403 Declaration. Parent Company’s Liability for Performance of Social Plan
A discussion of the judgment of the Court of Appeal of
's-Hertogenbosch, JAR 2009/126
403 Declaration
A 403 declaration (a term derived from Section 403
of Book 2 of the Dutch Civil Code ("BW")) is a
declaration of a parent company in which it assumes joint and
several liability for the debts arising from any legal acts of its
subsidiary(ies).
When a 403 declaration is filed with the Trade Register, the
subsidiaries are exempted from publishing and arranging their
annual accounts in accordance with the normal provisions of the BW.
All they have to do is to prepare a summary balance sheet and
profit and loss account. The parent, however, is obliged to prepare
and to publish a consolidated balance sheet. This way a subsidiary
can swap its obligation to provide creditors with insight in its
financial position through its annual accounts against the
assumption of liability by the parent. As a result the
administrative financial burden within the group is usually
decreased.
The Facts
In the case at issue, a social plan was agreed in December 2003
between a private company (the "Employer") and the trade
unions in connection with a reorganization. This social plan
provided that the employees of the Employer would be awarded
compensation and that holidays and leave days not yet taken would
be paid out. On 21 December 2005 the Employer was declared
bankrupt. At that time the above-mentioned compensation and payment
of the holidays and leave days had not yet been fully completed.
In 1999 the parent company of the Employer ("the Parent")
filed a 403 declaration, which was an assumption of joint and
several liability for all obligations arising from any legal acts
performed by the Employer during and after 1998. In 2001 the Parent
replaced the 403 declaration by a similar declaration in somewhat
different words, this time being an assumption by the Parent of
joint and several liability for all debts arising from any legal
acts performed by the Employer. Shortly before the bankruptcy, the
Parent then withdrew the 403 declaration.
Despite demands made by employees, the Parent has refused to pay
the remaining parts of compensation under the social plan, and has
also refused to pay out the leave days and holidays.
The main ground for appeal of the Parent in these proceedings is
the following:
The social plan must be seen in coherence with the employment
agreements, and must therefore be deemed to "arise from"
the employment agreements. All employment agreements were concluded
before 1998, and the first 403 declaration states that liability
applies only to legal acts performed during and after 1998. The
Parent maintains that the second 403 declaration must be seen in
the light of the first, and therefore the obligations arising from
the employment agreements could not lead to the Parent's
liability.
The Court of Appeal rejected this ground for appeal, considering
inter alia that the contracting party (in this case the employees)
of the subsidiary cannot derive any rights vis-à-vis the Parent
from Section 2:403 of the BW, but can only derive rights from the
declaration filed by the Parent. Interpretation of this declaration
will have to establish what it means in a concrete case.
Subsequently, the Court of Appeal considered that the second 403
declaration constitutes, unlike the Parent thinks, an assumption of
liability for all legal acts of the Employer performed before and
at the time of the declaration. It is then irrelevant that the
wording of the first 403 declarations had a more limited purport.
After all it is only relevant how the creditors could reasonably
interpret the declaration, in view of its contents and purport.
The Court of Appeal added the comment that the entry into a
social plan creates direct obligations of the employer towards the
employee. Therefore, even if the first 403 declaration would still
have been in force, the Parent would still have been liable for the
obligations arising from the social plan. Finally, the Court of
Appeal pointed out that it is also important that negotiating trade
unions may assume on the basis of the 403 declaration that the
parent company is jointly and severally liable for the obligations
of the contracting subsidiary.
The Court of Appeal therefore concluded that the Parent is both
jointly and severally liable for the obligations of the Employer
under the social plan and for the correct settlement of the
obligations of the Employer as an employer arising from the
employment agreements.
Tips
- This judgment goes to show once more that it is worthwhile
to examine whether a 403 declaration has been or had been
issued with regard to a legal entity. Withdrawal of this
declaration does not affect the liability for debts arising
from legal acts that have occurred during the period of
validity of the declaration or that became claimable during
this period, as long as the legal entities remain part of the
same group.
- The next essential step is to become acquainted with the
precise wording of the relevant 403 declaration, because, as
the present case shows, this influences the scope of the
liability.