The 403 Declaration in the Netherlands is a comfort letter, or in other words a declaration by the parent company that it will be jointly and severally liable for the debts of the exempted legal entity. The 403 Declaration owes its name to the provision of the Dutch Civil Code in which this rule is laid down. Every legal person must prepare financial statements according to Dutch corporate law. This requirement can be waived for legal persons who are part of a group. The subsidiary company does not have to prepare separate financial statements if the parent company has included the financial information in its consolidated financial statements for the entire group. Our Dutch corporate lawyer provide more insights below.
LIABILITY OF THE PARENT COMPANY UNDER DUTCH LAW
When the exempted legal entity can no longer fulfil its obligations, the consequences of the 403 Declaration become evident. Creditors of the exempted company can then claim payment from the parent company. However, this only applies to claims arising from legal acts (such as agreements) of the exempted company.
If the 403 Declaration is not prepared correctly, this can lead to the personal liability of the directors. An incorrectly prepared 403 Declaration could result that the exempted company has not fulfilled its legal obligation to publish the annual accounts. Under Dutch law, in case of bankruptcy, the assumption is that the directors then have acted improperly. As a result, the directors can be held liable for all the debts of the exempted company.
TERMINATION OF THE 403 DECLARATION
The 403 Declaration can be withdrawn by filing a withdrawal statement with the Trade Register. However, this does not automatically relieve the parent company of all its responsibilities to the subsidiary company. Only the liability for any debts arising from legal acts by the subsidiary following the withdrawal is covered by the withdrawal. The parent company remains liable for debts from legal acts performed before the revocation, referred to as the ‘residual liability’.
BREXIT AND 403 DECLARATION
Since 1 January 2021, the United Kingdom is no longer bound by European directives and regulations because of the Brexit. Therefore, Dutch subsidiaries will in most cases no longer be able to use the annual accounts exemption based on the 403 Declaration through the consolidated accounts of a legal entity under UK law. If the Dutch subsidiary still wants to use the annual accounts exemption it will have to look for another solution.
DUTCH LAWYER SPECIALIZED IN COMPANY LAW
Do you have specific questions about the 403 Declaration or do you need legal advice regarding Company law in Holland? Our experienced English-speaking specialist corporate lawyers in Holland will be happy to help you.