The 403-statement explained in more detail (II)

Many companies operate with a so called 403-statement (also: declaration of liability). It seems practical and simple. But not every company knows how the declaration works exactly. What positive or negative consequences there might be.

Or what can go wrong.

In our first article on this topic, we discussed the conditions for a valid 403-statement. In this blog, we address the scope of this statement.

Scope
Altough Section 2:403 of the Dutch Civil Code (DCC) stipulates the conditions for a valid 403-statement, the scope of the relevant statement is determined by the wording of the statement itself. This follows from the Supreme Court’s Akzo Nobel/ING Bank decision of 2002 (HR 28 juni 2002, NJ 2002/447 m.nt. J.M.M. Maeijer, r.o. 3.4.3 (Akzo Nobel/ING)), which stated that a creditor can only assert rights against the consolidating legal entity on the basis of a statement filed with the trade register.

A such, the interpretation and content of the liability statement as filed with the Chamber of Commerce is decisive when assesing which claims of creditors are covered by that statement. In the light thereof, a distinction is made between the type of claims to which the declaration relates (the material scope) and the genesis of the claims for which the consolidating legal entity can be held liable (temporal scope).

Type of claims
The liability of the consolidating parent company under the 403-statement applies only to legal acts of the subsidiary. Obligations arising directly from the law, such as those resulting from tort, undue payment and fiduciary duty, as well as tax debts and social security contributions, are not covered by the 403-statement.

Claims related to damages, on the other hand, are covered by the 403-statement. Also, obligations to perform, other than monetary debts, may in principle be recovered from the consolidating legal entity. Please note that, incidentally, there are claims about which there is doubt as to whether or not they fall within the scope of the 403-statement. However, we will leave these out of consideration here.

Temporal scope
The basic principle is that a correctly filed 403-statement establishes joint and several liability of the consolidating legal entity for all existing debts arising from legal acts of the exempted legal entity, as far as the wording of the filed 403-statement does not indicate otherwise. Additionally, such liability in principle regards for all debts arising after the date of filing.

From several court decisions (such as the case “Oud Papiercentrale Wiersma/Bia Beheer”, Den Bosch Court of Appeals, 2009 – ECLI:NL:GHSHE:2009:BI6325 – Gerechtshof ‘s-Hertogenbosch, 12-05-2009 / HD 103.005.064) it became apparent that liability under the 403-statement also applies to continuing performance agreements (in brief: agreements under which a continuous performance or series of performances is to be carried out over a longer period of time) entered into before the time the declaration of liability took effect, if and insofar as the obligations arising therefrom are obligations that arose during the period to which the declaration of liability relates.

A such,the 403-statement does not necessarily cover only “post-deposit” date obligations.

Temporal limitation permissible?
When writing this article temporal limitations with the intent to make claims prior to a certain date not subject to the 403-statement appear to be (albeit based on lower court case law) an impermissible limitation on the statutory requirements. In other words, this is not permitted. If the 403-statement contains an unauthorized restriction (and thus is invalid), the company is not exempted from its obligations to file its own annual accounts. Should the exempt legal entity then (for example) go bankrupt, in principle the risk arises that the directors will be held liable for the bankruptcy deficit.

Please note that including a future end date in the 403-statement does seem to be permitted. The liability-statement will then also serve as a declaration for the withdrawal of future liability in accordance with the provisions of the law.

In short
It is not so much the formal requirements that determines the scope of a 403-statement. Its wording does. If one deviates from what is stated in the law by, for example, applying a limitation in time, then one may run the risk that the 403-statement is not valid and as such the envisiged consolidation is not allowed.

By the way
It should be mentioned that the principal claim against the original debtor and the claim under the 403-statement are two separate, amicable (good legal) claims. This has several consequences. One of these is that any settlement reached with the subsidiary (even against final discharge) does not affect the parent company. The latter could still be held liable for the difference between the original claim and the amount received by the creditor through the settlement.

Check!
It is crucial to ensure that a 403-statement meets all formal requirements, but it is also important to check whether the content of the statement is permissible and what its scope is. This is essential for both the consolidating company (and its directors) and for the party conducting business with that company.  Therefore, always have a 403-statement checked.

Please know that, because of the Brexit, the United Kingdom is no longer bound by European directives and regulations since the 1^st of January 2021. Hence, UK legal entities are therefore no longer able to benefit from the annual accounts’ exemption.