board of directors that is in charge of managing the affairs of the company. A distinction should be made, therefore, between making a decision, i.e. the formal process in accordance with the law and the articles of association, and initiating a decision or policy, i.e. the person or persons with the ultimate power to determine the policy of the group of companies. In other words: trust directors are not the actual policymakers within the company; they review whether the policy adopted by the beneficiary (or a group company) which the trust directors are supposed to carry out, does not conflict with the company’s articles or its general interest.

The fact that Netherlands Antilles trust offices are hired to (formally) run such companies is because they know how to comply with Netherlands Antilles law. They know how to manage such companies by all lawful means necessary within the scope stipulated in the articles of association, resolutions of shareholders’ meetings, and applicable Netherlands Antilles laws.

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: Corporate by Karel.Frielink
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The Central Bank has certain regulatory powers

Not all banks perform well. Sometimes things go wrong. In the Netherlands Antilles the Central Bank has certain powers to take over control, if necessary. The Central Bank may request the Court of First Instance to subject a bank (credit institution) to the emergency measure pursuant to Article 28 of the National Ordinance on the Supervision of Banking and Credit Institutions 1994.

The court may authorize the Central Bank to transfer all or part of the obligations of the credit institution and to partially or entirely liquidate the credit institution. The authorization shall include the liquidation of the assets until the Central Bank is of the opinion that the credit institution no longer has a negative equity. During the performance of these duties the Central Bank shall take into account the interest of the combined creditors.

During the emergency measure the Central Bank exclusively holds all the powers of the managing directors and supervisory directors of the credit institution. The Central Bank may, however, grant power of attorney to individual(s), granting them all or part of its powers. Furthermore, the Central Bank is entitled to authorize the managing directors of the credit institution to perform certain tasks. Throughout the emergency measures the managing directors and the supervisory directors of the credit institution are obliged to provide the Central Bank with any assistance it should request. The Central Bank is moreover entitled to dismiss the managing directors and the supervisory directors.

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: legal by Karel.Frielink
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Mergers mostly within a group of companies

A statutory merger involves at least two legal entities. The law uses the terms acquiring and disappearing legal entity. The law specifies that only legal entities having the same legal form may merge, specifying that a BV (closed limited liability company) and a NV (public limited liability company) are considered to be the same. Statutory mergers are used mostly within a group of companies.

Essential for a statutory merger is that the title of all assets and liabilities of one legal entity transfer in their entirety to another legal entity. An actual transfer does not in fact take place.

A statutory merger has some additional legal consequences. Firstly, the disappearing legal entity ceases to exist. Liquidation or formal dissolution does not take place. Secondly, the shareholders of the disappearing legal entity become shareholders of the acquiring entity by operation of law. The nominal value of the shares involved depends on their shareholding and the exchange ratio. The statutory merger replaces the shares held in the disappearing legal entity with shares of the acquiring legal entity. Generally the acquiring entity issues shares.

There are exceptions to this rule, namely, if the shares of the disappearing entity are held directly or indirectly for the account of the acquiring legal entity. In this case of a parent-subsidiary merger the shares are canceled and no shares in the acquiring entity are issued. This is logical: it is not the intention of the merger that the acquiring legal entity obtains shares in its own equity, which would be the case if shares in the acquiring entity were to be issued. In the case of a sister merger it is optional whether shares in the acquiring entity are issued.

The merger process may be divided into three parts. The first is the proposal to merge. The proposal to merge must be initiated by the managing board(s) of the merging entities.

The second part concerns the decision to merge. The general meeting(s) of shareholders of the merging entities must adopt a resolution to merge, it is permitted however that the acquiring legal entity be allowed to merge by a decision of its managing board.

After completion of the second part, the statutory merger is implemented by the execution of a deed of merger before a civil law notary.  The parties to the deed of merger are the merging legal entities.

