Banking and Finance

Dutch Supreme Court rules on financial assistance

For the first time the Dutch Supreme Court rendered a judgment on the scope of the Dutch financial assistance prohibition. It has upheld a structure that is regularly used in The Netherlands whereby a Dutch BV borrows monies against the granting of security and on-lends those monies to the acquirer of shares in its capital.

A Dutch company and its subsidiaries are prohibited from providing guarantees or security "with a view to" the subscription or acquisition by third parties of shares in its capital. A Dutch BV may grant loans with a view to the acquisition of shares in its capital up to the amount of its freely distributable reserves. A Dutch NV is not allowed to grant such loans.

The Dutch Supreme Court has now decided that a Dutch BV may borrow funds under a bank loan against the granting of security and may subsequently on-lend those funds to a third party in order to finance the acquisition of shares in its capital. This so-called "on-lending structure" is regularly used in connection with the financing of Dutch acquisitions. In rendering this judgement the Court has confirmed the validity of this structure.

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