In the vast realm of corporate law, understanding specific aspects can often seem daunting. One such aspect in Dutch corporate law is the 403 Declaration. This article provides a comprehensive guide to the 403 Declaration in the Netherlands, its implications, and its role in the financial statements of a company.
What is the 403 Declaration?
The 403 Declaration, named after its provision in the Dutch Civil Code, is essentially a comfort letter. It is a declaration made by the parent company stating that it will be jointly and severally liable for the debts of an exempted legal entity, usually a subsidiary company.
Every legal entity in the Netherlands is required to prepare financial statements according to Dutch corporate law. However, this requirement can be waived for legal entities that are part of a group. In such cases, the subsidiary company doesn’t have to prepare separate financial statements if the parent company has included the financial information in its consolidated financial statements for the entire group.
Parent Company’s Liability
The 403 Declaration holds significant implications for the parent company. When the exempted legal entity, such as a subsidiary, fails to fulfill its obligations, the parent company becomes liable. Creditors of the exempted company can claim payment from the parent company due to the 403 Declaration.
Personal Liability and the 403 Declaration
Incorrect preparation of the 403 Declaration can lead to severe consequences. If not prepared correctly, it could result in the personal liability of the directors. If the 403 Declaration is incorrectly prepared and the exempted company hasn’t fulfilled its legal obligation to publish the annual accounts, the directors can be held liable for all the debts of the exempted company, especially in case of bankruptcy.
Termination of the 403 Declaration
The 403 Declaration can be terminated by filing a withdrawal statement with the Trade Register. However, this doesn’t automatically absolve the parent company of all its responsibilities towards the subsidiary company. The parent company remains liable for any debts arising from legal acts performed before the revocation, a concept referred to as ‘residual liability’.
The 403 Declaration is a critical aspect of Dutch corporate law. It requires careful consideration and expert knowledge for its correct implementation. If you have specific questions about the 403 Declaration or need legal advice regarding company law in the Netherlands, Corpvision is ready to assist you.
Navigating through the complexities of corporate law can seem intimidating, but with the right guidance, you can easily comprehend them. Whether you’re a parent company, a subsidiary, or a director, understanding the 403 Declaration and its implications can help you make informed decisions that protect your interests and ensure compliance with Dutch law.