It was splashed across all the media in huge headlines: “Shell claims liability for the NAM”. The NAM is the Nederlandse Aardolie Maatschappij, a subsidiary of Shell, which, amongst other things, extracts natural gas from beneath the ground in Groningen.
403 error message
What is going on? Shell has, reportedly a year ago, withdrawn the “403 declaration” issued on behalf of NAM. Article 403 of Book 2 of the Civil Code allows a subsidiary to be (largely) exempted from the obligation to publish annual accounts. In return, the parent company must declare itself liable for the debts of that subsidiary. Furthermore, the subsidiary’s financial figures must be incorporated (consolidated) into those of the parent company. This is separate from any tax unit for corporation tax purposes.
Why?
Why does a company issue a 403 statement? It may be to reduce the administrative burden. After all, it saves the subsidiary from having to prepare comprehensive (published) annual accounts every year. However, the main argument is often that the 403 statement means the subsidiary’s financial figures are not disclosed. This may be important to avoid giving competitors more insight than is necessary. However, another consideration may be that creditors then have less insight into the subsidiary’s financial situation.
Liability
The main disadvantage of the 403 declaration is that the parent company must accept joint and several liability for the debts arising from legal acts of the subsidiary. The increasing risks associated with that liability may be a reason for the parent company to withdraw the 403 declaration. Shell states that the 403 declaration for NAM has not been withdrawn with a view to preventing its (further) liability for NAM’s debts, but to provide a clearer and better insight into NAM’s financial position. After all, the withdrawal of the declaration means that NAM’s financial statements must once again be filed with the Chamber of Commerce.
Is this something for you?
SME entrepreneurs, too, are by no means always keen on making their financial figures public by filing them with the Chamber of Commerce. Yet we come across (virtually) no 403 statements in the SME sector. In the SME sector, the general aim is precisely to ensure that the parent company cannot be held liable (or at least as little as possible) for the debts of the subsidiary. In such cases, a 403 declaration is counterproductive.