Karel Frielink
Attorney (lawyer) / Partner

Filed under: Corporate by Karel.Frielink
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A lawyer may ethically review a document for metadata

Lawyers frequently send and receive documents or computer files in electronic form. An electronic document typically includes data that may or may not be visible when viewing the document on the computer screen or as printed out, e.g. the original author’s name, the creation date of the document, and the amount of time spent editing it. These hidden data are called “metadata”.

Legal Blog Watcher Robert J. Ambrogi discusses the question whether it is ethical to search for metadata in a document you receive from opposing counsel. He refers to the Ethics Committee of the Colorado Bar Association which has issued a formal opinion on review of metadata and adopted the ABA’s view (click here for the opinion).

The opinion says, according to Ambrogi, that a lawyer may ethically review a document for metadata. If, however, the lawyer discovers confidential information within the metadata, the lawyer should assume it is there inadvertently and immediately contact the sender.

The issues addressed in said opinion are of significant relevance to attorneys in other countries as well.

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: legal by Karel.Frielink
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Are credit default swaps insurance products?

The National Ordinance on the supervision of the Insurance Business (“NOSI”) does not contain a definition of ‘insurance agreement’. Under Netherlands Antilles law the definition contained in article 315 of the Netherlands Antilles Commercial Code is usually used, which informally translated reads as follows:

“Insurance is an agreement whereby an insurer commits itself to the insured, against receipt of a premium, to compensate the latter for a loss, damage or loss of expected advantage which the insured could suffer as a result of an uncertain event.“

Will insurance issues under Netherlands Antilles law be triggered when entering into a credit default swap (CDS)? If the fund manager acts as the protection seller under a CDS, there is some risk of breach of insurance regulations for the manager. If the manager is the protection buyer under the CDS, the risk will be for the swap counterparty.

There is no existing case-law or regulatory directive in the Netherlands Antilles offering any direct guidance as to the question whether credit derivatives constitute insurance products.

The insurance business in the Netherlands Antilles is regulated by the NOSI. If credit derivatives were to constitute insurance contracts in the Netherlands Antilles then merely offering them from a company with a statutory seat in the Netherlands Antilles or from a company with a statutory seat outside the Netherlands Antilles with an establishment in the Netherlands Antilles would constitute conducting insurance business, and the requirements of the NOSI would be triggered when entering for the first time into a credit derivative as ‘insurance seller’ from the Netherlands Antilles or with a Netherlands’ Antilles counterparty as the ‘insurance buyer’.

Insurance companies (i.e. entities which make it their business to offer insurance products) established in the Netherlands Antilles and insurance companies with a statutory seat outside the Netherlands Antilles which have an establishment in the Netherlands Antilles, are required to obtain a license from the Netherlands Antilles Central Bank.

Provision of insurance services in the Netherlands Antilles without the required license or registration is penalized. In principle, such offences are punishable by a maximum fine of NAF 50,000 per violation and imprisonment of a legal entity’s managing director for the maximum term of six months. In addition, violation of these requirements may have civil law consequences: the agreement with the client may be declared null and void.

There is no Netherlands Antilles case law or literature available which makes clear whether a CDS constitutes the ‘conducting of insurance business’ under Netherlands Antilles law. However, if certain requirements are met, credit derivatives will not qualify as an agreement of (non-life) insurance because such an arrangement would in those circumstances not contain all the elements necessary to qualify it as such.

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: Securities by Karel.Frielink
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Holding companies are not investing

An investment company (NV or BV) is a company that raises or obtains pecuniary means or other property to be used for collective investment with the objective of allowing the participants to benefit from the revenues of those investments.

The Netherlands Antilles National Ordinance on the Supervision of Investment Institutions and Administrators (‘Landsverordening Toezicht Beleggingsinstellingen en Administrateurs’) and the Central Bank’s policy guidelines based thereon do not make entirely clear what is regarded as an “investment”.

