28 March 2024
by Marten Wijma and Jaap Beens
Loyens & Loeff
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A significant part of capital raised by Dutch emerging companiescomes from US investors who are often unfamiliar with the legaldocuments and closing process of an investment round in theNetherlands.
Loyens & Loeff New York regularly posts 'Snippets'on a range of EU tax and legal topics. This is snippet #2 of aseries of 2 addressing the Dutch civil law notary's("Notary") role and requirements for the closing processof a primary equity investment ("Investment") in a DutchBV ("BV").
The main legal documents for an Investment are the InvestmentAgreement ("IA"), shareholders agreement("SHA"), shareholder's resolution ("SHR")pertaining to issue shares and align the AoA with the SHA("Amendment"), deed of amendment ("DoA") anddeed of issue ("DoI").
Pursuant to Dutch law an Amendment and share issue must beeffected by execution of a notarial deed by a Notary. A SHRgenerally includes a power of attorney to the Notary("PoA") to execute the DoA and each party to the DoIshould grant a separate PoA to execute the DoI. Signatures on thePoA for the DoI must be wet-ink and legalized by an authorizedperson. Unless the legalization is performed by a Notary, anapostille or a superlegalization by the Dutch embassy/consulate isrequired. If the grantor of a PoA is a non-Dutch entity, thesignatory's authority to represent the grantor must beconfirmed by the person who does the legalization or by an outsidelegal counsel admitted to the relevant bar.
Prior to closing, an investor usually pays its investment amount("Amount") to the Notary's third-party account("TPA") to avoid any insolvency risks. If the Amount isdirectly paid to the BV and the BV goes bankrupt on the closingdate, the share issue would be unsuccessful because insolvencyoccurs with retroactive effect to 12am on that date. The Amountcould then only be recouped from the BV by filing an unsecuredbankruptcy claim which is generally not/partly paid. If the Amountis at the TPA and the BV goes bankrupt, the Notary will transferthe Amount back to the investor. One business day after asuccessful closing, the Notary performs insolvency checks and if noirregularities appear, the Notary transfers the Amount to theBV's account. To confirm flow of funds to/from the TPA and theclosing sequence, a notary letter is entered into by the Notary andeach party to the DoI ("NL").
Assuming a remote (i.e. not in person) signing and closing onthe same day ("Closing"), Closing occurs in the following(simplified) sequence:
- the investor pays the Amount to TPA;
- the NL, IA, SHA and SHR are executed by the relevant parties(usually done by legal counsels releasing the parties'signatures already held in escrow);
- the DoA and DoI are executed on behalf of the parties by anemployee of the Notary, based on a PoA, and the Notary.
The investor has now become a shareholder of the BV.
Want to know more about this topic? Reach out to one of ourcolleagues mentioned below.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
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