New rules permanent representative

A company that exercises a director's mandate must as a rule appoint a so-called "permanent representative", who represents the company in the exercise of the director's mandate.

The new Companies and Associations Code, which entered into force on 1 May 2019, contains a number of mandatory provisions that are already applicable to all companies as from 1 January 2020, even if the articles of association have not yet been amended. This is amongst others the case for the new provisions on the permanent representative. What follows is an overview of the changes.

For which administrative bodies?

Under the old code, the obligation to appoint a permanent representative was limited to legal persons who took up a position as director, manager or member of a management committee, management board or supervisory board.

From now on, the appointment is mandatory for all administrative bodies, i.e. also for the day-to-day director, the director of (international) non-profit organizations or foundations and even for the liquidator

Who can be a permanent representative?

From now on, everyone can be appointed as permanent representative of a legal person-director. There is no longer any need for a relationship with the legal person-director itself. The company-director can therefore freely appoint anyone as its permanent representative.

However, be careful if an employee is appointed as a permanent representative. The new code provides that the mandate as a permanent representative can only be exercised as a self-employed person. This means that the employee will have to register as a self-employed person in a secondary occupation.

The permanent representative must now also be a natural person. A cascade of legal persons is therefore no longer possible. Since a permanent representative is treated for tax purposes as having a "similar position" as that of a manager, a number of specific tax provisions that apply to managers must be taken into account. Consider, for example, the reclassification of rent received in remuneration if certain limits are exceeded.

Finally, there is a prohibition on cumul: a permanent representative cannot sit on the administrative body in his own name and as the permanent representative of a legal person-director.

Application of conflict of interest regulations

Where in the past there has been discussion about the application of the conflict of interest rules to the permanent representative, it is now explicitly provided that this is indeed the case.

Sanctions

The new code does not provide for any explicit criminal sanctions if the administrative body is not composed according to the rules.

However, the following must be taken into account:

- A decision by an administrative body that has not been composed in a regular manner is invalid. It concerns a relative nullity, which means that the nullity can be requested by any stakeholder who demonstrates that the irregularity could have influenced the deliberation or the vote.

- Directors who participate in an irregular administrative body commit a violation of the Code, which constitutes a qualified director’s fault. This results in the joint and several liability of all directors for the damage resulting from this.

Conclusion

In order to avoid possible liabilities, companies that will not have amended their articles of association before January 1, 2020, are recommended to review the composition of their administrative body in time and to implement and publish the necessary changes before the end of 2019. Feel free to contact your usual contactperson for this.