The explanatory memorandum to the Ordinance explains that certain activities do not tend to be considered as “investments”, such as holding companies. “Holding companies”, “securities brokers” and “venture capital companies” have been expressly excluded from the definition of Investment Institutions, either in the Explanatory Memorandum to the Ordinance or by the Central Bank.

Administrators are subject to supervision however. The Ordinance treats administrators separately and an administrator to an exempt Investment Institution may therefore still be regulated. General exemption is available, for example, to Investment Institutions (i) for which money or other pecuniary means are raised and obtained in a “restricted circle”, or (ii) for which participating interests are solicited or obtained from “professional parties” only, i.e. natural persons who, or legal entities which, in pursuit of their occupation or business deal or invest in investment objects.

Furthermore, Investment Institutions that offer their participating interests also (or only) to natural persons and/or legal entities considered by the Central Bank to have comparable skills and competency as the professional parties to form their own balanced opinion about the offer being made, may in individual cases be exempted. In determining whether an institution qualifies for this exemption, the Central Bank considers, in particular, the target group to whom the institution is offering its participating interests. This exemption, which is, strictly speaking, an individual dispensation, is available only if the minimum initial subscription is at least US$ 50,000 (or its equivalent in another currency).

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: Securities by Karel.Frielink
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Can the author come up with a legal spell to prevent the publishing of a HP encyclopedia?

J.K. Rowling is the renowned author of the famous fantasy books about the life of wizardry student Harry Potter. Since the release of the first book in 1997, the series have gained huge popularity worldwide. The books have spawned a series of Potter movies, Potter video games and themed merchandise. The commercial success of the Potter brand has made Rowling one of the highest-earning authors in history. Like with many popular and commercially successful products, there are others who try to get a share of the cake, sometimes illegally. In the past, Rowling (and/or formally her publisher and/or the film distributor) has had to wage legal battles to prevent (further) infringement of copyrights, including banning the sale of imitations and targeting owners of websites over the use of the Harry Potter domain name; and now once again, Rowling is involved in a legal dispute.

In this case, a devoted fan of the Potter series wants to publish a Potter encyclopedia, which would basically be a hardcopy version of his own popular website called “The Harry Potter Lexicon”. Now the author is suing to prevent publication of this encyclopedia. In the court case at a U.S. District Court in Manhattan, Rowling argues that the different characters in her books came out of her head hence they are her (intellectual) property. In her view, no one else may use them without her permission. In essence, the claim is that the decision to publish, or to even allow, material such as encyclopedias or reference guides which build upon the works of authors, is the authors’ alone. However the fan and his publisher say that the encyclopedia would not violate any copyright laws because the content thereof would be original. They have argued that the encyclopedia provides a significant amount of original elements, such as analysis and commentary concerning everything from insights into the characters, the meaning of various historical and literary references, as well as inconsistencies and mistakes in the books. Also, according to them, the right to literary commentary is at stake.

This case, and the legal issues raised therein, such as the question if and to what degree (i) someone may use and build upon the works of others and the question of whether (ii) the encyclopedia itself is a protected fair use creation, are interesting, also for observers outside of the U.S. The reason for this is that although many jurisdictions have their own laws regarding copyright and intellectual property in general, they are often based on the same or similar legal ideas and concepts, as is also the case with Dutch Caribbean law, which provides for numerous forms of legal protection of intellectual property, like patents, trademarks, and copyright.

The statutory provisions regarding copyright are set forth in the Netherlands Antilles Copyright Ordinance. According to the Ordinance, Copyright is the exclusive right of the author of a literary, scientific or artistic work, or his or her successors in title, to communicate that work to the public and to reproduce it, subject to the limitations laid down by law. According to the Ordinance this protection is automatic and does not depend on official procedures or formalities. The author is considered protected by copyright as soon as his work exists in a tangible form. However, although not required to obtain a copyright, registration may be wise for evidentiary purposes (date of creation of the work etc.) in case of possible infringement. A copyright expires after fifty years.

Works covered by copyright include for instance literary works such as books, newspapers, periodicals, and other writings; plays and musical works; artistic work such as drawings, paintings; architectural works and sculpture; photographic and cinematographic works; works of applied art and industrial designs and models, in fact generally any creation in the literary, scientific or artistic areas, whatever the mode or form of its expression. Reproductions of literary, scientific or artistic work in a modified form, such as translations, arrangements of music, cinematographic and other adaptations and collections of different works shall be protected as separate works, without prejudice to the copyright in the original work.

The Ordinance constitutes certain exclusive rights that an author has and may authorize others to use. Such rights may be enforced by several instruments in the civil and criminal courts. Apart from general indemnity claims, the author may apply to the court for rulings to require the infringer to surrender the profits derived from the infringement or to claim ownership of the infringing goods or to demand that they be destroyed. With its provisions for copyright, Dutch Caribbean law enables companies and persons to protect their rights effectively and in accordance with national and international standards such as the Berne Convention for the Protection of Literary and Artistic Works.

Karel Frielink / Ursus van Bemmelen
Dutch Antilles Attorneys / Lawyers

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Recommendations by PLC Which lawyer? and Chambers and Partners

The Practical Law Company is the leading provider of know-how for business lawyers. PLC Which lawyer?, previously known as PLC Global Counsel 3000, is regarded worldwide as the essential guide to lawyers and law firms in more than 100 countries. By providing independently researched market information on leading lawyers active in the core commercial practice areas, PLC Which lawyer? has been tracking the most important trends in the legal profession for more than a decade.

PLC ranks law firms. The rankings as between the law firms and lawyers they recommend are based on the weight and number of recommendations each firm or lawyer is given by in-house counsel and private practitioners. Click here for the ranking of Netherlands Antilles law firms: Spigthoff Attorneys & Tax Advisers is ranked # 1.

The Chambers Guides list the top lawyers in 175 countries, providing independent rankings and editorial commentary. Chambers and Partners has 100 experienced researchers. They talk to clients and find out which law firms they use and how they rate them for their legal ability and client service. On the basis of this research, Chambers and Partners identifies the world’s top lawyers.

This is what Chambers and Partners has to say about Spigthoff Attorneys & Tax Advisers: ‘The Netherlands Antilles office is considered the leading law firm in the Netherlands Antilles.‘

Karel Frielink

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No one does actually

You may have heard about people selling parts of the moon: they claim that you can become co-owner of moon lots for about US$ 40 per acre.

However, in my opinion, the moon belongs to no one, period! No state or government can claim ownership and neither can an individual. To state that it is mankind’s heritage and that ‘mankind’ could claim ownership is ridiculous and even arrogant: it would be a kind of colonialism. The same applies to other celestial bodies and, in fact, to the whole universe.

On the other hand, if all governments, and through them mankind, agreed among themselves on who owns the moon, and such agreement were to be laid down in a treaty, then such ownership would be part of international law and would thus be governed. As long as no one from outer space has introduced himself and no such person or species has the power to effectively contest the validity of such a treaty, governments have unlimited power to agree on whatever they want. However, without a treaty providing a legal basis for it, certainly no individual person (on earth) may claim any form of ownership whatsoever.

The Outer Space Treaty (the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies) is a treaty that forms the basis of international space law. This Treaty limits the use of the moon. No nuclear weapons, for example, may be stationed on the moon or any other celestial body. The treaty explicitly forbids any government from claiming a celestial resource such as the Moon or a planet, since they are the province of mankind.

According to the Treaty, the exploration and use of outer space, including the moon and other celestial bodies, shall be carried out for the benefit and in the interests of all countries, irrespective of their degree of economic or scientific development, and shall be the province of all mankind. The Treaty also provides that outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.

If you are looking for investment opportunities in real estate, don’t look at the moon. No single state or individual owns the moon or any part thereof.

Karel Frielink
Attorney (Lawyer) / Partner

Filed under: legal by Karel.Frielink
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